The problem with this article is that is glosses over one major problem: if Germany's currency moved in accordance with its economy rather than the entire European Union then its exports would be grossly overpriced and uncompetitive. It's the formation of the EU and a single currency that has allowed it to remain an exporting country rather. The article can not compare apples to oranges and make sense.
But you could make the same argument against any US state that remains cost competitive due to the currency. And it also discounts the fact that Germany did very well during the period when it did have it's own currency. As it is, German economic performance does have an effect on the Euro, being the largest member state.
The big German manufacturing plants for e.g. cars are usually also found in the south/west (Daimler + Porsche around Stuttgart, BMW in Bavaria).
This goes even as far as adding a "solidarity surcharge" to help the east:
That is not due to work shortage - but due to shortage of work that can be done by socialistic, highly (unproductively) unionized and unqualified work-force.
Eastern Germany will stay like that until the workforce that was raised in socialism gets out of the way. Eastern Germany has more in common with Poland, Czech and Slovakia than with western Germany and France.
I'm from ex-socialist country and it is the same situation here - plenty of high value added opportunities are available - but nobody to take advantage of them.
The problem comes more from the fact that 70% or so of German exports go to the rest of European Union and mostly the Euro zone.
Germany actually kept itself out of the water largely by lifting itself upon its neighbours' heads. Then Merkel will rant about the "lazy greeks" and other amenities.
Actually the problem arises from the disparity between a monetary union without financial, fiscal and debt union. Unsurprisingly, the biggest boy did better than the rest of the pack.
The EU is diverse and has a lot of different member states. Germany's largest trading partners are not Ireland or Greece. Far from it. It is France. Germany is also the largest importer in the EU. For many products it sells there are suppliers somewhere else in the EU.
The problem of Ireland and Greece are not so much caused by trade deficits with Germany. There are problems caused by trade deficits (while at the same time Germany is transferring lots of money into the EU by its EU contributions and investments), but Ireland's problems were caused by its bursting housing bubble and its banking crisis. Greece OTOH has internal budget deficit problems (expensive public sector, corruption, arms deals, ...).
Ireland and Greece are a blessing to the German economy, without these two economic ancors the Euro would be rocketing up and pricing Germany out of the market.
>But you could make the same argument against any US state that remains cost competitive due to the currency
True, but, there is a policial union of states in the US that doesn't exist in the EU. The EU is a monetary union without a political union, this means that it's politically unpalatable to explicitly redistribute tax money from the relatively rich to poor regions (Germany/France to Greece/Portugal) in the same way as Washington or London might to W.Virginia or Newcastle.
Europe is redistributing enormous amount of money from rich to poor countries within EU. Spain would still look like an underdeveloped country without the massive injection of money coming from the EU. EU (the organisation), even with problems here and there and the need to take a good diet, is working wonderfully at equalizing the rich/poor countries. This is why most of the countries do not want Turkey to be part of EU, under the EU rules, this would mean an insane amount of money going to Turkey every year for maybe 30 years or more.
With respect to the article itself, not everything is rosy in Germany, a large part of the population is living out of the social help system (7.5 millions people) and another large par is getting miserable wages, in the range of 4€/h or less. So yes, the German economy is robust, but the social state is struggling too.
The US has around 37 million people (over 10% of the population) who receive food stamps, and that number may be greater now. Some of the people on unemployment may also be receiving food stamps, but not all of them. Another 4+ million are on some sort of state welfare or aid program (again, some those may also be included in the 37 million number). So Germany's 7.5 million people in the social welfare program doesn't seem that bad.
I also don't have the numbers but I do know that the 'poor' EU member states do receive a lot of money from the richer economies of Germany, France and the UK. If anything threatens the strength of the EU and the Euro, it will be German taxpayers deciding they've had enough of paying for infrastructure in other countries and/or underwriting their profligate borrowing.
I think the amount of wealth that gets sent to West Virginia is probably overestimated as well.
At first I had typed a paragraph here about how you are wrong, but then I realized that I don't have any numbers on this, nor do I even know a measure on how this could be quantified. I still think you're wrong, but I can't prove it. Do you have any numbers on the amount of redistribution that happens e.g. from blue to red states in the US? If so, is there a description of the methodology used somewhere? Or does anyone else know of figures or research in this area?
