In Gordon’s studies, ecological environment (“energy and environment” in the original classification in Gordon (2012)), as well as the impact of globalisation, play a neglected role78for the US growth path
explanation. Instead, the two amplify the other headwinds in a non-stand-alone fashion (Herzog-Stein et al. (2017, p. 16)). For the present study, they shall be strived in short.
Globalisation
Globalisation in this context is mainly linked to the inequality headwind (#6) by the effects of outsourc- ing and offshoring. Gordon finds a negative impact for the US-middle class. A loss in international competitiveness due to a relative price-disadvantage has forced companies to shift their production abroad, resulting in a loss of job opportunities. In addition, indirect effects79 shift the wage-level
downwards, implying lower standards of living for the middle-class, the primary target of the job-loss scenario (Gordon (2012, p. 20)).
Also for Germany increased outsourcing-activities have been noted over time (Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung (2015, p. 293)), at least until 2009. A
78Neglected in this sense also means that the effects of globalisation seem inevitably for modern economies when the
gains from technological progress shall be realised; a headwind not subject to discussion (Gordon (2012, p. 20)).
79Factor price adaptions in the sense of the Heckscher-Ohlin-Samuelson factor-price equalization theorem due to the
significant part of the increase in aggregate productivity was realised due to shifting abroad the rather unproductive stages of the value creation process in the manufacturing industry. For the US and Germany likewise, the degree of vertical integration in the manufacturing industry was at around 38%80in 1991 and has decreased to around 31% (GER) and 34% (US). Currently, there is stagnation
in the US, whereas Germany has even experienced a slight increase in the level of vertical integration (around 34% in 2014).
Outsourcing and the degree of vertical integration has a two-sided effect for an economy’s de- velopment process. If companies shift unproductive jobs abroad this could, in turn, raise aggregate productivity by getting rid of unproductive tasks in the statistics as well as by increasing the level of labour division and specialization. On the other hand and with negative implications, a loss of job opportunities not only raises probability of unemployment in the respective sectors, it also raises the potential claims for social security actions, as well as the depressing effects on aggregate demand (see Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung (2015, pp. 291-298) for a discussion about outsourcing-effects on Germany with regard to the manufacturing sector).
Nevertheless, an economy has to be prepared for outsourcing-activities in a sense of reintegrating unemployed workers. It is necessary to provide possibilities of retraining and mobility - requirements for the educational system (also discussed in #4). Compared to the US, Germany provides a more flexible and better-equipped labour market policy, allowing better integration of unemployed (Herzog-Stein et al. (2017, p. 16) quoting Bothfeld et al. (2012)).
With regard to the productivity linkage, Mann (1997) explores the relationship between effects of globalisation and productivity in the United States and Germany by providing two channels, the relation flows81 - effects from changes in demand and international competition. It is interesting to
note that the results for the two countries diverge. For the US the author finds a strong link between globalisation and productivity, for Germany not. As a try for explanation, Mann (1997) suspects a difference between “being global” and “going global” (Mann (1997, Abstract)). German exposure to international trade seems to have changed less significantly in the covered time period.
80Levels of vertical integration are calculated as the fraction of gross value added in relation to the (total) value of
production (Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung (2015, illustration p. 93)).
