11 ms·

Germany has the economic strengths America once boasted

124 points by mapleoin 15y ago

nhaehnle 15y ago
Like many, this article fails to point out that the German model would fail if it were applied equally everywhere. From a macroeconomic perspective, Germany is "successful" because it kept real wages low relative to other Eurozone countries. In the old times this would have lead to a strong appreciation of the Mark. This balancing out via exchange rates is no longer possible within the Euro, which is why German exports are priced very competitively in the international market. This leads to high German net exports, while the Eurozone as a whole has a more or less balanced international trade. It is immediately obvious, though, that not every country can be a net exporter. Somebody has to be a net importer, and so Germany cannot be taken as a role model for the world as a whole. The other dark side of the German approach is that it makes the internal imbalances in the Eurozone, and hence the crisis, worse, and the majority of the German population doesn't really profit from it as real wages have been stagnant and even decreasing for the last decade or so.
- justincormack 15y ago
  Keeping real wages low is not the whole story. In fact the are not lower than most of Europe, although they are probably lower than the counterfactual of no euro. But it is productivity, and being in the right markets, and having the right infrastructure of companies in the same types of business that has worked, along with education and many other factors. Sure not every country can always be a net exporter, but many simply do not have competitive businesses in traded goods and services, and will end up either in debt, or with huge falls in real wages and living standards.
  - paganel 15y ago
    > But it is productivity, and being in the right markets, and having the right infrastructure of companies in the same types of business that has worked, along with education and many other factors. It's also about Germany's proximity to former Communist countries in Central and Eastern Europe (both geographically and culturally). It helped put the pressure on German workers which otherwise are heavily unionized ("you have to agree to lower wages, otherwise we'll move everything to Poland or Romania") and it also provides German-based factories with cheap assembly parts which for the most part are produced in said countries. Just as an anecdote, my older brother was just hired as a truck-driver, and he just came back from a 4-day trip from Germany (we live in Romania) where he delivered some assembled parts for German car factories. He was paid some 300 Euros for the whole trip, and while I'm too lazy to search for how much a German truck driver would have earned for the same job, I'm pretty sure it would be at least 5 times more.
    - deleted 15y ago
      [deleted]
    - macco 15y ago
      I don't think German truck drivers make 1200 a Week. Let's say 600. This seems more realistic.
    - thomasz 15y ago
      Wages for Truck Drivers in Germany by city: http://www.gehalt-tipps.de/Gehaltsvergleich/Gehalt/Lkw-Fahrer/7812.html http://www.gehalt-tipps.de/Gehaltsvergleich/Gehalt/Lkw-Fahre...
      - Tichy 15y ago
        It's a bit difficult to compare because there will presumably be things like health insurance and pension plans on top of that, but it sounds more like ~120€/day (assuming 20 work days in a month). So not that much more than the 300€ (though the real cost for the German truck driver is probably much higher with insurances and whatnot).
        franklindholm 15y ago
        For many European countries health insurance and pension plans are payed for by taxes, as for Germany specifically I don't know, but I know they have very cheap health care.
        Tichy 15y ago
        I wish - I pay between 400 and 700€/month for healthcare (public insurance). It's my biggest expense after rent. They fool employees by making the employer pay half of it, though - which of course doesn't make a real difference, but people are less likely to notice. I think the actual rate is something like 14% of your income, capped at 700 or 800€ (not sure). As I am self-employed, unfortunately by law they are required to assume a minimum income that might be higher than what I actually earn (completely absurd and unfair regulation to discourage self-employment).
  - nhaehnle 15y ago
    Real wages in absolute terms may be higher in Germany than in other parts, but arguably, the more important measure to look at is the relative change since the introduction of the Euro. After all, at the point of changeover, the exchange rates were more or less compatible with the relative competitiveness of the national economies. When you look at that relative change, a pretty stark picture emerges. See e.g. http://www.nachdenkseiten.de/upload/pdf/110207_HF+FS_Euroland_in_der_Krise.pdf http://www.nachdenkseiten.de/upload/pdf/110207_HF+FS_Eurolan... The slides are in German, unfortunately, but the graphs should be fairly clear. The first few concentrate on inflation measures. On slide 5, you see the relative development of nominal labor costs. Note in particular the deviation from the inflation target of the ECB. It is clear that Germany must accept its fair share of the blame. The irony is that from a social and moral perspective, one could argue that adjusting wages throughout the Eurozone is a good thing. Unfortunately, that has created the current imbalances on the way, and is therefore at least partially to blame for the very high unemployment in the southern Euro nations.
- mrich 15y ago
  Yes, the German export industry has been heavily subsidized by the monetary structure of the eurozone. This is paid for by the guarantees of the various bailout funds (hastily-constructed EFSF, to be replaced by permanent ESM), which are mostly backed by German and French taxpayer money. I wonder whether politicians understood the implications of monetary union one decaded ago - their dealings with it really look genuinely clueless. I am pretty sure the export industry did.
  - more_original 15y ago
    They ought to have known. German reunification and the associated monetary union had a much similar effect. One can make a rough analogy: West Germany then ~ Germany now; East Germany then ~ Greece now.
    - eru 15y ago
      I hope the Greece don't get all those Neo-Nazis that plague(d) former East Germany.
  - nickik 15y ago
    The should have known if the don't, many economist where pointing it out back then.
    - ThomPete 15y ago
      They knew very well. They just betted that it would kind of solve itself. This is a pretty well established fact as far as I know.
      - nickik 15y ago
        I like the theory that germany was forced to exapt if they wanted to have a reunion.
  - toyg 15y ago
