Cost incurred in deploying KBC – no increase
Owing to its intangible nature, the initial cost incurred in deploying KBC typically does
not increase when it is combined with increasing amounts of other inputs (labour, capital)
in the production of goods or services. Therefore taking advantage of KBC depends on the
ability to reallocate labour and capital to their most productive use. With the rise of the
importance of KBC, the ability to reallocate resources is becoming increasingly important
for productivity growth (Andrews and Criscuolo, 2013).
Extensive government ownership in some business sectors risks hampering the
reallocation of resources to more productive sectors or firms. Publicly owned commercial
banks have a market share of more than 40% in Germany. As the 2014 Economic Survey
pointed out, the regional Landesbanken, which are mostly owned by Länder governments,
have had a poor track record in allocating credit, technical efficiency and vulnerability to
solvency risk.
Reflecting stricter risk management standards, governance has improved
also in the Landesbanken, but specific governance problems for the Landesbanken resulting
from regional government ownership are likely to remain (OECD Economic Survey of
Germany 2014, OECD, 2014a). Länder governments are planning to privatise only one of
7 Landesbanken.
Further privatisation would be welcome. Steps to further improve
governance might be an alternative option. Since the outbreak of the global financial crisis,
the federal government has also kept a minority share in one of the large private,
commercial banks.
A regional government also owns just above 20% of Volkswagen, one of
the biggest car manufacturers. The federal government owns substantial shares in
network industry incumbents, notably in telecommunications and postal services.
Privatising these shares would help remove perceptions of conflicts of interest between the
government’s role as owner of these businesses and its role as the regulator of the relevant
markets, boosting market entry, competition and investment.
EU Forecast
euf:ba18a:68/nws-01