Steven Rattner
What Europe's Manufacturing Powerhouse Can Teach America
Foreign Affairs, July/
As Americans fret about persistent economic challenges, particularly high unemployment, a nearly opposite mood pervades Germany. Neither the economic crises in the rest of the eurozone nor the instability in the
When it comes to boosting exports, of course, the need to maintain or even increase the size of the manufacturing sector, in particular, has been an article of faith in major developed countries for decades. Politicians and voters alike believe that having companies that "make something" is a key element of economic success, in part because manufacturing jobs have historically paid above average wages. For its part, Germany embraced manufacturing, and much of its economic success is thanks to that decision.
THE MITTELSTAND MIRACLE
Germans credit both their public and their private sectors for their country's success.
This greater job security was afforded in large measure through a "short work" scheme: workers' total number of hours were reduced to avoid layoffs, and the government covered part of their lost salaries. Approximately 1.5 million Germans were enrolled in the program at its peak, in
Of at least equal importance was the role of the private sector, especially the innumerable small and medium-sized manufacturing firms known as the Mittelstand. These companies combine the advantages of stable family ownership with a focus on producing sophisticated goods that emerging markets cannot easily replicate. As Germans like to say, "We make the thing that goes inside the thing that goes inside the thing." Although family-owned businesses can be a mixed blessing, of course -- they are subject to familial strife and succession problems -- the overall success of these companies is widely acknowledged. The Mittelstand now employ millions of people and seem to put a higher priority on employing Germans than do publicly traded multinational giants. Many Germans believe that since the Mittelstand are privately owned, they focus more on long-term growth than short-term profits.
A significant portion of
Some have warned that
BAD FOR EU, GOOD FOR ME
Although
At the same time, the short-work program adversely affected productivity: between 2007 and 2009, GDP per employee fell by five percent in Germany while rising by two percent in The United States. The tension between maximizing productivity, or competitiveness, and maximizing employment is something almost all developed countries face. In some ways, Germany and The United States are on opposite ends of this spectrum. Germany maximized employment, and its GDP suffered; the flexible U.S. economy tends to maximize productivity, and it has a higher unemployment rate as a result.
Meanwhile, the introduction of the euro in 1999 quietly brought Germany another advantage: it fused the country to others whose competitiveness, as measured by the cost of each unit of labor, had stagnated, particularly
The eurozone's weak economic performance and the simmering sovereign debt crises in several peripheral eurozone countries have kept the value of the euro well below what the deutsche mark would be worth today if it still existed. (According to some estimates, if Germany abandoned the euro, its currency would immediately appreciate by 30 to 40 percent.) This gives Germany an enormous competitive trade advantage over countries with their own, more expensive currencies, such as the
LEARNING
Whatever its flaws, the German model shows that a developed country can remain competitive even in a world where new economic giants, such as
As the German example has shown, superior products, and at least some with significant brand recognition, can buoy an entire economy. Even though locally produced Buicks are a huge success in
The United States will also have to be realistic, however. Given the high rates of investment in the developing countries and the fact that these countries' workers are becoming increasingly skilled, even the smartest government policies cannot keep the U.S. economy's share of global manufacturing exports from declining. This will mean more human dislocation, which
The United States may also find inspiration in
Germany has lived off exporting to other markets for a long time. The United States would benefit from nurturing such an orientation in its own economy. In Germany, even the Mittelstand business owners are international. Many have lived and worked outside of Germany and speak excellent English -- the global language of business. Obama's rhetoric about doubling exports represents at least a first step toward achieving greater U.S. focus on world markets.
The challenges of globalization for developed countries -- and particularly for these countries' workers -- are real.
Steven Rattner is former Counselor to the Secretary of the U.S. Treasury and former Lead Auto Adviser in the Obama administration
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