    I think they understood it better than they've given credit for. People don't remember the political climate at the time: 20 years ago, when the Euro was planned and sanctioned, Germany was still divided, and West Germany was the top dog in economic terms among European countries (even more so than today) while most other countries (including France and UK) were fighting a recession. German public opinion didn't want to partake from the almighty Deutsche Mark, which was a rock in troubled seas (the British Pound was crashing, the French Franc was weak, the Italian Lira was losing 20% every 10 years, etc etc); French and Italian elites thought that a common currency would have allowed them to harness the German industrial strength, basically helping themselves to low interest rates they wouldn't have enjoyed otherwise. The German establishment mostly saw the Euro as a straight-jacket, a burden to accept in order to bring about their own reunification, which otherwise would have been opposed across Europe (a reunited Germany would have been dangerously powerful on its own). As it happens, it turned out better for them than for other members; this is why they keep insisting on a monetary approach to public policy that will keep others down, at least until this suites them.
- nickik 15y ago
  The problem with your agrument is that germany was a well functioning economy befor the euro and then they had a really strong currency.
- Tichy 15y ago
  "This balancing out via exchange rates is no longer possible within the Euro" Trying to understand - you mean it is not possible for other Euro countries (who also use Euro as their currency)? But does it really matter for them? They still have to come up with Euros somehow. If their only way to make Euros is to sell Olives, they might still have difficulties to afford a high end German car... As for the net importer stuff - I think some countries are just borrowing heavily, and I think Germany has been blamed for lending the money to those borrowers that in turn fuels it's exports. However, I fail to see what is so evil about it: either those borrowers become insolvent, in which case Germany gave away it's exports for free, or they can pay eventually. Also, why blame the money lender and not the borrower?
  - davidw 15y ago
    > Trying to understand - you mean it is not possible for other Euro countries (who also use Euro as their currency)? But does it really matter for them? By way of example, Italy used to devalue the currency from time to time to give a bit of a boost to exports. This, for better or worse, is no longer possible.
    - Tichy 15y ago
      Still, I am not sure if in the end, such measures are only "snake oil". Theoretically it should all cancel out eventually. For example if you devalue the currency, your people become poorer. What is the difference to just paying them lower wages and thus selling your stuff for less Euros? Seems to me it is mostly psychological: devaluing the currency can be done sneakily behind the populations back (printing more money or whatever), whereas lowering wages would get noticed. Personally I am always for more transparency, so maybe it is a good thing if the sneaky way to conduct economics goes away.
      - ckuehne 15y ago
        Tichy is right. Devaluation - if at all - works only in the short run [1]. http://johnhcochrane.blogspot.com/2012/01/should-greece-devalue.html http://johnhcochrane.blogspot.com/2012/01/should-greece-deva...
- thedaveoflife 15y ago
  The lesson from the article isn't that every country should be a net exporter like Germany... it's that Germany has found success by focusing on producing goods and insuring a minimum standard of living for the middle class. While their exact situation may not be repeatable everywhere, there is certainly a lesson in their culture for other nations. You are correct that the Germans have taken advantage of macro-economic imbalances created by the eurozone, but why was it Germany and not France or Greece that has prospered? What is unique about Germany? I would argue it is their culture of hard work, efficient businesses and financial restraint. They do things the right way... why fault them for it?
  - jennyjitters 15y ago
    I agree that there are a multitude of factors that have led Germany to the success they currently see. They have obviously found something that works very well for them (so don't hate!). I don't ever see the US mirroring their work-ethic, but we can certainly look to them to find improvements we can make in our own country. Less consumerism is key but has become so ingrained in US culture that I'm not sure it's a feasible goal. Regardless, I commend Germany for its success.
    - lispm 15y ago
      We (the Germans) were told that the US people work harder. They have either well paid jobs without vacation or they have several low-paid jobs. Plus they had to be more flexible, have less protection, drive long to get to their homes in the suburbs,...
- lispm 15y ago
  Gernan wages are higher than most in the Eurozone. It's just that they were not growing. Plus we added a lot of jobs which are relatively low paid. But many of those jobs don't exist in, say, Spain. In spain you are then unemployed. Which is especially common among young people.
- jfoutz 15y ago
  It's not obvious at all. exactly two trading partners with seasonal improvements in exports and constantly growing economies could have this sort of export data: http://www.wolframalpha.com/input/?i=x%2B+sin+x%2C+x%2Bcos+x http://www.wolframalpha.com/input/?i=x%2B+sin+x%2C+x%2Bcos+x just cherry pick your reporting dates, everyone is a net exporter.
junto 15y ago
The excellent public services are paid for through extremely high income taxes. I am happy to pay them though as the services and infrastructure provided are exemplary.
- danieldk 15y ago
  Are the public services so great? If you are unemployed, Harz IV, provides barely enough money to live a decent life (especially compared to other Western-European countries). Healthcare often distinguishes people who have private insurance (only accessible to public officers, self-employed, and employees earning more than 50,000 Euro) or public insurance. Germany also doesn't have a minimum wage.
  - thomasz 15y ago
    Yes, when compared with US/UK, they are quite good. You have guaranteed access to decent and affordable socialized medical care. My sister has Multiple sclerosis, treatment is very expansive. The treatment is very expansive, the medicine alone costs a few thousand euros each month, she has to go into a MRI a few times a year, and she still doesn't have to pay more for her insurance than anyone else. If she would lose her job, insurance would be taken over by other public services. Basic unemployment benefits are quite low, but still enough keep you warm, fed and clothed. In fact, you get paid more than I had while studying. You are not forced to liquidate property that doesn't exceed reasonable limits. Loosing your job doesn't bring you on the edge of being homeless.
  - mjwalshe 15y ago
    Try living on the uk JSA (£67.50 a week) if you think that German unemployment benefits are low. That is asuming your employer has been paying its NI properly my previous one was not and I got nothing.
  - gcp 15y ago
