8 ms·

How Germany got it right on the economy

81 points by lotusleaf1987 16y ago

melling 16y ago
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. http://www.imdb.com/title/tt0963807 http://www.imdb.com/title/tt0963807
te_chris 16y ago
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...
- wazoox 16y ago
  Germany has other serious problems though, demography particularly.
forkandwait 16y ago
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.
- nl 16y ago
  Well generally I agree except for this: 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)
  - forkandwait 16y ago
    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.
    - jacques_chester 16y ago
      > 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.
      - forkandwait 16y ago
        >> 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).
nickpinkston 16y ago
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.
- Bertrood 16y ago
  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.
  - nickpinkston 16y ago
    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.
- edderly 16y ago
  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. Some food for thought (though the later figures don't seem accurate): http://www.wolframalpha.com/input/?i=us+gdp+growth+since+1991+vs+germany http://www.wolframalpha.com/input/?i=us+gdp+growth+since+199... http://www.wolframalpha.com/input/?i=us+employment+since+1991+vs+germany 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.
Bertrood 16y ago
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.
Stormbringer 16y ago
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
- arethuza 16y ago
  I too favor German cars - although I did have a BMW that was manufactured in the US and I wasn't too impressed with it. Having said that, I wouldn't mind owning the product of a certain Italian VW/Audi brand...
wheaties 16y ago
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.
- brc 16y ago
  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.
  - whakojacko 16y ago
    >But you could make the same argument against any US state that remains cost competitive due to the currency. 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.
    - rb2k_ 16y ago
      > However Germany also gets decent manufacturing benefits from the income disparity in the east. Strangely enough, the east has (by far) the highest unemployment rate in Germany: http://upload.wikimedia.org/wikipedia/commons/6/6f/Arbeitslosigkeit_2010-10.png 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_surcharge http://en.wikipedia.org/wiki/Taxation_in_Germany#Solidarity_...
DanielN 16y ago
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.
Benjo 16y ago
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.

81 points by lotusleaf1987 16y ago

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. http://www.imdb.com/title/tt0963807 http://www.imdb.com/title/tt0963807

te_chris 16y ago

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...

wazoox 16y ago
Germany has other serious problems though, demography particularly.

forkandwait 16y ago

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.

nl 16y ago
Well generally I agree except for this: 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)
- forkandwait 16y ago
  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.
  - jacques_chester 16y ago
    > 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.
    - forkandwait 16y ago
      >> 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).

nickpinkston 16y ago

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.

Bertrood 16y ago
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.
- nickpinkston 16y ago
  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.
edderly 16y ago
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. Some food for thought (though the later figures don't seem accurate): http://www.wolframalpha.com/input/?i=us+gdp+growth+since+1991+vs+germany http://www.wolframalpha.com/input/?i=us+gdp+growth+since+199... http://www.wolframalpha.com/input/?i=us+employment+since+1991+vs+germany 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.

Bertrood 16y ago

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.

Stormbringer 16y ago

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

arethuza 16y ago
I too favor German cars - although I did have a BMW that was manufactured in the US and I wasn't too impressed with it. Having said that, I wouldn't mind owning the product of a certain Italian VW/Audi brand...

wheaties 16y ago

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.

brc 16y ago
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.
- whakojacko 16y ago
  >But you could make the same argument against any US state that remains cost competitive due to the currency. 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.
  - rb2k_ 16y ago
    > However Germany also gets decent manufacturing benefits from the income disparity in the east. Strangely enough, the east has (by far) the highest unemployment rate in Germany: http://upload.wikimedia.org/wikipedia/commons/6/6f/Arbeitslosigkeit_2010-10.png 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_surcharge http://en.wikipedia.org/wiki/Taxation_in_Germany#Solidarity_...

DanielN 16y ago

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.

Benjo 16y ago

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.