Why Germany Still Has So Many Middle-Class Manufacturing Jobs
hbr.org
hbr.org
One day the VP from the American HQ came to the Indian office and yes he was German, during the intro meeting he talked about the low pressure from the tap. The tap was changed the next day.
I still remember that story because it taught me how Indians look at their surroundings and how a German looks at the same surroundings.
Granted, doesn't mean you should rewire your house using YouTube videos
http://www.cnn.com/2017/01/13/us/mother-house-youtube-build-...
I've been living in Australia the past year (which has a lot of Germans) and twice I helped someone change a flat tyre. Both times a German also came to assist, and both times it was an American who didnt know how to change a flat (there arent that many of them in Aus).
Americans have become complacent and lazy, with no sense of "know how" or "make do." Hell, kids don't even know how to clean and cook a rabbit, let alone how to catch one with a snare. If the zombie apocalypse ever happened for real, The Walking Dead wouldn't last a full season. Everyone would starve to death.
and 6 of them have a 99.9% chance of dying within 10 years, given that they are 82+ years old. :)
On a serious note: A lot of immigrants make a lot of money (relatively speaking) right away since they are jack of all trades and are willing /have to learn. Things that a locksmith would charge you $150 and a plumber $200 and an electrician $xxx an immigrant can do all within an afternoon, all for living rent free as superintendent. Probably some rules and codes are bent but who's watching...
I suspect that any scenario in which hunting/trapping becomes a valuable skill for a significant portion of the population is also a situation where knowing how to operate an animal drawn vehicle is also a useful skill.
This fiction about civilization collapsing, but then surviving on your wits and hunting skill, is the stuff of YA novels.
Finally, if we experience some type of catastrophoc event: total war, nuclear winter, natural disaster, I will still be eating.
(The US currently consumes 8 billion chickens a year)
Besides, the northern US has more extreme winter weather than Germany, so based on this, Americans should be better at changing their tires than Germans.
Sure there are some contributing factors (eurozone monetary policy, labour laws), but thats really the core. I feel like the education system, world class science institutes (Fraunhofer, Max Planck and Helmholtz) and pragmatic vocational training are really just a result of that.
One time in an expensive hotel in Asia, there were a few times when things were simply wrong, even though we had a named person assigned to our group as a manager to call on.
I met with the German general manager and suggested that his systems for ensuring a quality experience were not correctly set up.
He sat up straight in his chair and told me that he would deal with all the issues we had. From then on we had no more problems with the account manager...
Your car and the airplane you boarded last week probably both run German code.
Some other famous software companies: Avira, Crytek, SAP, Suse and Nero.
Many brilliant friends of mine who failed university or even high school did an apprenticeship instead.
Among them are CEOs, R&D managers and founders.
0: https://de.wikipedia.org/wiki/Liste_von_Ausbildungsberufen#M...
Edit: many jobs on the list were retired (fused into others) in 2013 so it's probably a little outdated, but it tells a tale.
We got so much from the older model and I dare say people lived better lives while studying.
From what I've heard Germany has a similar trade school path for software development.
Not for people inventing new stuff or pushing boundaries, but for the horde of developers who are copy pasting, google programming and writing classic ASP every day.
Those three years of apprentice were great and I learned a lot, but at the university I got to learn how little did I knew, even if those of us coming from informatics apprenticeships knew more than the majority coming from classical high-school programs.
Almost all the practical stuff I use for actual development has been learned outside of CS though. So you could easily have a talented CS degree with middlemanegement skills run an apprenticeship and teach someone how to be a great developer.
You probably couldn't build an entire company around people who cant decipher the shit from the quality stuff though. But a degree isn't a certainty in that department. I've interviewed CS majors who couldn't explain ACID, hadn't heard of SOLID and who also thought the singleton pattern was absolutely vital.
Their approach is more spend 5-9 months having the apprentice do mostly directed self-study, then a kind of final project and other work and, if they pass, an offer of employment. It's a really interesting model that seems to have worked well for them -- they attract developers from both traditional backgrounds and non-traditional.
They have a page that goes into what apprenticeship means to them here: https://8thlight.com/apprenticeship/
They pay students from economically weaker segments who don't/can't attend college and teach them software development basics some time.
And these students are put in production teams to learn from apprenticeship.
http://www.livemint.com/Companies/LU4qIlz47C5Uph2P5i250K/Cha...
Basically the three last years of high-school are mixed with some apprenticeship, both theoretical and practical, with some kind of training at the end, sadly usually not remunerated.
Students can still apply to the university if they want to, they just need to meet the requested scores and do the exams like everyone else.