    If you are unemployed, Harz IV, provides barely enough money to live a decent life (especially compared to other Western-European countries). As someone in one of those other Western-European countries, I can only say this is a good thing. If unemployment benefits are so high that the cost of child care, transportation, etc dwarfs the extra income from a real job, you aren't going to work. Harz IV was harsh, but it allowed the Germans to get their finances right, and they did so timely. Every other European country will face much more serious cuts or go bankrupt. (Or pray to the Germans to pay for their excessive lifestyle, which is what's happening now)
mathattack 15y ago
Interesting - in a few days we have articles from the New York Times pointing to Pacific competition in manufacturing, and the LA Times pointing to European competition in manufacturing. What's interesting is the article on Germany provides a more positive message. "Just a little less consumerism, a little bigger social net, and more vocational training, and everything will be all right." The article on China was, "It ain't coming back." My bias is the New York Times article more accurately captures the truth for high tech. It's a game of systems and clusters, and it's hard to see us winning. There's little competitive advantage any more, except at our top engineering schools. Perhaps we're better off becoming the world's best farmers?
- Vivtek 15y ago
  Yeah - "it ain't coming back", but is it not coming back because we don't prostrate ourselves enough, or because we don't care for our workers enough? They seem to want to have it both ways.
- scott_w 15y ago
  If you're right, then it could be because of the difference between building cars and building circuits. It's unlikely Asia will get the same monopoly on building Western cars it has on high tech, simply because cars are difficult to transport. Consider how many cars you can fit on a container ship compared to how many motherboards. Another, more assailable, advantage is the reputation Germany has for building cars (the phrase "German Engineering" comes to mind). When someone is about to splash £80k on a Mercedes, they want to know it was built to perfection, and not in a sweatshop which, true or not, is an image commonly ascribed to Asian factories.
  - eru 15y ago
    Do you know why "Made in <country>" was originally introduced? It was a 19th century ploy by the British to make their consumer able to discriminate against those cheap poorly produced German goods which often tried to pass themselves of as British.
gcp 15y ago
There's another thing to be jealous of that isn't mentioned: a huge amount (85%), and some of Germany's biggest corporations are privately or family owned. I'm only familiar with the automotive part of it, but companies like INA Schaeffler (70k own employees + 220k Continental) are effectively owned by a mom and son team. Bosch (300k+ employees) is owned by a charitable foundation and a family. Volkswagen Group (400k employees) is for a large part owned by the state and had until recently a law protecting their voting rights. (I seem to recall the unions own part of it too, but I couldn't find a good reference. Maybe it was another carmaker?) Outside the automotive industry, conglomerates like Siemens (>360k employees) also seem to have been family businesses for the longest times, judging by all the von Siemens that served as board members or CEO. I'd hazard to say that these ownership structures allow German businesses to plan for long term growth rather than quarterly earnings and current stock values. I have no idea why or how that situation came to be though.
- shingen 15y ago
  Well if you like things that are state owned, the government system in America owns 45% of the entire US economy (roughly $7 trillion in spending between local + state + federal). Surely that makes it possible for our economy to plan really far into the future. The reality is, you can have two identical government or business systems, and one can be a complete failure and the other can be wildly successful. It comes down to culture. America's culture is rotting and has been for decades. Sloth and greed dominate, and that's a bad combination (people do less and expect more).
  - gcp 15y ago
    Well if you like things that are state owned My post talks about family owned businesses, which is pretty much as far away from state owned as possible. I gave Volkswagen as an additional example where there's limits on the voting rights of public stock. the government system in America owns 45% of the entire US economy I'm talking about real corporations, that in some circumstances are running circles around their American counterparts. This 45% of the economy you talk about is almost entirely pure "losses" that are almost-but-not-entirely compensated by taxes right? The comparison is silly.
shingen 15y ago
People incorrectly focus on trade deficits. It has become universal wisdom that being a net exporter is the key. America ran trade deficits during the fastest period of its growth, almost the entire 19th century. So how did we accumulate so much real wealth and production while running trade deficits? Answer: because the profits being generated domestically outstripped the import imbalance. We had no real national debt. Debt being a killer if you have a trade deficit (countries like China end up buying up your debt as a place to park their imported dollars, then you become beholden to their interests).
yaix 15y ago
"A company might reduce the hours of all workers to avert laying off an employee." These kind of politics are probably the main reason, why Germany is currently relatively well economically. They permit to avoid large overhead costs in economically uncertain/fluctuating times. Why companies do that? Large companies in Germany are run 50% by the unions and only 50% by the stockholders. If you want to lay of people, the union representatives have to agree. That avoids that the CEO takes simple shortcuts like mass layoff to save some money shortterm for the upcoming quarterly report. They are forced to considder the wellbeing of the employees as well, because the employees' union partially run the business.
- lispm 15y ago
  Germany has this instrument for decades. In this case it was easy to see. The economic crisis before had seen a more layoffs. So companies knew the effect and they wanted to avoid it. They wanted to keep their workforce to avoid the cost of rehiring well trained people, to be able to take advantage from the recovery as early as possible, etc. It was not just the Unions. Even the conservative government also was part of it.
  - yaix 15y ago
    Never said "just the unions". But remember the VW deal in the 90s about the 4 day workweek, to avoid layoffs as VW cut down production back then? That was the unions, and that was a milestone to show how it could be done. So when this crisis came, there was some good experience with temporarily reduced work hours.
    - lispm 15y ago
      Correct. Plus their was the bad experience of not doing enough during the last crisis.
- CWuestefeld 15y ago
