How has Germany been able to maintain their heavy industry?

[Damuri Ajashi]

I have read people say taht Germany engages in protectionism. How true is this? if this is true, then why don't we do it here in the US?

[phouka]

Good question. I was going to ask that too. I'm very interested in the forthcoming answers.

[LonghornDave]

I have read people say taht Germany engages in protectionism. How true is this? if this is true, then why don't we do it here in the US?

What exactly do you mean by heavy industry?

Also, I read your post as a statement that Germany has maintained their heavy industry while the U.S. hasn't therefore do we need to engage in practices that they have done to do so such as protectionism. Is this a correct reading?

If so, I believe it starts from a false premise that the U.S. has not maintained heavy industry as I believe the U.S. is still the world's largest manufacturer particularly so for large industrial machinery and equipment? Although I may be completely off on what you consider heavy industry.

[Lemur866]

Before we can ask WHY a phenomenon occurs, we must first establish that the phenomenon actually occurs.

In other words, has America in fact lost its heavy industry? Has Germany in fact maintained it?

[BrainGlutton]

Before we can ask WHY a phenomenon occurs, we must first establish that the phenomenon actually occurs.

In other words, has America in fact lost its heavy industry? Has Germany in fact maintained it?

Deindustrialization in Germany: (http://en.wikipedia.org/wiki/Deindustrialization#Currently)

While unemployment in Germany is very high, industrial output is steadily increasing. Germany's startling unemployment rate of roughly seven percent (OECD, 2008) is by and large due to the continuing struggles with the reunification process between East and West Germany that began in 1990. However, the unemployment rate has been declining since 2005, when it reached its peak of over ten percent. Despite this high rate of unemployment, Germany's economy was ranked third largest in the world (measured by GDP, Wikipedia, 2008), and exports over a trillion dollars worth of goods every year. This notion of deindustrialization may be an inaccurate label for what is really happening in Germany. Germany is producing more with less labor; a product of improving efficiency. Another factor that is camouflaged by deindustrialization is that the labour market has shifted from industry to service. On the surface, it appears that deindustrialisation is occurring in Germany (and all over the world), but it may be just a shift in interests that are generating these statistics. 33.4% of Germany's workforce is in the industrial sector, whereas 63.8% work in the service sector (and the remainder work in agriculture). Germany's recent history has made quite a difference in its economic standing; it has been through a lot of peaks and valleys over the past few decades.

Deindustrialization in the United States: (http://en.wikipedia.org/wiki/Deindustrialization#United_States)

According to OECD (2008) data, real industrial production rose in the United States in every year from 1983 to 2007, with the exception of 1991, 2001 and 2002. Manufacturing output has followed a similar pattern. Total industrial employment has been roughly constant at around 30 million people since the late 1970s (though there has been a steady decline since the all-time peak of 31.5 million in 2000). The widespread perception of deindustrialization in the United States is due to shifting patterns in the geography of production (from the Northeast and Midwest towards the Southeast and Southwest) and increasing labor productivity, which has led to higher levels of output without increases in the total number of workers. In addition, though total industrial employment has been relatively stable over the past forty years, the overall labor force has increased dramatically, resulting in a massive reduction in the percent of the labor force engaged in industry (from over 35% in the late 1960s to under 20% today). Industry (and specifically manufacturing) is thus less prominent in American life and the American economy now than in over a hundred years.

Changes in industrial production have varied greatly between a number of sectors in recent years; since 2000, for instance, while overall output has remained roughly flat, the production of electronic equipment has risen by over 50%, while that of clothing has fallen by over 60%. Following a moderate downturn, industrial production grew slowly but steadily between 2003 and 2007. The sector, however, averaged less than 1% growth annually from 2000 to 2007; from early 2008, moreover, industrial production again declined, and by June 2009, had fallen by over 15% (the sharpest decline since the great depression). Output thereafter began to recover.[18]

[Really Not All That Bright]

I have read people say taht Germany engages in protectionism. How true is this? if this is true, then why don't we do it here in the US?
Bear in mind that Germany can't engage in protectionism to the degree most countries can; it is heavily constrained by EU free market rules (at least as to other EU states).

