The American star economist Paul Krugman is credited with the statement: “Productivity isn’t everything, but in the long run it is almost everything.” that is directly influenced by the increase in productivity – of one percent instead of 0.6 percent as has been the case in this millennium, almost 800 billion euros in addition could be generated in the next ten years.
The resulting tax revenues could be used to finance many programs that are particularly necessary to cushion the social consequences of structural change. And what would only be possible with growth of two percent like in the early 1990s?
The protagonists of productivity advances are innovative people and companies who develop new technologies and bring better products and services to the market. A competitive environment is particularly important for these innovations. In the past few decades, however, those markets that are of particular importance for structural change have been shaped by frictions that have to be broken up. The change of government offers a unique opportunity to do this. Some examples:
A central task for the new government will be the development of a modern, low-emission mobility system. The problem is already today: The German rail system looks downright “bequeathed”, in long-distance transport, for example, the Deutsche Bahn AG has a market share of a good 95 percent. So that there is more productivity-increasing competition here, the separation of the rail infrastructure from the rest of the DB Group would be an important step.
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The rule-maker is also an economic actor
Distortions of competition through discrimination on the part of the network operator could be prevented in this way – and the time for this is pretty good: The FDP advocates the separation of the rail infrastructure from the DB Group in its current election manifesto, with the Greens the demand was part of the election manifesto for the 2017 federal election.
This separation should go hand in hand with the sale of the federal government’s shares in the Deutsche Bahn railway operations and in other companies that are essential for structural change. In addition to Deutsche Bahn, 100 percent owned by the federal government, these are, in particular, Deutsche Telekom and Deutsche Post, with the state holding 31.9 and 20.5 percent respectively.
This co-ownership repeatedly leads to conflicts of interest and distortions of competition. Who voluntarily enters into competition in a regulated market in which the rule-maker is also active as an economic actor? It is therefore only consistent if the FDP advocates a sale of the state holdings in its election manifesto.
The position of the Greens is more skeptical, at least with regard to the companies that are essential for services of general interest. In a market with functioning competition, however, there is no need for active participation by the public sector – which is even more a case for ensuring that the market is competitive first. In addition, the sale of the holdings could also serve to bridge possible financing bottlenecks.
Eliminate bottlenecks in the power grid through node prices
The electricity market is at the center of the energy transition. For the necessary massive expansion of renewable energies and the testing of storage technologies, however, there are no price signals for a suitable choice of location. With the grid expansion, which has been faltering for a long time, a power grid without bottlenecks is illusory – it would also not be efficient.
This makes the question of which location electricity providers choose for their wind and solar power plants all the more important and where companies that demand electricity are located. So that such decisions take account of the bottlenecks in the power grid, so-called node prices are also available in Germany, as they have been in the USA for more than 20 years.
With this system, regionally different prices are possible at the electricity grid nodes: They are lower where there is plenty of electricity and higher where there is little electricity but there is a high demand for electricity. Regional prices should be attractive for the Greens and the FDP: In their parliamentary group resolution of April 2021, the Greens advocate “preparing the introduction of price zones or node prices”. In a question to the federal government in June, the FDP describes a switch to a node pricing system as a suitable solution for network bottlenecks.
The establishment of high-performance network infrastructures is of paramount importance for coping with the structural change that is primarily caused by digitization. This includes nationwide coverage at gigabit speeds in fixed and mobile networks. In many regions, this is already happening due to the infrastructure competition between telecommunications companies.
The need for reform is enormous
In some regions – the so-called “white spots” – however, private-sector broadband expansion is not worthwhile. Here, the expansion of gigabit networks should continue to be promoted with public funds, but under competitive conditions. In order to include the wishes of the customer, vouchers for those interested in broadband connections are available, as provided by the FDP.
Vouchers are preferable to a right to fast internet, which the Greens propose, because a general legal claim does not differentiate according to the degree of preferences and economic efficiency. In the mobile communications sector, the orders to remove the white spots should be awarded by means of an auction, as the FDP also suggests.
The previous approach – coverage requirements in frequency allocation procedures – leads to the problematic duplication of infrastructures in some regions and undermines competition in other regions, since the extent of the expansion is also a competitive instrument of differentiation.
After 16 years with Angela Merkel as Federal Chancellor, Germany is doing very well economically, measured for example in terms of gross domestic product or the unemployment rate. However, this is a snapshot. The need for reform appears enormous, as the “Economist” recently stated on its front page and denounced the “complacency” of local politics.
So there is a lot to be done for the upcoming government. As opposition parties, the Greens and the FDP have often put their fingers in the wound where markets and corporate dynamics have been slowed down. Now is the time to translate these diagnoses into concrete political action.
The author: Prof. Achim Wambach is President of the Center for European Economic Research (ZEW) in Mannheim.
More: 21 tasks that the next federal government urgently needs to tackle.