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Germany Competitiveness The Porters Diamond Context Economics Essay

Context for firm strategy and rivalry: Germany can be considered center of Europe both for its geographic and political position. This gives to Germany the possibility to lead the European market and to manage a relevant diversification of its internal economy; it means to create a hugely competitive business environment for German companies.
The efficiency rate in German large and small companies is higher than international standards due to the great amount of off shoring and outsourcing practices so that it makes this economy the most competitive in Europe.
Throughout last years, German small and medium enterprisers performed better than the large ones, overtaking even the US competitive standards, as shown by the Work Competitiveness Yearbook 2010.
Those small enterprisers are the so called “hidden champions” because they are little known to the public even if they are world market leaders.
In contrast to the practice of the other European countries to develop economies related on large state-owned industrial champions, Germany could be considered such as a private driven economy in which the small and medium enterprises are playing the most important role in boosting investments and employment rate. They also make the success of German export with the 80% of the production sold abroad; the Machinery and Equipment Cluster, for instance, holds almost 20% of world export market share.
These companies successfully compete on innovation processes and on improving efficiency, getting a great benefit from both the excellent European and German intellectual property protection. According to the World Economic Forum (WEF), Germany represents one of the world’s best location in planning and operating security and it is one of the leading Nations in the field of propriety rights protection and contracts protection. This excellence let Germany to grant over 12,500 patents at the EU Patent Office only in 2010 and to be the European leader in “triadic patents”, registered in the three most important world’s patent offices: the European Patent Office, the United States Patent and Trademark Office, and the Japan Patent Office.
The German legal system itself can be considered one of the most efficient and independent of the entire world. Moreover, the social and political stability of the country and the German’s culture based on the total respect of the law’s principles make this country a greatly attractive places for corporate investments projects even for foreign firms in almost all the industries.
In addition to the high quality of the legal organization, Germany has developed a very internationally competitive taxation system: in 2008 an ambitious reform was made in order to decrease the corporate tax burden by around the 25% and the corporate income tax down to 15% on all corporate taxable earnings.
Eventually, Germany has developed a unique corporate governance system that makes possible a virtuous match between workers and employers in order to avoid time-consuming and value-destroying disputes: it becomes a key success factor to rise up during recession periods. As a matter of fact, core decisions are taken through “Job Alliances” that enable flex-security on job market in order to keep companies competitive while maintaining job positions.
Great importance is given to the role of federal government which gives big support to this system promoting grants and self-regulation policies.
Factor conditions: Germany benefits from a huge number of natural resources such as building materials, natural gas, wood and other strategic natural elements. Its wide land gives to the country a lot of space that can be exploited focusing on clean energy production. Moreover, the climate represents an important factor in producing energy with the key role played by the wind that constantly flows in the northern part of the country. The prevalence of lowlands in northern regions makes Germans able to take the most possible advantage of the wind, becoming part of the Northern Power Cluster for wind energy production.
The pretty big population of Germany can be considered little diversified in culture and tradition with a big prevalence of German native speakers over the other cultures ( almost 91% of the entire population, as the CIA World Factbook points out ).
The German position on human capital point of view is strongly influenced by the unique education system that represent a best practice in all over the world. This is focused on the importance given to the professional training in order to provide people, since earlier age, with a set of skills useful to join the job market. Parallel to the professional-oriented approach there is also a very good and selective university system for the large number of young people that decide to longer dedicate themselves to study activities: mechanical engineering, with more than 400,000 matriculate students, ranks second in the top 20 of the most in-demand study programs and provides the highest skilled workers for the main sectors of the country such as automotive, machinery, electrical and electronic.
This dual track allows enterprises to reduce dramatically the labor costs in term of training programs and young people to enter in the job market already with a high productivity rate. Germany can be considered extremely attractive as a location for investments due to high productivity rates and stable wages. In addition, in recent years the overall labor cost has been the lowest in Europe with an annual increase rate of less than 2%; this job market context contributes to enhance strong competitive business relations.
Unskilled workers represent almost the 20% on the total workforce; this evidence reflects the attention paid to education and emphasizes the companies’ ability to attract skilled workforce from other countries.
Germany Important concerns from government’s point of view remain the unemployment rate (at the 6% in 2011, as said in CIA World Factbook) and the pretty low participation in work force, compared with countries such as US, UK or Japan.
In addition, Germany is one of the world’s leaders in R

Capital Controls In Economic Policy Economics Essay

Globalization of capital investment and finance has surfaced for a long period of time in the world of global financial market. Capital flow liberalization has brought up the importance of capital controls for some countries to achieve their economic growth. This paper will explain briefly about capital controls and seeks the relationship of capital controls with two main elements of economic policy such as monetary policy and fiscal policy. The use of capital controls with the economy policy will be explained together with the benefit of capital controls. Finally there will be an example of a country that uses capital controls for achieving its development and economic growth.

