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Jochen Andritzky, V.3 Discussion in:

Oliver Holtemöller (Ed.)

How Can We Boost Competition in the Services Sector?, page 264 - 268

1. Edition 2017, ISBN print: 978-3-8487-4676-7, ISBN online: 978-3-8452-8902-1, https://doi.org/10.5771/9783845289021-263

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Discussion (Jochen Andritzky) Dr Jochen Andritzky, Secretary General of the German Council of Econo‐ mic Experts: I was asked to provide some comments and I am happy to do so. I will draw on work that we did at the German Council of Economic Experts. We are an independent policy advisory body located in Wiesbaden. This is work we did for a chapter on analysing productivity developments in Ger‐ many that was endorsed by all members of the Council. I thought it gives a nice frame for the discussion. In Germany, the development of labour productivity has been in partic‐ ular lacklustre. We identified two effects. One goes back to the success of labour market reforms in Germany which has allowed more and more workers with on average lower productivity to enter the economy. Second, an outsourcing process that lifted productivity in Germany during the 90's and early 2000's is coming to an end. V.3 V How to Assess the Economic Impact of Regulation 264 Employment and productivity Source: destatis, own calculations The first chart shows an example. It shows that certain industries – health and care activities, trade and accommodation, consulting – had a strong in‐ crease in employment from 2005 to 2014, while they are on average less productive industries than others. Hence, we had an increase in employ‐ ment particularly in those industries which are relatively less productive. Figure 5.3.1: V.3 Discussion (Jochen Andritzky) 265 Value added in selected industries The second chart shows the outsourcing process. The domestic value added relative to the total value of the product has declined over the last 15 years but that decline seems to have stopped. But there are also other issues. Particularly in Germany, there is a high level of regulations in the services sector. I think there is a broad consen‐ sus that there are efficiency gains to be had by liberalizing service sectors. There are three challenges I want to highlight. First, we are now dis‐ cussing a lot how to integrate migrants, particularly refugees, into the labour market. Refugees that are not fitting in our system because they do not have the German school degree, and it is pretty hard for them to access the German (dual) education system and take up jobs in protected profes‐ sions. Thus the Council has propagated the expanded use of “apprentice‐ ship light”, or "teilqualifizierende Ausbildung”. It would be useful to have more insights on that. The second issue I missed is the idea of ensuring quality standards through self-regulation. Oliver Arentz had a very good point on the con‐ flict of interest that might arise being a public regulator. When we look at mark-ups, we also need to compare prices because the mark-ups we might see might accrue to others. The classical example is the US where quality control is basically achieved through more stringent liability. As we know, the costs of liability in the US are very high. Figure 5.3.2: V How to Assess the Economic Impact of Regulation 266 The third challenge – and I think Henrik Enderlein has already men‐ tioned is – is about who are the losers from the reform and whether and how to compensate them. Erik Canton: Thanks a lot Jochen for these very useful comments. Let me try to respond to them. The question that always comes up is about quality, and my take of this is that we do not know enough about the relation between regu‐ lation and quality. But I am always a bit sceptical about the argument that regulation is necessary to protect quality because to me it is not clear what would be the incentives to deliver high quality when the firm is operating in an environment with low competition. But indeed, we do not know enough about this. The problem is that there are only few studies on this issue, and these studies look at isolated sectors in very specific circum‐ stances and the results are also mixed. I could also mention that regulation is quite a heavy tool so next to regulation there are all other kinds of in‐ struments to make sure that public interests are protected. I recently saw a very interesting presentation by Professor Klein, who also emphasised that regulation is a strong tool for us to safeguard certain interests. And on the political economy aspects, the difficulty here is that many people experi‐ ence small gains (i.e. the clients of the regulated professions) and few peo‐ ple face substantial losses (the professionals). Obviously, the losers resist and speak up, and the winners are silent. So we also have a task to explain better that most people will gain from these reforms in terms of lower prices and also even from higher quality. Of course, the alternative is to come up with some kind of compensation scheme. On outsourcing, we hadn't looked at it in detail, but the observed shift from manufacturing to services is of course also partly due to outsourcing activities. On your first point on labour market regulations and employment, indeed, in some of the reforms we analysed, for example, on employment protection legisla‐ tion, we typically find quite large GDP effects through improved labour productivity, but indeed also in some cases negative employment effects, so it could be that labour market reforms especially when the economy is already in a downturn, have some negative employment effects. V.3 Discussion (Jochen Andritzky) 267 Oliver Arentz: Maybe some additional thoughts. The political economy aspect was the reason for our three very simple principals. We thought that when we say there is a lower level of regulation already in Germany, there is now rea‐ son to take this level and give it to all of the professions, if they are similar enough. The same argument was used by the Bundesgerichtshof, our Fed‐ eral Court in the decision I quoted. To the quality aspect, that is very inter‐ esting because you hear this point very often, but there is no real connec‐ tion between this, between regulation and the quality. For example, the ed‐ ucational requirements are very high for lawyers when they are outsiders and they want to become insiders. They have to fulfil very high education‐ al requirements. After that, there are no further education requirements. And the educational requirements are for me the requirements mostly con‐ nected with the quality aspect; I don't see how fee scales are directly con‐ nected with the quality aspect. V How to Assess the Economic Impact of Regulation 268

