

Germany has the economic strengths America once boasted - mapleoin
http://www.latimes.com/business/la-fi-germany-middle-class-20120122,0,1551154,full.story

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nhaehnle
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.

~~~
mrich
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.

~~~
toyg
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.

~~~
waterlesscloud
In 1989 I did the backpack-across-Europe thing for the summer. The Berlin Wall
was still up, the Soviets still in Eastern Europe, but just barely. Change was
very much in the air.

Everywhere I went, I'd ask people what they thought about the coming European
Union. To a person, they were all cautiously supportive, but would also say
"But I don't trust the Germans." Everyone expected the Germans would have
designs on controlling the thing, and likely the ability to do it. Even the
Germans seemed to expect it.

These were the proverbial people on the street, so I'm guessing everyone
pretty much knew how it was going to go in the long run.

~~~
toyg
Everyone had designs on "controlling the thing", and the ability to do it:
France had long set the EU agenda, BeNeLux and nordic countries were seen as
the "reference implementation" for most processes, Spain was extremely
aggressive in occupying key roles (Javier Solana, anyone?), even the UK was
quite good (watering down ambitions of full political union, basically)...

The real game-changer was the rushed enlargement. Now Germany can count on a
political bloc of countries directly depending on the German economy, and for
anyone else it's much more difficult to steer the boat with so many people on
board.

~~~
lispm
The real game changer is that in many areas German policies worked better than
others, especially in the current economic climate. Ten years ago this was
open. Countries like Ireland were seen as 'Tigers'. The UK was adopting the
service-oriented economy with a large banking sector boosted by North Sea oil
and gas. Germany was struggling with the reunification.

Now Germany has high debt, but was dealing with this problem years ago to keep
in under control. More has to be done, but we are further than we thought.

The industry is more competitive in terms of delivery capability, production
technology and products.

The decentral structure of the country enabled competition within the country
- between Berlin, Munich, Stuttgart, Köln, Düsseldorf, Leipzig, Dresden, ...
there is no such central structure like in France or the UK.

Key was to keep employment high. Youth unemployment is very low. General
unemployment is on a 20 year low. This kept people confident. Confident that
they have enough to weather this economic crisis. Germans save more, they
speculate less and many prefer renting instead of owning (and being in debt).

There were some mistakes made (like some of the German banking system failed),
but in general it looks okay.

~~~
toyg
Yes, but in terms of governance inside EU institutions this doesn't matter as
much. If we had a situation were Germany was doing very well, but everyone
else wanted to tweak the currency in a different way, it would go in a
different way. As it is, thanks to the enlargement, on economic matters
Germany can rely on a block of "faithful" countries whose self-interest is
perennially aligned.

------
tokenadult
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.

~~~
pjscott
The thing about Taipei is that it has easy-to-get-to parks with loads of space
and room to walk around. Why would I need a lawn, when I can hike around in
the Yuanshan Scenic Area? What use would I have for a big yard, when a short
ride on the train will get me to the seashore by Danshui? If they had done the
typical American thing and just left some half-assed green spaces here and
there, and made all the really cool parts inconvenient to get to, then Taipei
would kind of suck to live in.

It's not just a different approach to housing. It's a different approach to
urban design.

~~~
jessedhillon
Dogs.

I want a yard where I can have 2-3 dogs. I want to be free to let them romp. I
dont want to share with 10 other dogs at a dog park, where my responsibility
is to identify and watch for the least attentive owner's dog.

~~~
pjscott
I can understand that. Dogs are a lot more fun when they have room to
themselves. For those of us who don't have dogs, though, my point still
stands. :-)

------
gcp
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
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).

~~~
yaix
I don't think its "the culture" that is "rotting", but rather the social
capital, the social ties between individuals and entire sectors of the
society, is declining since the mid-1960s (Book: R. Puttnam, "Bowling Alone").

~~~
shingen
You just said that the culture is rotting. The relations between the people of
a nation is a massive part of the culture of a nation.

What people place value on, and consequentially how people relate to
eachother, how they value eachother, whether they respect the rights of their
fellow citizens, and on and on. All critical aspects of a culture.

A nation's culture is made up of the individual beliefs & values of each
person. And all of those things determine the social and economic fabric /
makeup of said nation.

------
yaix
"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.

~~~
CWuestefeld
_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>

~~~
gte910h
Sports aren't a meritocracy. They (generally) aren't equally funded, and often
compete on money. They outsizingly reward hits over simple strong performance.

~~~
CWuestefeld
But funding comes from performance -- it's a feedback loop. The teams that
perform the best get greater funding. That _is_ a meritocracy.

In any case, my point would still stand. The Toyota F1 team was understood to
be one of the top-funded teams, but was unable to compete at a level
commensurate with their budget.

~~~
gte910h
Funding comes from many things in sports. Not just performance, but home town
spirit, other business endeavors, etc.

------
junto
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
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.

~~~
Tichy
Hartz IV is not unemployment benefits, it is social welfare (which you get
once your unemployment insurance runs out). Unemployment insurance pays a
percentage of your previous salary, but you also pay for it while being
employed with a percentage of your salary...

How much is social insurance in other countries, if it exists at all (does it
exist in the US?)?.

It has a bad reputation, but I always thought that Hartz IV is actually quite
high. The numbers that are being floated in the press seem very low, but they
always forget to mention that on top of that the state also pays the rent and
health insurance for Hartz IV recipients. Where the system runs into trouble
is when it sabotages the recipients through bureaucracy, for example some are
being forced to move to a smaller flat even if it is more expensive. If they
don't find something suitable in time or are simply unable to keep up with the
bureaucracy, they might end up on the street. In that sense it is rather
demeaning to people, but I think the amount of benefits received is probably
OK.

Healthcare still works very well for publicly insured people, although I worry
for the future and it has some annoyances. But for example I personally am
scared of going private because I worry that physicians will do too much
useless stuff to my body just to make money (I know enough stories of that
kind). Sometimes more is less...

~~~
eru
About Hartz IV and Bafoeg, etc: I hope the talks of moving to a guaranteed
basic income lead somewhere. That would eliminate lots of bureaucracy.

------
mathattack
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?

~~~
scott_w
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
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.

------
grumblepeet
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.

------
shingen
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).

------
choros12
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
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.

