How Germany is able to run the world’s second largest export economy

https://www.conradbastable.com/essays/the-germany-shock-the-largest-economy-nobody-understands

by izhak • 7 years ago

403 288 7 years ago

conradbastable.com

billfruit• 7 years ago

Very informative. Does this imply that Brexit is the rational choice for the UK?

SideburnsOfDoom2• 7 years ago

Mostly likely, the quest for a rational justification for brexit will continue.

vixen99• 7 years ago

Quest over! If you're actually interested in understanding the reasons for Brexit and you should before making such comments, try this https://briefingsforbrexit.com. Not recommended for those with a short attention span.

"Briefings for Brexit is a small group of volunteers, mainly academics, who set up the website in 2017 in order to provide reasoned factual material to help to inform the national debate on Brexit. Most of its members did not previously know each other. The two co-editors are Graham Gudgin and Robert Tombs, both of Cambridge University. Its contributors come from a range of academic disciplines and universities, and cover the whole political spectrum: their names can be found on our website. The group has no links with any political party. Neither of the editors receives any payment, not do any of the contributors. The newsletter editor, a student, receives a small payment. Briefings for Brexit is entirely funded by well-wishers."

usrusr5• 7 years ago

Brits never experienced the tangible benefits of EU membership because they actively excluded themselves from both Schengen and the Euro. It's not really surprising that many reject something that is only an abstract macroeconomic set of rules to them.

Contrast this with public opinion in Germany back before the common currency: most German EU supporters were openly afraid that the Euro could seriously endanger their economy, but they considered it well worth the risk just for complementing the convenience of open borders with an end to the hassle of dealing with foreign currencies.

To anyone with a bit of critical thinking ability, macroeconomic decisions are close to a coin toss: both sides have good arguments and nobody has convincing data to back up their claim (if there was there wouldn't be a decision to be made).

blablabla123• 7 years ago

Maybe there's a simpler explanation, in Germany businesses are run quite conservatively in comparison. Nice for stability but probably bad for innovation.

By the way, Germany is one of the top 5 exporting countries since decades, so this has little to do with the Euro:

https://wits.worldbank.org/CountryProfile/en/Country/WLD/Yea... https://wits.worldbank.org/CountryProfile/en/Country/WLD/Yea...

slowmovintarget• 7 years ago

In part, it has to do with the fact that many items made in Germany are of high quality. Most goods that are sold in U.S. for instance, are made in China. Often times these goods simply fall apart (dishwashers, washing machines), are defective, or have toxic odors (like full-color books). Not so for things made in the U.S. or Europe, and it just so happens that there are a great many things that Germany makes now, where they are the only high-quality source.

stefano2• 7 years ago

Can't be so bad for innovation if they're ranking first in this classification: https://www.bloomberg.com/news/articles/2020-01-18/germany-b...

jhoechtl4• 7 years ago

As an Austrian sharing some history with Germany and always looking suspiciously what is going on there, I have been multiple times astonished by my fellow neighbors:

Productivity: They work hard, a lot and deliver.

Education: above average and leaning towards being curious

Conservativism: depends on county but is a thing

Innovation: despite conservtivism inmovation is high

Collaboration and criticism: Even though you might be in strong disagree with someone arguments count and once you quickly talked out the differences, intense collaboration towards goal achievemt is obvious.

I worked for 10+ years in continuing education and had students of all age and all infustrial sectors and these have been common shared characterstics.

Favorable characterstics towards success I would say.

(Edited formating)

folli• 7 years ago

Rational if they export below the average of other EU nations, not rational if they export above the average of other EU nations.

heisenbit2• 7 years ago

Maybe, if it is rational to loose ones status as Europe‘s financial hub which was one of the key drivers in the past for the high pound exchange value.

pretendscholar• 7 years ago

There are winners and losers to having a strong currency. It isn't inherently a bad thing to make the currency less valuable.

mandevil2• 7 years ago

Britain already used its own currency, so they didn't have the same sort of 'Greece and Spain suffering to subsidize German exports' effect going on. So I don't think this particular issue will be different from before Brexit.

ETA: It will matter if the City continues to dominate European financial transactions, because it is the tremendous amount of money that goes to the City which keeps the Pound priced above the levels that are good for manufacturing exports. If the multinationals all move to Hamburg or wherever, the Pound (probably) loses in value and British manufactured goods become more competitive on the global market. In theory. Possibly. Who knows?

patrickmcnamara• 7 years ago

Their goods would also be subject to EU tariffs depending on how trade talks go and the EU accounts for ~50% of UK trade iirc. So it's still very up in the air.

Zenst• 7 years ago

Yes the whole QE of the EURO by the ECB has been most dramatic and artificially kept the EURO competitive for the export market over the import market.

That's one ticking time-bomb that they keep resetting with new QE initiatives, that will have to end soon and suspect BREXIT will offer a wonderful scapegoat opportunity that may well be availed.

[EDIT ADD} Nice article highlighting the QE situation: https://www.ft.com/content/e4964f08-f196-11e9-ad1e-4367d8281...

Also worth noting that negative interest rates seem to be the new tool that will replace/augment QE. Which may just work, though once again, perpetuating a mindset that borrowing over saving mentality in a way that whole generations will become saving avert. More so if/when negative interest rates take traction.

ginko2• 7 years ago

I wonder how that plot would look like if they separated individual US states and also considered trade between them. I'd guess the big three (California, Texas, New York) would dominate quite a bit there as well.

drocer882• 7 years ago

New York, big three? Florida passed New York in population in 2014: https://www.orlandosentinel.com/news/breaking-news/os-florid... . Census figures released Tuesday show Florida passed New York as the nation's third largest state with an estimated population of 19.9 million. New York, now fourth, has 19.7 million.

ginko2• 7 years ago

By economy: https://en.wikipedia.org/wiki/List_of_U.S._states_and_territ...

magduf5• 7 years ago

Florida may have a larger population, but they're not nearly as productive, probably because FL is a popular place for retirees to move to. Retired people don't contribute much to GDP.

usrusr5• 7 years ago

California, Texas, New York, unless Delaware is taken into account.

moggi• 7 years ago

Interesting choice to use 1993 as the start for the comparison of Germany's trade surplus: https://tradingeconomics.com/germany/balance-of-trade

WA• 7 years ago

I think it's right in the text why 1993 was chosen:

"Indeed, when the Single Market was adopted (1993), ..."

heisenbit2• 7 years ago

There were two major events that make the starting point a lot lower: Recession shortly before and German reunification with its significant economic distortions.

