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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]