Prosperity, But

Is the bloom finally off the West German economic miracle?

West Germany's postwar economy is now 17 years old. and it is growing the way a 17-year-old usually does--fast, but not so fast as before. The real increase in the West German gross national product simmered down from a spectacular 8.8% in 1960 to ''only" 5.3% last year and an expected 4% this year. This is partly a reflection of mounting competition from the newly robust economies of France and Italy (TIME. Jan. 12). which are slicing into Germany's export markets. With exports of capital goods off slightly this year. German steel production has dropped 10%. At the same time, wage raises have increased demands for imports, with the result that West Germany this year may suffer a deficit in its basic balance of payments.

Labor Catches Up. German businessmen complain that they are in danger of being priced out of world markets because wages in West Germany have been rising twice as fast as productivity. With labor costs up 21% in the past two years. German factory workers now earn an average $35 for a 45 1/2hour week, the highest industrial wage scale in the Common Market. And contrary to popular myth, they work less than other Europeans-- about 14 days a year less than Dutch workers, for example. Nonetheless, union leaders continue to press for higher pay, arguing that they are simply making up for long years of obediently listening to pleas from management and government for wage discipline. The unions are in a strong position to do so because Germany has such an acute labor shortage that more than 500,000 jobs are going begging.

By paring profits, the wage raises have reduced German industry's capital investment. German businessmen like to finance expansion out of profits because they get a generous tax break for doing so and also save on interest payments. Last year, with profit margins running from 15% to 25%. West Germany pumped more than one-quarter of its G.N.P. into gross private investment, i.e., capital equipment, construction and inventories. (The rate in the U.S. was only 14% of the G.N.P.) Now that their profits are narrowing. German businessmen claim that their only recourse is to raise prices. When Economics Minister Ludwig Erhard recently complained about increases of up to 10% in auto prices, automakers answered in words that Roger Blough would echo--that to compete in world markets, their industry needed to "make itself as strong financially as possible."

Wages of Maturity. If such problems sound familiar, it is because, as it matures, the once-miraculous German economy is beginning to encounter some of the problems that the bigger U.S. economy faces. In the long view, some slowdown in the German boom is not only inevitable but desirable. Some of the slowdown, in fact, has been deliberately induced by the West German government's money managers, who have not only increased the value of the Deutsche Mark to trim what was until recently an embarrassingly large export bulge, but have lowered interest rates to discourage the inflow of foreign investment. West Germany has also begun--however modestly--to share with the U.S. the burden of aid to underdeveloped countries. The reason for this seemingly masochistic behavior: a cold-eyed recognition that if gold and foreign exchange continued to flow into Germany's coffers at the $2 billion annual clip achieved two years ago, the ultimate result could only be critical damage to the delicately balanced economic and political interrelationships of the Western allies.

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