  They are forced to considder the wellbeing of the employees as well A practical example of this is the Cologne-based Toyota F1 racing team [1] of a few years back. Despite having one of the largest budgets and workforces in the sport, the team was never successful at all, never having won a race. Common wisdom among racing pundits was that the workforce was inefficient, and just not cut out to be a top-rank F1 team. But the labor practices of Germany prevented Toyota from getting rid of the deadwood to build up a better-performing team. The end result was that Toyota threw in the towel and got out of the sport altogether. Of course, other examples in the OP show different results. But the absolute meritocracy of top-tier sports is hard to argue against. I would submit that it's a purer example (although "anecdote" isn't the singular of "data"), since the intrigues of international politics and voodoo of macro economics may obscure much of the truth. [1] http://en.wikipedia.org/wiki/Toyota_Racing http://en.wikipedia.org/wiki/Toyota_Racing
choros12 15y ago
The Germans I know when asked to compared Germany now to Germany from 70s or 80s always say that it used to be MUCH better. The same goes with my friends in the USA. Peaked?
- lispm 15y ago
  I'm German and it is much better now. Europe is no longer divided. I can travel around. Pay in a single currency. War is a distant memory. Infrastructure is much improved. Even the environment is better now. Rivers are cleaner. Air is cleaner. The political conflicts are less. There are huge market opportunities for our companies. Right next to us it takes decades of growth to improve East Europe's living standards and economies.
- deleted 15y ago
  [deleted]
- robert-boehnke 15y ago
  I'm sure people from the former GDR would beg to differ.
- lmm 15y ago
  Old people always say that; I wouldn't read too much in to it. Trivial but revealing example: ask people how they think the murder rate is compared to 15 years ago, and compare it to the statistics.
tokenadult 15y ago
As an American who woke up in a United States time zone to see this article here, I'm especially appreciative of the comments on the article from Europeans. Because the article makes the claim "Vera and Volkmar Kruger, seen here in the town of Limburg, Germany, not far from their home in Elz, earn about $40,000 a year but live as well as an American couple making twice as much," I'll comment on this from the point of view I think some of my American neighbors would have. I live in a house somewhat newer than the house the Kruger family lives in in Germany, also a house that is contiguous with the neighbors' houses (and rented, in my case). I am surprised to see that the article, and the comments posted so far as I post this comment, do not mention even more prominently that one of the big lifestyle differences, which drives HUGE economic policy differences, between Germany and the United States is housing preferences. The United States government has federal policies and many state and local policies that provide incentives for people to take out long-term mortgages to buy single-family houses on lots that are quite large by worldwide standards. Local zoning regulations in the towns near where I live are such that thousands of houses are on lots more than one hectare (2.47 acres) in size within ten kilometers of where I live, and a typical lot would look very large to most people from Germany. Culturally, for a very long time Americans have liked to be "land poor," tying up many of their family assets in the barely liquid form of a house and lot paid for by long-term debt. Many American economists over the years have bought into the idea that real estate investment by the masses is a productive form of investment for the national economy, but other economists have long criticized an American overemphasis (promoted by federal tax policy and local land-use regulations) on houses that are as big as public buildings in most countries, built on lots that are as big as whole farms in the other country I have lived in (Taiwan). Several of the newly industrialized countries in east Asia, and several countries in Europe, have family spending patterns that devote much less money to housing, at a given level of income, than families spend in the United States. I recall one American friend I knew a decade ago in Taiwan who described a middle-class neighborhood of walk-up apartment buildings in Taipei as a "slum," although to my eye it looked like a fine place to live, and indeed was cleaner and more spacious than the neighborhood I then lived in in a suburb of Taipei. Spending less money on a grassy lawn allows spending more money on family travel during vacations (as the German family in the submitted article does) or on supplemental education for children (as my family does or as many families in east Asia do). Either the German pattern or the Taiwanese pattern of spending appears to result in more effective development of young people's skills (investment in "human capital") than the current United States pattern, and investment in a skilled next generation tends to promote steady national economic growth. So to me, the sad thing about this interesting submitted article is that many Americans are going to look at the photograph of the Krugers' "Tudor-style house in" a middle-class town, and say, "I would never want to live like that," and not think through the implications of polices that nudge Americans to buy ever bigger houses, built on ever bigger lots, for ever smaller families generation after generation. One reason that the American housing market collapsed a few years ago is that most Americans didn't recognize the housing market bubble as a bubble--rather, they genuinely couldn't imagine a world in which people would do anything other than continually overspend on housing and underspend on developing employment skills. Perhaps some Americans will happily adapt to a more German lifestyle (as my family has done), but the United States as a whole is unlikely to have a strong national economy to the degree that Germany does unless millions of voters change their individual purchasing decisions and views on appropriate governmental policies.
grumblepeet 15y ago
I agree with a lot from this article. I am working in Nuremberg at the moment and have been here for over a month. From what I can see most people work very long hours, much longer than in the UK, and seem to take less holiday time (although their unions etc do make sure they take them when they have clocked up too many hours). People appear very loyal to their companies, even when they think that the company is going in the wrong direction. There is a strong work ethic. Plus sides - I have never seen so many big cars, Mercedes etc obviously being driven by ordinary people, in the UK would be upper middle class. Doesnt seem to be rows of closed down shops on high streets like in the UK - most shopping streets in UK are like ghost towns these days. Down sides. Looong hours at work. Most people live in apartments and not big semi or detached houses.