This BBC is a very nice summary, thanks. It looks like it accounts for payments that are not directly to the Member States too, which is the hardest part to account for (I base this on the total payments to France which must include the CAP (agricultural) subsidies).
I have only briefly searched for a couple of reference countries, but it seems that about 1% of the state budget contribution to the EU is the 'normal' amount, with the 'net' expenditures (after discounting for income) is only 30% of that at most (for Germany, for the lesser net contributors that number drops exponentially). So that seems very small, certainly less than I had expected.
Then again, most the most expensive government jobs (social security, medical insurance, pensions) are governed at Member State level, so maybe it shouldn't be that surprising.
So anyway, then we can reduce the original question to 'is there more than 1% income redistribution between states in the US'. Which I think there will be, since Medicaid and SS are federal programs, right? Plus military spending, which redistributes from states without bases or research to states who do have them, and which makes up a big part of the federal budget.
Maybe my initial feeling was wrong, and there is much more redistribution between US States than there is between EU Member States. I'd love to spend the rest of my day researching but I'm afraid I don't have time for that ;)
What you are missing here is that the Euro only works if the stronger countries support the weaker ones financially. Without this, the Euro could not be a stable currency.
If a country like Greece or Ireland is basically collapsing, it survives because countries like Germany and France pay for it. There is no such thing as a free lunch. What Germany gains now because of the weak Euro, it had to pay a few months ago to help Greece.
However, Greece has been paid by the government, not small businesses. Small businesses only have to bear that burden gradually by paying taxes.
Ireland and Greece were not supposed to be 'weak' countries.
Ireland just a few years ago was seen as a model for economic growth (supported by very low tax rates for companies). Ireland is a victim of its own misguided policies (housing bubble, banking system, ...) and its orientation to anglo-saxon economic policies.
Greece also failed to reform its economic policies (after cheating on the economic data for quite some time). There was time enough to do that.
I also don't think these countries are 'collapsing'. But adjusting their economic policies will be tough.
Sure, they did not collapse actually. But their economy very nearly did. Both Greeces and Irelands economy basically only survived because the rest of Europe paid for it. And I think this is a good thing. Europe is a better place if we help each other.
Of course, no country in the Euro zone is supposed to be a weak country. After all, investing so much money in Greece and Ireland is a testament that Europe indeed does believe that these countries can get back on their feet.
Germany has been consistently exporting its goods over two decades, independent of the exchange rates. The German export success is not tied to the exchange rate. German companies learned to live with high exchange rates. For example the automotive industry has factories in the US, Mexico, Brasil, ...
While certainly Germany has done a lot right and deserve credit for their current economic strength, we have to recognize that they've both chosen a very different path: i.e. stability over growth, and also have a very different culture than we Anglo-Saxons - which I would argue are quite inter-related.
When it comes to quality manufactured goods, Germany is legendary and has strongly biased its economy over the past 100 years to take advantage.
The US & Briton on the other hand, have always been first movers to adopt breakthrough tech - often at the expense of quality, stability of investments, etc, and are seemingly always better at the "soft" side of business: sales & marketing.
The world needs both the Teutonic and Anglo-Saxon models, and seemingly they both are still going to head down the same paths as before will little change in overall direction - with the exception of America trying to get better educated the Germans trying to become better sales/marketers.
Just as a plug for German innovation -- consider the 19th century: if you include Austria/ Vienna, people who spoke German (and were often Jewish) basically invented modern thought, ranging from mathematics to chemistry to music to philosophy to psychology etc. England was great in applied physics and math, France in dynamics and biology, but in theoretical math, music, and philosophy Germany TOWERS above anyone in the 19th century.
It all went south with the Kaiser's attempt to imitate Napolean and then National Socialism; but if Germany had avoided militarism and kept the Jews they basically would own Europe by now (they sort of do even with the setbacks of the first half of the twentieth century).
To say that Germans "invented modern thought" is pushing it. Perhaps you can qualify that with an appropriate definition of "modern thought". The first few disciplines were around long before the 19th century.
> To say that Germans "invented modern thought" is pushing it
Kant was German. As was Hegel. And Marx. Maybe it's just me, but I'd say that the history (including that of intellectual thought) of the last 200 years would be completely different if it weren't for these 3 guys.
