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An alternative economic model: Germany

Living in the USA, it’s difficult to escape the influence of a constant stream of commentary by our pundits and political leaders telling our citizens that “you must suffer now, to avoid greater suffering tomorrow.”  The offshoring of jobs and the weakening of unions is required for our firms to be competitive, we’re told, because without competitive firms, our economy will collapse and our workers will be far worse off.  It’s the argument for a hands-off approach to the economy in a nutshell, and it’s been so ubiquitous for so long that it now no longer even needs to be argued — it’s simply presumed, as a starting point for subsidiary arguments about a narrow range of policy choices.

This presumption insulates our leaders from having to answer hard questions about why they are doing essentially nothing to stop the erosion of America’s middle class, as manufacturing jobs are outsourced and replaced either by nothing or by much less well-paid service jobs.  It allows our leaders to avoid confronting the problems that our finance-centric economy creates for the “real” economy, as hedge funds and other investors demand that firms they invest in sacrifice their long-term futures for short-term stock-price gains.

Although it’s hard to escape from this received dogma in this country, it is possible.  All you have to do is read a little about Germany.

The Germans are doing it differently than we are in the USA, and they are being rewarded for it.  Their manufacturers are globally competitive, despite employing high-paid German workers and despite having strong unions with seats on corporate decision-making boards.  BMW and Siemens are proving that manufacturers can thrive in a national environment that imposes obligations on them which protect a healthy domestic middle-class.  Harold Meyerson in the WaPo belatedly calls our attention to this ringing counterexample to American economic dogma:

Germany’s economy is the strongest in the world. Its trade balance – the value of its exports over its imports – is second only to China’s, which is all the more remarkable since Germany is home to just 82 million people. Its 7.5 percent unemployment rate – two percentage points below ours – is lower than at any time since right after reunification. Growth is robust, and real wages are rising.

It’s quite a turnabout for an economy that American and British bankers and economists derided for years as the sick man of Europe. German banks, they insisted, were too cautious and locally focused, while the German economy needed to slim down its manufacturing sector and beef up finance.

Wisely, the Germans declined the advice. Manufacturing still accounts for nearly a quarter of the German economy; it is just 11 percent of the British and U.S. economies (one reason the United States and Britain are struggling to boost their exports). Nor have German firms been slashing wages and off-shoring – the American way of keeping competitive – to maintain profits.

Meyerson points out several features of the German economy that are anathema to our economists and political leaders — the subsidies from the German government to manufacturers that enable them to avoid firing workers in downturns, the municipally-owned banks that lend to small manufacturers in their communities and are restricted from combing the globe for profit-making opportunities, and their system of corporate boards that include significant numbers of union representatives.  Tom Geoghegan’s new book describes the German system in more detail and argues that, with the possible exception of those at the very tippy top of the income distribution in this country,  we’d be better off in the German system.

High-wage Germany, which offers the most bottom-up worker control of any European country, nearly ties with China as the leading exporter in the world, well ahead of the United States. But in China and America we work until we drop while in Germany, they take six weeks off a year (with a shocking number of four-day weekends along the way). It’s not just that the Germans can outcompete us, but they seem to be doing it with one hand tied behind their backs.

I’d like to think that our economic collapse would trigger some serious discussion among policymakers in this country about incorporating some aspects of the German system here, but alas, the chances of that happening are zero.  Barack Obama’s been in office for two years now, and he has shown no sign that his vision of the future of America extends beyond his memories of the halcyon days of the last Clinton admistration, circa 1997.

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