Why Is the German Economy Cranking?

This week’s Economist explains why the German economy has outperformed most other wealthy nations in the past decade. It’s not because of a “wirtschaftswunder,” but rather a solid focus on the part of German companies, especially small ones, to utilize globalization to their advantage by finding niches and developing good outsourcing practices. The abundance of cheap labor, the recent liberal Hartz reforms and the demand for the euro don’t hurt either — but the main driver has been the cornering of the globalized supply-and-demand market. Germany also made several good bets during the worldwide economic crisis: while many businesses cut costs by firing workers, German companies retained workers and, thus, human capital. That said, the Economist highlights two areas where the German model has room for improvement: enhancing productivity and rebalancing growth to cut down on its dependence on foreign demand. [%comments]

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  1. frankenduf says:

    yeah- Germany has more exports and work sharing- 2 concepts apparantly unheard of by our statesmen, who tend to babble about deficits while thier unemployed citizens suffer

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  2. Arijit Banik says:

    Lest we forget, real wage growth in Germany has been zero since EMU; Germans took the brunt of restructuring –arguably this took about 4 years– from using a highly valued mark to a relatively undervalued non-optimal political experiment that is the euro currency during a period of global expansion. And with complete deference to our Teutonic friends, Germany believes that slow and steady and responsible wins the race: they believe in austerity, productivity, infrastructure and the value of capital. Having said this, the fact that Fräulein Merkel wants the peripheral economies to restructure in a short time frame is unrealistic and unkind given that “Old Europe” will be burdened with slow growth and a demographic time bomb. Indeed, Germany is a model but for the euro zone to function, German austerity will have to give way to largesse in the form of fiscal transfers to some of the PIG (portugal, Ireland, Greece) so challenges remain on the horizon.

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  3. Eric M. Jones says:

    You’re not going to like this, but the connection between Germans and Jewish businessmen is important. I know several German businesses that after WWII just forgot about all that “unpleasantness” and sought out Jewish businessmen to promote and sell their products. AND the all spoke German.

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  4. pjt says:

    frankenduf: the reason that the German statesmen do not need to babble about deficits (as much as the others) is that the country has avoided the deficit by not having such spending levels as e.g. Labour-run Britain or the U.S. under Republican leadership.

    Of course, this does not mean that Germany wouldn’t be impacted by the deficits or would not be speaking about them – the deficits in other countries, particularly the Mediterranean, where German banks have dependencies, are a cause of concern.

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  5. D. Linde says:

    What? I just read yesterday that Germany now is saddled with a $57 billion shortfall in their economy. No one gets out alive in this trash heap economy. We’re being led down a path of no return unless businesses are left to their own devices to succeed or fail without bailouts. All businesses.

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  6. Fritz Mills says:

    Where does the “abundance of cheap labor” come from? I always thought that German labor was expensive, which is why they tend to produce produce high-end things, like expensive cars. Also, I thought their labor unions were stronger than in the US, and they have better benefits (health, vacation, freedom from layoffs, etc).

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  7. assumo says:

    Good point about human capitol. My guess is that the benefits of that are essentially unmeasurable. I wonder how much productivity is lost training new workers during a period of expansion after a series of layoffs.

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  8. Claus says:

    In my opinion, there are 3 main factors for the German and other northern European nation’s success like Sweden, Danmark in the export industry (e.g. Sweden, Denmark, The Netherlands, Austria and the baltic states)

    1. The tradition of training in handicraft: We share a common tradition of over 600years years of 3 years apprenticeship for each handicraft position. With the exception of England, the young apprentices, who had to travel from workshop to workshop to get a degree and the approval to open a own workshop. The “Meister”-(master) training to get the license to train others, even takes much longer. Only few still do the travelling, but the 3 years training is still a basic requirement.

    2. Most SME’s and even many big MNC’s don’t focus on short time profits on the stock-market . They look for long-time profitability and the shareholders appreciate that, too.

    3. International behavor: There are only three nation, who did not adopt the metric system for industrialized products, yet: Liberia, Myanmar and the USA. Despite, that the foot, inch & pound system is very inconvenient for any engineer; it becomes a major disadvantage for most US companies to export their products. Most of them need to me modified..

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