What I meant to say was that any statement saying that Germany is an "uninnovative" country is just hogwash. The downvote -- why? Because you disagree?
I didn't downvote you, and I also didn't say they didn't innovate. Rather, modern German innovation rarely takes the form of transformation, more of incremental innovation.
I can't think of any modern industries revolutionized by German companies. Automotive saw a steady stream of good innovation no doubt, but hardly very transformative.
Depends on where you look at. There are entire industrial niche markets 'owned' by German Mittelstand companies. It is just not in your focus of attention.
Exactly... that's where I was getting at. In the mid 1800's, they were bad ass in chemical production and science in general - really many areas. Seemingly, WWII made them a more risk adverse society. Beforehand, the small/mid size businesses were actually very entrepreneurial.
I think so-called German "miracle" is mostly a journalist and politics invention. What happened in the last few years is basically forced deflation through salary stagnation (even reduction), since you cannot play with you money anymore in the eurozone. This is very good for the companies which export a lot, but is pretty bad for everyone else (including its neighbours).
Economic improvemnts are mainly coming from productivity gains - artificially lowering your costs instead of trying to build more with less is not a sustainable past. But this kind of story is gold for newspapers: export (good !) vs import (bad !), family capitalism (good !) vs shareholders (bad !). All the usual cliches are there.
This story has been told for years in Europe, especially in France, where it is said we should follow the German way. It is very ingrained in the news reporting and the general level of discussions. One striking example is the French left and right discussing about Germany: both will assume that German growth has been better than France, and the left will claim that it shows growths is not well shared, and the right will use it as the proof that salaries are too high in France. Even though until 2008, Germany per year gdp growth has always been lower than France since the reunification.(http://www.wolframalpha.com/input/?i=gdp+growth+france+germa...). The OP article basically tells the same story from an Americain POV, even though the data do not back it up at all.
> What happened in the last few years is basically forced deflation through salary stagnation (even reduction).
As I understand it (which is too say barely), German salaries at the high end are nowhere near the UK or the USA.... Some of us think that might be a good thing, but if that is your metric, yeah, Germany probably sucks.
I am talking about average/median salaries (everyday worker) - high end salaries don't matter much at a country's scale, I think. If neither gdp growth (below other European countries in the same category as Germany) nor median income growth is a good metric, what do you suggest instead to measure German success ?
Your comment made me realize I may have not been very clear - the issue is that Germany's success is measured in terms of exportation as is, which is known to be a common fallacy in economics. If it were because German's products became better at a cheaper price, then it would have been a good thing, but I am arguing it has been mostly through artificial deflation (income stagnation instead of money deflation as this is impossible in the eurozone).
When I was young it was in to drive Jaguar here in Hamburg. Now they are mostly gone...
The UK was strong in manufacturing for a long time, and still is. But the 'masters of the universe' decided it was easier to earn money by selling oil and financial products. The result: the oil runs out and the financial products were ponzi schemes.
On the point of Germans becoming better sales/marketers - it is perhaps interesting to note that one of the most durable company taglines here in the UK is in German:
Back in the 90's there was a song called "Parklife" by "Blur", and in it you can hear actor Phil Daniels reference this expression. I was always puzzled where that came from (had to look up the lyrics though - it's difficult to understand the phrase as pronounced by an Englishman).
Well stated. The US can learn from Germany though. A mild midcourse correction could help.
The US needs to emphasize the value of all stakeholders. With this, the US will have greater growth over the longterm. Its the stable growth economies that grow and prosper over the boom-and-bust economies.
Certainly US system suffers from myopia. Though I'm not sure at what point we stifle the swashbuckling nature that has made us the country of the new in business/tech/research.
I err on the side of increased transparency of financial sector, stronger FTC actions against monopolists, IP reform, etc. than on Germany's more activist bent. Ours is more of an economy of the new, and our Anglo-Saxon nature should be embraced by better regulation - not necessarily more.
I suggest that people don't go too overboard in praising Germany. Their unemployment rate over the past 20 years has been a disgrace and do not forget that though their trade surplus is healthy some consider it also reflects the weakness in German commodity consumption.