At the university level you can take the usual 5 year university degree oriented to "learn to learn", or a more skill oriented one just 3 years long.
With Bologna those 5 year degrees became a classical 3 + 2 master, but still kept their "learn to learn" spirit. At least on the good universities, the majority being public ones.
If you look at it as a way of companies forcing people to pay for their own training, the proper way to bring apprenticeships back is to make college more selective or expensive. This would increase upward mobility for those that can't afford school by forcing companies to train their employees again. However it would probably be seen as an attack on the poor and minorities for making college more exclusive.
Put differently, the increased accessibility of college has killed informal forms of education. To undo this would mean making college elitist again because the widespread nature of college education is what causes companies to hire only graduates.
Another factor in the downfall of apprenticeships is the inability to weed out people unlikely to succeed because of discrimination laws. In the past it was common to get engineering apprenticeships off the street IF you could pass a series of tests. IQ especially has a strong correlation to job success, and only taking say the top 10% of scores made apprenticeships much more likely to succeed (and less expensive for the company). These tests were found to be biased against minorities and women so disappeared in the 60's, around the same time college education became popular among the middle class.
Correlation isn't causation of course, so I can only speculate on these being driving forces behind the end of job training. Looking back at Germany, an interesting twist is that education is free but the acceptance rate low. Basically college in Germany is elitist, and if my theory holds water this would lead to more on the job training.
Another somewhat depressing thing to keep in mind is that HN is a bubble. You need to be fairly smart to be an effective engineer. Most are significantly smarter than the average person, and by popular accounts an odd bunch. It might seem reasonable to people like us to teach people to code by osmosis but to most people programming is incomprehensible and unenjoyable. I saw this first hand in primary school where software programming was an elective. There were 30 or so students in the class and only three of us had any idea what we were doing and interest in writing code.
I am surprised by this assertion. Allegedly family-managed firms can make long term decisions, but those observations are always subject to survivorship bias. At best I would think this issue marginal. (There's also a bias in the statement, as inheritance tax in the US is quite low and kicks in at a pretty high level).
I would think if anything the ability to inherit reduces the likihood of outside ideas.
(And anyway, in a republic, inheritance is abhorrent. We don't need another aristocracy.)
This is different from parent leaving you stock and bonds.
Father dies, leaves company that makes engines to son and $50 million in cash because he has invested most in his company. IRS+State: son, you owe us half+ of what your father left you, or $1.1 Billion. If he borrows half of company's worth that's not going to be a healthy company anymore. So he sells it and selling is not always the best thing for employees.
Edited: If I was made King, I'd look to lower the inheritance to children to say 10% and abolish trusts that fund generations of lazy, spoiled brats living from their great-great-grandfather's money.
Personally I think that you earned your money, paid taxes on it and your kids shouldn't be being more than half (at least on paper, before scores of lawyers and accountants devise shelters.)
Your own kids are different, now as you go down the family free... Soon enough or maybe even now, the Kennedys, can marry each other in the church and without any genetic penalty. So Joe's money could be funding both sides of the family...
https://en.wikipedia.org/wiki/Estate_tax_in_the_United_State...
The estate tax is there to stop (or at least slow) the systemic rise of a new monied aristocracy. In any case, if you want to leave loads of money to your kids, the answer is "don't wait until you die", because you can give them a huge chunk each year before seeing that tax.
> I'd look to lower the inheritance to children to say 10% and abolish trusts that fund generations of lazy, spoiled brats living from their great-great-grandfather's money.
How would giving them the money directly instead of via a trust fund stop that behaviour?
Exactly, these leeches have to be stopped.
And the money could be instead put to some good common like free college, health care leveling the playing field for everyone.
This is purely theoretical, as I am neither rich nor have children, but I take some issue with people saying that kids living off trust funds are "leeches" - it was their parents choice to spend money this way, so what is wrong with that?
If I go to work this year and get $100,000 for doing stuff, nobody seems confused that I have to give a massive chunk of that to the government.
So if you don't go to work this year but get $100,000 from your parents, you shouldn't act confused that people expect to cough up your share as well.
When families transfer money to the next generation it changes hands. The way we finance our society, generally, is that when money changes hands a substantial portion of it is remitted in tax.
So you already paid taxes on it, sure, but that's irrelevant, your kids didn't. When you give money to your nanny or your driver they have to pay taxes. When you buy dinner at a restaurant the chef has to pay taxes. So when you give it to your kids they should pay taxes on it too.
Because when people get money they have to pay taxes on it. That's how taxes work.
The real question is why the rich kids think that the specific way they get their money is special and shouldn't be taxed.