124 points by mapleoin 15y ago

Like many, this article fails to point out that the German model would fail if it were applied equally everywhere. From a macroeconomic perspective, Germany is "successful" because it kept real wages low relative to other Eurozone countries. In the old times this would have lead to a strong appreciation of the Mark. This balancing out via exchange rates is no longer possible within the Euro, which is why German exports are priced very competitively in the international market. This leads to high German net exports, while the Eurozone as a whole has a more or less balanced international trade. It is immediately obvious, though, that not every country can be a net exporter. Somebody has to be a net importer, and so Germany cannot be taken as a role model for the world as a whole. The other dark side of the German approach is that it makes the internal imbalances in the Eurozone, and hence the crisis, worse, and the majority of the German population doesn't really profit from it as real wages have been stagnant and even decreasing for the last decade or so.

justincormack 15y ago
Keeping real wages low is not the whole story. In fact the are not lower than most of Europe, although they are probably lower than the counterfactual of no euro. But it is productivity, and being in the right markets, and having the right infrastructure of companies in the same types of business that has worked, along with education and many other factors. Sure not every country can always be a net exporter, but many simply do not have competitive businesses in traded goods and services, and will end up either in debt, or with huge falls in real wages and living standards.
- paganel 15y ago
  > But it is productivity, and being in the right markets, and having the right infrastructure of companies in the same types of business that has worked, along with education and many other factors. It's also about Germany's proximity to former Communist countries in Central and Eastern Europe (both geographically and culturally). It helped put the pressure on German workers which otherwise are heavily unionized ("you have to agree to lower wages, otherwise we'll move everything to Poland or Romania") and it also provides German-based factories with cheap assembly parts which for the most part are produced in said countries. Just as an anecdote, my older brother was just hired as a truck-driver, and he just came back from a 4-day trip from Germany (we live in Romania) where he delivered some assembled parts for German car factories. He was paid some 300 Euros for the whole trip, and while I'm too lazy to search for how much a German truck driver would have earned for the same job, I'm pretty sure it would be at least 5 times more.
  - deleted 15y ago
    [deleted]
  - macco 15y ago
    I don't think German truck drivers make 1200 a Week. Let's say 600. This seems more realistic.
  - thomasz 15y ago
    Wages for Truck Drivers in Germany by city: http://www.gehalt-tipps.de/Gehaltsvergleich/Gehalt/Lkw-Fahrer/7812.html http://www.gehalt-tipps.de/Gehaltsvergleich/Gehalt/Lkw-Fahre...
    - Tichy 15y ago
      It's a bit difficult to compare because there will presumably be things like health insurance and pension plans on top of that, but it sounds more like ~120€/day (assuming 20 work days in a month). So not that much more than the 300€ (though the real cost for the German truck driver is probably much higher with insurances and whatnot).
      - franklindholm 15y ago
        For many European countries health insurance and pension plans are payed for by taxes, as for Germany specifically I don't know, but I know they have very cheap health care.
        Tichy 15y ago
        I wish - I pay between 400 and 700€/month for healthcare (public insurance). It's my biggest expense after rent. They fool employees by making the employer pay half of it, though - which of course doesn't make a real difference, but people are less likely to notice. I think the actual rate is something like 14% of your income, capped at 700 or 800€ (not sure). As I am self-employed, unfortunately by law they are required to assume a minimum income that might be higher than what I actually earn (completely absurd and unfair regulation to discourage self-employment).
- nhaehnle 15y ago
  Real wages in absolute terms may be higher in Germany than in other parts, but arguably, the more important measure to look at is the relative change since the introduction of the Euro. After all, at the point of changeover, the exchange rates were more or less compatible with the relative competitiveness of the national economies. When you look at that relative change, a pretty stark picture emerges. See e.g. http://www.nachdenkseiten.de/upload/pdf/110207_HF+FS_Euroland_in_der_Krise.pdf http://www.nachdenkseiten.de/upload/pdf/110207_HF+FS_Eurolan... The slides are in German, unfortunately, but the graphs should be fairly clear. The first few concentrate on inflation measures. On slide 5, you see the relative development of nominal labor costs. Note in particular the deviation from the inflation target of the ECB. It is clear that Germany must accept its fair share of the blame. The irony is that from a social and moral perspective, one could argue that adjusting wages throughout the Eurozone is a good thing. Unfortunately, that has created the current imbalances on the way, and is therefore at least partially to blame for the very high unemployment in the southern Euro nations.
mrich 15y ago
Yes, the German export industry has been heavily subsidized by the monetary structure of the eurozone. This is paid for by the guarantees of the various bailout funds (hastily-constructed EFSF, to be replaced by permanent ESM), which are mostly backed by German and French taxpayer money. I wonder whether politicians understood the implications of monetary union one decaded ago - their dealings with it really look genuinely clueless. I am pretty sure the export industry did.
- more_original 15y ago
  They ought to have known. German reunification and the associated monetary union had a much similar effect. One can make a rough analogy: West Germany then ~ Germany now; East Germany then ~ Greece now.
  - eru 15y ago
    I hope the Greece don't get all those Neo-Nazis that plague(d) former East Germany.
- nickik 15y ago
  The should have known if the don't, many economist where pointing it out back then.
  - ThomPete 15y ago
    They knew very well. They just betted that it would kind of solve itself. This is a pretty well established fact as far as I know.
    - nickik 15y ago
      I like the theory that germany was forced to exapt if they wanted to have a reunion.
- toyg 15y ago
  I think they understood it better than they've given credit for. People don't remember the political climate at the time: 20 years ago, when the Euro was planned and sanctioned, Germany was still divided, and West Germany was the top dog in economic terms among European countries (even more so than today) while most other countries (including France and UK) were fighting a recession. German public opinion didn't want to partake from the almighty Deutsche Mark, which was a rock in troubled seas (the British Pound was crashing, the French Franc was weak, the Italian Lira was losing 20% every 10 years, etc etc); French and Italian elites thought that a common currency would have allowed them to harness the German industrial strength, basically helping themselves to low interest rates they wouldn't have enjoyed otherwise. The German establishment mostly saw the Euro as a straight-jacket, a burden to accept in order to bring about their own reunification, which otherwise would have been opposed across Europe (a reunited Germany would have been dangerously powerful on its own). As it happens, it turned out better for them than for other members; this is why they keep insisting on a monetary approach to public policy that will keep others down, at least until this suites them.
nickik 15y ago
The problem with your agrument is that germany was a well functioning economy befor the euro and then they had a really strong currency.
Tichy 15y ago
"This balancing out via exchange rates is no longer possible within the Euro" Trying to understand - you mean it is not possible for other Euro countries (who also use Euro as their currency)? But does it really matter for them? They still have to come up with Euros somehow. If their only way to make Euros is to sell Olives, they might still have difficulties to afford a high end German car... As for the net importer stuff - I think some countries are just borrowing heavily, and I think Germany has been blamed for lending the money to those borrowers that in turn fuels it's exports. However, I fail to see what is so evil about it: either those borrowers become insolvent, in which case Germany gave away it's exports for free, or they can pay eventually. Also, why blame the money lender and not the borrower?
- davidw 15y ago
  > Trying to understand - you mean it is not possible for other Euro countries (who also use Euro as their currency)? But does it really matter for them? By way of example, Italy used to devalue the currency from time to time to give a bit of a boost to exports. This, for better or worse, is no longer possible.
  - Tichy 15y ago
    Still, I am not sure if in the end, such measures are only "snake oil". Theoretically it should all cancel out eventually. For example if you devalue the currency, your people become poorer. What is the difference to just paying them lower wages and thus selling your stuff for less Euros? Seems to me it is mostly psychological: devaluing the currency can be done sneakily behind the populations back (printing more money or whatever), whereas lowering wages would get noticed. Personally I am always for more transparency, so maybe it is a good thing if the sneaky way to conduct economics goes away.
    - ckuehne 15y ago
      Tichy is right. Devaluation - if at all - works only in the short run [1]. http://johnhcochrane.blogspot.com/2012/01/should-greece-devalue.html http://johnhcochrane.blogspot.com/2012/01/should-greece-deva...
thedaveoflife 15y ago
The lesson from the article isn't that every country should be a net exporter like Germany... it's that Germany has found success by focusing on producing goods and insuring a minimum standard of living for the middle class. While their exact situation may not be repeatable everywhere, there is certainly a lesson in their culture for other nations. You are correct that the Germans have taken advantage of macro-economic imbalances created by the eurozone, but why was it Germany and not France or Greece that has prospered? What is unique about Germany? I would argue it is their culture of hard work, efficient businesses and financial restraint. They do things the right way... why fault them for it?
- jennyjitters 15y ago
  I agree that there are a multitude of factors that have led Germany to the success they currently see. They have obviously found something that works very well for them (so don't hate!). I don't ever see the US mirroring their work-ethic, but we can certainly look to them to find improvements we can make in our own country. Less consumerism is key but has become so ingrained in US culture that I'm not sure it's a feasible goal. Regardless, I commend Germany for its success.
  - lispm 15y ago
    We (the Germans) were told that the US people work harder. They have either well paid jobs without vacation or they have several low-paid jobs. Plus they had to be more flexible, have less protection, drive long to get to their homes in the suburbs,...
lispm 15y ago
Gernan wages are higher than most in the Eurozone. It's just that they were not growing. Plus we added a lot of jobs which are relatively low paid. But many of those jobs don't exist in, say, Spain. In spain you are then unemployed. Which is especially common among young people.
jfoutz 15y ago
It's not obvious at all. exactly two trading partners with seasonal improvements in exports and constantly growing economies could have this sort of export data: http://www.wolframalpha.com/input/?i=x%2B+sin+x%2C+x%2Bcos+x http://www.wolframalpha.com/input/?i=x%2B+sin+x%2C+x%2Bcos+x just cherry pick your reporting dates, everyone is a net exporter.