Germany's (previous) economic woes could be reflective of the pain of integrating E. Germany. But then again that illustrates the problem of comparing economies directly. For e.g. could the influx 'cheap' east German labor make the overall German economy more competitive.
Given that they absorbed the whole of East Germany only 20 years ago, it seems a little unfair to measure their unemployment rate over that period. Today they are doing pretty well - what an amazing achievement that is, given the circumstances.
Remember that in Germany, you are legally unemployed if you earn less than 400 Euros (500-600$) per month. If you are unemployed, you don't have to pay taxes.
This makes most employees of Starbucks, McDonalds etc. count as unemployed.
To the contrary, you do not count as unemployed towards the official statistics. You will get benefits in addition to your salary though. Essentially the same manipulations are done to the statistics here as in many countries, they try to remove most unemployed people from the numbers by sending them to training, minimum wage jobs (so called 1 euro jobs). This has gotten a lot worse in the past years and the social divide has become as large as in e.g. The US.
Actually, I am not sure about the statistics. Even though 400E-jobs are considered unemployed legally, they might still include them in the statistics to make them look better.
Hm, that seems kind of strange to me--while it might legally be considered unemployed, would these employees not have health-insurance paid by their employer and receive retirement compensation?
They do get health insurance. However, it is paid as part of the general German welfare system (hence, tax money) and not by the employer. As far as I know they get the same retirement compensation as if they were unemployed. (Not so sure, there)
Social security benefits however are a rather alien concept to Germans in general. Healthcare and retirement compensation are government regulated, so individual companies do not need to provide special bonuses to make the system worthwhile.
Over the period of time the average unemployment rate in Germany has been notably higher than in the US. It seems unreasonable to compare the performance of economies on spot years. If you want you could compare the 11.5% unemployment in Germany in 2005.
I suggest that criticizing governments who live with long term unemployment is pretty reasonable.
I'm not sure I understand the impetus for articles like this. It's the same as the articles arguing why Taiwan's education system is better than the US' or arguing that Canada's healthcare system is better.
Certainly it is valuable and important to understand foreign policy systems and lessons can be learned from these observations. But it is equally important to remember that they are foreign systems. I am yet to be presented with an example of a foreign system that would directly transport to the US and be equally successful.
The US has problems in healthcare, in education and possibly in its economic systems, but non of it is a result (at least in my opinion) of picking the wrong policy system. Largely the policy systems countries choose are based on the demographic, values, economic values, etc. Germany's economic systems work for Germany because they are build for Germany.
I recognize that this article is not directly making the argument that the US should convert to a German style trade and employment system, but it implied multiple times. I would appreciate articles like this much more if they focused more on exploring the system for itself and less time comparing it to the system in the US.
Having said all that, Germany's co-determination system, as described in the article, is an interesting concept. I guess the down side would be a fear of causing separation between the interests of labor leaders and labor workers.
I find it interesting that over the last hundred years or so, especially in the US, the 'hidden cause' of financial upheavals is usually legal - often something as simple and innocuous as changes to the rules for how savings/superannuation are taxed.
When you think about this it makes sense, the rich pay attention to these changes, and move their money accordingly. It's like trying to stabilise a rowboat, you notice that the starboard is a little low, so you order everyone to rush to the port side...
Another interesting parallel is between Apple and Germany. Apple's detractors have been screaming at them for over a decade about how they are going to lose because they don't have market share. Meanwhile, the computer manufacturers who pursue market share at the expense of profitability go bankrupt in droves ("we're making a loss on each unit, but we'll make it up in volume").
Disclaimer: I'm not German, but I do drive a German car :D
Gordon Gekko, in the original Wallstreet said greed is good for all stakeholder interests because it eliminates wastes.
Shareholder vs. Stakeholder (employees, customers, community,and investors as opposed to just investors) is an important consideration for CEOs. Wallstreet makes it difficult for companies to plan longterm, and many companies speak of the importance of the CUSTOMER (and the community), but mean INVESTOR.
CEO Entreprenuers get the chance to choose for themselves, stakeholders vs just shareholders. The work of some German companies over the last two decades is an encouraging example.