[Damuri Ajashi]

Deindustrialization in Germany: (http://en.wikipedia.org/wiki/Deindustrialization#Currently)



Deindustrialization in the United States: (http://en.wikipedia.org/wiki/Deindustrialization#United_States)

OK so what does this mean? How are we doing? How is Germany doing? Is it just a myth?

[Lemur866]

It is a myth, caused by confusing industrial employment with industrial output.

[BrainGlutton]

It is a myth, caused by confusing industrial employment with industrial output.

Of course, a decline in industrial employment is a pretty serious problem in and of itself, if the unemployed cannot immediately find equally remunerative non-industrial work.

[XT]

How has Germany been able to maintain their heavy industry?

They are niche manufacturers who produce high priced/high quality goods....a lot of it is hand crafted and hand tooled, though they have also done what most other modern industrial countries do, which is to highly automate and outsource stuff that it doesn't make sense for them to make.

I think the confusion here (wrt the assertion that US manufacturing is in decline or dying) is that the only stat folks making that assertion are looking at is total numbers of jobs. The trouble is, US manufacturing today relies more and more on smaller numbers of vertically skilled workers. Germany (and other modern manufacturing nations) are much the same...less workers being increasingly more productive.

Think of it like agriculture. A century ago, it might take hundreds or thousands of farm workers to do all the stuff a few people can do today. That's why food (in the US) is so cheap and plentiful...a few workers can do the work of hundreds or even thousands. The anti-trade/anti-outsourcing people of today were the same folks a century ago who were fretting about where all the agricultural labor would go, or a century before them about where all the cottage industry workers would find work since mass production was kicking in. Every one of those groups thinks that their worries are new, and that THIS time it will surly be different, as we are so much more modern than than those times in the past, and we've pretty much invented everything useful that will ever be manufactured again. :p

-XT

[Peremensoe]

I've been impressed at the amount of German, French and Italian material-handling and processing machinery imported for installation to the last couple big projects (casement window manufacturer, flour mill) I worked on. There is industry around here, but the heavy equipment, the stuff used by industry, is increasingly coming from elsewhere. Judging by what I see in older plants, a generation ago that would have been entirely American-made equipment.

[John Mace]

They are niche manufacturers who produce high priced/high quality goods....a lot of it is hand crafted and hand tooled, though they have also done what most other modern industrial countries do, which is to highly automate and outsource stuff that it doesn't make sense for them to make.
-XT

Mittelstand (http://en.wikipedia.org/wiki/Mittelstand).

[ralph124c]

Part of the reason for Germany's success is the fact that they decided long ago, NOT to compete at the bottom end of the market. That is why VW makes its low-end cars in Mexico and the Czech Republic. In optics, the Germans realized they could not beat the Japanese and Koreans-so they focussed on the high end, medical, and professional market. Leica doesn't make $300 cameras-theirs start at $1500.
Also, they have a very efficient public sector, and good union relations (strikes are rare).
All is not roses, though-they have an ageing population and high energy costs (which they have made worse by deciding to shut down their nuclear power plants). The educational level of the German workforces is high, so they can make higher-value products.

[John Mace]

Ve have vays of making you buy our products!

[The Amazing Hanna]

Overall industrial output in the United States rose a bit 2005 to 2007 (somebody has to make all these bombs). For the past three years, it´s been shrinking. The past year it shrank by almost six percent.

The only reason it´s not much worse is because the production of computers and electronics has increased dramatically.

Computers are not heavy industry. Intel chips and iPod Nanos are, in fact, quite light. Even the iBrick counts as light industry.

Heavy industry is stuff like:

Chemicals
Steel
Oil
Mining
Industrial machinery
Trains, planes and boats


So how are these sectors doing?

Boeing isn´t doing all that great. To put it mildly.

Steel production was down to 25 million tons in the first half of last year - a pitiful amount. China produced ten times as much.

The auto industry, which includes some heavy industry and keeps a lot of local equipment manufacturers alive, is in the dumps.

Oil: flat. Until it runs out.

Mining: no big surprises here.

Chemical industry: not doing all that great. Hit hard by recession, may or may not recover.

Shipbuilding: The United States is unable to compete on the global market, with only one percent of ships being sold to other countries. What shipbuilding remains is almost solely for the dwindling Navy fleet, an institution which has outlived its military if not its political usefulness.

Trains: Please don´t make me laugh.

In other worlds, the outlook for the United States heavy industry doesn´t look all that chipper.