junto 15y ago

The excellent public services are paid for through extremely high income taxes. I am happy to pay them though as the services and infrastructure provided are exemplary.

danieldk 15y ago
Are the public services so great? If you are unemployed, Harz IV, provides barely enough money to live a decent life (especially compared to other Western-European countries). Healthcare often distinguishes people who have private insurance (only accessible to public officers, self-employed, and employees earning more than 50,000 Euro) or public insurance. Germany also doesn't have a minimum wage.
- thomasz 15y ago
  Yes, when compared with US/UK, they are quite good. You have guaranteed access to decent and affordable socialized medical care. My sister has Multiple sclerosis, treatment is very expansive. The treatment is very expansive, the medicine alone costs a few thousand euros each month, she has to go into a MRI a few times a year, and she still doesn't have to pay more for her insurance than anyone else. If she would lose her job, insurance would be taken over by other public services. Basic unemployment benefits are quite low, but still enough keep you warm, fed and clothed. In fact, you get paid more than I had while studying. You are not forced to liquidate property that doesn't exceed reasonable limits. Loosing your job doesn't bring you on the edge of being homeless.
- mjwalshe 15y ago
  Try living on the uk JSA (£67.50 a week) if you think that German unemployment benefits are low. That is asuming your employer has been paying its NI properly my previous one was not and I got nothing.
- gcp 15y ago
  If you are unemployed, Harz IV, provides barely enough money to live a decent life (especially compared to other Western-European countries). As someone in one of those other Western-European countries, I can only say this is a good thing. If unemployment benefits are so high that the cost of child care, transportation, etc dwarfs the extra income from a real job, you aren't going to work. Harz IV was harsh, but it allowed the Germans to get their finances right, and they did so timely. Every other European country will face much more serious cuts or go bankrupt. (Or pray to the Germans to pay for their excessive lifestyle, which is what's happening now)