I think one of the interesting things about Germany, Japan, and China is that they are NOT strictly capitalist countries, and they do NOT follow Chicago style economic models (which, ahem, seem to be inaccurate when one attempts to verify them empirically). I think a little bit of socialism is necessary to keep a thriving industry (not finance) driven economy going. Trade barriers, spending on long term public education and welfare and infrastructure, long term economic planning not based on this quarters dividends, a dash of regulation to curb the worst abusers, some subsidies to beef up struggling sectors that contribute the greater good, an efficient and highly monitored bureaucracy, and zero tolerance for anti-social behavior (whether by the powerful or the proletariat); these are what made the USA an industrial economy from 1776 to about 1976, and they are still a recipe for success.
There's an awful lot of assumptions to unpack in this comment so I'm not going to address everything. But can we all agree that a country which had GSEs pouring $500 billion into the mortgage market and a decade's worth of government holding short term interest rates at 0% isn't some kind of laissez-fare paradise?
You had "Chicago style" economists yelling at the government to dismantle Fanny and Freddie for years before the collapse, those shining examples of government long-term economic planning. For decades free market economists advocated replacing the Federal Reserves short-term focus on quarterly GDP with a mandate to maintain long-term price stability. Oh, and they have been railing against both parties for racking up such a huge public debt.
Then when the shit hits the fan, all people remember is a caricature of "Chicago-style" economists, not what they actually said and did.
The narrative that the United States lost its way through too much deregulation and free market fundamentalism is cheap rhetoric that doesn't become any more true the more often it is repeated. It is symptomatic of too much education by the way of opinion articles.
You might be right if you said that my argument was too simplistic... but I think there is plenty of "cheap rhetoric" on your side as well, and the ad hominem attack ("too much education by way of reading opinion articles" is pretty slimy, if you ask me. I could easily have said "too much watching of Fox News"....
I think this is a bit revisionist at best. One of the defining characteristics of post-war West Germany was the embracing of free markets and de-regulated business. The most influential post-war Economics Minister, Ludwig Erhard was a fierce proponent of liberal economic theory and laid down the foundation for the decades of strong growth that West Germany experienced. He flatly rejected calls for subsidisation of industry and threw out all the price controls that had been in place.
In contrast to the UK, which went the other direction after the war and nationalised and socialised so much that it's economy was moribund by the 1970's, in complete isolation with the emerging powerhouse that was the West German economy.
Sure, the Germans have had a problem with unemployment, and youth unemployment in particular, but they enjoy a high standard of living and a stable and prosperous economy. And the unemployment rate has been dropping since the conservative-minded government has been in power. It is now lower than most US states.
So I would contend that Germany, particularly throughout the period from 1950-1980 was following a classical liberal economic philosophy more closely than just about any other Western country, the US included. And the results showed. Though I would say it was more Austrian school based than Chicago.
I also don't agree with your assertion that socialism is required to keep an industry going. For that you just need an export-led manufacturing sector, good technical training in schools, and to keep the finance sector in it's place, instead of being allowed to dominate the economy and thus wield political power.
Interestingly enough, the Germans haven't had a housing crash because there was no housing boom. And that's because there was no attempt to change the ownership levels amongst people who didn't own a home.
You are completely wrong. Ludwig Erhard like most other German politicians used an economic school named Social market economy. This school has been the main economic model in mainland Western Europe.
WTF?! Trade barriers are very, very bad for industrial economies.
Also, I think the case for subsidies is arguable at best. Subsidies may be useful in emerging market sectors, but are usually better structured as public spending on research etc. (Obviously argument this doesn't apply to health care any more than it does to other areas of public good such as roads, police, defense etc)
Trade barriers, in the sense of protective tariffs to prevent outside manufactures selling cheaply in your domestic market, can be very, very, very good for industrial development.
Governing a nation is like cooking a small fish, grasshopper. A little bit of salt (subsidies, tariffs, regulation, taxation to pay for infrastructure, etc) is a wonderful thing, too much salt is unfortunately very easy to apply. And arguments about whether salt "is good" or "is bad" are just plain silly and show that you haven't cooked that many fish.
> Trade barriers, in the sense of protective tariffs to prevent outside manufactures selling cheaply in your domestic market, can be very, very, very good for industrial development.
Not really.
