First, we have to give credit to the German government for a slate of reforms and programs that have really helped job creation. Germany (much like Spain) had a chronic unemployment problem, a result of a labor market that was too highly regulated and offered too much protection for workers. German policymakers began to change the system back in 2003 with a series of measures that made the labor market more flexible and encouraged greater participation in the workforce. Then during the Great Recession, the government and corporations devised all sorts of schemes to prevent the kind of mass layoffs that plagued the U.S. Most interesting was a government-funded short-time work program. Companies put workers on reduced working hours rather than laying them off; the government stepped in with subsidies that paid part of the workers' salaries.But there is something much more fundamental going on as well. German industry is committed to making the sort of high-quality, high-performance, innovative products for which the world will pay extra. In other words, Germany is making BMWs, not Chevys. If you're making a BMW and charging so much for it, you can manufacture in a high-cost environment and still make a nifty profit. If you're making a Chevy, which to a greater degree competes on price and doesn't have a strong brand reputation, you can't charge the premium that makes profitable manufacture in the U.S. as easy to accomplish. Germany manufacturers are extremely focused on quality, engineering and research & development, and that shows in the products they make, and the prices they can charge. They make stuff that can't so easily be reproduced elsewhere. So even though Germany is being challenged by Chinese industry, German companies have managed to stay a step ahead as well. In other words, it all gets back to innovation, in whatever industry you happen to be in.
Even that's not the whole story, however. There is something much harder to define behind Germany's jobs miracle. That has to do with the commitment of executives to keeping jobs in Germany. Sure, German companies have opened factories in China and outsourced to Eastern Europe. Yet many German firms are stubbornly maintaining a certain amount of production within Germany as well. Part of the reason is skills. Germany has a lot of very talented engineers and assembly-line workers who are crucial to making those high-quality products that sell for so much money. But I'm going to speculate that part of the reason can be found in Germany's corporate structure. The backbone of German manufacturing is small to mid-sized firms that are often family-owned. These families are in many cases committed to keeping factories at home. Though they want, of course, to make as much money as possible, they're not under the same pressure from shareholders to show bigger and bigger profits each quarter. That allows them to take a long-term view. German management also just seems more determined to find ways of staying profitable while still manufacturing in Germany. The chairman of power-tool maker Stihl, Bertram Kandziora, told me that U.S. companies "don't try hard enough to keep production inside the country.”. That's especially true, he pointed out, since labor costs in Germany are actually higher than in the U.S.
Friday, February 25, 2011
The German Miracle
In my piece yesterday a commenter noted that German manufacturing seemed to defy my central thesis. As if on cue, Time Magazine has an article on the "German Miracle." Here are the highlights:
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6 comments:
This is the critical element:
The backbone of German manufacturing is small to mid-sized firms that are often family-owned. These families are in many cases committed to keeping factories at home. Though they want, of course, to make as much money as possible, they're not under the same pressure from shareholders to show bigger and bigger profits each quarter. That allows them to take a long-term view.
In the US we have an economic policy that promotes the growth of large corporations at the expense of smaller to mid-size business. Large corporations, are inherently less innovative than smaller ones because of the inefficiencies that come with large corporate bureaucracies. Often where they do innovate, they do so buy acquiring smaller companies that are able to do that.
Furthermore, the larger a corporation, the more power it wields over governments. Investigations of large corporation malfeasance become dangerous both politically and economically. If you knock down the credibility of a large bank, for example, you risk severe economic consequences.
We need a policy that slowly shifts our economy from one that promotes trans-national mega corporations to one that promotes the growth of smaller companies. Sadly the power of these large corporations all but guarantees that won't happen.
This is why I am so against willy-nilly outsourcing, just to save a few bucks on labor. You need to innovate to produce the higher level products for which consumers will pay extra. But innovation requires R & D and R & D tends to follow production to be closer to it. This is why outsourcing is so dangerous to those "Knowledge Workers" who became such because supposedly, we can't make stuff in the USA anymore.
Germany is a democratic Capitalistic society. American has long ago given up using Democracy for "policy" - your only rule is Capitalism trumps everything - even when that clearly makes my life worse - I still must vote for the 1% that own me.
Way past sad - past tragic - well into comedy.
So I guess Germany doesn't have the business culture Japan does, but the key ingredient is indeed a nationalistic culture -- people like to buy domestically. I feel vindicated. Again, it's not the most efficient allocation of resources, but here's where America has to choose between efficiency and results. Maximum efficiency doesn't necessarily lead to optimal results.
To reiterate, the "protectionism" isn't keeping imports out or making them more expensive. Like Japan, I'll bet you can buy a Chinese-made camera in Germany for much cheaper. And some Germans do -- the key is that enough of them are choosing not to. As long as American consumers remain obsessed with price, there isn't much the government can do get a similar thing going here. And don't expect businesses to lead the charge, either.
On the flip side, can we start making a serious case to marginalize the derpheads leading America's anti-intellectual movement? I ranted about the government making things worse here (including the "pro-business" GOP), but the reality is, no one wants to face the fact that the Chinese worker isn't just cheaper than the American one. In my experience, the Chinese worker is also flat-out better.
to 209:
I agree with you re: (not enough) Americans wanting to choose a (presumably) more expensive American product v. a cheap import and yes, we are part of the problem when we do this. But thanks to the past 30 years of US trade and industrial policy. We often have no choice. I try to buy American products when I can, but there are so many items that I need that I can't even find "Made in America" so the paying more option isn't even there. I can't buy an American made plain white t, alarm clock, Cell phone charger, umbrella, and so many other things which I need and would buy American if I could. And we can't blame just conservatives for this. Modern DailyKos style "liberals", if that they can be called, throw a hissy fit about "nationalism" and start wringing their hands about "poor brown people" if you suggest NOT sending jobs to India, Bangaldesh, Mexico etc, as if there were no "poor brown people" in the USA that could use the work, too. American liberals have to abandon this "citizen of the world" crap and start acting like citizens of the USA.
It would be interesting to see what is the percentage of spending for education relative to GDP for Germany and the US. Having lived and worked in Germany in my younger years, they are much more committed to making sure you have a comprehensive understanding of your chosen field. It would never work in the US -- too much griping about red-tape, unions, government intervention, etc. Germany has all the above in much higher degrees than the US, but the typical German firms place much greater value on their employees. The average US company views their employees as "assets" to maximize at best, and liabilities during softer times. Most German workers view the US employer-employee dymnamic as anti-worker, anti-family, and inhumane.
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