The bazaar-economy hypothesis posits that the benefits of the domestic value-added share of industrial production (vertical integration) go abroad and that Germany increasingly specialises in the customer-oriented final stages of production. More and more German industrial firms are shifting labour-intensive portions of their value added chain to foreign subsidiaries (offshoring) or buy intermediate products from subcontractors abroad (outsourcing) in order to escape the high German labour costs. Germany expands its position as world bazaar and boasts of its high level of exports. However, a growing share of value added of its export goods are pre-produced in low wage countries. In this way industrial production and the exports of industrial goods are outdistancing value added in manufacturing. The label “made in Germany” is becoming more and a more an example of false advertising.
The bazaar hypothesis does not maintain that value added in exports or in the bazaar is declining, as is often maintained. Quite the contrary, it is linked with the hypothesis of the pathological export boom, according to which Germany because of its market-incompatible wages for simple labour is shifting too much capital and skilled labour from the domestic sector, which competes with imports, to the export sectors, which of course leads to a strong increase in value added there but not to the same extent as it declines in the domestic sectors, because a portion of unskilled labour is driven into unemployment. Germany has too little value added in the domestic sectors, too much value added in exports and here in particular too much value added in the final stages of industrial production, which too strongly inflates also the export volume relative to value added in exports.
The movement towards a bazaar economy is not basic wrong for Germany. It is exaggerated, however, because it is accelerated by high and inflexible wages for simple labour which have come about not because of market forces but because of the influence of trade unions and the welfare state. An increase in wages for simple work increases prices in the labour-intensive domestic sectors more so than the prices of the capital-intensive export sectors, which together with a real devaluation (because of a lower rate of inflation in comparison to other countries) leads to a lowering of absolute export prices and thus creates exports beyond the level that would be reasonable for an economy.
Hans-Werner Sinn: Die Basar-Ökonomie. Deutschland: Exportweltmeister oder Schlusslicht? Econ Verlag: Berlin 2005 More Information
Sinn, Hans-Werner, Michael Schmid, Karlhans Sauernheimer, Tobias Seidel, Rolf Ackermann, Michael Pflüger, Nikolaus Piper, Johann Hahlen and Peter Bernholz, "Der pathologische Exportboom These und Stellungnahmen", ifo Schnelldienst 59 (01), 2006, 03-32 ( Abstract )
Sinn, Hans-Werner (2005), "Basar-Ökonomie Deutschland - Exportweltmeister oder Schusslicht?", ifo Schnelldienst 58 (06), 03-42 ( Abstract / Download )
Ifo Viewpoint No. 57: The Export Puzzle Munich 10 November 2004, published under the heading "Das Exporträtsel", Süddeutsche Zeitung, October 29, 2004, p. 24.
Ifo Viewpoint No. 50: Bazaar Economy Munich, 08 January 2004; Published as "4,5 Millionen Verlierer", Die Zeit, December 28, 2003, p. 28.
Hild, Reinhard (2004), "Produktion, Wertschöpfung und Beschäftigung im Verarbeitenden Gewerbe", ifo Schnelldienst 57 (07), 19-27 ( Abstract )
Lecture Series "Deutsche Rede": The Sick Man of Europe: Diagnosis and Therapy of a Kathedersozialist by Hans-Werner Sinn, Ifo Institute and Munich University (LMU); Schloss Neuhardenberg Foundation, Neuhardenberg, Brandenberg; 15 November 2003; DeutschlandRadio Berlin Broadcast live on AM on 15 November 2003, 5.00 p.m., and various FM broadcasts on the same day.
Becker, Sascha O. and Robert Jaeckle (with Ekholm Karolina, Muendler Marc Andreas), "Location Choice and Employment Decisions: A Comparison of German and Swedish Multinationals", CESifo Working Paper Nr. 1374, 2005 ( Abstract / Download / See also Ifo Working Paper No. 4, 2005 ( Abstract / Download) )
Leibfritz, Willi and Hans-Werner Sinn (with Calmfors Lars, Corsetti Giancarlo, Honkapohja Seppo, Kay John, Saint-Paul Gilles, Vives Xavier) (2005), EEAG European Economic Advisory Group at CESifo: Report on the European Economy 2005, Ifo Institute for Economic Research, Munich ( Abstract / Download )
Mut zu Reformen. 50 Denkanstöße für die Wirtschaftspolitik by Hans-Werner Sinn, dtv 2004
Sinn, Hans-Werner, Das Dilemma der Globalisierung, Walter Adolf Jöhr-Vorlesung 2004, Universität St. Gallen, 15 p.
Sinn, Hans-Werner and Wolfgang Ochel, "Social Union, Convergence and Migration", CESifo Working Paper Nr. 961, 2003 ( Abstract / Download )
Sinn, Hans-Werner (2003), „Ist Deutschland noch zur retten ?”, Econ Verlag: Munich 2003, 496 p. ( Abstract )
Sinn, Hans-Werner and Alfons Weichenrieder, "Foreign Direct Investment, Political Resentment and the Privatization Process in Eastern Europe", CES Working Paper Nr. 129, 1997 ( Abstract / Download )
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