Isn't the most obvious way fix to that, to give the government part ownership of the company, but leave control in the hands of the heir? If the heir does well, the company continues as usual, and in case of mismanagement, the government could replace the CEO and the company survives under new leadership.
Maybe have some arrangement that allows the heir to buy the government shares back.
If course the government should take good care of their share and not sell it off to the highest bidder. Unfortunately under the neoliberal doctrine that's been plaguing European politics these last couple of decades, many European governments would try to privatize and sell their shares as fast as possible, putting these companies at risk.
That's not going to happen because those shares are going to be held by an immortal trust fund that never has to pay inheritance taxes. The trustafarian son will not have to borrow or sell a damn thing.
In the modern age, making decisions based on feelings rather than statistical evidence is abhorrent. $10 million dollars is peanuts for a successful business and if the majority of the wealth is tied up in a business what you are in effect doing is destroying a productive asset of the US economy for short term gain.
Rather than using your misguided moralisms to decide policy we should use evidence to decide on the policy that results in the best outcomes.
How can you write stuff like that and stay serious?
I once read a book on mental heath by a professional academic who threw in something about how some irrelevant conclusion in the mental health field showed government was inherently wrong.
It's one of the major problems with the Euro... It was a terrible idea from the start, and situations like Greece were foreseen by economists like the great Wynne Godley decades ago (see Maastricht and All That, London Review of Books, Oct 1992). Unfortunately the mainstream of economics still doesn't have a developed enough understanding of monetary systems to have worked that out yet...
The Euro policy is not German monetary policy. Germany has always asked for a harder currency policy.
Germany also had a huge trade surplus long before the Euro. The economic numbers were going down after a the reunification and its problems (collapse of the East German economy). Germany is now back to the same success West Germany had before the reunification. Now with a larger market (the EU integration now is deeper and with more countries), simplified exports to the larger market (mostly) with a common currency, a much better access to east Europe as an emerging market, ...
As for the other countries, all they can do is cut down importing I guess?
I don't see how this answers the question in the title. How does the school of mathematics of the University of Goettingen help make German factory workers competitive with Chinese ones? Why aren't these companies moving their production to cheaper markets like companies elsewhere do?
The search for precision and applied scientific discovery. [0] Enlightenment drives every aspect of German manufacturing. Factory workers are in an environment that makes things driven by these processes.
[0] An immediate example that comes to mind is the electric signal activation of the liquid suspension (magneto-rheological fluid) in the Audi R8. cf "The Audi R8: The Suspension" ~ https://www.audiworld.com/articles/the-audi-r8-the-suspensio...
This is an extreme example. It also highlights why Chinese/German manufacturing is different. One is aiming at mass market, low cost. The other high cost but desirable. The low cost German manufactured cars are measurably better than the Chinese.
[0] https://blogs.wsj.com/drivers-seat/2012/08/16/chinese-cars-r...
http://fortune.com/2014/10/22/why-germany-is-the-eurozones-b...
This is not something Germans -- such as apparently the author of OP -- like to talk about.
An article in English:
http://www.nachdenkseiten.de/?p=18499
> The share of low-wage workers (less than 2/3 of the median hourly wage) rose from 17.7% in 1995 to 23.1% of all workers in 2010. The number of low-wage workers increased from 5.6 million in 1995 to 7.9 million in 2010.
Another article, from Süddeutscher Zeitung, in German:
http://www.sueddeutsche.de/wirtschaft/bremse-fuer-die-wirtsc...
That's easy, since Germany is also the largest country in Europe (not counting Russia), has the largest number of employees, has a lot of people from East Europe coming for work, ... The alternative would be to move many of these jobs outside of Germany, which sits right next to a lot low-wage countries.
The low-wage sector was also expanded, because politics wanted to reduce long-term unemployment and thought that a low-wage job with some social security is better than not working.
We should also remember that Germany with now 80+ million people has taken in 20 million people from East Germany (with its economy mostly collapsing) and many of them have still a harder time to find jobs, which has a lot of reasons. One of the reasons is exactly that this eastern part of Germany now lacks this large based of mid-sized companies who are competitive.
(2) Germany is the biggest country in EU (EU != Europe), has the largest workforce and, thus, the largest low-wage sector. Yes, that is correct. But it is not "easy", as this Eurostat graph shows:
http://ec.europa.eu/eurostat/statistics-explained/index.php/...
You see Germany in the company with such economic powerhouses as Estonia, Poland, Lithuania, Romania, Latvia - all of them having a bit worse PERCENTAGE of low-wage workers than Germany. This is not someone's perception, or some narrative, these are hard numbers.