As for the overall industry, it´s going to work all right until the Chinese decide to stop paying licenses and start churning out $500 iMacs and a patched version of Windows that actually works.

[John Mace]

Shouldn't your last bullet have been: planes, trains and automobiles?

But hey, if the Chinese can make Windows work, they've got my business!

[wintertime]

They are niche manufacturers who produce high priced/high quality goods....a lot of it is hand crafted and hand tooled, though they have also done what most other modern industrial countries do, which is to highly automate and outsource stuff that it doesn't make sense for them to make.

Outsourcing in the sense that manufacturers moved parts of their production to Asia, the Americas or Eastern Europe has been a strong trend for 15+ years but we have also seen a growing tendency lately to return production to Germany. Quite a lot of Mittelstand-businesses have become disillusioned with the reliability of Asian business partners, the just-in-time system, especially the reliability of deliveries, the quality of the craftsmanship and the hidden costs involved that are often much higher than expected.

Eastern Europe is in some ways a more reliable and, of course, geographically closer partner but the bureaucracy seems to be difficult to handle after the production had been moved there. Middle Europe is a much better option, especially Czechia, Slowakia and Poland: the work force is better trained and educated, the infrastructure is modern and reliable, many people understand and speak German and the countries are stable and very interested in keeping good relations with their direct neighbour. But the costs are getting closer and closer to the German level, so more manufacturers are inclined to invest their money at home where they know the system in detail and have all the advantages that comes from manufacturing in one of the most modern economies and best educated societies in the world.

The global players see more advantage in the globalization of their production – but it's not always as easy as expected. When BMW built its much needed manufacturing platform in the USA, they were at first dismayed by the poor production quality till they found out that the workers a) followed a different work code and b) that a good portion didn't have the education to understand the processes as well as was needed (the written guide-lines, for example, were too complicated). They restructered their vocational adjustment and it seems to have worked well.

But their plants in Germany are still – or rather, once again - the most efficient and cost-effective ones they own. Though they are also the ones that are almost totally automated, they resemble robot facilities from a science fiction movie.

After a period of spineless admiration for the "Asian model", we have started to return to some traditional virtues in manufacturing, added a new level of automation in production to reduce costs and are finally more inclined to invest money in newly discovered inventions (one of our biggest failures in past decades). Though we also already see the shadow of totally new problems that arise from this stance - but this is true for America too.

[Really Not All That Bright]

But hey, if the Chinese can make Windows work, they've got my business!
Sometimes, you just have to accept that you've been beaten.

[XT]

Overall industrial output in the United States rose a bit 2005 to 2007 (somebody has to make all these bombs). For the past three years, it´s been shrinking. The past year it shrank by almost six percent.

So, what you are saying is that manufacturing production in the US rose until the world wide recession started going strong, then it fell...right? And it hasn't risen again because, well, that recession is still going on...right? Or am I missing something here?

Computers are not heavy industry. Intel chips and iPod Nanos are, in fact, quite light. Even the iBrick counts as light industry.

Correct me if I'm wrong here, but aren't iPods/Iphones and IPads manufactured overseas?

Boeing isn´t doing all that great. To put it mildly.

Well, that's one manufacturer...what about the whole sector? How does it compare to overseas air craft manufacturing? Are they doing substantially beter, or is the whole industry world wide in a bit of a slump due to lack of new purchasing of air craft by air lines based on the recession we are in?

And do you have cites to backup your assertions? Not that I doubt, but it would be nice to see some figures to backup what you are asserting in this post and see how they compare.

Steel production was down to 25 million tons in the first half of last year - a pitiful amount. China produced ten times as much.

The US steel industry has been in decline for a long time, so this isn't really a big surprise.

The auto industry, which includes some heavy industry and keeps a lot of local equipment manufacturers alive, is in the dumps.

What about other sectors like heavy machine tools and equipment? How are over seas auto manufacturers doing over all...comparatively better, or selectively better (IOW, are ALL Japanese manufacturers doing well, or just a few...how about German auto manufacturers? SK? etc etc?).

