How Germany is able to run the world’s second largest export economy

>The Single Market launched just four months later, in January 1993, though something like it had been in the works for a while. But on that launch date was there anyone in Europe with any doubts about which nation — which “area” — was ascendant, economically speaking?

Germany in 1993 was in no shape or form to be the ascending economic superpower, in fact 1993 was a recession year: https://d3fy651gv2fhd3.cloudfront.net/embed/?s=wgdpgerm&v=20.... That of course is due to reunification which was extremely costly at the time and the implosion of the former socialist economy hindered growth massively.

Germany got extremely lucky with its timing - when the exchange rate for the DM to EUR conversion was fixed, the German economy was still in dire straits, so it was basically undervalued. But the German companies used the sudden strategic location of the country between east and west to massively invest in production capacities in the former eastern block to keep production costs low while selling to the industrialized neighbors in the west.

They are market leaders in some very high-margin things most people never think about, and interestingly they sell a lot in Asia, where one might expect them to be more vulnerable to competition. German Quality is a huge brand worldwide.

I also have a friend in Berlin who's sort of inheriting the family business, manufacturing something so random I always forget what it is. Involves rubber I think. High margins, privately-held family business, etc.

I really think a lot of these companies, if they were in the US, would either go public (the bigger ones) or be sold up to a bigger concern. But in Germany you'd have to pay a really big premium to get your hands on someone's multi-generational family business. As long as there are kids to inherit the factories then that's what they're gonna do.

[1] https://www.youtube.com/watch?v=8FT-zyTX2nE

Germany was export-oriented even before WW2. It's funny whenever you read about "How germany or japan became industrial powers after ww2". With many crediting the US or whatever aligns with their agenda. The truth is that both germany and japan were industrial powers before ww2 and they just reverted back to what they were after ww2.

> For example Germany is not a centralized economy (like the UK or France, which are grouped around London and Paris).

Germany is most definitely a centralized economy. Just because it doesn't have the dominant city center like London and Paris doesn't mean it isn't centralized. The reason why germany is a manufacturing power is because german federal government and the state decided to make germany export-oriented manufacturing power. While in the UK, they decided to become finance oriented and service oriented and shifted their manufacturing overseas. Which is smarter in the long run, only time will tell.

In so much of the developed world we're becoming more and more politically split along urban/rural lines, is this the case in Germany is does their distributed industry even things out?

They have money to burn on irrelevant things. At the end of the day the IT system will typically not help your margin on a supply chain beyond a tiny amount.

If you want to work in an environment that works according to common sense and achieve something, take a pay cut and join a smaller company. Of course, you still have to do your research and choose wisely.

i've also worked with Germans a lot, and what you said is one of the keys to their success. Everybody makes mistakes. Mistakes are given. Majority of IT everywhere is mistakes, failures and waste :) What Germans do, at least in my anecdotal experience, is that they [slowly, with time, yet unstoppable] do ultimately notice the mistakes/failures and really react to it with strong reaction like you described, like closing projects, replacing partners, etc. - basically cutting the bad pieces out, cutting losses without fear of sunken costs.

One thing you mention is domain knowledge. This actually also a big problem in the US tech companies. The people fluctuation is so high that after some years nobody might really know anymore how a certain component works. This is not that much of a problem in german companies.

Also the bigger german cooperations have I'm aware of had better planning, project management and QA than things projects I witnessed elsewhere (sample size is obviously limited). While that sounds like more bureaucratic effort, it still reduces the chaotic aspects in projects and improves the chance they will finish on time.

Maybe we could move this conversation to adult zone and non-cartoonist levels beyond "spanish cheap drunk workers living in the beach" and "german saint teetotalers workers"?

Thinking that a spanish engineer is less educated than a german engineer is hilarious (yeah, we take siestas under a cactus with a big hat all day in between last party and next party). University titles in all EU are equivalent for the same grades.