Ididntdothis2• 7 years ago

That’s why it’s easy to deceive by starting charts a certain date. When you look at the 1980s there was also a big increase. The y axis is linear so the newer increases look much more dramatic. When you look at the chart from 1950 you see a long term upwards trend with some setbacks.

chimeracoder• 7 years ago

Interesting choice to use 1993 as the start for the comparison of Germany's trade surplus: https://tradingeconomics.com/germany/balance-of-trade

Because before 1993, you're not comparing apples to apples: "Germany" was two separate countries, and reunification affected the economics on both sides of the border.

It's true that the recession makes this a particularly favorable starting point for Germany, but it'd be misleading to compare Germany's economy today to the economy of West Germany of the 1980s (as many comparisons do) and ignore that half of modern-day Germany was the DDR at that point.

jgreen10• 7 years ago

The numbers in the article are shaky.

For instance, the Netherlands had a trade surplus of $76 billion in 2017, but shows up as having a trade deficit.

France does not appear in the list of Germany's export partners, but it's actually number 2.

maelito2• 7 years ago

Related : cars selled by european companies will have to average 95gCO2e/km. But this limit is raised for heavy cars, which Germany sell a lot more than others. France's environment minister is angry. The legislation has been tailored for the EU's biggest industry.

esotericn• 7 years ago

this limit is raised for heavy cars

Yeah, what's that all about? Surely the entire point is to incentivise people to _not_ buy heavy cars, since the lowest emission models (aside from electric cars) are smaller?

baud1472582• 7 years ago

Except that the EU is an union of unequal countries, so if Germany (which is one of the most powerful, if not the most powerful country in EU) want to keep an industrial edge via a special case in law, they're going to get it.

Schlaefer• 7 years ago

It was a fancy read until

an efficient & strong military

Now I doubt everything.

Kaiyou• 7 years ago

Isn't it always like this. Things written tend to make sense until they contradict your prior knowledge.

casefields2• 7 years ago

"Briefly stated, the Gell-Mann Amnesia effect is as follows. You open the newspaper to an article on some subject you know well. In Murray's case, physics. In mine, show business. You read the article and see the journalist has absolutely no understanding of either the facts or the issues. Often, the article is so wrong it actually presents the story backward—reversing cause and effect. I call these the "wet streets cause rain" stories. Paper's full of them. In any case, you read with exasperation or amusement the multiple errors in a story, and then turn the page to national or international affairs, and read as if the rest of the newspaper was somehow more accurate about Palestine than the baloney you just read. You turn the page, and forget what you know.”

Why Speculate - Michael Crichton: http://docdro.id/4wgVecr

usrusr5• 7 years ago

The author certainly lost me when he called out Italy as a winner and the Netherlands as a loser in this game. That only ever happens in football.

wffurr2• 7 years ago

Top 10 in the world seems not bad.

pantalaimon• 7 years ago

By which measure?

greedo2• 7 years ago

If Germany's military is top 10, I'll be a monkey's uncle. They have horrible availability rates for their ships and aircraft. On paper it might seem impressive, but in terms of power, it's arguably not even third in Europe. I'd rank France and Poland higher in conventional military power.

JanSt• 7 years ago

„ France and the UK were opposed to German reunification, and attempted to influence the Soviet Union to stop it.[8] However, in late 1989 France extracted German commitment to the Monetary Union in return for support for German reunification.[9]“

https://en.m.wikipedia.org/wiki/History_of_the_euro

ChuckNorris895• 7 years ago

Yeah, France wanted to use the Euro currency to reign in the German economy. Funny how that ended up backfiring decades later with Germany running the show.

wolfgke2• 7 years ago

As they say in Germany: "Bedenke wohl, worum du bittest. Es könnte dir gewährt werden." ("Consider well what you ask for. It could be granted to you.").

noobdood3• 7 years ago

rein

Horse, not rule, although meanings overlap a bit .

johnzim• 7 years ago

We can look today at Germany as a mature, stable partner in the world but at the time, the argument that there might just be 'something in the soil' of the primary belligerent of the last 2 world wars was not entirely insane. Gratifyingly the world saw that the nation's contrition was sincere and we enjoy the fruits of its labour today.

pnako• 7 years ago

In 1914, Germany declared war on France. Then Britain declared war on Germany. In 1939 France and Britain jointly declared war on Germany.

It seems to me that there are at least three primary belligerents of the last two world wars (I would also include Russia).

zwieback3• 7 years ago

Not a word about the fact that Germany simply produces desirable products? Somehow that has to factor in. Financial policy and the education system favors a conservative manufacturing sector that incrementally improves upon what Germany has done for decades.

While I got my ME degree in Germany my dad, who is a solid state physicist, spent all his energy trying to accelerate the development of a German electronics sector. He was always ranting about the hurdles thrown up by politics in Germany, "We'll just continue building cars and machines for the next 100 years." Well, sounds like it's still working although the end of the cold war and the common market has distorted things in Germany's favor, an effect that probably won't last.

varjag• 7 years ago

Perhaps a bigger distortion was everyone else deciding to become "value-add" over outsourced production. Only so much room for beancounters.

reaperducer3• 7 years ago

Especially in certain product lines.

A relative uses a particular medial device with parts that wear out. She purchases the regular replacement bits off Amazon which are made in China and only last 30 to 60 days. When she can afford it, she buys from the OEM's online store which has parts that are made in Germany or The Netherlands. They fit better, work better, and last up to six months.

The difference is the Chinese parts cost $10, while the European-made parts cost $25.

ailideex• 7 years ago

the common market has distorted things in Germany's favor, an effect that probably won't last.

Quite by design. Having the whole Europe on Germany's monetary policy (i.e. Eurozone with EUR interest rates) while not sharing any other policy is heavily in Germany's favour and one of the main reasons the European debt crisis happened.