(3) You obviously didn't read the articles I've posted. Especially that from Nachdenkseiten as it lists many other issues not widely spoken about in the mainstream media - neither in Germany nor in other countries. It is an analysis from Prof. Dr. Gerhard Bosch (Geschäftsführender Direktor Institut Arbeit und Qualifikation Universität Duisburg-Essen). While we discuss the article published oh hbr.org, which talks about the causes for the success of the German economy, Mr. Bosch mentions the elephant in the room:
> German economic policy continues to be characterised by its excessive focus on exports. As a way of dealing with the euro crisis, the German federal government advises other countries to introduce their own labour market reforms on the model of the Hartz Acts. This policy, however, cannot be applied at will to other countries, since only by abolishing the laws of mathematics would be it possible for all countries to have export surpluses.
Meaning: German model doesn't work for others. And, it only works for Germany because others take a hit while Germany "takes" a surplus.
Yes, German economy/society has it's qualities. But would it be such a "success" without major influence in EU institutions, in ECB, without Euro, with other countries having their currencies (which they can devalue to make their good cheaper and imported - German - goods more expensive), with customs on its goods, with fairer wages in Germany? I highly doubt it.
German companies ARE moving their production to cheaper markets. They have been doing this for decades and they are doing it today. At the same time the market has expanded and changed. Thus new jobs are created, even a few are coming back. If we talk about manufacturing, which was the original topic, you can see multiple trends (examples in parentheses): exports of jobs (ship yards), back-import of jobs (automated manufacturing), disappearing jobs (nuclear industry), creation of new jobs (renewable energy), ...
> economic powerhouses
East Germany is our own 'economic powerhouse'. Twenty million people with a much different job market, compared to West Germany.
> You obviously didn't read the articles I've posted.
None of that is new. If you read German mainstream media, that stuff has been discussed for a long time. FAZ, Handelsblatt, etc. have published a lot of these arguments. It's just that for each economist arguing that way, we can find another one, which argues against it. The media published this discussion. You just have to read it.
> abolishing the laws of mathematics
That's a very simplified argument, with a very limited view what actually happens.
> But would it be such a "success" without major influence in EU institutions, in ECB, without Euro, with other countries having their currencies (which they can devalue to make their good cheaper and imported - German - goods more expensive), with customs on its goods, with fairer wages in Germany? I highly doubt it.
Germany has influence not because the ECB or the Euro. It has influence because it is the largest european country, it sits in the middle of europe. ECB policy has NOT following German demands. The Euro was not a German invention. But that European monetary systems have been influenced by Germany because of its economic power has always been true.
If you look back, Germany has export oriented with large surplus for decades. Without the Euro, with the European Monetary System, with the Euro.
The german economy will simply adapt to the changing conditions: weak currency, hard currency. The industry will react, but it will always be export oriented. Generally the economists prefer a harder currency, which actually will not have a specially negative effect on the export industry. With the super-hard Deutsche Mark, the export industry was doing just fine.
The article does mention wage suppression in the beginning but does not give a good argument why the wage suppression as observed in Germany since the early 2000's is a bad thing -- if wages are inflated and you need to compete with China for manufacturing, then you can either scrap your manufacturing or suppress wages, there’s not that much of an alternative there.
My sibling comment arguing that the largest low-wage sector in the EU is somehow inherently bad is also misguided: if the alternative is much higher unemployment, low-wage jobs are still preferable to no jobs, especially if they come with the usual social security mechanism, as is increasingly the case again.
No, the magic Better pay and still secure job does no exist outside of naive communist Ideas.
Actually the midsize manufacturing companies offer long-term employment, fair wages, jobs in rural areas, jobs which require high-qualifications, ...
These people who are working in these midsize manufacturing companies are in high demand and that they have low wages or participate in low-wage jobs is completely wrong.
We are talking about companies like the manufacturing company bought by Tesla.
https://www.theverge.com/2016/11/8/13561146/tesla-acquisitio...
If you look at a typical German 'Mittelstand company', many look more like high-tec laboratories than typical factories from the inside, lots of robots, high automation, the people working there need to know the technology inside out, troubleshoot and fix problems quickly. That's difficult to get from a manufacturer on the other side of the globe who needs to juggle many different clients from all over the world.
And many German workers still have a certain loyalty to their company, since the company owner isn't some international celebrity CEO installed to squeeze the last bit of money out for 'shareholder value'.
Regardless of the rate, there are big exemptions for the transfer of businesses in Germany that definitely give the the advantage in that specific case.
The problem is that a company of value $x rarely has liquid assets of $x*$taxrate, so inheriting a company can mean personal ruin.
