Dynamic Germany The Role of Policy in Enabling Markets REBECCA HARDING M odell Deutschland has drawn much criticism in recent years. It has been roundly condemned as, at best top-heavy and inflexible and, at worst, defunct in an economic era characterized by dynamic, market­based operations and radical innovation. It is inflexibility, especially in la­bor markets, that has damned Germany in the eyes of»Anglo-Saxon« policy makers during the 1990s and into the 21st Century. Low-cost, flex­ible labor markets are seen as key to competitive success and Germany fares badly in this area. As evidence, politicians, journalists and academics alike cite worryingly high levels of unemployment throughout the 1990s until now. Not only does Germany have an apparently insurmountable problem in its intractable level of unemployment, but it also has had suc­cessive administrations which appeared incapable of introducing the»en­abling« policies necessary to allow the market to function more effec­tively. In short, inflexibility appears to be rigor mortis in comparison to the dynamism of the Anglo-Saxon model. However, the case of Germany, its future competitiveness and the na­ture of its»Neue Mitte« warrants further investigation. In particular, there is evidence to suggest that prophecies of doom are somewhat pre­mature. Germany’s venture capital industry grew by 62 percent between 1999 and 2000 and has grown by nearly 500 percent since 1996. By the year 2000 there were almost as many biotechnology firms in Germany as in Britain and the»Neuer Markt« had established itself as the leading Eu­ropean hi-tech stock exchange. Policies to stimulate innovation and re­generation in the»Neue Bundeslaender« through the Innoregio pro­gram are proving effective, if not in substantially reducing the levels of unemployment amongst older people trained under a different system, then in laying the foundations for strong performance in the future. Per­haps most convincingly of all, German export performance has been con­sistently strong and the technological component of exports is increasing again. As one leading European Venture Capital company manager said 122 Harding, Dynamic Germany ipg 2/2002