Not to say that being a well governed country with good policy and a culture that is conducive to high productivity and good quality did not help - it definitely did. And I'm not trying to redirect blame for the Eurozone crisis - Greece has mainly itself to blame.

pergadad• 7 years ago

That's a very simplistic view and doesn't at all cover the whole picture. The union benefits all countries in varying ways (eg without the union Italian and Spanish and French banks would long have gone bankrupt). At the same time it also has negative effects. But you have the same issue internally inside any larger country.

nothis• 7 years ago

Economics in a nutshell: "There must be a single number that explains all of this!" It can't possibly be that Germany actually built its exports based on quality. That can't be replicated by tweaking some tax laws.

arethuza2• 7 years ago

A few years back I worked for a large engineering services company (that nobody has ever heard of) and one of the senior managers from Germany described the quality of Mercedes-Benz cars as a "national disgrace" - he was genuinely upset about it.

dzonga• 7 years ago

Japan produces quality products. That even the revered companies here in the states e.g Apple via Jobs had to emulate them ? so yeah it ain't all about quality. Currency games have a strong role to play.

iagovar• 7 years ago

Many other euro companies export based on quality. I know this at least in Spain.

In Spain many companies just export with generic names, as it's believed that people associates spanish products with low quality, and this has been apparently confirmed with by Real Instituto Elcano surveys.

I did a reddit thread about this: https://www.reddit.com/r/AskEurope/comments/ejgwy7/apparentl...

This also happened with specialized and niche products, where you'd expect your customers, specially b2b, to be more rational in their decisions.

BurningFrog2• 7 years ago

Economics in a nutshell: "There must be a single number that explains all of this!"

My experience of Economists is that they love a lot of numbers!

ergothus3• 7 years ago

Not a word about the fact that Germany simply produces desirable products?

I dont think that's relevant though. Desirable products mean more countries buy your product, means the value of your currency changes, means your products are effectively "more expensive". Sharing a currency with other countries dilutes that effect, just like any prosperous region within a country sharing a currency with poorer regions.

I'm not an economist so I cant say how valid any of the points ARE, but from the logic presented I didnt think this was an attack on the quality of German products.

zozbot2342• 7 years ago

Nope, tradable goods don't just become "more expensive" because of currency shifts. The prices of tradables are set in a global market and tied together by cross-trading (arbitrage) considerations. What happens when supplying a desirable product is that the industry seeks to expand and that might increase costs overall. The Dutch Disease is an extreme version of this, in which having a single dominating industry sector leads to e.g. bad governance, etc. But these are real effects that are unrelated to currency shifts.

tompccs2• 7 years ago

He does talk about Germany's 200 year manufacturing excellence. That doesn't explain why in 1992 Germany had a massive trade deficit and UK had an equally large trade surplus, or how they've been able to avoid the fate of Japan.

raxxorrax3• 7 years ago

I think the current bleak estimates for Japan are quite exaggerated. Just recently economists proclaimed that their latest success must be a statistical fluke. Just look at the living conditions there... To be honest, I believe a lot of economists are a bit of the wrong side from time to time. Maybe analysts face a bleak economic future and got something mixed up?

vkou• 7 years ago

To be fair, this re-unification thing that was happening in 1992 was a bit of a drag on the German economy.

menotyou2• 7 years ago

These were the years shortly after reunfication in 1990. The reunfication hit West-Germany during a econonmic boom, so the economy was already producing at capacity and the additional demand shock from East-Germany could not be covered by West-German production. As a result imports raised and exports products were diverted to East-Germany at the same time and for a short time the trade balance became negative and some of the trade balances of Germany's neighbours temporarily improved due to higher demand from East-Germany.

BTW: It is a misconception that a trade deficit and a poor economy are related.

menotyou2• 7 years ago

Japans economy was much more government managed than completely free at that time. Specifically the Japans Ministry of International Trade and Industry ("MITI") was steering the economy, mainly be using a control called "windows guidance". By given "window guidance" the commercial banks the Bank of Japan controlled which segment of economy was allowed to get what amount of credit. This turned out to be highly competitve compared to the western model of a completely free market economy.

This system was later abandoned due to pressure of the US to make the banking system and the BoJ "independent". The result from this operation was that the commercial banks diverted more credit away from real investment to financial markets and assets investments, which in turn resulted in an unsustainable real estate boom in Japan.

From of this real estate boom Japan never recovered when the bubble burst.

BTW: The Bank of China uses nowadays window guidance as a system to steer the economy - and seems to be pretty successfull with it.

mambojumbo• 7 years ago

German products arent as high quality ad they used to be and most if them are pretty stale in terms of innovation. Sure they change the shape of cars and add new leds and interior eye candy but that is not progress. Imo german cars are low quality and lack diversity, and same goes for most machinery made in that country. US, Japanese, South Korean or other EU made products can be of similar or higher quality. Germany has such an economic power because the EU is heavily biased towards its needs. Just have a walk around east Europe and you will see how it has become junkyard for german cars. Suddenly the environment doesnt matter. Furthermore Germany is pretty socialist, both corporate and personal and has plenty of ways to subsidise industries and prevent too much innovation from rocking the boat.

gdrulia• 7 years ago

Disclaimer: I'm from Lithuania, little eastern Europe country.

There has been a lot of talk about eastern Europe being a junkyard for german cars (or old european cars in general) in recents times, not the least locally, especially by politicians trying to justify weird decisions. Most of the time one vital factor remains overlooked, people don't have money for anything else here. German cars are valued by most the people, whether that is deserved or not is a different question. There are plenty of mechanic shops for repairing those cars and cars itself are cheap. Public transport is mostly horrible, so a car is a must for most people. If a family has a budget of ~€1500 per month, how can you realistically choose anything else but an old imported car from western Europe (majority from germany).

jonathanstrange• 7 years ago

I cannot agree with this assessment, because you're talking about a key industry from the 80s. Germany's strengths is not just in cars, but also in tangible b2b products that require a high degree of know-how and engineering. Southern Germany is plastered with such companies, they deliver products to the rest of the world you and I haven't even heard of unless you're working in some specific business. These companies are very competitive and innovative.

kensai• 7 years ago

No pun intended, dude, but I think you speak mambo jumbo... :D

"German products arent as high quality ad they used to be and most if them are pretty stale in terms of innovation."

Germany just surpassed again South Korea as the most innovative country. News are just three days old. Where do you base your own assessment? Did your BMW break down?

https://www.bloomberg.com/news/articles/2020-01-18/germany-b...

jotm5• 7 years ago

Well, it's a junkyard of German cars because they just last longer and are cheap to fix (parts are from in Germany/EU, too). Japanese cars are second, simply because the number of German cars is so high.

wuschel2• 7 years ago

solid state physicist, spent all his energy trying to accelerate the development of a German electronics sector.

