German companies' rising competitiveness over the past decade has contributed to the country's economic weakness, the Organisation for Economic Co-operation and Development said yesterday.
In its first survey of Germany since 2004, the organisation said wage moderation, not productivity gains, had been the main factor behind its industry's growing global market share and had weakened demand and economic growth at home.
The report, which blames overregulation rather than management for companies' reluctance to hire and invest at home, is the latest contribution to a heated debate in Germany over whether the country is benefiting from its export prowess.
While Germany has been the world's biggest exporter of goods for the last three years, it continues to suffer from weak consumption, high unemployment - including endemic long-term joblessness - and low economic growth.
Business argues that exporters have preserved jobs and supported growth at home. Figures released yesterday by the Federal Statistical Bureau showed exports had contributed two-thirds of the country's economic growth in the past two years and secured 8.3m jobs.
However, companies have yet to resume hiring on a significant scale and although investment has rebounded from its 2003 trough, surveys show businesses still intend to make the bulk of their investments outside Germany this year.
Eckhardt Wurzel, the OECD's chief economist on Germany, said competitiveness gains achieved via low growth in unit labour costs and comparatively low inflation over an extended period were "the opposite of what you would want to see".
"What you need is a framework that allows the development of new activities in new areas and competitiveness that rises through productivity gains," he said.
The OECD rejected the argument made by some economists that prolonged wage restraint was a form of beggar-thy-neighbour policy. But by failing to raise its growth potential and encourage job creation, it said, Europe's largest economy was undermining the continent's performance.
Overregulated products markets and high barriers to competition in turn constituted the single biggest obstacle to job creation and investment in Germany. Dismantling such regulations and cutting red tape, said Mr Wurzel, would help boost real wages, employment creation and productivity gains.
Devices aimed at protecting small businesses - subsidised loans, bans on large hypermarkets, strict regulations for crafts and professions - were in fact protecting insiders from competition and should be dismantled, the report said.
The OECD also slammed the lack of openness in markets ranging from telecommunications to rail and energy.