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Abstract

‘How Can We Boost Competition in the Services Sector?’ is a key question in the process of creating a more effi-cient economic environment in Germany. This book contains a collection of conference contributions on service sector reforms from members of academic institutions, ministries, the EU Commission and other organisations. The conference consisted of a keynote on the importance and implementation of structural reforms in Europe and two panels that dealt with the evaluation of past reforms in the services sector and the potential scope and effects of further reforms.

Since the 1990s, productivity growth in Germany and other Member States of the European Union has been significantly lower than in the US. The development of productivity growth in the services sector is estimated to account for two thirds of this widening gap. The European Commission advocated reforms in the services sector in its country-specific recommendations for Germany. At a conference in Berlin in July 2016, experts from various fields presented and discussed studies on service sector reforms.

With contributions by

Oliver Holtemöller, Brigitte Zypries, Joaquim Nunes de Almeida, Dirk Palige, Henrik Enderlein, Stefan Profit, Davud Rostam-Afschar, Paolo Mengano, Oliver Arentz, Erik Canton, Jochen Andritzky

Zusammenfassung

„Wie können wir den Wettbewerb im Dienstleistungssektor stärken?“ Dies ist eine Schlüsselfrage für eine größere Leistungsfähigkeit des ökonomischen Umfelds in Deutschland. Dieses Buch versammelt Konferenzbeiträge von Mitgliedern wissenschaftlicher Einrichtungen, von Ministerien, der EU-Kommission und anderen Organisationen zu Reformen im Dienstleistungssektor. Die Konferenz umfasste einen Eröffnungsvortrag zur Bedeutung und Durchführung von Strukturreformen in Europa und zwei Gesprächsforen zur Bewertung vergangener Reformen im Dienstleistungssektor und zur möglichen Reichweite sowie zu den möglichen Auswirkungen weiterer Reformen.

Die Zunahme der Produktivität ist seit den 1990er Jahren sowohl in Deutschland als auch in anderen Ländern der Europäischen Union deutlich geringer als in den USA. Es wird geschätzt, dass die Entwicklung des Produktivitätszuwachses im Dienstleistungssektor für zwei Drittel dieses zunehmenden Abstandes verantwortlich ist. Die Europäische Kommission spricht sich in ihren länderspezifischen Empfehlungen zu Deutschland für Reformen in diesem Sektor aus. Auf einer Konferenz im Juli 2016 in Berlin stellten Experten aus unterschiedlichen Bereichen Studien zu solchen Reformen vor und diskutierten deren Ergebnisse.

Mit Beiträgen von

Oliver Holtemöller, Brigitte Zypries, Joaquim Nunes de Almeida, Dirk Palige, Henrik Enderlein, Stefan Profit, Davud Rostam-Afschar, Paolo Mengano, Oliver Arentz, Erik Canton, Jochen Andritzky