Out of cursiosity: What did he try to do, and what organisations was he using?

zwieback3• 7 years ago

He was at the Max Planck Institute at the time but on a lot of state and federal commissions to figure out how to get German industry on a fast track to compete with silicon valley.

somurzakov• 7 years ago

so the point is that Germany takes over euro-denominated industrial export to itself and leaves other EU countries figure out themselves whatever they wanna do to survive.

jpfr• 7 years ago

The analysis is incomplete. It does not take services into account.

Yes, Germany has a positive trade balance in goods. But the trade balance in services is negative. This ... well ... balances the balances.

The UK has shifted its economy from production to services. Hence the negative trade balance for physical products excluding services.

ChuckNorris895• 7 years ago

This! Germany's manufacturing supremacy can't last forever with lower cost countries catching up fast. UK realized earlier it can't be competitive in manufacturing anymore. Knowledge work is the future in the West, not volume manufacturing.

thenaturalist• 7 years ago

The number of "Hidden Champions" (SMEs most often in manufacturing of high tech machinery & components which are world leaders by market share in their respective niche) in Germany speaks to the contrary. Same situation in Japan.

jotm5• 7 years ago

So, you can buy good quality springs from China and Russia. Yet German suppliers are preferred, because they have better quality guarantees/control, I guess.

You realize that it's insanely easy for "knowledge work" to be replicated? Much more so than any manufacturing. China already does it.

What does that leave European and American companies with? Quality. It can apply to tangible and intangible goods equally well.

indemnity• 7 years ago

Knowledge work isn’t something people in the West are uniquely qualified to do, and so much of this work has already left or in the process of doing so.

It will be interesting for my children when either automation or outsourcing has removed the last rung for a typical middle class lifestyle.

toyg• 7 years ago

This. I stopped reading when the author claimed the UK was the biggest exporter in 1993 and now it's not - well, duh: this country doesn't export low-margin widgets anymore, because it makes more money into high-margin services. A lot of those services are sold to... Germany.

ChuckNorris895• 7 years ago

Exactly, that's why IT salaries(especially contract rates) are higher in UK than in Germany. UK values knowledge work more.

IfOnlyYouKnew2• 7 years ago

Adding in services doesn't change much: https://upload.wikimedia.org/wikipedia/commons/0/03/Balance_...

alasdair_• 7 years ago

Adding in services doesn't change much: https://upload.wikimedia.org/wikipedia/commons/0/03/Balance_....

The link you posted doesn't show the UK on it. It just compares four Euro countries.

durnygbur4• 7 years ago

The most un-understandable thing is that none of this export wealth reaches an individual, especially a guest worker, a foreigner. It's quite shocking to discover by a foreigner specialist lured to the country by the multitude of positive economic news. Cost-cutting and exorbitant charges and contributions everywhere. The entire export wealth is captured by the oligarch families and the highest level executive caste.

geff82• 7 years ago

Someone with a regular job can not afford a house close to a major city any more and for sure can not afford any desirable German car. People dress cheaply, buy used cars and many live in frugal appartments, buy in stores that many American or Canadians would consider third world (never ever go buy stuff in an Aldi when you are used to Canadian standards...).

ubercore• 7 years ago

I've only visited briefly, but Aldi in Germany was higher quality than any Aldi I've been to in the US.

arethuza2• 7 years ago

We had an Aldi open fairly recently close to where we live in the UK and I'd say it is pretty good, maybe not the absolute best quality but our nearest Waitrose is much further away.

dgellow• 7 years ago

Aldi would be considered 3rd world? What do you mean by that? I regularly go to Lidl and Aldi, they are perfectly fine discount stores.

ChuckNorris895• 7 years ago

Indeed, expats are lured here thinking Germany is the Promised Land but realize too late that they can't afford to buy a family worthy home on your average white collar wage and due to how German corporate politics work, most of the non-natives are locked out of the lucrative careers even when speaking the language.

Like someone said, Germany is a rich country of poor people.

owenversteeg• 7 years ago

The Aldi is "third world"? What on earth?

I personally shop in Lidl, not Aldi, but Lidl is often compared to Aldi, about as popular and occupies the same price segment. And I eat like a king from there! Excellent protected origin cheeses, meats, wines, organic products... Half the time I leave the Lidl I go with a shopping cart that would make an American foodie drool. My most recent purchase there included Manchego cheese from Spain (fantastic stuff!), French wine, Kalamata olives, Belgian beer, Belgian chocolate...

The Americans I've taken to the Lidl have all been impressed; they certainly did not say anything to the effect of it being 3rd world. Canadian supermarkets, on the other hand, I remember as having shockingly high prices (even after converting prices from Canadian peso) and far fewer fresh items than I was used to.

Furthermore, people with "regular jobs" in Germany generally live much richer lives than their American counterparts. Fancy/organic foods are far lower priced in Europe, 30€ with a low-cost airline will take you everywhere from the south of France to Spain or Italy, museums, music and events are cheaper, top universities are in reach for your children... And yes (gasp!) in many places you don't even need a car! I commute around 240km a day by train + a few minutes' bike :)

FabHK• 7 years ago

Someone with a regular job can not afford a house close to a major city any more

Germany allows foreigners to purchase property, and as such prices in very desirable locations (Munich, Dusseldorf) have gone up. But not everywhere. Furthermore, it is really not necessary to own a house, as the rental market is well developed - many people choose to rent. Lastly, looking at The Economist data, affordability in Germany is better than, say, UK, Canada, and the US. [1]

People dress cheaply, buy used cars and many live in frugal appartments

Yes, it is considered impolite to show off, and people don't really care about appearances, so they can be shabbily dressed. But then, they don't have to worry about healthcare, they travel quite a bit, and have time to read or follow their passions.

buy in stores that many American or Canadians would consider third world

Aldi sells good food at excellent prices, by foregoing the eye candy and marketing found elsewhere.

[1] https://infographics.economist.com/2017/HPI/index.html or https://www.economist.com/graphic-detail/2019/06/27/global-h...

Tomte• 7 years ago

Aldi has steadily improved its look. It looks quite different today. It's still got a hard-discount reputation, but it's by no means stigmatizing to go shopping there. Many well-off or even rich people shop there.

But thank god it still kept the good barcode scanner. I've just been to another (higher-end) store, Edeka, and the cashier tried to scan the potatoes twice over the band, then again with the handheld scanner, then typed the EAN in, all without success. Then she typed in the price directly, which she got from a crumpled-up note in her pocket. The same again with another article.

