A Multi-Country Comparison of the Efficiency of the German Telecommunications Industry

In an international comparison of the efficiency of the telecommunications (TC) industry for the period 1981 to 2002 Germany is in a middle position; France and Great Britain are better, while the Netherlands and the United States are in a less favourable position. However, supply-side efficiency is subject to strong fluctuations over time. Germany's TC industry suffered a temporary slump in efficiency compared with the other countries during deregulation, and this could only be made up again gradually from 2000. For a time Germany was actually bottom of the list, but in 2001 it had moved up again to fourth place. The fluctuation can be interpreted in this way: Germany undertook the structural reforms needed to increase efficiency in the TC industry later than other countries, and the first signs of success only appeared after 1999, the year of the low. In this analysis the stochastic possible production frontiers (SPFs) method is used for the first time in a multi-country comparison of the TC industry. The advantage of this method over others is that it is based on a well-founded theoretical concept of production.

The Problem of Money Illusion in Economics

Money illusion in economic theory has been an assumption rejected for academic economists for quite some time. However, with the gradual diffusion of behavioural economics based on experimental research this has changed. Now, it has become a respected fact to accept money illusion as a stylized fact of human behaviour. However, it still needs a better understanding why monetary phenomena especially related to financial markets play an important role in understanding the real economy, the production, consumption and exchange of commodities and services. The author of this paper suggests that financial markets are particular engaged in intertemporal valuation problems which are common to any kind of economic activity. Since money is the unit of account, accounting problems related to the uncertain nature of future economic development makes a continuous readjustment of valuations in money units necessary. However, financial markets are imperfect as Minsky has pointed out. Because of these imperfections the possibility of significant long-lasting valuation problems emerges. One reason for this is that in standard economic reasoning the problem of intentional cheating is neglected. Furthermore major innovations like e.g. the ICT revolution with the Internet or the introduction of securitization as a means to redistribute risk as general purpose innovations make valuations of the long term to medium term impacts on the economy extremely difficult. The recent financial market bubbles are significantly related to such general purpose innovations. If monetary policy fails to control for irrational exuberance of investors about the future benefits and profits of such innovations, this inherently embodies the risk of a financial market shock, if expectations of the general public have to adjust after overoptimistic prediction about the future economic development. The author, however, considers that there are some early warning indicators which would give the possibility of timely action of policy makers to control financial market bubbles. The complacency of monetary authorities of the past decades to do so, has not primarily a diagnostic problem to deal with money illusion, but even more so with vested interests of insiders of private investors on the institution to control unlawful behaviour. By weakening the regulatory framework, failing to establish transparency and accountability of agents eager to get rich as fast as possible without taking into regard the rules of good governance the current global financial crisis of institutional failure to contain the instability of financial markets to an acceptable social level. Money illusion is so as well an expression that unfounded optimism about the self-regulatory discipline of market participates is sufficient to stop financial markets get out of control to an historical unprecedented level.Money Illusion; Imperfect Financial Markets; Regulatory Failure; Behavioural Finance

Securitizations Are Dead - Long Live Securitizations?

After the financial markets slumped worldwide in 2008, securitizations were seen as a major cause of the conflagration. The securitization market dried up because this financial instrument was no longer trusted. At the time, no one thought securitizations had any future as a financial innovation. However, just three years after the financial meltdown, the securitization market in the US has made a recovery, despite its continued systemic risks. There is still no unified regulatory framework nor binding transparency. Hardly anything has been learnt from the financial crisis of 2008.securitization, financial market crisis, ratings

