While the US and many other parts of the world has suffered high unemployment in the present difficult economic conditions, Germany’s unemployment rate has steadily declined. It stood at 8.6% in 2007 and today is down to 6.9%. At the same time, they’re creating many of these jobs through rising exports of products, which make them doubly healthy to the German economy. German exports surged 18.5% in 2010.
Germany’s manufacturing economy has been strong during this recession…
Many attribute this to their strong manufacturing economy, which is largely focused on the automotive and industrial (heavy machinery) sectors. I was curious to read about how this has come to be: what does Germany do to stimulate its manufacturing economy? Perhaps there are some ideas we should borrow for the US.
1. Focus on high quality products customers will pay extra for rather than cheap products. As Time says, the Chinese make chainsaws, but they don’t make Stihl chainsaws. Likewise with Mercedes automobiles and many other products. When you build high quality products, the margins are higher and you can afford higher-priced employees. In addition, you’re making products that are much harder to reproduce elsewhere.
2. Family-owned firms are committed to domestic production rather than outsourcing. German executives have been unusually focused on keeping jobs in Germany. It’s not clear whether this is just a cultural tendency, or if there is more at work, but it certainly has been helpful to their economy. Part of it has to be that many German manufacturers are small and mid-sized family owned firms that have a greater commitment to their workers than corporate behemoths. This is especially impressive when you consider that labor costs in Germany are actually higher than they are in the US–it’s an even greater burden to keep domestic workers than it would be for the US.
3. Subsidies rather than lay-offs with unemployment benefits. When the recession hit, the German government subsidized wages so companies could keep their valuable employees in place and productive rather than unemployed, on the dole, and looking for jobs. This enabled German firms to put the workers on projects that would yield dividends in the future, and to keep the worker’s valuable skills and knowledge in house. Where lay-offs were still a problem, German companies went to reduced hours instead of lay-offs.
4. Successive German governments have been clear and consistent in their support for Manufacturing. Somehow the US government has always seemed to favor the Financial and Energy sectors more. The Germans have also had extremely strong ties between the University system and manufacturers.
5. Financing is dominated more by the long term perspective of banks and less by the short term perspective of stock markets. This allows German companies to plow a lot more of their profits back into making the companies even more efficient. Bank funding in Germany is much more understanding and supportive of long-term manufacturing investments. Companies have longstanding relationships with particular banks (Hausbanks) and there is loyalty between the two.
6. German employees have considerable “voice” and therefore loyalty. German employees have a high rate of pay and job security. While Unions are strong, and half of all seats on supervisory boards are reserved for employee representatives, labor acts responsibly and in concert with management for the good of the company.
7. Manufacturing is a valued occupation. German manufacturers are run by engineers rather than sales and financial people. Young adults see manufacturing as a valued occupation, and the education system is there to help them succeed if their aspiration is to get into the industry.
The German manufacturing system is certainly not perfect, but it has a lot going for it. Reading through some of this I couldn’t help but think what a great thing it would be if Apple, for example, had decided that its great high-quality products had to be manufactured in the US. Seems like we could do with a bit more manufacturing and a bit less Wall Street in this country.
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Sounds like paradise compared to here… how do I immigrate? Five generations ago my ancestors thought it would be better here than back home, guess they were eventually wrong, now how do I go back?
Start by learning the language. It is not a very easy language. I’ve been here almost 3 years and still struggle at times. I’d be willing to answer a few questions if your serious.
Lol.. Better up your game! The Germans are pretty demanding and I don’t think would tolerate a lot of what you see here. (My mom is German and I work for an auto mfg here in the US)
Sounds like paradise compared to here… how do I immigrate? Five generations ago my ancestors thought it would be better here than back home, guess they were eventually wrong, now how do I go back?
All excellent points however, the author ignored one item.
If Germany had not joined the EU currency union and had stayed on the Deutschmark then their strong growth would have resulted in increased value of their currency. This would have increased costs of exports, reduced cost of imports and put a restraint on their growth. Likewise weaker economies see their currency drop so their exports are cheaper and imports more expensive benefiting their manufacturers. This is the natural balancing that takes place between trading partners allowing all to benefit over the long run without extremes.
However the value of the EU is “averaged” with the strong economies not getting the natural correction. Likewise the weaker economies in Ireland, Greece, Spain etc. were faced with an artificially high Euro making it increasing difficult to grow their own economies leading to the spiral of collapse.
So, although Germany did all the right things and would have had a strong economy anyway a good part of the their success was at the expense of the weaker European economies.
Look at any geographic area having a common currency and in practically every case wealth is concentrated in one center with some satellite areas usually focused around a resource such as mining.
The exceptions are the communist countries such as China, with their central management, and the US where, until recent times, most of the enormous economic activity was internal and therefor not much affected by the value of the Dollar (leading to all sorts of inefficiencies such as in the steel industry that collapsed on exposure to foreign competition).
That said the US could learn a few things from Germany. It is interesting to look at the German success and see what part resulted from corporate initiatives and what part from Government programs. I recently met a German studying Spanish in Buenos Aires. She told me that in her region the Government required employers to give each employee a week each year, on full pay, to take education reasonably related to their job. In her case she worked for Lufthansa who let her accumulate two weeks and gave her the airfare, cost of the course and accommodation!
Sounds like paradise compared to here… how do I immigrate? Five generations ago my ancestors thought it would be better here than back home, guess they were eventually wrong, now how do I go back?
Start by learning the language. It is not a very easy language. I’ve been here almost 3 years and still struggle at times.
I’d be willing to answer a few questions if your serious.
Lol.. Better up your game! The Germans are pretty demanding and I don’t think would tolerate a lot of what you see here. (My mom is German and I work for an auto mfg here in the US)
Sounds like paradise compared to here… how do I immigrate? Five generations ago my ancestors thought it would be better here than back home, guess they were eventually wrong, now how do I go back?
Heck, I just wish our business management and government would consider options more along these lines so nobody would have to immigrate!
All excellent points however, the author ignored one item.
If Germany had not joined the EU currency union and had stayed on the Deutschmark then their strong growth would have resulted in increased value of their currency. This would have increased costs of exports, reduced cost of imports and put a restraint on their growth. Likewise weaker economies see their currency drop so their exports are cheaper and imports more expensive benefiting their manufacturers. This is the natural balancing that takes place between trading partners allowing all to benefit over the long run without extremes.
However the value of the EU is “averaged” with the strong economies not getting the natural correction. Likewise the weaker economies in Ireland, Greece, Spain etc. were faced with an artificially high Euro making it increasing difficult to grow their own economies leading to the spiral of collapse.
So, although Germany did all the right things and would have had a strong economy anyway a good part of the their success was at the expense of the weaker European economies.
Look at any geographic area having a common currency and in practically every case wealth is concentrated in one center with some satellite areas usually focused around a resource such as mining.
The exceptions are the communist countries such as China, with their central management, and the US where, until recent times, most of the enormous economic activity was internal and therefor not much affected by the value of the Dollar (leading to all sorts of inefficiencies such as in the steel industry that collapsed on exposure to foreign competition).
That said the US could learn a few things from Germany. It is interesting to look at the German success and see what part resulted from corporate initiatives and what part from Government programs. I recently met a German studying Spanish in Buenos Aires. She told me that in her region the Government required employers to give each employee a week each year, on full pay, to take education reasonably related to their job. In her case she worked for Lufthansa who let her accumulate two weeks and gave her the airfare, cost of the course and accommodation!