Aldi cashiers never have to scan twice, it always works. Because Aldi actually cares about speed and reliability of scanning, their barcodes are large, black on white, not small black-ish on transparent (and whatever color the article has inside the wrapping).

(I still rarely go to Aldi, although I realize I'm sounding like a fan right now)

asjw• 7 years ago

Said the country where fresh vegetables are more expensive than junk food and cooking real food is for TV shows...

Matthias2472• 7 years ago

As a german living in Canada I find grocery shopping there a lot more frustrating. Stores like Iga, Safeway and Whole Foods are quite expensive - even when compared to one of the expensive german shops (Rewe, Edeka). And the price fluctuations are wild: Something which might cost 8$ in one week might be 4$ in the next one - or at the Shoppers around the corner. Aldi is great! Good prices for decent quality. I would definitely prefer it to a Canadian Walmart.

rb8082• 7 years ago

Its great being in an egalitarian country there is less poverty but middle classes have much less money than America, someone has to pay for it and it isnt the billionaires.

onlyrealcuzzo3• 7 years ago

It's interesting to me how people view Europe as more equal than the US.

Not that the US is a bastion of fairness, but there seems to be a teeny-tiny miniscule amount of meritocracy in the labor force. This doesn't really seem to exist in most of Europe.

The top 10% of earners don't make much more than the bottom 10%. Meanwhile, aristocrats are richer than the median by more than in the US.

This seems like the opposite of Marx's dreams...

oaiey• 7 years ago

While you are right with that the wealth does not reach most Germans, there are no oligarch families here. Just normal capitalism with a mixed ownership (e.g. US pension funds etc).

playing_colours2• 7 years ago

It is captured by large taxes that were inefficiently spent on anything, but investments in future growth and prosperity.

v77• 7 years ago

Paul Krugman often rails against German industrial policy vis-a-vis the EU and hits a lot of the same notes in this article. On the other hand, most of the EU countries seem to accept this status quo and many of their citizens end up immigrating to Germany directly or benefiting from the massive EU subsidy regime funded by Germany so there are various forms of wealth re-distribution within the union.

durnygbur4• 7 years ago

funded by Germany so there are various forms of wealth re-distribution within the union.

This "re-distribution" feeds an enormous compliance sector in the receiving countries. An useless sector chocking domestic innovation and allowing the politicians to trumpet successes in "receiving the EU grants".

iSnow4• 7 years ago

Krugman's rants are mostly for a US audience and he needs a villain to sell his narrative. Additionally, he hates that Germany doesn't follow his model and still is prospering. And he is a pompous ass who puts ideology before facts, as seen in his rift with Estonia.

Despegar• 7 years ago

I've said it before in another comment [1]:

There's nothing I enjoy more than the plight of the German Saver, who's obsession with "fiscal responsibility" has led to shitty austerity politics all across the EU (to be fair some other northern European countries like Netherlands also share the same view) and depressed growth for the poorer southern European countries. Germany has benefited most of all from the unfinished project of the EU. Without becoming a federal union like the US, but having a common currency, Germany's exports have been artificially cheaper and thus more competitive for over 20 years.
This is the natural outcome from the obsession with running fiscal surpluses. Now Germany is on the brink of recession and they're finally starting to make some noises about fiscal spending, but the politics will likely limit it to modest deficits than anything transformational. Enjoy the negative rates.

The common currency (Eurozone) is deeply flawed and it only allows a rich country like Germany to win at the expense of poorer countries like Greece or Portugal. I find it insane that EU politics have never really dealt with this. I find it absolutely insane that after the 2011 sovereign debt crisis, Germany somehow managed to escape with keeping the Eurozone intact and having the poor countries impose austerity instead.

There absolutely needs to be a political revolution in the Eurozone countries. Either complete the EU project by becoming a United States of Europe, and receive all the equalizing payments of healthcare, social security, and common military spending at the federal level, or get rid of the common currency. It's just hurting the poorest people in the Eurozone to keep the current arrangement.

You might be under the impression "well Germany might be parasitic vis a vis other Eurozone countries, but at least it's good for working Germans", but you'd be wrong.

The US today has a tight labor market which will eventually drive wages up if it persists long enough. Germany on the other hand has similar employment statistics but they did it with the Hartz reforms [2]. The unemployment stats look great because you can get a shitty low wage job [3].

Germany has kept the wages of workers depressed in order to be an export powerhouse. It's parasitic on other Eurozone neighbors but also on German workers. The people who have benefited the most from this arrangement are the German capital class. The shareholders and managerial class of German industry, whether it's giants like Volkswagen or even the small Mittelstand companies. German workers should have gotten wealthier over time which would have made Germany similar to the US in being driven by domestic consumption. That in turn would have made other EU members better off because those wealthier Germans would have been able to consume more of their goods and services. It's truly baffling how even German workers have put up with this. They're losing to the benefit of German capital.

[1] https://news.ycombinator.com/item?id=20793982

[2] https://theconversation.com/questioning-the-claim-of-germany...

[3] https://en.wikipedia.org/wiki/Marginal_employment#Germany

jhoechtl4• 7 years ago

Thank you for taking the time and contributing a well-explained and argued line of argumentation.

Yes, Germany is wealth because others (the southern countries) have to compete because of the union currency. I always thought people of the southern countries (i know people from spain and greece) would rage more vigrously against that. Interestingly rage is only mildly and not a big thing. Maybe it's the selction bias bubble I am living in, I don't know.

gimmeThaBeet• 7 years ago

That's a pretty good overview of a good amount of things, Germany exports a lot of things, including their own problems imo. Germany has not held their own when it comes to demand growth. People seem to love Germany's fiscal discipline, but they don't realize that they pursue it to detrimental extent, if not for their own sake, than that of their neighbors. The schwarze null is kind of a cynical joke at this point.

The problem with being like, a systemic export nation, is that your shifting burden to someone else. It sounds okay on paper, but what you see is that can hide a lot of your own issues. If you aren't getting better, your sustained welfare is vampiric, it's coming from your counterparts.