Again, it's not a big surprise that during a large recession that is impacting just about every level of the economy that people aren't buying as large a volume of automobile as they have in the past, right? So, this doesn't necessarily reflect that manufacturing is leaving the US so much as that the market has shrunk due to the recession, and people are being much more selective in their purchase choices and in deciding whether or not to wait on making a new purchase. Anecdotally, even though I have a strong and stable job I'm not buying a new car this year, even though I had intended to do so...I'm going to wait a year or two and will most likely buy a used car instead of new when I do make a purchase.

Oil: flat. Until it runs out.

What does this demonstrate? AFAIK, US oil reserves have been in decline for some time now, so why shouldn't it be 'flat' or even declining as a US industry? What about manufacturing related to oil exploration and exploitation as an export? What about engineering services exported from the US? Are those 'flat' as well?

Mining: no big surprises here.

What does this mean? What sectors of mining are you talking about? Across the board? Certain commodities?

Chemical industry: not doing all that great. Hit hard by recession, may or may not recover.

Define 'not doing all that great'. Why wouldn't it recover after a recession?

As for the overall industry, it´s going to work all right until the Chinese decide to stop paying licenses and start churning out $500 iMacs and a patched version of Windows that actually works.

:dubious: The Chinese do this already and it hasn't seemed to effect the market too much so far. Eventually this sort of stealing of intellectual property and pirating is going to come back and bite the Chinese on the ass, IMHO.

-XT

[Kevbo]

One way is through a robust trade school and apprentice program. German teenagers are tested (Lebensprufung) and either placed on an academic track (Gymnasium) or a trade school track (Hochschule). Top gymnasium graduates are expected to continue to University, and most Hochschule graduates move into apprenticship programs.

While most parents want their children to end up in the white collar oriented Gymnasium system, there is not huge shame for those who end up in Hochschule. Blue collar jobs are pretty much like what we in the US think of as Union Jobs: Secure and pay enough to support a family, but beyond this the Hochschulen tend to instill great pride in craftsmanship and professionalism in their students. You really have to work with a German tradesman to appreciate the pride and care they take in not only the work itself, but keeping a neat workplace and maintaining and caring for their tools.

[John Mace]

One way is through a robust trade school and apprentice program. German teenagers are tested (Lebensprufung) and either placed on an academic track (Gymnasium) or a trade school track (Hochschule). Top gymnasium graduates are expected to continue to University, and most Hochschule graduates move into apprenticship programs.

Is there anything in Germany like Affirmative Action for minorities? If we did that int he US, we would inevitably have a higher proportion of minorities in the trade school track, and there would be howls of racism and discrimination.

BTW, I've always admired the apprentice program in Germany. It's a recognition that there isn't some strict dividing line between school and work. In the US we tend to think of work as something you don't do until you're finished with school. It's a crazy attitude, really.

[wintertime]

One way is through a robust trade school and apprentice program. German teenagers are tested (Lebensprufung) and either placed on an academic track (Gymnasium) or a trade school track (Hochschule). Top gymnasium graduates are expected to continue to University, and most Hochschule graduates move into apprenticship programs.

While most parents want their children to end up in the white collar oriented Gymnasium system, there is not huge shame for those who end up in Hochschule. (..)
Some minor corrections, Kevbo, if you don't mind. Our school system is structured into four Stufen (phases): the Primarstufe (primary education) starts after the Kindergarten for children at the age of 5 to 6 and lasts usually four years. An evaluation of their abilities determines the kind of school they are going to attend next in the Sekundarstufe 1, the secondary education: Sonderschule (special school) Hauptschule, Realschule, Gymnasium or Gesamtschule (a mix of Realschule and Gymnasium).

In the past (up to the late 80s), the Hauptschule was a working alternative for children who showed no talent or interest for academic studies. They focused on the necessary knowledge and skills to learn a craft.

Today, however, the Hauptschule is often called Restschule ("leftover-school") because it has turned into a kind of collecting tank for all the .. problematic children. The share of children of guest-workers who failed to integrate their children (they often speak broken German) is high, as is the proportion of children with an attitude that borders on the anti-social.

Their future prospects are lousy and too often they are headed towards casual labor at best, welfare most frequently or criminality. We have already realised intellectually that the costs for society resulting from this breakdown are much higher than more tax-money for a promising education but the realisation has not yet turned into political action. It's going to be one of the major tasks for our school system to turn the tide there and restore some prospect for the "left-overs" and, consequently, reduce their numbers considerably.

The Realschule is still the most common preparation for children who head towards some kind of trade.