mathattack 15y ago

Interesting - in a few days we have articles from the New York Times pointing to Pacific competition in manufacturing, and the LA Times pointing to European competition in manufacturing. What's interesting is the article on Germany provides a more positive message. "Just a little less consumerism, a little bigger social net, and more vocational training, and everything will be all right." The article on China was, "It ain't coming back." My bias is the New York Times article more accurately captures the truth for high tech. It's a game of systems and clusters, and it's hard to see us winning. There's little competitive advantage any more, except at our top engineering schools. Perhaps we're better off becoming the world's best farmers?

Vivtek 15y ago
Yeah - "it ain't coming back", but is it not coming back because we don't prostrate ourselves enough, or because we don't care for our workers enough? They seem to want to have it both ways.
scott_w 15y ago
If you're right, then it could be because of the difference between building cars and building circuits. It's unlikely Asia will get the same monopoly on building Western cars it has on high tech, simply because cars are difficult to transport. Consider how many cars you can fit on a container ship compared to how many motherboards. Another, more assailable, advantage is the reputation Germany has for building cars (the phrase "German Engineering" comes to mind). When someone is about to splash £80k on a Mercedes, they want to know it was built to perfection, and not in a sweatshop which, true or not, is an image commonly ascribed to Asian factories.
- eru 15y ago
  Do you know why "Made in <country>" was originally introduced? It was a 19th century ploy by the British to make their consumer able to discriminate against those cheap poorly produced German goods which often tried to pass themselves of as British.

gcp 15y ago

There's another thing to be jealous of that isn't mentioned: a huge amount (85%), and some of Germany's biggest corporations are privately or family owned. I'm only familiar with the automotive part of it, but companies like INA Schaeffler (70k own employees + 220k Continental) are effectively owned by a mom and son team. Bosch (300k+ employees) is owned by a charitable foundation and a family. Volkswagen Group (400k employees) is for a large part owned by the state and had until recently a law protecting their voting rights. (I seem to recall the unions own part of it too, but I couldn't find a good reference. Maybe it was another carmaker?) Outside the automotive industry, conglomerates like Siemens (>360k employees) also seem to have been family businesses for the longest times, judging by all the von Siemens that served as board members or CEO. I'd hazard to say that these ownership structures allow German businesses to plan for long term growth rather than quarterly earnings and current stock values. I have no idea why or how that situation came to be though.

shingen 15y ago
Well if you like things that are state owned, the government system in America owns 45% of the entire US economy (roughly $7 trillion in spending between local + state + federal). Surely that makes it possible for our economy to plan really far into the future. The reality is, you can have two identical government or business systems, and one can be a complete failure and the other can be wildly successful. It comes down to culture. America's culture is rotting and has been for decades. Sloth and greed dominate, and that's a bad combination (people do less and expect more).
- gcp 15y ago
  Well if you like things that are state owned My post talks about family owned businesses, which is pretty much as far away from state owned as possible. I gave Volkswagen as an additional example where there's limits on the voting rights of public stock. the government system in America owns 45% of the entire US economy I'm talking about real corporations, that in some circumstances are running circles around their American counterparts. This 45% of the economy you talk about is almost entirely pure "losses" that are almost-but-not-entirely compensated by taxes right? The comparison is silly.

shingen 15y ago

People incorrectly focus on trade deficits. It has become universal wisdom that being a net exporter is the key. America ran trade deficits during the fastest period of its growth, almost the entire 19th century. So how did we accumulate so much real wealth and production while running trade deficits? Answer: because the profits being generated domestically outstripped the import imbalance. We had no real national debt. Debt being a killer if you have a trade deficit (countries like China end up buying up your debt as a place to park their imported dollars, then you become beholden to their interests).

yaix 15y ago

"A company might reduce the hours of all workers to avert laying off an employee." These kind of politics are probably the main reason, why Germany is currently relatively well economically. They permit to avoid large overhead costs in economically uncertain/fluctuating times. Why companies do that? Large companies in Germany are run 50% by the unions and only 50% by the stockholders. If you want to lay of people, the union representatives have to agree. That avoids that the CEO takes simple shortcuts like mass layoff to save some money shortterm for the upcoming quarterly report. They are forced to considder the wellbeing of the employees as well, because the employees' union partially run the business.