And like you are saying, a personal pet peeve of mine is the outsized amount of private companies. Look at any global etfs, Germany is behind the UK, France, Switzerland (lot of multinationals tbf) and Canada (though not European). That's mainly the work large amounts of private companies. I'm sympathetic to the fact that its their companies, they don't have to sell them. But when it creates a fairly significant skew in sort of a capital picture, you can end up with stuff like this, where your capital class is even more walled off than elsewhere, since you can't build equity in a large portion of their economy even if you wanted to.

imtringued• 7 years ago

That only explains a small portion of the problems. The reality is that there are governments in the EU that are even more incompetent than Germany's and it hurts them more than some little currency problem. Austerity isn't solution but telling them to stop spending their money carelessly is a step in the right direction.

zozbot2342• 7 years ago

Keeping the wages of workers down is good for workers' incomes if the alternative is high structural unemployment as seen in other Eurozone countries that are not so well managed. The fact that the supply of ready and willing labor has yet to be exhausted (which would ultimately boost wages and plausibly final consumption) is neither here nor there.

hogFeast3• 7 years ago

You can't complete the "EU project". Politically and economically, it is just very obvious that states want different things from Brussels (btw, the people who go to Brussels are generally very different from national politicians...they are globalists, most citizens in Europe are not)...that is why it hasn't happened already.

You also raise very good points, that most people forget, about how Germany got here: they got here by squeezing the poor and transferring wealth to billionaires (there is a reason German billionaires are low-key). Another important feature is banking: that is how the wealth transfer occurred, and German banks are in a terrible state (they seem to get involved in literally every financial crisis: CDOs, lending to shipping companies, lending to Turkey, lending to Greece...it is unbelivable). That is why the German model doesn't work (Japan copied the German model, and their banks self-destructed eventually...it doesn't work).

One cool stat that demonstrates this is that Germans have slightly lower net financial assets than Greeks. Yes. The richest country in Europe has citizens that are poorer than the "basket case".

What is also forgotten is that two decades ago, it was Germany that was the basket case (the OP also inaccurately says that Germany was a powerhouse in the early 1990s...nope, it was a basket case then too because it had to integrate East Germany). The Euro has benefited one nation above all others (and Netherlands...although their success is partly due to becoming a tax haven) and imposed massive costs on others (Italy, in particular, has had nearly three decades of austerity between the ERM and the Euro...it is madness).

toohotatopic• 7 years ago

The people who have benefited the most from this arrangement are the German capital class.

It's not necessarily Germans who own the companies. This article from 2014 shows: [1]

>Who owns the DAX, Germany’s pre-eminent equity index?
>Not many Germans, it turns out. According to fresh research from the Bundesbank, the share of domestic ownership of the index—which comprises the 30 largest public companies in traded in the equities markets—fell from 44.1% in 2005 to 36.3% in 2014. Meanwhile, the foreign ownership share rose from 55.9% to 63.7%.

[1] https://qz.com/273655/foreigners-own-most-of-germanys-dax/

iSnow4• 7 years ago

The US today has a tight labor market which will eventually drive wages up if it persists long enough. Germany on the other hand has similar employment statistics but they did it with the Hartz reforms [2]. The unemployment stats look great because you can get a shitty low wage job [3].

Meh, that flies in the face of facts. Real wages in Germany had been depressed for long, not least due to unification, but are picking up: https://d3fy651gv2fhd3.cloudfront.net/charts/germany-wage-gr... and there's not reason to believe that is going to stop anytime soon.

notfromhere• 7 years ago

The U.S. labor market isn’t that tight for non-supervisory roles and wages aren’t going to grow beyond inflation under current policies. We’ve been in a ten year expansion with no wage growth to speak for.

novaRom• 7 years ago

Germany has also very low net income inequality.

jhoechtl4• 7 years ago

Used to have. It's swiftly increasing and working poor has defenitely become a thing.

Net income declined for ten years in a row.

hogFeast3• 7 years ago

It has the highest wealth inequality in Europe though (iirc, it is as high or higher than the US). In absolute terms, Germany's average net financial wealth per capita is slightly less than Greece...and in Germany, they have a substantial number of billionaires (usually very old money that got rich through govt aid/subsidised loans...or, unf, something much worse) which they don't in Greece.

Btw, the IMF actually produced a special report on inequality in Germany. It is a very serious problem and probably more serious than in the US (a trade surplus is just an excess of savings over investment: Germany industrialised through subsidised loans to politically connected companies, this meant very low interest rates...they are basically China, btw China copied Japan's model and Japan copied Germany...insolvent banks, very high inefficient saving rates, very low wealth, very weak savings system, low wages, very concentrated/vulnerable economically, non-functioning capital markets...it goes on and on).

ed_balls• 7 years ago

Good article, but the model is too simple. UK used to produce more cars than Germany, but it's the opposite now. Why? They haven't shared the same currency. German cars were better.

And it means those same workers in Spain are less equipped to compete for Manufacturing jobs — because Elon Musk has to pay them in German Euros instead of cheap Spanish Peseta. If you’ve got to pay everyone in German Euros, you might as well get the most productive workers for your “buck”, right?

If that was the reason then he should move his factory 50+ miles East. Why the factory is near the Berlin? Network effects. They have the logistic, supply chain and talent. Even electric car project, created by Polish government is designed and build in Germany.

stefano2• 7 years ago

That point also ignores the fact that spanish workers are indeed cheaper than german workers. You can't focus on the unit of measure (the currency) while ignoring the accompanying number...

kgwgk• 7 years ago

You're right. Unsurprisingly, in some countries workers are paid more "German euros" than in others countries.

https://ec.europa.eu/eurostat/documents/4187653/8516126/Comp...

pvaldes6• 7 years ago

If by productive means lying about car emissions to cheat authorities, yeah, Wolkswagen and Audi and whatever are really efficient cars made by really productive german workers.

Maybe we could move this conversation to adult zone and non-cartoonist levels beyond "spanish cheap drunk workers living in the beach" and "german saint teetotalers workers"?

Thinking that a spanish engineer is less educated than a german engineer is hilarious (yeah, we take siestas under a cactus with a big hat all day in between last party and next party). University titles in all EU are equivalent for the same grades.

allendoerfer2• 7 years ago

Productivity can be measured for example by GDP per hours worked, and Germany's productivy is very clearly above Spain's.

These are facts, which do not demean Spanish engineers, so no need to be defensive here. You are just taking one incident and using it to brush over economic facts.

Barrin92• 7 years ago

Also a lot of the industrial capacity in Germany is very obviously significantly older than the Euro. In fact the strength/weakness of the currency is not one-sided. A stronger currency (like the Deutsche Mark before the Euro) incentivized German firms to innovate rapidly to stay competitive even in the face of a more valuable currency, and that is something that can also be seen in the labour productivity statistics. German workers are about 30% more productive than their peers in the UK.