German exports are also not particularly cost-sensitive because so many hidden champions in Germany deliver specialised industrial goods that are hard to replace (as the saying goes Germany makes "the thing that goes into the thing that goes into the thing"), which reduces the impact of currencly fluctuations.

Sorry but this is not why 'Politics is becoming extreme'.

The same way that not every citizen pays much attention to national debt until their on the hook for the bailout. Less drama is better. Strong and steady economy and forward planning.

I would take that over : "Hey lets just spend money we don't have, we'll tax is later or inflation or screw it, worst case, another bailout."

The proof is in the last financial crisis. Germany was able to buy up because they didn't spend like drunken sailors in a brothel during the, (identified by them and france) financial bubble.

Funny that.

I suspect the reason Politics is leaning more Fascist recently, is due to a bit of anger posts like yours that reflect nothing in reality.

Funny that too.

Quite by design. Having the whole Europe on Germany's monetary policy (i.e. Eurozone with EUR interest rates) while not sharing any other policy is heavily in Germany's favour and one of the main reasons the European debt crisis happened.

Not to say that being a well governed country with good policy and a culture that is conducive to high productivity and good quality did not help - it definitely did. And I'm not trying to redirect blame for the Eurozone crisis - Greece has mainly itself to blame.

I dont think that's relevant though. Desirable products mean more countries buy your product, means the value of your currency changes, means your products are effectively "more expensive". Sharing a currency with other countries dilutes that effect, just like any prosperous region within a country sharing a currency with poorer regions.

I'm not an economist so I cant say how valid any of the points ARE, but from the logic presented I didnt think this was an attack on the quality of German products.

Out of cursiosity: What did he try to do, and what organisations was he using?

Hours worked are pretty low compared to other European states even if you factor in a large part time component. I don't think increasing hours would increase productivity anymore.

There is also a darker side of course with a lot of minimum wage jobs or people working long hours while still being dependent on the state. Even for employees of the same company the income can be quite unequal. Compare development or engineering with production or logistics for example.

A lot of very basic, work-intensive or energy-intensive work has left Germany over the last 30y, but the companies make a killing of value-added manufacturing.

Also, not least due to unification, till a couple of years ago, German wages were very stagnant, so it wasn't that great a country for industrial workers, paywise.

That's an important point!

In the case of China, I'd guess that it was a strategic decision to do so. Being in debt with others gives others political power over you - at least as long as you are not stronger (ultimately, in a physical sense) than them. I guess China wanted to avoid that as long as it wasn't strong enough. Now that China is getting stronger and stronger, they are starting to invest that accumulated capital in order to gain political power over other, weaker nations. That's btw. a hot topic even on Germany, if it's ok to let the Chinese buy local companies and other assets.

In the case of Germany, I don't really understand why it went that way. The surplus seems to have become some kind of fetish. During the Greek crisis, the risks of such imbalances became visible. The big risk for Germany is imo that a major country like France or Italy will tip over politically, leading to the destruction of the Euro. There's no playbook for how to handle that and I guess it would be a messy and ugly political process which may render quite some of those collected "shiny baubles" worthless. With European history in mind, I don't think taking that risk is worth it.

Yeah, what's that all about? Surely the entire point is to incentivise people to _not_ buy heavy cars, since the lowest emission models (aside from electric cars) are smaller?

Yes, Germany is wealth because others (the southern countries) have to compete because of the union currency. I always thought people of the southern countries (i know people from spain and greece) would rage more vigrously against that. Interestingly rage is only mildly and not a big thing. Maybe it's the selction bias bubble I am living in, I don't know.

The problem with being like, a systemic export nation, is that your shifting burden to someone else. It sounds okay on paper, but what you see is that can hide a lot of your own issues. If you aren't getting better, your sustained welfare is vampiric, it's coming from your counterparts.