lispm 15y ago
Germany has this instrument for decades. In this case it was easy to see. The economic crisis before had seen a more layoffs. So companies knew the effect and they wanted to avoid it. They wanted to keep their workforce to avoid the cost of rehiring well trained people, to be able to take advantage from the recovery as early as possible, etc. It was not just the Unions. Even the conservative government also was part of it.
- yaix 15y ago
  Never said "just the unions". But remember the VW deal in the 90s about the 4 day workweek, to avoid layoffs as VW cut down production back then? That was the unions, and that was a milestone to show how it could be done. So when this crisis came, there was some good experience with temporarily reduced work hours.
  - lispm 15y ago
    Correct. Plus their was the bad experience of not doing enough during the last crisis.
CWuestefeld 15y ago
They are forced to considder the wellbeing of the employees as well A practical example of this is the Cologne-based Toyota F1 racing team [1] of a few years back. Despite having one of the largest budgets and workforces in the sport, the team was never successful at all, never having won a race. Common wisdom among racing pundits was that the workforce was inefficient, and just not cut out to be a top-rank F1 team. But the labor practices of Germany prevented Toyota from getting rid of the deadwood to build up a better-performing team. The end result was that Toyota threw in the towel and got out of the sport altogether. Of course, other examples in the OP show different results. But the absolute meritocracy of top-tier sports is hard to argue against. I would submit that it's a purer example (although "anecdote" isn't the singular of "data"), since the intrigues of international politics and voodoo of macro economics may obscure much of the truth. [1] http://en.wikipedia.org/wiki/Toyota_Racing http://en.wikipedia.org/wiki/Toyota_Racing

choros12 15y ago

The Germans I know when asked to compared Germany now to Germany from 70s or 80s always say that it used to be MUCH better. The same goes with my friends in the USA. Peaked?

lispm 15y ago
I'm German and it is much better now. Europe is no longer divided. I can travel around. Pay in a single currency. War is a distant memory. Infrastructure is much improved. Even the environment is better now. Rivers are cleaner. Air is cleaner. The political conflicts are less. There are huge market opportunities for our companies. Right next to us it takes decades of growth to improve East Europe's living standards and economies.
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robert-boehnke 15y ago
I'm sure people from the former GDR would beg to differ.
lmm 15y ago
Old people always say that; I wouldn't read too much in to it. Trivial but revealing example: ask people how they think the murder rate is compared to 15 years ago, and compare it to the statistics.

tokenadult 15y ago

As an American who woke up in a United States time zone to see this article here, I'm especially appreciative of the comments on the article from Europeans. Because the article makes the claim "Vera and Volkmar Kruger, seen here in the town of Limburg, Germany, not far from their home in Elz, earn about $40,000 a year but live as well as an American couple making twice as much," I'll comment on this from the point of view I think some of my American neighbors would have. I live in a house somewhat newer than the house the Kruger family lives in in Germany, also a house that is contiguous with the neighbors' houses (and rented, in my case). I am surprised to see that the article, and the comments posted so far as I post this comment, do not mention even more prominently that one of the big lifestyle differences, which drives HUGE economic policy differences, between Germany and the United States is housing preferences. The United States government has federal policies and many state and local policies that provide incentives for people to take out long-term mortgages to buy single-family houses on lots that are quite large by worldwide standards. Local zoning regulations in the towns near where I live are such that thousands of houses are on lots more than one hectare (2.47 acres) in size within ten kilometers of where I live, and a typical lot would look very large to most people from Germany. Culturally, for a very long time Americans have liked to be "land poor," tying up many of their family assets in the barely liquid form of a house and lot paid for by long-term debt. Many American economists over the years have bought into the idea that real estate investment by the masses is a productive form of investment for the national economy, but other economists have long criticized an American overemphasis (promoted by federal tax policy and local land-use regulations) on houses that are as big as public buildings in most countries, built on lots that are as big as whole farms in the other country I have lived in (Taiwan). Several of the newly industrialized countries in east Asia, and several countries in Europe, have family spending patterns that devote much less money to housing, at a given level of income, than families spend in the United States. I recall one American friend I knew a decade ago in Taiwan who described a middle-class neighborhood of walk-up apartment buildings in Taipei as a "slum," although to my eye it looked like a fine place to live, and indeed was cleaner and more spacious than the neighborhood I then lived in in a suburb of Taipei. Spending less money on a grassy lawn allows spending more money on family travel during vacations (as the German family in the submitted article does) or on supplemental education for children (as my family does or as many families in east Asia do). Either the German pattern or the Taiwanese pattern of spending appears to result in more effective development of young people's skills (investment in "human capital") than the current United States pattern, and investment in a skilled next generation tends to promote steady national economic growth. So to me, the sad thing about this interesting submitted article is that many Americans are going to look at the photograph of the Krugers' "Tudor-style house in" a middle-class town, and say, "I would never want to live like that," and not think through the implications of polices that nudge Americans to buy ever bigger houses, built on ever bigger lots, for ever smaller families generation after generation. One reason that the American housing market collapsed a few years ago is that most Americans didn't recognize the housing market bubble as a bubble--rather, they genuinely couldn't imagine a world in which people would do anything other than continually overspend on housing and underspend on developing employment skills. Perhaps some Americans will happily adapt to a more German lifestyle (as my family has done), but the United States as a whole is unlikely to have a strong national economy to the degree that Germany does unless millions of voters change their individual purchasing decisions and views on appropriate governmental policies.

grumblepeet 15y ago

I agree with a lot from this article. I am working in Nuremberg at the moment and have been here for over a month. From what I can see most people work very long hours, much longer than in the UK, and seem to take less holiday time (although their unions etc do make sure they take them when they have clocked up too many hours). People appear very loyal to their companies, even when they think that the company is going in the wrong direction. There is a strong work ethic. Plus sides - I have never seen so many big cars, Mercedes etc obviously being driven by ordinary people, in the UK would be upper middle class. Doesnt seem to be rows of closed down shops on high streets like in the UK - most shopping streets in UK are like ghost towns these days. Down sides. Looong hours at work. Most people live in apartments and not big semi or detached houses.