How Germany got it right on the economy
washingtonpost.com
washingtonpost.com
Indeed you can.
>And it also discounts the fact that Germany did very well during the period when it did have it's own currency.
This is true. However Germany also gets decent manufacturing benefits from the income disparity in the east.
>As it is, German economic performance does have an effect on the Euro, being the largest member state.
Of course. However, about half of Germany's exports are to Eurozone, for which EUR flucations have no effect.
Strangely enough, the east has (by far) the highest unemployment rate in Germany:
http://upload.wikimedia.org/wikipedia/commons/6/6f/Arbeitslo...
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:
http://en.wikipedia.org/wiki/Taxation_in_Germany#Solidarity_...
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.
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 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, ...).
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.
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.
Yes, they are, but it's a political hot potato, arguably without mandate, and I doubt that it's on the scale of national regional development funds.
Don't get me wrong, I am pro Europe, but I think politicians have done an abysmal job of explaining the project to voters (esp in the UK).
I think the amount of wealth that gets sent to West Virginia is probably overestimated as well.
Sources:
UK Budget: http://www.guardian.co.uk/news/datablog/2010/may/17/uk-publi...
EU Contributions: http://news.bbc.co.uk/1/hi/8036096.stm
Afraid I don't have figures for US.
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 ;)
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 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.
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.
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.
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).
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.
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.
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.
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.
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).
This is not very polemic, btw, and is pretty much agreed upon by quite a few people, independently of their political inclination (see e.g. http://www.nakedcapitalism.com/2010/03/martin-wolf-china-ger... for one reference)
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.
Vorsprung durch Technik
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.
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.
Some food for thought (though the later figures don't seem accurate): http://www.wolframalpha.com/input/?i=us+gdp+growth+since+199... http://www.wolframalpha.com/input/?i=us+employment+since+199...
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.
This makes most employees of Starbucks, McDonalds etc. count as unemployed.
I've also read that they do more accurate accounting of unemployment than the US. Some say the real unemployment rate in the U.S. is around 17%.
Not even close.
Gini coefficient of Germany 2005: 0.28. The USA in 2009: 0.46
http://www.eurofound.europa.eu/areas/qualityoflife/eurlife/i... http://www.census.gov/newsroom/releases/archives/income_weal...
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.
I suggest that criticizing governments who live with long term unemployment is pretty reasonable.
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.
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
Having said that, I wouldn't mind owning the product of a certain Italian VW/Audi brand...
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.
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.
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.
Trade barriers
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)
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.
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.
> 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).
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 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.
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.
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.