And like you are saying, a personal pet peeve of mine is the outsized amount of private companies. Look at any global etfs, Germany is behind the UK, France, Switzerland (lot of multinationals tbf) and Canada (though not European). That's mainly the work large amounts of private companies. I'm sympathetic to the fact that its their companies, they don't have to sell them. But when it creates a fairly significant skew in sort of a capital picture, you can end up with stuff like this, where your capital class is even more walled off than elsewhere, since you can't build equity in a large portion of their economy even if you wanted to.

You also raise very good points, that most people forget, about how Germany got here: they got here by squeezing the poor and transferring wealth to billionaires (there is a reason German billionaires are low-key). Another important feature is banking: that is how the wealth transfer occurred, and German banks are in a terrible state (they seem to get involved in literally every financial crisis: CDOs, lending to shipping companies, lending to Turkey, lending to Greece...it is unbelivable). That is why the German model doesn't work (Japan copied the German model, and their banks self-destructed eventually...it doesn't work).

One cool stat that demonstrates this is that Germans have slightly lower net financial assets than Greeks. Yes. The richest country in Europe has citizens that are poorer than the "basket case".

What is also forgotten is that two decades ago, it was Germany that was the basket case (the OP also inaccurately says that Germany was a powerhouse in the early 1990s...nope, it was a basket case then too because it had to integrate East Germany). The Euro has benefited one nation above all others (and Netherlands...although their success is partly due to becoming a tax haven) and imposed massive costs on others (Italy, in particular, has had nearly three decades of austerity between the ERM and the Euro...it is madness).

It's not necessarily Germans who own the companies. This article from 2014 shows: [1]

>>Who owns the DAX, Germany’s pre-eminent equity index?

>>Not many Germans, it turns out. According to fresh research from the Bundesbank, the share of domestic ownership of the index—which comprises the 30 largest public companies in traded in the equities markets—fell from 44.1% in 2005 to 36.3% in 2014. Meanwhile, the foreign ownership share rose from 55.9% to 63.7%.

[1] https://qz.com/273655/foreigners-own-most-of-germanys-dax/

Meh, that flies in the face of facts. Real wages in Germany had been depressed for long, not least due to unification, but are picking up: https://d3fy651gv2fhd3.cloudfront.net/charts/germany-wage-gr... and there's not reason to believe that is going to stop anytime soon.

> "Indeed, when the Single Market was adopted (1993), ..."

Because before 1993, you're not comparing apples to apples: "Germany" was two separate countries, and reunification affected the economics on both sides of the border.

It's true that the recession makes this a particularly favorable starting point for Germany, but it'd be misleading to compare Germany's economy today to the economy of West Germany of the 1980s (as many comparisons do) and ignore that half of modern-day Germany was the DDR at that point.

For instance, the Netherlands had a trade surplus of $76 billion in 2017, but shows up as having a trade deficit.

France does not appear in the list of Germany's export partners, but it's actually number 2.

This "re-distribution" feeds an enormous compliance sector in the receiving countries. An useless sector chocking domestic innovation and allowing the politicians to trumpet successes in "receiving the EU grants".

By the way, Germany is one of the top 5 exporting countries since decades, so this has little to do with the Euro:

https://wits.worldbank.org/CountryProfile/en/Country/WLD/Yea... https://wits.worldbank.org/CountryProfile/en/Country/WLD/Yea...

ETA: It will matter if the City continues to dominate European financial transactions, because it is the tremendous amount of money that goes to the City which keeps the Pound priced above the levels that are good for manufacturing exports. If the multinationals all move to Hamburg or wherever, the Pound (probably) loses in value and British manufactured goods become more competitive on the global market. In theory. Possibly. Who knows?

Net income declined for ten years in a row.

Btw, the IMF actually produced a special report on inequality in Germany. It is a very serious problem and probably more serious than in the US (a trade surplus is just an excess of savings over investment: Germany industrialised through subsidised loans to politically connected companies, this meant very low interest rates...they are basically China, btw China copied Japan's model and Japan copied Germany...insolvent banks, very high inefficient saving rates, very low wealth, very weak savings system, low wages, very concentrated/vulnerable economically, non-functioning capital markets...it goes on and on).