Prinzipien moderner Technologiepolitik

During the last decade a number of principles of modern technology policy emerged from the intensive debate on efficient designs of technology policy to encourage and strengthen the competitiveness of economies. While at the beginning national innovation systems like national economies seemed to be a sufficient framework the ongoing process of globalization of knowledge production and its rapid diffusion changed the perspective. However, each country as a distinct location in a global economy and in an emerging global innovation system has to develop its particular competence to become or remain an attractive partner. A number of principles should be applied as guide lines to design and evaluate the respective technology policy. Nine principles are proposed in the paper. Starting with the destinction of mission versus diffusion oriented technology policies one objective of modern technology policy is to search for an adequate policy mix. Next the concept of network development in innovation systems looks for ways to increase the efficiency of the innovation system. Each institution of the innovation system should become part of a competence centre which link research institutions with innovative companies and government agencies involved in the funding and regulation process of innovation, forming something like a triple helix, a term proposed by Leydesdorff. Competence centres link to each other in the innovation system and compete with others to win market shares in the innovation system. Furthermore each organisation should apply internally and externally the principles of learning with those of lean research organisations. The basic framework, however, to ensure efficiency in the innovation system is that the government establishes a legal and regulatory framework to foster institutional competition in the innovation system so that inefficient institutions are replaced by efficient ones through a self-selection process. Selection might be accomplished by a market mechanism or a continuous evaluation of institutions. Without sufficient scientific reputation or market success no institution should be entitled to permanent funding from public or private sources. The theoretical perfect split of public and private financing would be given by the difference between the private and social rate of return of an innovation activity, so that only the amount of positive externalities which cannot be internalised by private sources should be financed by public ones. Furthermore, giving financial subsidies to institutions should reflect that public funding should be judged by the principle of sustainable economic and social impacts on the innovation system. Since the innovation process usually is associated with the willingness to take risks and face uncertainties one should apply and develop modern techniques of risk analysis and risk control to increase the returns of investments in an innovation activity. Finally, one should take care that the subsidiary principle with respect to the policy institutions is applied especially in the context of diffusion and mission oriented technology policy. On the regional level diffusion policy should be at the centre stage while on the national level governments or even transnational organisations like the EU should concentrate on mission oriented technology policy and on the issue to establish a framework for institutional competition in the innovation system so that each institution in the innovation system faces a level playing field. For Germany in all areas of mission and diffusion oriented technology policy exist substantial inefficiencies. The first and most decisive step to reform, however, would be the introduction of institutional competition in this area to encourage a self-reorganisation process of institutions. Without institutional competition the current funding system has only marginal incentives to overcome their internal inertia. Since there is little or no risk of failure for current institutions, there is a substantial reluctance to rapidly adjust to the changed environment of a globalizing innovation system. Countries or regions, however, who will lead this transition to more efficient innovations systems in a global environment will be significantly more rewarded than those who follow behind. The regions where competence centres in the global innovations system are located will acquire the highest longterm per capita income increases for their regions in the future knowledge based global economy because they enable the region to simultaneously push forward the knowledge frontier and internalise the economic and social benefits of a global knowledge base most efficiently.

Japan at the Crossroads: State Budget Remains the Achilles' Heel

The natural and nuclear disaster on the 11th of March 2011 pulled Japan into a renewed recession. Projected on the annual basis, the gross domestic product nosedived by 3.5% in the first quarter of 2011. Indeed the consequences of the earthquake, tsunami and subsequent nuclear disaster will be very noticeable for the remainder of the year with regard to economic development. However, initial signs of a rebound have begun to appear in the meantime. Extensive public spending programs are currently sustaining the demand. Prior to the earthquake, the public debt was already approximately 200% of the gross domestic product and was rising rapidly. The government must harmonize duties, responsibilities and financial conditions; otherwise its room to maneuver in times of more "extreme events" decreases. Thus the Japanese government faces a dilemma: Increasing the tax burden, which is low when compared internationally, will have a negative impact on economic development. Fiscal consolidation and debt-financed economic growth are contradictory.Japan growth, fiscal stability, tsunami-quake impacts, nuclear. - accident

Estimating and Forecasting Aggregate Productivity Growth Trends in the US and Germany

This paper addresses the issue of estimating and forecasting productivity growth trends in the US and Germany from the perspective of a business cycle researcher who wants to use the available information in time series of aggregate labor productivity to derive a model for short- and/or long-term forecasts of labour productivity. We will use stability tests and a deterministic model with structural breaks that is estimated using the methods mentioned in Hansen (2001). The methodological approach also draws on Gordon (2003) using a Kalman filter specification. We discuss the implications of unit-root assumptions for long-term forecasts and argue in favor of a near unit-root modelling. That implies a convergence of productivity growth rates in both countries within the next 15 years.

HDTV and DRM: A Need of Further Regulation?

In Germany, the TV broadcasting of the Winter Olympics 2010 marked the official start of high definition television (HDTV). However, the transition from standard to high definition television has been significantly hampered by inconsistent change management. While the large international movie and TV-series producers aim for increased (end-to-end) intellectual property rights protection on the one hand, the satellite and cable-TV network operators in coalition with the private commercial TV-broadcasters strive for advanced business models with increasingly differentiated pricing models on the other hand. The resulting technological requirements lead to rapid changes in technology, which in turn affects consumers and equipment manufacturers We analyze especially the related advancement of the systems and interface standards for encryption and copyright protection which are of central importance in this context, namely the so-called Common Interface (CI) and its enhancement to CI Plus as well as the HD+ satellite platform in order to identify critical issues for media regulators and competition authorities. Our analysis supposes that the German regulatory institutions' capabilities to deal with the issue of regulation against the background of efficient innovation management in a timely manner should be improved. This might also be an opportunity at the level of the European Community to set framework conditions based on principles similar to network neutrality to overcome the current deadlock in Germany and encourage regulatory reform. Especially consumer rights could be protected more effectively in a future regulatory framework for digital content distribution and in order to avoid a tragedy of the anti-commons being an impediment for the rapid transition to HDTV. Overall, our recommendations aim to contribute to achieve the goals of swift digitalization and transition to HDTV. --HDTV,Innovation Management,Tragedy of the Anti-Commons

Productivity Growth in the United States and Germany: Is Germany Falling Further behind?

