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July 2, 2010 AT 5:40 am

In recession battle – Germany and China

Pt 10186

Interesting article – In recession battle – Germany and China @ Washington post… via Neatorama.

The Great Recession rolls on, but it’s not too early to single out the major powers that have come through the wreckage in the best shape. They are the ones the other major nations implore for help — to bail out weaker economies, to diminish their dominance of the world’s production and start consuming more themselves. There are just two such nations: China and Germany.

…Most Americans, I suspect, believe we’re losing manufacturing because we can’t compete against cheap Chinese labor. But Germany has remained a manufacturing giant notwithstanding the rise of East Asia, making high-end products with a workforce that is more unionized and better paid than ours. German exports came to $1.1 trillion in 2009 — roughly $125 billion more than we exported, though there are just 82 million Germans to our 310 million Americans. Germany’s yearly trade balance went from a deficit of $6 billion in 1998 to a surplus of $267 billion in 2008 — the same year the United States ran a trade deficit of $569 billion. Over those same 10 years, Germany’s annual growth rate per capita exceeded ours.

…So even as Germany and China have been busily building, and selling us, high-speed trains, photovoltaic cells and lithium-ion batteries, we’ve spent the past decade, at the direction of our CEOs and bankers, shuttering 50,000 factories and springing credit-default swaps on an unsuspecting world. That’s not to say our CEOs and bankers are conscious agents of foreign powers. But given what they’ve done to America, they might as well have been.

A lot of the manufacturing equipment we’ve seen used for production is made in Germany which makes sense if they’re both rapidly growing at the moment. “Cheap labor” doesn’t seem to be what is making manufacturing a challenge in the USA, it’s also supply chain and the culture we celebrate (non-manufacturing / engineering / science careers). All you 6th graders’ now will need to solve this in a decade or so, no pressure.

Andy Grove (Intel) is talking a bit about all of this as well…


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5 Comments

  1. It isn’t a complete loss for all sectors, though. Those of us in the software biz are often employed because of all that manufacturing going on by German companies. It basically pays my bills.

    Then again, I work for a Canadian company, and Canada is another place that has not been hit very hard by the global recession, and actually did quite well through parts of it (even though the US and Canada are each-others largest trading partners.)

    But I assume that US software houses are doing just as much business in Germany.

  2. I’ve long suspected that we did this to ourselves and this only highlights the problems caused by a culture of “make it cheaper” and “make it as poorly as possible but only so much as it will sell”.

    Let me expand on that last point. I’ve worked for major corporations – mostly in Quality Assurance departments in the early part of my career. Those of us in QA would see potential products and question why the design of that product was done so poorly. In many cases it was quite easy to come up with ways to improve a product, but management didn’t want to follow through on the idea. They felt that making a product that would be considered best in class in the marketplace was wrong; they wanted to keep those ideas in their back pocket so that they could “improve” the product at a later date.

    As far as competition goes, management’s goal was to only be as good as their nearest competitor. Being better than their competitors was also considered bad/wrong because they felt they would be wasting engineering resources on features that might not propel the product to be a market leader. In essence, the quantity of mediocre products in the market was more important than the quality.

    Apple is probably the only company I know of that breaks the mold on quality. I’m not an Apple fan boy – I don’t even own a Mac. BUT – there is a reason why they’ve dominated the mobile phone market over the past few years despite the cost of the individual mobile phone.

    Bearing all of that in mind, it’s easy to see how Germany can be a leader in this recession. Make good quality products and charging appropriately for that product is not a bad thing, imho.

  3. @signal7 — I agree with you regarding QA and the management point of view. However, to put the blame solely on the management is not entirely accurate. Much of the problem lies with the consumer, who has come to expect a lower-priced product without considering the ramifications of that expectation.

    With regards to Apple, I agree with you that they do make quality products. However, I believe a significant portion of their success is due to brand image, and not solely to the quality of their products.

  4. Local newspaper had an article on manufacturers here in our valley. They need to add to their workforce. What they don’t need is unskilled labor. The problem is that all the people who’ve been laid off have absolutely no work skills, math or technology training to run the new equipment.

    There is a severe mismatch between our education system and the jobs available. A) People in industry need to get involved in informing Education of what’s necessary. B) Education needs to get off its airy-fairy belief that it only exists to put people into four year colleges for professional careers.

    We already have enough doctors and lawyers, what we need to realize is a lot of what we categorize as “Blue Collar Labor” is the new professional workforce. No longer do you hire someone off the street with a high school education. You need to already be a trained “Technician” to get in the door, even if it is only producing sash and door wood products.

  5. From a german perspective, I cannot agree with the article: a lot of jobs have been cut in production – and the average income has sunken in the last decades, increasing the spread between upper and lower incomes, production and development has been outsourced to asia and eastern europe. A lot of taxpayer’s money was used to protect our banks from bancrupcy – that results from banks gambling… I far too idealistic view of germany!

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