Dirk Palige, II.3 in:

Oliver Holtemöller (Ed.)

How Can We Boost Competition in the Services Sector?, page 36 - 42

1. Edition 2017, ISBN print: 978-3-8487-4676-7, ISBN online: 978-3-8452-8902-1,

Bibliographic information
Dirk Palige Dirk Palige, Director Zentralverband des Deutschen Handwerks, ZDH (The German Confederation of Skilled Crafts), Director Deutscher Handwerkskammertag After the economic and financial crisis, the European Commission has, within the framework of its Europe 2020 strategy, set its mind on the cre‐ ation of sustainable and unifying growth. Quite rightly, important pillars make effective investments in education, research and innovation. More‐ over, the services sector has come to the fore. It is being assumed that more competition and more economic growth can be achieved through deregulation. Essentially, an Anglo-American approach to regulation is se‐ lected for Europe, which is supported through economic argumentation. The core question really is how many rules do we need in the field of commercial law, in order to ensure fair competition. Particularly during the past several years, the word ‘regulation’ has acquired a negative con‐ notation. The impression is often given that regulation would secure par‐ ticular interests at the expense of other interests. On the other hand, dereg‐ ulation is being put on a par with the creation of new freedoms, economic growth and innovation. Such a point of view does not really stroke with reality. For example, nobody seriously denies that deregulation of the financial markets in the USA in the 80s and 90s must be seen as the main cause of the economic and financial crisis. It led to the granting of massive loans and the devel‐ opment of a real estate bubble. Many EU countries and the economy are today still suffering from the negative consequences all over the world of the misguided deregulation policy. Looking at the United States as a blueprint for European economic policy, the following ought to make us think: According to an economic study (Grullon et al. 2015), the number of companies listed on the stock exchanges all over the USA has more than halved within a mere 20 years. Inherently to that, intensity of compe‐ tition diminished, leaving the corporate profits of the remaining market participants to rise. I think it is more than just an indication that the basis assumption that liberalisation would automatically or inevitably lead to more competition and innovation, is not right. On the contrary, it could lead to diminishing competition, as is becoming apparent in the USA. II.3 II The Practical View 36 And this leads me to my first theory: Modern national economies need an efficient regulatory framework. What that should look like could in‐ deed differ, when looking at the various member states of the EU. Econo‐ mic structures and general framework conditions are often too heteroge‐ neous for measuring everything by one yardstick, for applying one model. Too many European specifications undermine the adjustment flexibility of the member states. It is therefore necessary to seriously reflect again on the principles of subsidiarity and proportionality of legislative and non-le‐ gislative measures in Europe. That is particularly also necessary for bol‐ stering the acceptance of the European integration process amongst the population. Today’s event is about formulating the question of improving competi‐ tion in the services sector on the basis of economic analyses. Economic considerations could be useful before legislative measures are taken as well as for subsequent evaluation of enacted laws. In Germany, not only the competent ministries analyse the effects of new legal regulations, but the Normenkontrollrat [Regulatory Control Council] does so as well, as committee of independent experts, but we must nonetheless always be aware that economic approaches have their limitations and therefore can and may always only be one element of the comprehensive decision-mak‐ ing process. The reason is mainly that the database for assessing concrete questions is often inadequate. Moreover, explanatory models covering multiple factors are needed for precisely showing only the rudiments of the complex reality of life. I would like to clarify this assessment with the help of some examples and thereby also touch on studies that are mentioned time and again in conjunction with the current strategy for services in the internal market. Primarily, it concerns the matter of regulating occupations, which is now controversially discussed for two and a half at the European level and is also a topic during today's event. Let me first emphasise that the theory, regulation mentioned in conjunc‐ tion with it would lead to segregating of markets and therefore to higher prices, is simply not applicable in this absolute form. In September 2014, the European Commission proposed a study on the economic effects of deregulation in the sector of professional services. Legal counsellors were looked at, inter alia. On the basis of an assessment of the intensity of mar‐ ket regulation and economic dynamism as indicators, the professions were compared in five selected EU member states. The result was that the Ger‐ man legal services sector was assessed as being the most highly regulated, II.3 Dirk Palige 37 whilst the United Kingdom was mentioned as a positive example of the contrary, because of its lower level