You hurt your own economy because your own consumers now to pay a higher price for their goods. The protected manufacturer has reduced incentive to reduce costs or improve quality. And of course you have hurt people on the other side of the world, who also happen to be humans with families and aspirations, by cutting them out of your market.
The only winners from trade barriers are the protected. Everyone else loses, over and above the ostensible benefits.
>> Trade barriers, in the sense of protective tariffs to prevent outside manufactures selling cheaply in your domestic market, can be very, very, very good for industrial development.
> Not really.
Yes really, though not always. (The word "only" when talking about who benefits is a little to coarse a generalization...) The tradeoff is between cheap goods now and capitalization (building of factories, etc) for later; often, without tariffs, the local industry would never even be able to get off the ground to where it is competitive. And if "the protected" contribute to the overall economy (a big if, I grant) then the country as a whole benefits. It is how the US did, how Japan did/ does it, sort of how China does it, etc, etc. And you are right that too much protection can make industries less competitive ... except when it doesn't... Like all tradeoffs, there are tradeoffs.
The complexity of human society defies abstract reasoning, and begs for actual example. I don't see any grounding in actual knowledge of history in your arguments (though (1) I grant that too much protectionism is just as bad as too little, and (2) you are probably better grounded in fact than your arguments).
I think I could probably agree to some degree with an argument that short term trade barriers in emerging market segments may be useful as a tool to encourage investment.
Even that is dangerous because of the tendency of the emerging industry to rely on them.
An alternate model is that followed by Thailand and its car industry. The Thais aggressively pushed for and signed unilateral free trade agreements with a number of post-industrial and industrial economies and then leveraged those trade agreements as a tool to encourage large investments in heavy industry.
The fact that cars imported from Thailand attract no import duty in a large number of countries has made them a very attractive investment target for companies like Honda who have since built factories there.
> The complexity of human society defies abstract reasoning, and begs for actual example. I don't see any grounding in actual knowledge of history in your arguments (though (1) I grant that too much protectionism is just as bad as too little, and (2) you are probably better grounded in fact than your arguments).
The complexity of human society is an argument in favour of freer markets. Knowledge about resources and demands is distributed extremely widely and no one actor can gather and react to even a miniscule fraction of it, compared to the totality.
Protectionism, amongst other things, is an act of central planning. Those who decide what to protect and what to leave open are making guesses about the current and future economy which might or might not be true. Given the poor record of central planning in every form it has been tried (most famously Gosplan), I would prefer to let a distributed dynamic optimising system create an approximate solution to an incomplete-knowledge problem than to wait for a single actor provide a perfect single solution.
A completely open market will favor the introduction of single-source monopolies - such as making all electronics in China. It is ostensibly more efficient to do things this way, but there is a massive downside. It's fragile, it's over-optimized to specific environmental conditions.
For an example of a shock that exposes these problems in the U.S./China trade, if oil prices rise, everyone loses. The producers will have to absorb higher export costs by raising prices. Subsequently, sales fall. Recession on both sides.
Trade barriers are a way to encourage local production, which will not only diversify the economy, but insulate against resource shocks. The problem isn't in raising them, but in lowering them later on when the market needs more efficiency; at that point, the fat incumbents will lobby hard to keep their protection.
All well and good, but this approach implies that "someone" is better at predicting the future than the market. The historical record on this is pretty clear: nobody is very good at predicting the future, but out of central planners and markets, markets are far better at adjusting to change.
See, for the classic example, Japan's MITI. An uninterrupted story of the brightest men and women in Japan making incorrect guess after faulty prediciton, leavened with a dose of no-better-than-random-chance blockbuster industrial picks.
An excellent article that clearly illustrates how, if you properly educate and invest in your population and provide a societal structure that allows these people to have a say, then, instead of society imploding, it actually flourishes. Not that anyone in western govt's are listening...
Okay fine, but the article doesn't really tell us anything about why Germany is able to base their economy on export and manufacturing. Is it simply a matter of political will? What do worker wages and income distribution look like? How about education? Without examining these elements, the implication that other economies should be more like Germany seems pointless.
Weren't the problems with the American economy foretold before the financial crisis? We haven't even hit the big problems. You can only borrow for so long and kick the can down the road.