German exports are also not particularly cost-sensitive because so many hidden champions in Germany deliver specialised industrial goods that are hard to replace (as the saying goes Germany makes "the thing that goes into the thing that goes into the thing"), which reduces the impact of currencly fluctuations.

idclip3• 7 years ago

Theres a reason the Politics is becoming extreme, the largest economy is simply neglecting its citizens and simply saving a lot.

Edit: not trying to troll. Many are thankful, but many are worried aswell. I/we dont consider it difficult to understand. Work hard, save, dont go to wars, its a simple equation, but its not all rosey, and things arent perfect. Many claim this prosperity to be illusory, and fear a harsh crises ahead.

bilekas3• 7 years ago

Imagine a government who could be financially prudent..

Sorry but this is not why 'Politics is becoming extreme'.

The same way that not every citizen pays much attention to national debt until their on the hook for the bailout. Less drama is better. Strong and steady economy and forward planning.

I would take that over : "Hey lets just spend money we don't have, we'll tax is later or inflation or screw it, worst case, another bailout."

The proof is in the last financial crisis. Germany was able to buy up because they didn't spend like drunken sailors in a brothel during the, (identified by them and france) financial bubble.

Funny that.

I suspect the reason Politics is leaning more Fascist recently, is due to a bit of anger posts like yours that reflect nothing in reality.

Funny that too.

idclip3• 7 years ago

Are you here actually struggeling to find a kita place for your kid, or seeing how refugees just get dumped into ghettos ?

Because if you arent ... well then.

There’s honestly something very fundamentally wrong. And its very irresponsible and honestly nigh defamatory by trying to blame the larger mood on “posts such as mine”, hell im not even a conservatist, actually a moderate leftist that thinks those cries for attention ought to br heard and adressed. Posts like mine arent making the AFD the third strongest party, theyre riding the anger, rather. I will honestly not make statements about you, because im not here to inflame things, but do consider your finger pointing in this case, its unsavory, even if im off base and you know better, there’s a better way to put it.

durnygbur4• 7 years ago

Seeing their elites enjoying themselves on the southern French coast, Italian and Spanish islands, Caribbeans, and wherever else the last thing that comes to mind is that they're "saving a lot". It's more like they decide on whose cost the "saving a lot" will happen - employed taxpayer.

TillE2• 7 years ago

It's been observed that the German word for austerity - Sparpolitik - is quite a euphemism, and does a lot of work convincing people that it's a good idea to "save" money like this.

onlyrealcuzzo3• 7 years ago

Yes, the income tax is close to 50% for almost everyone, and yet the capital gains tax is just as low as in the US. Less progressive. Arguably MORE favorable to the wealthy (since the rich have a more significant tax discount in the EU than the US). And yet workers there think it's more equal. I guess they have a point. It's more equal amongst laborers. Only because no laborers make a decent wage, and minimum wage is slightly better there.

szczepano• 7 years ago

Article should be named.

Why this time we succeed and conquered our old enemies using capitalism, money and demand for precise machines that save time instead of wasting everything to fight with everyone around.

scottlocklin2• 7 years ago

TLDR: economists are imbeciles.

Never mentions hidden champions[1], never mentions the high level of training and morale and hence productivity for the German worker, never mentions German dedication to quality, never mentions the social capital of corporations which are hundreds of years old, never mentions the fact that MBA quarterly profit maximization uber alles bullshit never caught on in Germany, never mentions the Landesbanks.... I submit this article as evidence that economists don't understand any economy.

[1]https://en.wikipedia.org/wiki/Hidden_champions

tompccs2• 7 years ago

If you'd bothered to read you'd realise that the author isn't an economist, and that he does talk about Germany's manufacturing excellence. That doesn't explain why in 1992 Germany had a massive trade deficit and UK had an equally large trade surplus, or how they've been able to avoid the fate of Japan.

scottlocklin2• 7 years ago

Gee, what was different about 1992 in Germany? Could it be ... absorbing East Germany?

He may not be an economist, but he excels at economic imbecility.

gok• 7 years ago

At what point do we stop talking about commerce between Eurozone states as imports/exports?

em500• 7 years ago

... Nobody Understands

A pretty grandiose claim. Reading the essay, the "understanding" seems little more than the fairly mainstream narrative that the Euro is too weak for Germany and too strong for the EU peripheral. Am I missing something?

40acres• 7 years ago

Interesting that the labor culture in Germany relative to the rest of the EU is not mentioned at all. Germany is one of the strongest nations to be an industrial worker and has various laws that are pretty unique to the nation, such as co-determination, I believe this has acted as a defense vs. outsourcing (and when they do outsource, they go to high cost places such as the US) and has kept it's manufacturing base strong.

raxxorrax3• 7 years ago

There is strong pragmatic cooperation between manufacturers. You get free samples and if some parts don't meet specifications there is a shared effort from both supplier and consumer to fix the problem in the process instead of suing each other. Would be too expensive without real results anyway.

Hours worked are pretty low compared to other European states even if you factor in a large part time component. I don't think increasing hours would increase productivity anymore.

There is also a darker side of course with a lot of minimum wage jobs or people working long hours while still being dependent on the state. Even for employees of the same company the income can be quite unequal. Compare development or engineering with production or logistics for example.

iSnow4• 7 years ago

Yes and no. German companies are outsourcing like crazy, but they have the whole central/eastern european countries as outsourcing destinations. Low wages, high level of education, short distances, EU membership make them really attractive.

A lot of very basic, work-intensive or energy-intensive work has left Germany over the last 30y, but the companies make a killing of value-added manufacturing.

Also, not least due to unification, till a couple of years ago, German wages were very stagnant, so it wasn't that great a country for industrial workers, paywise.

hogFeast3• 7 years ago

I stopped reading after the 10th historical inaccuracy. This is why economics/economic history is hard folks (not just the actual economics but creating something readable...this is basically unreadable). Germany, in particular, requires a fairly deep understanding of economics.

lispm3• 7 years ago

What is often overlooked is this: Germany was export-oriented before the Euro, during the transition and with the Euro. Germany was export-oriented before reunification, during reunification and after reunification.

The industry will adopt to those external factors: Germany was 'Exportweltmeister' with the super strong DM (which dominated European currencies) and it is a leading export nation with the Euro.

There are a lot more factors that support the German model. For example Germany is not a centralized economy (like the UK or France, which are grouped around London and Paris). Thus lots of federal states and cities have strong economies: Munich, Hamburg, Düsseldorf, Frankfurt, Berlin, ...