of regulation. But is the German mar‐ ket for legal counsellors really more segregated than the British one, as the results seem to suggest? Looking over a longer period, the number of legal counsellors increased sevenfold from 1970 until today. In the United Kingdom, the growth was distinctly more moderate. The basic assumption that less regulation would lead to more intense competition and more mar‐ ket participants is not confirmed – at least not according to those figures. And it is additionally claimed that a higher level of regulation would lead to higher prices. In terms of legal counselling services, country re‐ ports of the World Bank provide useful clues. Under the title “Ease of Do‐ ing Business”, the World Bank has published comprehensive location analyses. Inter alia, the cost of enforcing rights was determined on the ba‐ sis of model cases. If one were to compare Germany and the United King‐ dom in the country reports of the World Bank, the fees for legal counsel in a fictitious case with identical amount in litigation would be 6.6 percent in Germany against 35 percent in the United Kingdom. It seems to suggest that legal counselling services are significantly more expensive in the United Kingdom than in Germany. And this is not an exceptional example. And still, the standard argu‐ ments of economic theory are always joined with the statement that high requirements to occupation would lead to price increases. In the USA, pro‐ fessor Kleiner, who lately also cooperated on a study for the European Commission, has dealt with the topic. Census data of 2006 led professor Kleiner to findings of a four percent increase in wages, because of licens‐ ing. In 2010, a representative telephone survey conducted in all states of the USA arrived at an increase in wages of 15 percent, because of licens‐ ing. Depending on the database that was used, the result deviates by 375 percent. Another example: On the occasion of the forum on the internal market, the European Commission presented in May 2016 a study that came to completely different findings than as recently as 2014. The same scientists (Kourmenta/Pagliero) investigated price increases because of regulation and came to 17.2 percent for skilled craftsmen. Two years earlier, no price increases had been noticeable for the regulated professions. Perhaps the difference can be explained from the fact that for the current study the re‐ sults of a telephone survey in Germany have been used, whilst in 2014, micro data of the European Labour Force Survey had been used. A study for the United Kingdom of 2011 only noted wage increases for profession‐ II The Practical View 38 al services because of existing regulation, but did not detect any for crafts‐ men’s services. In reality, the bandwidth of the findings only show how unreliable the investigations are and how little meaning they have. Especially the example of the legal counsellors mentioned in the begin‐ ning clearly shows that, notwithstanding a high level of regulation, inten‐ sive competition with favourable prices could exist for services. And then, in the member states of the European Union the approaches to regulation differ considerably in terms of flexibility. In the field of crafts, we have a conceivably generously scoped right of entering occupations. In the crafts that are subject to permissioning, only the operations manager, not neces‐ sarily the owner, must possess a pertinent professional qualification. That may be a Meister degree. In any case, occupations can be entered with any a Meister degree equivalent professional qualification, regardless of where in the world the qualification has been obtained. As such, a Syrian refugee can exercise the function of operations manager with the professional qualification that he obtained in his own country, just as any EU citizen can. In this regard, our rules are clearly more accommodative than the recognition rules that apply throughout the EU, because we apply the recognition rules equally to all people, not matter their nationality and no matter where in the world they have obtained their professional qualifica‐ tion. I do not know of any other country with such generous arrangements. After all, only particularly significant activities of a craft are subject to permissioning, so that skills that can be easily acquired can be exercised by anybody, without the need for proof of professional qualification. The model stands out through its high degree of flexibility. It permits intensive competition in services. And that intensive competition is also reflected in the following figures: In crafts, around one third of companies have a low equity ratio of less than ten percent. Only every fifth company has a solid equity ratio of 30 percent and higher. Those figures are worse than for the economy as a whole. Here, almost half of all companies are considered to be solidly financed. Apparently, the pressure from competition is greater in crafts than in the economy as a whole, so that many companies do not manage to build solid equity rations. Because of the difficult financial pos‐ ition of many craft businesses, almost 4,000 businesses have gone bankrupt every year in the construction sector alone, in spite of the gener‐ ally good economic position during the past two years. And finally we ob‐ serve that about 10 percent of businesses in the crafts trade, are not subject to mandatory turnover