81Results and implications of this study have to be used with care as the time periods covered (1987-1995 for the US
Ecological Environment
Including “energy and environment” into the discussion reminds of the 1970s-discussion (chapter 9.1), whereas the circumstances have changed a bit. Challenges and requirements for politics to include the ecological sphere into the catalogue of macro goals have gained importance. Providing a vital ecological sphere for the people health is crucial. Within the last years and decades, more legal requirements have been introduced in many countries (Germany as a role model for this issue). Spendings for the provision of a vital ecological environment is crucial for the inhabitants but burdens and limits the government’s budget. A large portion of increasing debt (headwind #5) therefore can be associated with environmental regulations (Herzog-Stein et al. (2017, p. 17)). Before setting appropriate policy actions, it is crucial to correctly measure ecological aspects with regard to productivity growth, as for national accounts, only market transactions are included. Moreover, conventional measurements and evaluations do not contain ecological damages (i.e. depletion of natural resources); just the “value of extracting or harvesting”(Forsund (2018, p. 287)). Including environmental concerns has brought up attempts like the formation of an alternative welfare indicator “green national product” (Forsund (2018, p. 291), who refers to Nyborg, K. and Aaheim, A. (1995)). As Forsund (2018) presents in his study, relying on green national product or similar indicators allows for a more comprehensive view of economic welfare, compared to standard national accounts. It is a matter of further research in this field, not only to raise accuracy in productivity measurement but also to imply more suitable policy actions.
It is, however, important to find the right balance for the amount of taxes and regulations. Rising prices for energy decrease disposable income, therefore creating a negative stimulus for aggregate demand. The cost argument is valid even more for the production-side. Taxes for ecological purposes force entrepreneurs to increase prices (with additional implications for the consumption-side) as well as to invest in modern technologies. Whereas the latter can be considered as beneficial for achieving the ecology-goal, it can have depressing effects on economic growth (Herzog-Stein et al. (2017, p. 17)). In addition to the intuitive discussion about the direct cost argument of ecological taxes and requirements, Gordon provides another linkage. Neglecting the climate goals and requirements in
the past has brought up more extreme climate conditions - an outcome, which could force insurance agencies to increase their risk premia (Gordon (2012)). As a result, companies, as well as consumers, could face additional limitations for their budgets and more uncertainty for future investment activities. According to Bundesminsterium für Umwelt, Naturschutz, Bau und Reaktorsicherheit (2017, pp. 50 - 59) climate policy and the change of the ecological environment has and will have significant effects for Germany in the near future. It provides potential for an increase of job opportunities (around 430.000 new job opportunities are expected until 2020 - the potential job loss in other sectors not taken into account, however).
As mentioned, globalisation and ecological environment seem to amplify other headwinds. By doing so, investment in ecological sectors not only form a healthy environment, but they also create a suitable business enviroment for the future (i.e. providing infrastructure for the efficient use of resources allows companies to produce at lower costs and hereby make Germany attractive as a location for production). Moreover, the current wave of technological change and the effects of digitalization have introduced climate aspects into an entrepreneur’s calculation. It seems that international competition is also dependent on the aspect of ecology. Modern and sustainable technologies not only allow for an improvement of the ecological sphere, but they also contribute to aggregate productivity. I.e., the possibility to work together via videoconferences reduces transaction costs (time and cost of travelling), support a higher degree of work-life-balance (home offices) and reduce the impact of the ecological footprint.
An internationally known and highly effective policy action is the opportunity for loans provided by the KfW (a state-owned development bank82). These loans represent an investment aid for a
variety of projects (usually in the field of construction), provided at low costs in terms of interest rate payments if ecological and sustainable standards are followed. In addition to the availability of state-supported loans, German government actively promotes the implementation of sustainable technologies, as described in the “digital agenda” (Bundesregierung (2017)) - and it seems they have already been successful. As a fraction of the degree of vertical integration, sustainable technologies in
82In original, the KfW - Kreditanstalt für Wiederaufbau (engl. Reconstruction Credit Institute) - was part of the
Marshall-Plan after WWII, aiming to support economic reconstruction in Germany. See <<https://www.kfw.de/KfW- Konzern/%C3%9Cber-die-KfW/Identit%C3%A4t/Geschichte-der-KfW/KfW-Jahrzehnte/>> for further information.
Germany make up 13%, for the rest of the world only 3% (Bundesminsterium für Umwelt, Naturschutz, Bau und Reaktorsicherheit (2017)). Even though it seems to be an impressive number, “rest of the world” is an imprecise benchmark for one of the most developed economies in the world so that its evaluation has to used with care