At the end of the 10th year of education, they usually choose for their Sekundarstufe 2 a technical college, but the more academic types can switch to the Gymnasium to attend the Oberstufe, the senior classes that are necessary to take one's high-school diploma.

They can also follow higher levels of technical college education and prepare, like the children at the Gymnasium, for the Tertiärbereich: either the university of cooperative education or more academic universities that are usually pooled together under the term of Hochschule. So, the Hochschule is NOT necessarily the "trade school track"; it's also the academic or artistic track for the dedicated learner.

The Gymnasium has also declined a bit due to a lack of money for education. When I went to a public "Humanistisches Gymnasium", it was a prestigious option and a good choice for a solid academic preparation.

But I was less than satisfied with any public Gymnasium close to our home when my oldest was ready to choose a school and we decided to opt for a private Gymnasium. It allows only gifted children to attend and offers a much better and far more rigorous education than the public schools.

Politically, I don't like it because such schools are far less socially heterogeneous than the schools I attended but I didn't want her to be bored by the snail pace of the present public education and its prestige is a door opener, for sure.



BTW, I've always admired the apprentice program in Germany. It's a recognition that there isn't some strict dividing line between school and work. In the US we tend to think of work as something you don't do until you're finished with school. It's a crazy attitude, really.

Our "duale Berufsausbildung" with its practical and academic program is still a crucial reason for the comparatively high level of skill and education of our job starters. But it's in deep trouble because companies have abandoned many apprentice programs and more and more rookies can only show an academic preparation in their vita – which isn't enough for the same companies that abandoned the apprentice programs to hire them.

We are currently trying to reinstitute more apprentice programs but it's not working well. Many companies that once showed a lot of social responsibility and economic foresight are, as one of my friends in the Department of Commerce puts it, "infected by the neoliberal virus" of total profit maximisation. Even some companies that are already in trouble because they don't find the highly qualified craftsmen any longer to produce their goods are hard to convince to train the next generation .. it costs money now, after all. Taxpayer-money helps, of course, but it's a shitty solution.

A more sophisticated approach to a solution is the "triales Ausbildungssystem", which tries to establish a network of apprentice and training programs that interlinks whole industries – but it's still too early to tell if this will do any good.

[Mops]

Is there anything in Germany like Affirmative Action for minorities? If we did that int he US, we would inevitably have a higher proportion of minorities in the trade school track, and there would be howls of racism and discrimination. ...

The main problem for minorities isn't not making the academic track but not making the trade school track (i.e. not getting into an apprenticeship.) A major problem in the future for the German economy IMO is that jobs that can be done by non-qualified people (say, below journeyman level) are shrinking - 20% now, less than 10 % in a few decades. An acquantance of mine, a Hauptschule teacher, says her students need a '2' (~ 'B') in maths to get into a meat salesperson apprenticeship (a three-year-program to make journey(wo)man meat seller).

[msmith537]

Before people get too starry-eyed over ze Germans, I feel it necessary to point out a couple things. German unemployment has been around 7%-11% for the past decade (http://www.indexmundi.com/germany/unemployment_rate.html). Our unemployment tends to stay around 5% (http://www.teachmefinance.com/Charts/US_unemployment_rate.JPG) with occassional spikes during recessions.

So while people bitch and moan nonsense about our current high employment being "permenant", history has shown that is not the case. Germany (as with many other countries in Europe) does have an effectively higher permenant unemployment rate, mostly caused by labor policies that make their economy less flexible.




BTW, I've always admired the apprentice program in Germany. It's a recognition that there isn't some strict dividing line between school and work. In the US we tend to think of work as something you don't do until you're finished with school. It's a crazy attitude, really.

It's an attitude born of entitlement and elitism. People aren't going to college to prepare for a career. They are going to avoid one. You see it right here on this board with people who are like "college should not be a trade school for corporations". Then they take out a hundred grand in loans to study bullshit no one will hire them to do when they graduate.

[wintertime]

Before people get too starry-eyed over ze Germans, I feel it necessary to point out a couple things. German unemployment has been around 7%-11% for the past decade (http://www.indexmundi.com/germany/unemployment_rate.html). Our unemployment tends to stay around 5% (http://www.teachmefinance.com/Charts/US_unemployment_rate.JPG) with occassional spikes during recessions.

