Investment Promotion : Germany

The answer to this challenge can be neither protectionism nor a state-planned industrial policy, for trade restrictions and subsidies do more harm than good. The Federal Government supports free international trade and opposes any form of protectionism. Since Germany exports about one third of its gross domestic product, it relies heavily on open markets. It is vital to the German business community that it employ an open-market strategy in order to utilize the advantages of the international division of labor, prepare for the European Economic and Monetary Union, and develop new markets both inside and outside the European Union.

The Federal Government therefore aims to improve the general conditions for private enterprise in Germany. A first step has already been taken with the Investment Promotion Act, which is designed to attract more business to Germany. As from 1994, taxes on companies, which were too high compared with those in other countries, were reduced. The corporation tax rate for retained profits was cut from 50 percent to 45 percent, and the maximum income tax rate for trade or business income from 53 percent to 47 percent.

Under the “Action Program for Jobs and Investment” and the “Program for More Growth and Employment”, moreover, numerous measures have been resolved to improve the conditions for doing business in Germany. They include in particular tax relief, far-reaching steps to consolidate public budgets, incentives to spur business start-ups and promote entrepreneurial productivity as well as steps to encourage greater flexibility, especially in the job market. All in all, these measures will enhance the competitiveness of German business and industry, alleviate the burden imposed by taxes and costs additional to wages, and improve the conditions for more employment.

The success already achieved through this policy to safeguard Germany’s attractiveness as an industrial and business location shows that it has now again become necessary - as was the case in order to overcome the recession at the beginning of the 1980s - for the market’s own batteries to be recharged. State influence on industry must be cut back further, anti-market regulatory mechanisms dismantled and state-owned enterprises privatized. This will make for more vigorous competition and ease the task of adapting to new developments. Readjustment of economic and fiscal policy succeeded once before, during the 1980s. Then, three million new jobs were created within just a few years, and industry regained its competitive edge.

Today the industrial location Germany is above all confronted by major problems in the employment sector, problems which cannot be resolved by political action alone. All those responsible - the government, the business community and the unions - are called upon to contribute to the reduction of unemployment. This particularly applies to the parties to collective agreements, for it is they who determine the cost of work. Experts largely agree that wage increases below the level of productivity increases as well as greater wage differentiation will improve the employment outlook in both the western and eastern parts of the country.