The long-term development in productivity in an economy is the main indicator in an assessment of the outlook for economic development. In theory, countries that lag behind the leading countries in productivity should gradually succeed in closing that gap. Since the mid-1990s the Federal Republic of Germany has not been able to continue the process of catching up with the trend in productivity in the United States that was typical until then. In past decades the development in Germany compared with the United States was dominated by the process of introducing best-practice technologies, for example modern information and communications technologies, but that has evidently faltered now. That is still the conclusion to be drawn after the introduction of the new methods of calculating the national accounts, which were expected to reduce the methodological differences in the assessment of productivity between Germany and the United States. However, the gap in productivity growth between the two economies may be expected to shrink again in the medium term, partly because the structural reforms on the labour market and the investment in modern information and communications technologies made in the past should have a positive effect. Productivity growth matters in the long run. As only the wealth created can be distributed the speed at which the efficiency of an economy is increasing will mark the limit for this distribution. So without a clear rise in efficiency the population in a country cannot expect their material prosperity to continue to rise. Owing to this fundamental interrelation determining the medium to long-term growth rate in productivity, and here especially the productivity of labour, is of crucial importance. Since the mid-1990s the typical process of catching up with the development in productivity in the United States has been interrupted in Germany. Until now economists have always assumed that a country with a lower level of productivity will be able to catch up owing to cost advantages in the acquisition of more efficient production technologies. By introducing bestpractice technologies - e.g. modern information and communications technologies - into their businesses and society countries that lag behind the leading productivity countries should succeed in gradually closing that gap. That process was characteristic of the development in Germany compared with the United States in past decades, but it has evidently faltered now. The productivity gap is growing again. At the same time other OECD and newly industrialised countries are catching up with Germany. So Germany is under pressure from two sides. The productivity gap that has been opening since the mid-1990s is putting Germany at a disadvantage in the international competition for inward investment, as on liberalized capital markets capital flows to where it can be used most productively, that is, at the highest rate of return. With the opening of markets in the newly industrialised countries, the political change in eastern Europe since the early 1990s and the resultant growing integration in the world economy Germany now has to maintain its position as a location for production in face of more intensive competition worldwide. High labour productivity is an essential location factor. If there are insufficient incentives to invest capital in highly productive jobs in Germany unemployment will rise rapidly while wages stagnate, as the low level of investment in the domestic economy makes progress in productivity relatively modest. Hence a low level of productivity can easily lead to a low level of growth with rising unemployment. The separation of short-term fluctuations in productivity from the medium to long-term trend in Germany compared with the United States has already been analyzed in an earlier study. However, at that time it was not possible to use the revised data of the national accounts for Germany as these were only published by the Federal Statistical Office in April this year.4 The introduction of chain indexes5 and hedonic methods6 in calculating the domestic product involved considerable methodological changes, and the implications of these for the determination of the short and medium-term productivity trends in Germany and the United States will be examined in this paper.

Windows Vista: Securing Itself against Competition?

About the end of 2006, Microsoft began delivering its new Windows Vista PC operating system to large commercial customers, followed by final users and small businesses. Even before the product reached the market, the dominant provider of PC operating systems worldwide was accused over and over of abusing its market power in order to hinder competitors. After the integration of Internet Explorer (Windows 95) and the Windows Media Player (Windows XP), competitors today are objecting most strongly to the new security components associated with the Windows Vista Security Center, and the EU Commission has joined in these objections. Opponents have criticized the bundling of previously independent components (transfer of market power through bundling), and security software providers like Symantec and McAfee have argued that limiting access to the core of the operating system will hinder their product development activities. In line with the tradition in EU competition policy, Microsoft's dominance of the PC operating system market justifies supervision of that provider in the interests of preventing abuse. However, the final assessment must take into account unique circumstances arising from the specific market and competitive conditions in the standard software markets. In particular, competition policy should intervene in the PC operating system market only if a demonstrable improvement in the public welfare can be attained as a result. In essence, this means that policymakers should intervene to ensure fair innovation competition, including the introduction of reasonable transparency requirements with respect to operating system interfaces in order to allow regulators to manage potential conflicts between the operating system manufacturer and providers of competing software components (e.g. web browsers, media players or security software). There is need for reform in this area in order to create a reliable and functional system of rules for all market participants. However, unbundling decrees which require strict separation of certain system components are an unsuitable instrument for this purpose.competition policy, Microsoft, operating system markets, platform competition

HDTV in Germany: Lack of Innovation Management Leads to Market Failure

High definition television may now be poised for a breakthrough in Germany. Unfortunately, in the area of private free-TV, broadcasters and network operators are still blocking each other. Market participants hope to leverage encryption and digital rights management as sources of long-term profits. This, however, may come at the expense of television viewers. Despite the start of regular HDTV operations by public broadcasters, only a few consumers are currently in a position to actually receive high definition television. The government should facilitate a rapid resolution to the current standoff and ensure effective monitoring of competition by implementing new standards.HDTV, Innovation Management, Tragedy of the Anti-Commons