On the _other_ hand, not accounting for companies in inheritance tax means that every family ever will shift all its possessions into a company.
Roughly speaking, Germany solved this by creating a set of exceptions for value "in a company", as long as it continues to be held for a given number of years (otherwise, since it was sold, it's considered a liquid asset and thus fully taxable).
No taxes if a company has an employee that makes at least x00% of minimum wage for every, say $500K of worth. So your parents leave you a company that has a $20mm value and you have 40 employees that average $35,000 a year, you pay no inheritance taxes. Of course you need you'd to set a reasonable timeable to discourage cheating, otherwise they'd sell /fire 50% as soon as the x year timeline expires.
Having said that they have a very good national business model and an excellent culture around vocational training and expertise building.
In other words, trade barriers strengthened the middle class.
Those poorer countries are more able to compete with Germany than with China.
Cheaper goods are nice but aren't as useful to people without jobs.
- The most important difference is the continuity of the leadership. The leaders of the Hidden Champions stay at the helm for an average of 20 years
ok yes, could be
- the German history of many small independent states (until 1918 Germany consisted of 23 monarchies and three republics), which forced entrepreneurs to internationalize early on in a company’s development if they wanted to keep growing
there must be lots of countries where this is the case
- Scientific competencies also play an important role
there must be lots of countries where this is the case
- the unique German dual system of apprenticeship, which combines practical and theoretical training in non-academic trades.
ok yes, could be important
- Tax advantages are another reason.
skeptical
- the international openness of a society is an essential factor in the globalized world of the future. Germany is far ahead of other large countries with regard to mental internationalization
skeptical that this vague claim is true, let alone an important factor
I was expecting to hear something about https://en.wikipedia.org/wiki/German_company_law
e.g. "in companies with over 2000 workers just under half the seats on a supervisory board are selected by the workers"
seems like shareholders have less power and employees have more, under the German system, and it seems fairly logical that this could lead to long-lasting companies producing high-quality products
https://news.ycombinator.com/item?id=14261923 (I hope I'm linking the right thing).
Germany had a strong Mittelstand (and was indeed struggling with an uncomfortably strong Deutsche Mark) long before the Euro. I suspect it would have worked out.
It only makes sense such engineering capability would result in a lot of manufacturing work in the middle-class range.
Which are the valued blue collar jobs in US - doctor, chef, programmer and lawyer. That's it.
None of those are blue collar job, and chef isn't particularly valued in the US.
Doctors, programmers, chefs are significantly imported from other countries... particularly India and China.
Over 50% of the doctors and specialists visited by myself and friends were Indians. Also, over 50% of the highly skilled software personnel and upper management I worked with were Indians.
* However, none of the lawyers were imported. The position coveted by the US is simply lawyer. A friend of mine had a father who was educated as a lawyer in the country he immigrated from and is one of the poorest person I know. Shame, had they been educated as a doctor or software engineer, then they and their adult-son would not have found poverty as quickly if at all.
Until this year, China was unable to manufacture ballpoint pens.
"It was a years-long effort that cost millions of dollars and required the leadership of a state-run corporate colossus. It was front-page news, widely discussed on talk shows and celebrated on social media."
...
"China doesn't possess the advanced alloys and machines necessary to make a high-quality pen ball and socket."
https://www.bloomberg.com/view/articles/2017-01-16/china-s-l...
http://www.jdpower.com/press-releases/2015-uk-vehicle-depend...
"The myth suggests that these German brands produce unreliable vehicles, but actual long-term dependability results do not lie. Lately, German makes have been producing reliable vehicles, and the belief that they are unreliable should remain as nothing more than a myth."
http://www.jdpower.com/cars/articles/automotion-blog/5-car-q...
The world could probably sustain even more companies that focus on long term growth and quality instead of quick products. But that's not how you become famous. You become famous by making a quick app used by millions that you can IPO a few years later. So that's what many people in the world try to achieve. Not building a small company over decades that specializes in something which most people don't even know exists.
On the other hand, OP has a point. This is once more an example of what works for anyone vs. what works for everyone. The countries you name all are very small. Imagine Asia getting even better (they probably will), and imagine African countries getting their act together (as unlikely though it may be). Who would buy all those machines and parts?
Also, another great potential for future trouble is that an oversized part of our economy is bound to making cars. The "Zulieferers" (component suppliers) are much larger than the actual car makers, and they are all "Mittelstand". If they have to find new customers some day... electrical cares require a lot less expertise and less parts I'm told, plus ever more "growth", meaning ever more cars, isn't such a promising model (looking at Asian city traffic...).