The Useful of Capital Controls in Economic Policy
1. The Description of Capital Controls
Since the failure of Bretton Woods system in 1971, the international capital movements within developed and developing countries become unstable and for some countries the capital flows need to be controlled. Capital controls are restrictions to regulate the movement of capitals which are flowing in or out of the country. Capital flows may be in forms of bank loans, portfolio investment and foreign direct investment. The controls of short terms portfolio investment and bank loans are quite necessary since they are quite risky because of the roll-over risks. For long term credits and FDI are less risky if they are politically guaranteed.
Looking back to the history of capital controls there were two different perspectives. The first was Keynes who was the pioneer of the capital controls regime. Keynes was supported by other known economists such as James Tobin, Dani Rodrik and Joseph Stiglitz. The main ideas behind their view are that financiers are really powerful to pursue profits in every part of the world and ignoring other factor such as labor (Carlos F. Liard-Muriente, 2007). Keynesian view assumes that a fragile financial system is caused by the free movement of capital as volatile capital flows and it will lead to destructive of important asset prices such as exchange rate, equities and real estate. The second was neoclassical view which supports capital liberalization. Neoclassical view considers capital controls as a bad policy because they are not effective and not useful because markets are perfect and that financial and real assets have no differences (Singh, 2000).
2. The Description of Economic Policy
Economic policy is a policy that analyzes the action in public economies. It analyzes three different stages such as the choice of the level of institution, the preferred choices of government and the identification of objectives and social preferences (Nicola Acocella, 2005). In relation with capital controls the main of economic policy that will be discussed are monetary policy and fiscal policy.
2.1 Monetary Policy
Monetary policy is tasked mainly to control supply of money and interest rate. The capital flows have to be under controlled by a prudent monetary policy and capital controls. Monetary policy should control interest rate to achieve low inflation and stability of financial economic system. One of the main instruments of monetary policy is the exchange rate. The exchange rate is used to defend the national currency with domestic inflation rate. There are two purposes of exchange rate:
Exchange rate needs to provide confidence of domestic currency with a stable economic development.

Exchange rate also needs to guarantee international competitiveness and prevent high foreign debt and current account deficit.
In order to fulfill those purpose, exchange rates needs to combine high competitiveness such as current account surplus with stable nominal exchange rate and low inflation rate with interference of capital controls to avoid current account deficit and control depreciation.
In developing countries monetary policy should aim to stable nominal currencies, monetary policy needs to be subjected to exchange rate target. Monetary policy will be deteriorated if such exchange rate peg is in constellation of domestic currency’s full convertibility. Such examples will be high real of interest, the fragile economic situation such as big amounts of short term portfolio investment and short term bank credits that needs the usage of capital controls to stabilize the situation. In addition for those countries that implement inflation targeting as part of the monetary policy strategy, selective capital controls are also needed.
2.2 Fiscal Policy
Fiscal policy is policy that related with the government revenue, spending, taxation and borrowing for the economy. Government revenues contain the current revenues and the capital account revenues. Current revenues are resulted in direct and indirect taxes and social security contributions. Capital account revenues are resulted in public sector enterprises, sale of government property and repayment of loans. Government revenues may support the domestic investment with the proper policy and stability. With capital controls such as government tax and quantitative restrictions, capital flows can be controlled to insulate the domestic economy from the foreign shock. Capital controls will restrict the quantity of borrowing of domestic residents and government in the world market to preserve the domestic real interest rate. There are two elements for domestic real interest rate which are world real interest rate and transactions that being charged by government in form of licensing fee in the international ca
3. The Benefits of Capital Controls with Economic Policy
Capital controls can be used effectively as part of the state intervention’s strategy with the combination of other complementary policy measures, and then capital controls can bring benefits to the economies in few ways (Kavaljit Singh, 2000).
Capital controls can be implemented as an effective tool to protect and defend domestic economy from the negative impact of external development and the volatile of capital flows. The example can be given in context with open economies in developing countries which often experience high capital flight, the decreasing of foreign exchange reserve, and the loss control of the independence of monetary policy because of huge inflows and outflows of capital. The rapid capital flight could direct a country to the crisis of balance of payment, low economic growth, raising inflation, decreasing in savings and resources in financing productive investment. Some of the countries which experienced high capital flight are Brazil, South Africa, and Mexico. Without capital controls the authorities have some difficulty to create an independent monetary policy. In case of interest rate when there is an effort to amend the interest rate, it will lead to unwanted movement of capital. If interest rates are maintained low to support domestic investment then capitals will tend to move out to other country which offers better interest rate. On the contrary if interest rates become high, domestic investment will be declining and there will be transfer of resources from outside country. With capital controls countries may pursue the independent of their monetary policy, keep the differential interest rate, or even protect their currencies from devaluation or speculative attacks.

