Market Dynamism, US vs Europe

I am reading Olaf Gersemann's book Cowboy Capitalism and enjoying it immensely.  He points out that of the top 20 largest publicly traded companies in the US in 1967, only 11 are even in the top 60 today, much less the top 20.  In contrast, he points out that of the 20 largest German companies in 1967, today, thirty-five years and nearly two generations later, 19 are still in the top 60 and 15 are still in the top 20.

We think of European fascism as having been defeated in 1945, but, at least in terms of fascist economic ideas like the corporate state, it is alive and well in old Europe.  Take France for example.  France is run by an elite group from a couple of universities who circulate and criss-cross paths between government, large corporations, unions, and the military.  This group is loyal to each other first, and to ideology second.  What the US Government stands accused of doing to support Haliburton (forget what actually happened - just take the wildest accusations) happens routinely and as a matter of policy between the French Government and their largest corporations.

Though the US has from time to time made mistakes in this regard (e.g. Chrysler bailout), their actions are nothing compared to the total support that French and German corporations get.  In many industries, the government has gone so far as to fix current business models in place by law, effectively outlawing alternative business approaches (e.g. discounting is illegal in German retailing).  In addition, these countries make entrepreneurship extraordinarily difficult, helping to prevent competition from new upstarts.  For example, Gersemann points out that the cost of organizing a new business entity in the US costs an entrepreneur about a week's pay;  In France and Germany, it costs 4 months pay or over 20x more.

In my article "60 Second Refutation of Socialism, While Sitting on a Beach", I pointed out that wealth is created when people are free to use their mind to envision new things, AND free to pursue this vision without undue barriers.  Europe, in killing entrepreneurship and dynamism, is killing this second criteria for wealth creation.  Propping up aging basic industries, four day work weeks, 8 week vacations, immense public sector employment, and unlimited unemployment benefits may feel good for a while, but they destroy wealth.  Old Europe is like a retired person spending their investment principle:  Quality of life may be good today, but future income and wealth is at risk.


Marginal Revolution has been running a series on some small steps Germany may be taking to change itself.


  1. Tony:

    Being from Germany, I have to say something.
    However, I can not comment on the situation in France.

    1. Discounting is no longer illegal in Germany. Most regulation have been removed. Only actions that "distort the market" (marktverzerrend) are illegal, e.g. selling goods for less than you paid for them to impair an smaller competitor.

    2. Entanglement between state and private companies is far less than you think and the goverment (both the current under chancelor Schroeder as well as the previous under chancelor Kohl) is trying to privatize a lot (Even things like protection for military facilities). The federal republic of germany still owns a large stake in companies like Volkswagen, Deutsche Telekom and Deutsche Bahn (German Rail), but it is selling time and again shares they hold. The only reason why they don't sell these companies faster is, that the goverment is making a larger profit, when they sell the company slower...

    3. By now, we have relative strict control of goverments subsidizing private companies through the EU. Yes, I admit, it could be improved, but for example the german goverment can not subsidize Volkswagen without getting in trouble with the French (and vice versa if the French where trying to subsidize say Renault). Obviously, if the German government should decide to subsidize EADS (whos main competitor is Boeing), the French wouldn't protest...

    4. If you want to talk about state entanglement: Take a look at Italy: The italian government has been entagled in Olivetti and FIAT, and it has done these companies no good at all...

    5. If a company makes bad products, it will not help the company if the state gets involved. If the time has come for a company, state money usually doesn't save it. Philip Holzmann comes to my mind. They went "belly up", got a credit backed by the german state, restarted their buisiness and a year later, they are "belly up" again. In particular, the car market is very rough. Every german car manufacturer has had bad times (Volkswagen and Opel currently have bad times, ten/fifteen years ago it was Mercedes and BMW), but they came out of it again. They had to improve their products...

    6. About the entrepreneurship: Yes, it isn't easy here to start a company, but still a lot of people try it (and a large number fails).

    7. Standard in germany is a five day work week, 6 weeks of vacation. Weekly working time is 36 to 40 hours, with plans by the industry to change it to something like 42 hours. Only Volkswagen has a four day week, but currently I would not take Volkswagen as a good example.

    8. Unlimited unemployment is a thing of the past here in Germany. From january 2005, new regulations called "Harz IV" will be inplace. Everybody who is unemployed for a long time will be forced back into employment.

    So, these are my two Euro cents for today.

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