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How Germany got it right on the economy

How Germany got it right on the economy @ Washington Post…

Germany’s economy is the strongest in the world. Its trade balance – the value of its exports over its imports – is second only to China’s, which is all the more remarkable since Germany is home to just 82 million people. Its 7.5 percent unemployment rate – two percentage points below ours – is lower than at any time since right after reunification. Growth is robust, and real wages are rising.

It’s quite a turnabout for an economy that American and British bankers and economists derided for years as the sick man of Europe. German banks, they insisted, were too cautious and locally focused, while the German economy needed to slim down its manufacturing sector and beef up finance.

Wisely, the Germans declined the advice. Manufacturing still accounts for nearly a quarter of the German economy; it is just 11 percent of the British and U.S. economies (one reason the United States and Britain are struggling to boost their exports). Nor have German firms been slashing wages and off-shoring – the American way of keeping competitive – to maintain profits.

One key to Germany’s miracle is the mittelstand, as the family-owned small and mid-size manufacturing firms that dominate the economy are known.

…Mixing social democratic values with Jimmy Stewart localism, Germany’s economy is running rings around America’s. “What we have here is stakeholder capitalism, not shareholder capitalism,” says Hubner. And like most mittelstand owners, he adds: “I live where my company is located. I want a good image in the town I live in.”

On a related note, we are seeing more and more customers from Germany and more reseller inquiries from Germany lately too.


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3 Comments

  1. There’s way too much praise in this article. We have lots of trouble as well.

    Regarding the rising wages: I haven’t seen any of this. Maybe the bankers get another bonus payment. There are many (way too many) people working full time and still rely on social welfare for paying their rent, electricity (prices are skyrocketing again this year) etc. One could come to the conclusion that our government and certain parts of industry deliberately cultivate a still growing mass of low-wage workers that can easily be replaced if they act up.

  2. I agree with Robert in the sense that while Germany does have a far healthier economy compared to say the US or the UK, this article seems to look at the country through some rather heavily rose-coloured glasses. That said … despite some difficult questions that need to be answered in Germany about labour organisation, cost-of-living versus competivity, market flexibility, etc., it’s far easier to be optimistic about Germany’s role in the global economy in 10 or 15 years than a lot of financial-service oriented economies or countries saddled with astronomical household or goverment debt (not that the two are very different).

    It’s genuinely surprising to me that a country like the US that once dominated research and development isn’t more concerned about keeping the lead they have (had?) in fields other than say defense (where they definately have no meaningful competition in Europe. Even China (who has the will to put money into Defense) is still significantly behind for the near future, but they should be just as worried about mathematics, material sciences, etc., where other countries are really starting to take a lead, particularly because the financial barriers aren’t very high at least compared to cash-hungry areas like Military/Defense or Space research.

  3. Germany also benefits tremendously from the macro-economic effects of the Euro without having to share it’s benefits (additional tax revenue) with the other members. It’s like if New York (strong relative economy) didn’t have to send more tax revenue to the federal government than it gets back in federal spending. Instead, that tax revenue is redistributed back to regions with weaker economies, which allow for the whole country to use the same currency. Germany doesn’t have to do that, so their growth is magnified.

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