tax. It means that their taking have been less than 17,500 euros during the previous year. It all shows how difficult the eco‐ II.3 Dirk Palige 39 nomic environment is, in which crafts businesses are exposed to competi‐ tion. The theory keeps cropping up all the time that, in conjunction with regulation, mobility within the internal market would be impaired. Whilst it is ignored that, in Europe, we have regulations in place governing the recognition of professional qualifications, since more than fifty years. Al‐ ready from the beginning, the regulations are based on automatic recogni‐ tion. A British study published in 2014 on proliferation of professional regulations in the EU and the effects of it on the labour market does in‐ deed confirm that existing regulations in the United Kingdom governing access to occupations, do not have a negative impact on immigration. The reason would be, according to the authors, that the European rules on recognition of professional qualifications do actually work and would fa‐ cilitate migration. The findings of the study confirm the experience in the crafts trade. In September 2014, the European Commission published a study on the effects of liberalisation in the services sector. One of the au‐ thors is holding a presentation today in Panel 2. The study comes to the conclusion that relaxation of the overall regulatory intensity has increased the rate of companies entering and leaving the market (churn rate). It is interesting to note that the authors attribute this mainly to relaxation in regulating behaviour. However, according to the study there is no empiri‐ cal evidence that relaxation of access regulations would lead to similar ef‐ fects. Let me summarise it as follows: The discussion on regulation is a spuri‐ ous debate! Deregulation does not in itself lead to more economic dy‐ namism and growth in the internal market. Let me sketch in conclusion in which sectors the crafts trade, as core of the SMEs in Germany with their approximately one million businesses, sees the particular challenges in terms of internal market policy: Mobility of qualified employees must be increased in Europe. In the crafts trade alone, many thousands of apprenticeship positions remained unfilled during the past year, although we would have liked to fill them with young people from other EU countries. Even trained specialists do not find their way to us in adequate numbers. That is astonishing, because with a currently rather low unemployment rate of 5.9 percent there is vir‐ tually full employment and good opportunities exist in the labour market. A leap into self-employment would also be attractive, whilst we even offer special advisory instruments for those establishing their own existence, from which EU nationals as well as our own citizens could profit, of II The Practical View 40 course. Apparently, language barriers and cultural differences and perhaps also diffuse fears create such a big impediment that indeed also young people make insufficient use of the rights of mobility in the internal mar‐ ket. There, we must be proactive and create a concrete framework of sup‐ port instruments. And language learning must also be promoted in the countries of origin. Someone, who has already acquired basic knowledge of the language of the country he wishes to go to, will find that integration into the labour market and into society is going to be very much easier. In Europe, we must invest more in education and meet demand more accurately in terms of qualifications. The ability to compete international‐ ly with companies from non-member states will be decisive for the future and for prosperity in Europe. And there, good choices are available. In its New Skills Agenda for Europe of 10 June on educational policy, the Euro‐ pean Commission announced that it would improve the attractiveness of occupational education, jointly with the member states and Europe’s social partners. It should be first choice for young people. Learning based on work should be strengthened at all levels. Two-pronged apprenticeship is explicitly mentioned as an exemplary component. That development, which could also be a valuable contribution to reducing youth unemploy‐ ment that still prevails in many EU countries, must definitely be contin‐ ued. We must actively participate in shaping the technical transformation – key word: digitalisation – by which many service sectors will be strongly affected over the next several years. Precisely SMEs must be given stronger support in the areas or research and development as well as trans‐ fer of know-how. And finally: Europe’s motto “In varietate concordia” appropriately ex‐ presses its strength. Retroflection will be necessary. Because of the differ‐ ent conditions in Europe, the member states need individual solutions for improving their competitiveness. The economic structures very too much for being able to be loosened from above. And that does indeed also apply to the question of which professions ought to be regulated in the individu‐ al member states and must be made subject to permissioning. References Grullon, G.; Larkin, Y.; Michaely, R. (2015): The Disappearance of Public Firms and the Changing Nature of U.S. Industries II.3 Dirk Palige 41

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‘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


„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