Capital controls are believed to be crucial for development and essential for the enlargement of investment and domestic savings. When countries use capital controls, they are not only able to keep the domestic or foreign finances under the national control but also to lead the domestic savings in relation with foreign borrowings into productive of domestic investments. Capital controls may keep the domestic capital inside national borders by holding private sector from investing abroad. In relation with the use of capital controls on the productive purposes, capital controls need to be assisted with complementary policy measures in form of credit controls. Credit controls are one of the ways for the authorities to control the credit to particular companies or sectors for promoting the economic development to achieve the planned objectives. With capital control, credit allocation can be ensured to be utilized productively. The relation of capital controls, credit controls and industrial strategy can be implemented in the developing countries to regulate the productive investment, high industrialization and to support the income growth (Jessica Gordon Nembhard, 1996).

Capital controls have abilities to raise the strength of bargaining of countries to negotiate with their private sector, foreign capital and the multilateral financial institution. Capital controls may support countries to maintain their own right and construct their economic policy so that the bad effects of globalization and the policies of structural adjustment could be avoided. The wise use of capital controls may raise the strength of bargaining of countries’ citizens and working classes. When capital become abroad and lead to global capital flexibility, it will tend to benefit the rich either domestically or internationally. Using the capital controls can be favorable to secure the interests of domestic labor. Furthermore with combination of other policy measures, capital controls may accomplish the equality of economic development with better generation of employment, income distribution and raised public investment.

Capital controls may also help the country to maintain the stability of the real exchange rate. In order to affect exchange rate, the authorities will need the required stage of foreign reserves and manipulate the terms of trade to protect the domestic products from foreign competition. One of the ways for a country to make its exports competitive is by devaluing its exchange rate and not to encourage imports. As a matter of choice a country is often to use the exchange controls with the combination of tariffs and trade controls.

Capital controls may support countries to secure its foreign exchange for capital goods, debt servicing and capital goods. This is often experienced in developing countries which have small foreign exchange reserves. Capital controls may also help the government by generating government revenue through custom duties, taxes and the controlled exchange rate.
4. A Country Study with Capital Controls
China has been successful to avoid the Asian financial crisis in 1997 with the help of implementing capital controls. China governments have supported financial stability by using independent monetary policy and fixed exchange rate. The use of capital controls mainly use to reduce the capital flight by restricting short term inflows and outflows and encouraging long term capital inflows. China has received mostly its capital flows in form of foreign direct investment. The policymakers have been encouraging inflows of FDI by reducing tax policies and other regulation. China has been tightly enforcing restrictions in international capital flows via issuance and investments in bond and equities, implementing strict limits on quantity of money that can be taken in and out by its citizens, and cross border fund raising and bank lending. Those strategies have supported China to build its enormous foreign reserves, current account surplus, and large domestic savings.

Capital controls have been implemented for some countries in order to achieve their economic growth. It can be concluded that capital controls are indeed useful for supporting the economic policy and may bring benefits to the countries. It is essential to know that capital controls should be used as part of the government development plan and the intervention strategy to achieve the development growth. One example will be China which successfully develops its economic growth with the help of capital controls.

Acocella, Nicola. 2005. “Economic Policy in the Age of Globalization”. Cambridge: Cambridge University Press.
Greenwood, Jeremy and Kimbrough, Kent P. 1985. “Capital Controls and Fiscal Policy in the World Economy”. Canadian Journal of Economics, Canadian Economics Association, vol. 18(4), pages 743-65.
Hansjörg, Herr and Priewe, Jan. 2005. “Beyond the Washington Consensus:
Macroeconomic Policies for Development”, Nomos Baden
Muriente, Carlos F. Liard. 2007. “Capital Controls: Theory and Practice”. Journal of Business and Public Affair volume 1 issue 1.
Nembhard, Jessica Gordon. 1996. “Capital Control, Financial Regulation and Industrial Policy in South Korea and Brazil”. Westport, Ct: Praeger Publishers.
Singh, Kavaljit. 2000. “Taming Global Financial Flows: Challenges and Alternative in the Era of Financial Globalization, a Citizen’s Guide”.
Xiao, FengJuan and Kimball, Donald.2006. “Effectiveness and Effects of China’s Capital Controls”.