Friday, August 19, 2016

Of course, there is corruption in Germany, lots, and it is costly

Quick tip on corruption in Germany: Never try to slip a cop or a government employee a bill to expedite service or make a ticket go away. 

German officialdom tends to be very happy when corruption watchdog NGO Transparency International (TI) publishes its annual ranking, because Germany looks pretty good compared to practices in many countries.

That's in part because some of the most blatant forms of corruption are in fact rare.  For example, you won't find a police officer pulling you over for not having a freeway toll sticker, handing you the official fines schedule with a wink, only to then accept a fifty Euro note in the folded up flyer when you return it to him. Have a look at the "True Stories" section on the TI website for real life "old fashioned" corruption stories. In Germany and other Western countries, corruption tends to come without physical violence, or at least without jackbooted thugs.

Germany has seen its share of donations to political parties involving Swiss bank accounts or manila envelopes. Some politicians even served short stints in prison for the most egregious offenses, although others, like current Mr. Austerity Schaeuble and his then boss Chancellor Kohl never faced justice in a 1990s scandal that rocked the country.
Much of what we see as criminal corruption today was not even penalized in Germany until new anti-corruption laws were finally passed in 1999.

The working paper Beyond the cartel law handbook has examples from as late as the 20th century, detailing how governments like Germany's, actively promoted anti-competitive practices.

A list of twenty high profile anti-trust cases involving German and international companies in business periodical Handelsblatt shows that corruption is real and fines can be hefty, some to the tune of over a billion Euros.

No sector is safe. The Handelsblatt list of uncovered cartels within the past ten or so years includes rails for railroads, potatoes, sugar, zippers, cement, paraffin, vitamins, elevators, air freight, natural gas, and the popular favorites beer and sausages. Taken together, fines for these cases exceed 10 billion Euros.

The working paper describes three basic pillars helping corruption:
(1)  The  paralysing effects of corruption, heightened by under-funding, direct political control.
(2)  Social  norms  which  are  sympathetic  to collusive  practices,  compounded  by   historical  factors  such  as  the  past behaviour  of  governments.
(3)  Collectivist  business  cultures in which agreements are largely built upon personal relationships.

The blogster believes that Germany is highly susceptible in all three areas, as demonstrated by three ongoing anti-trust investigations: the practices of the styrofoam insulation panel industry, the waste disposal industry as well as the EU level anti-trust case against Google, which seems to be primarily due to German pressure.

The blogster also believes that weak media could be included as a forth factor. German public media do some good reporting, the insulation panel investigation is an example, but public broadcasting is itself subject to heavy direct political control (1) and collusive practices (2).

Insulation cartel:
The TV report found typical cartel behavior, such as identical prices for products by different companies, regional production & distribution agreements (i.e. one manufacturer produces and distributes a "competitor's products"), personnel overlap between manufacturers and the supposedly independent Fraunhofer Institute branch near Munich, a suppressed Fraunhofer study from 30 years ago showing facade insulation to be of little insulation value. Government involvement includes personnel overlap, the German legal classification of styrofoam as B1, "difficult to ignite" (where the EU classifies it as easily ignited) to allow use under the building code for private buildings (but not government buildings). The government also consulted lobbyists when the energy savings law was passed, and it subsidizes energy saving, including insulation, to the tune of around half a billion Euros a year.
Outright fraud claims by a whistleblower state that companies set aside product batches that fulfill the hard to replicate highest R values and send these to the testing institute after an inspector stops by - this involves faking the stamp inspectors use to mark batches they want forwarded to testing. Independent testing of off the shelf panels indeed showed that about 40% of panels did not meet the officially certified insulation values. The cases below range from "some government involvement" to "government knowingly tolerating abuse of human beings".

Waste disposal:
An ongoing investigation by the German competition watchdog continues to dig into the huges price differences for common garbage removal, where one household in one town pays, for example, 564 Euros versus 128 for the same household twenty miles away. Mergers in the industry are being investigated as one cause. Some communities provide their own waste management services, while others are privatized. The public entities do not charge "prices" but "fees".
Government is involved at many levels but a stark intervention in 2013 removed the investigative authority of the competition watchdog with a law that says services with "fees" are no longer under its jurisdiction. Instead, local elected bodies or "special districts" are supposed to regulate any such fees - which, according to the FAZ article, is routinely undermined or delayed.

The Google case in EU Commission hands represents even more government involvement. German lobbyists have been pushing Berlin to action, claiming Google was exploiting its monopoly in the eCommerce space. While Google had issues, the blogster looked into the common claims that Google did not give "online shops" the search results placement they deserved and found the claim to be untrue. The company that complained loudest and without any fact checking by the mainstream media belongs to the infamous Springer group (not the scientific publisher) and is not an online shop. That company sells absolutely nothing!
It is a clickbait outfit that gets paid by real online shops for simply displaying links and giving users the impression that they see the best possible deals.

Home care slaves:
Zeit online uses the term slaves in a piece that highlights the plight of mostly Eastern European home care personnel in Germany. "Insults, beatings, no time off" may sound like common abuse scenarios by wealthy Saudis with regard to their household staff, but they happen every day in Germany in the year 2016. Live-in help from the East is the cheap German answer to round the clock care for the elderly.
The German government excluded live in household staff from pretty much all workplace regulation. The maximum work week of 48 hours: does not apply. Minimum wage: does not apply. EU law mandating that anybody who lives at the workplace be a regular employee: ignored.

[Update /29/2016] The blogster shares the sentiment of many Germans. In a poll by Transparency International in 2010, an astounding 70% of Germans said they felt that the level of corruption in the country had been going up in the three years prior to the poll.

Germany ratified the United Nations Convention against Corruption in November of 2014.

After Sudan.

Which leaves Japan as the only major country that has not ratified it. It is no coincidence that Germany and Japan lagged behind, but that goes beyond the scope of the post.

[Update 1/27/2016] A great example of how corruption often works in Germany is illustrated by a scandal in the Bavarian city of Regensburg, culminating in the arrest of the lord mayor and of a local building magnate. Donations via strawmen are the reported, but the real story goes deeper: three local building companies "somehow" saw a regular, even distribution of public works. The mayor himself does not appear to have accepted money for personal use and can claim "I cannot be bought".

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