So while people bitch and moan nonsense about our current high employment being "permenant", history has shown that is not the case. Germany (as with many other countries in Europe) does have an effectively higher permenant unemployment rate, mostly caused by labor policies that make their economy less flexible.


Yes, our unemployment rate is pretty high. But you seem to miss a couple of important differences between the USA and Germany in this regard that shift the impression: a good portion of the current unemployment is still a consequence of the Wiedervereinigung, the German reunification, 20 years ago. We didn't know then but realised soon enough that we added a small but bancrupt country with a mouldering infrastructure, worse than obsolete industry and a pool of employees who had to adjust far more than we all expected.

The reunification was absolutely essential but it was also a financial nightmare – even our beloved D-Mark had a hard time to stay stable since the exchange rate between their currency and ours was far too generous and led to the first but not the last horrible drainage of taxpayer money.

And though things have improved a lot and the eastern states are already modernized (their infrastructure is in fact nowadays on the average better than the western ones), we are still paying a high price for the adaptation and consolidation since the money that was spent their couldn't be used to realise the plans to re-structure the industry and change the tax system - as was planned in the 80s.

There are also major differences in the definition of unemployment and the generosity of the unemployment program that makes it far more interesting for people in Germany to be considered unemployed by the state.

But if you take a look at the past one and a half years of crisis, you'll see that we have been able to come out of it without producing much poverty – our unemployment has even dropped while the USA has seen the opposite trend.

The reason for this, of course, is that we don't have the "hire and fire"-system that is prevalent on the other side of the Atlantic. Many employees were able to keep their jobs because they agreed to work less hours – we call this Kurzarbeit.

Overall, it's a system that mitigates the dire consequences of an economic crisis and makes sure that the disparity between the fully employed, the less employed and and the unemployed is far less accentuated than you are used to. You might call it less flexible – and in some ways it actually is – but it also makes sure that companies have a trained work force at their disposal as soon as the tide begins to turn.

Besides, a society is more than a pool of people for companies to use at their will. We all share a responsibility for all of our ongoing well-being.


It's an attitude born of entitlement and elitism. People aren't going to college to prepare for a career. They are going to avoid one. You see it right here on this board with people who are like "college should not be a trade school for corporations". Then they take out a hundred grand in loans to study bullshit no one will hire them to do when they graduate.

This might be true for the people you know, but it's definitely not true in my experience. All of the people I know, who have gone to a university, are nowadays working either in their field or in one that was only accessible thanks to a higher education.

And though I have financed my education partly with years in the military and work during my college years, I have no doubt profited a lot from the investments of the previous taxpayer generation. But given the taxes I pay, I think, the ROI is substantial.

[Capt. Ridley's Shooting Party]

Yeah, I'm not seeing the fact that German average unemployment is up a few points over the American average a major mark against Germany, here (though it's been consistently falling since 2005). When was the last time the US absorbed a near third-world country the same size as itself? The fact that unemployment rates are competitive with other Western industrialised nations just twenty years after reunification is a minor miracle, IMO.

[gonzomax]

http://www.dw-world.de/dw/article/0,,1273178,00.html This article suggests German corporations are threatening workers with offshoring to get salary concessions.
It also says the universiality of English as opposed to German makes it easier to send work abroad. Training Indian call operators to speak German would be a big problem. It might be fun for the Germans to hear them try though.
The German government labels offshoring as anti-German. We don't dare call American offshoring un American. it is just good business.

[John Mace]

http://www.dw-world.de/dw/article/0,,1273178,00.html This article suggests German corporations are threatening workers with offshoring to get salary concessions.
It also says the universiality of English as opposed to German makes it easier to send work abroad. Training Indian call operators to speak German would be a big problem. It might be fun for the Germans to hear them try though.
The German government labels offshoring as anti-German. We don't dare call American offshoring un American. it is just good business.

There are plenty of politicians, including, Obama who rail against offshoring. They're idiots. If US companies don't take advantage of cheaper labor overseas, some other country's companies are going to do so and then export to the US. Some other country like Germany. Or the Chinese will just do it themselves.

[msmith537]

This might be true for the people you know, but it's definitely not true in my experience. All of the people I know, who have gone to a university, are nowadays working either in their field or in one that was only accessible thanks to a higher education.


Actually, I was thinking of the opinions expressed on this board. Everyone I know IRL also works in a professional field.




Clearly the economies of the USA and Germany are different so there can't be an apples to apples comparison.

It also seems to me that by absorbing East Germany, you effectively gained access to the equivalent of a low-wage third-world work force. Is that the case?

[wintertime]

It also seems to me that by absorbing East Germany, you effectively gained access to the equivalent of a low-wage third-world work force. Is that the case?

To cut a loooong story short: although the eastern states of the unified Germany experienced almost a complete de-industrialization during the 90s and, consequently, massive unemployment, the wages started to go up almost immediately – although they still haven't climbed to the western states' standard in the majority of cases twenty years later.

But there was no way to freeze them anywhere near a third-world level. Let me just name four reasons:
A) The working population could simply migrate to the western states – and 2 million, in fact, did so in the first year of the reunification.
B) The cost of living increased considerably in the East, even though the government intervened quite a lot to slow down the rising prices for rents, insurances etc.
C) The unions negotiated better wages when the opportunity presented itself, which, of course, is their job (and since many Americans are very wary when unions are mentioned: they played an important role in a peaceful and surprisingly smooth adaptation process and they didn't overdue it, mostly).
D) It'd have been stupid to freeze the wages below welfare – that would have been the wrong incentive.

Btw, despite popular belief, the wages in Germany are not the main reason for the high labour costs - and our unions are not greedy. At least, they are less greedy than other parts of the population who have an easier time to get their hand in the cookie jar. The wages have indeed shrunk in the last decade - in contrast to almost every other western nation.

[Spectre of Pithecanthropus]

Part of the reason for Germany's success is the fact that they decided long ago, NOT to compete at the bottom end of the market. That is why VW makes its low-end cars in Mexico and the Czech Republic. In optics, the Germans realized they could not beat the Japanese and Koreans-so they focussed on the high end, medical, and professional market. Leica doesn't make $300 cameras-theirs start at $1500.


You never have to worry about your trade balance if you can export to the elites of the world. From what I hear, unemployment is WAY down this year, so much that they are discussing the possibility of loosening up the immigration laws to allow more foreign young workers in. My source for these statements is watching TV newscasts online, from ZDF or NDR, and from listening to Deutschlandfunk on my smart phone.

Their stable population is also a big help; unlike the U.S. they don't need to create hundreds of thousands of new jobs every year just to keep up. Though just yesterday I heard about an uptick in births.

[Measure for Measure]

For every dollar purchased on the foreign exchange market, there must be a dollar sold. Foreigners buy US dollars in order to buy a) US goods and b) US bonds, stocks and real estate. So the goods market is linked to the asset market: and moreover the international capital markets are linked to the balance of trade in goods.

To the extent that the US de-industrialized in the 1980s, it was due to an appreciating dollar which made our goods less competitive abroad. That in turn was due to our low national savings: foreigners bought our assets (govt bonds, US stocks) and in exchange sold us goods. If foreigners sell more goods to the US than we export, that's a trade deficit.

US national savings could have been boosted if individuals spent less of their paychecks during good times (the economics are different during recession) or if the US government ran a lower budget deficit. Budget deficits require the Federal Govt to borrow money on the bond market, which tends to either crowd out investment or drive up interest rates sufficiently to attract foreign capital. (Again though, the process works differently during recession. )

Germany's trade surpluses are linked to their high national savings. Then again, I could imagine them maintaining robust domestic industry even if their savings were lower -- but they would import commensurately more iPads and the like.

[Dave Hartwick]

Part of the reason for Germany's success is the fact that they decided long ago, NOT to compete at the bottom end of the market. That is why VW makes its low-end cars in Mexico and the Czech Republic. In optics, the Germans realized they could not beat the Japanese and Koreans-so they focussed on the high end, medical, and professional market. Leica doesn't make $300 cameras-theirs start at $1500.
Also, they have a very efficient public sector, and good union relations (strikes are rare).
All is not roses, though-they have an ageing population and high energy costs (which they have made worse by deciding to shut down their nuclear power plants). The educational level of the German workforces is high, so they can make higher-value products.

This may be generally true, but one reason for American firms losing their dominance in CNC was that they focused on the high-profit, high-dollar sectors, while German and Japanese firms went after low cost markets.