The extreme angle is the concept of 'unknown medium-sized world market leaders' - so-called hidden champions. Germany probably has almost 50% of all hidden champions world-wide:

https://www.forbes.com/sites/rainerzitelmann/2019/07/15/the-...

You'll find many of these companies in rural regions.

Many of these companies are export-oriented, based on a long tradition and they don't care what the current currency in Germany is.

cosmodisk2• 7 years ago

Was half way through your post when I was about to write my comment about hidden champions,glad you mentioned it. This is something that tends to be overlooked quite often. Very very few countries have a model like this.Take the UK, as an example.An average town or even small city rarely has anything that isn't just for local market. For a lot of companies it's kind of fine,as the market is big enough to earn comfy living for the owners, but that's it. The default in most countries is something like: " ok,I'll sell this in local area and maybe,just maybe,if I become super big,then we'll start exporting". It's shame really. I see this mentality in my own country, Lithuania,where an average purchasing power is relatively low and the market is super small(1/5 of London population) ,yet the default option is to start locally. Luckily the IT sector is different,where most businesses default to foreign markets.

jotm5• 7 years ago

It's absolutely baffling. I've been looking into it for cheeses and ales, so many UK producers flat out say "We only ship within the UK" even though the cost of shipping is covered by the buyer and it would cost nothing, not even extra paperwork, to ship to the EU (for now).

NeedMoreTea2• 7 years ago

There used to be tens of thousands. In 1979 there was a policy decision to end UK manufacturing and focus on the City and services. No end of highly successful UK export businesses disappeared. Many of them quietly a world leader. Many of them famous names that had existed for a century or two.

Sheffield was the steel city with all the production, infrastructure and suppliers to feed all the cutlers, precision instrument makers, tool makers, scissor makers and all the other specialisms surrounding tool steel and stainless steel. The Potteries, well you can probably guess that one. So it went on around the regions of each city and across the country.

I go beyond it being a shame, it's criminal, or bloody well should be. We have had no chance of balanced export books since 1980.

If you search around the web, there's a lot of archive sites showing what was lost -- though in truth it was far more an intentional destruction.

nostromo• 7 years ago

I'm reminded of Trader Joe's -- a chain most people think of as a California-based chain of health food stores -- but has actually been owned by a media-shy German family for 40+ years.

tathougies• 7 years ago

Trader joes was not a german export. It was started by a Californian, and sold to a german family.

chrisco255• 7 years ago

Maybe Aldi is a better example?

Edit: Didn't know this, but Aldi bought Trader Joe's and currently owns it.

iSnow4• 7 years ago

There's also one glaring error in the text that can only be explained by hindsight wisdom:

The Single Market launched just four months later, in January 1993, though something like it had been in the works for a while. But on that launch date was there anyone in Europe with any doubts about which nation — which “area” — was ascendant, economically speaking?

Germany in 1993 was in no shape or form to be the ascending economic superpower, in fact 1993 was a recession year: https://d3fy651gv2fhd3.cloudfront.net/embed/?s=wgdpgerm&v=20.... That of course is due to reunification which was extremely costly at the time and the implosion of the former socialist economy hindered growth massively.

Germany got extremely lucky with its timing - when the exchange rate for the DM to EUR conversion was fixed, the German economy was still in dire straits, so it was basically undervalued. But the German companies used the sudden strategic location of the country between east and west to massively invest in production capacities in the former eastern block to keep production costs low while selling to the industrialized neighbors in the west.

biztos3• 7 years ago

Some members of my extended family own a company (actually a small family of companies) in that category, and of course it's in Swabia.

They are market leaders in some very high-margin things most people never think about, and interestingly they sell a lot in Asia, where one might expect them to be more vulnerable to competition. German Quality is a huge brand worldwide.

I also have a friend in Berlin who's sort of inheriting the family business, manufacturing something so random I always forget what it is. Involves rubber I think. High margins, privately-held family business, etc.

I really think a lot of these companies, if they were in the US, would either go public (the bigger ones) or be sold up to a bigger concern. But in Germany you'd have to pay a really big premium to get your hands on someone's multi-generational family business. As long as there are kids to inherit the factories then that's what they're gonna do.

usrusr5• 7 years ago

Another way how this kind of company would likely fail to continually thrive in the US, even when it's not sold: those niche markets are so small that even when completely dominated the profits would be insufficient to get date-in-Hollywood rich or groom-yourself-for-presidency rich. So if you have bigger ambitions than the niche allows you'd hand over the reins to a "maintenance manager" and focus on something more promising. Those small niche specialist businesses reach excellence through a loyalty to whatever field that made them big that is fueled by limits to ambition. (I think I already posted this idea on some other HN that)

(and the businesses tend to be filled with a weirdly self-contradicting mix of nationalistic hybris and massive imposter syndrome)

lifty• 7 years ago

Very good point! In this video [1], economist Richard Werner rants about the existing central banking influenced economies, but at around the 47th minute he mentions the roughly 1500 "champions" (USA has 300), and he argues that this is the case because of the small local community banks that are present all over the country.

[1] https://www.youtube.com/watch?v=8FT-zyTX2nE

elfexec• 7 years ago

Germany was export-oriented before the Euro, during the transition and with the Euro. Germany was export-oriented before reunification, during reunification and after reunification.

Germany was export-oriented even before WW2. It's funny whenever you read about "How germany or japan became industrial powers after ww2". With many crediting the US or whatever aligns with their agenda. The truth is that both germany and japan were industrial powers before ww2 and they just reverted back to what they were after ww2.

For example Germany is not a centralized economy (like the UK or France, which are grouped around London and Paris).

Germany is most definitely a centralized economy. Just because it doesn't have the dominant city center like London and Paris doesn't mean it isn't centralized. The reason why germany is a manufacturing power is because german federal government and the state decided to make germany export-oriented manufacturing power. While in the UK, they decided to become finance oriented and service oriented and shifted their manufacturing overseas. Which is smarter in the long run, only time will tell.

lispm3• 7 years ago

doesn't mean it isn't centralized

Not really. If you look at successful companies, they are all over the country - though not much yet in the former East Germany, for historical reasons.

because german federal government and the state decided to make germany export-oriented manufacturing power

Germany has been manufacturing/trade oriented for centuries. The 'federal government' does not decide these things on their own just now. Germany does not work like that - there is no 'federal government' which decides the economic policy in a centralized manner, WITHOUT involvement of the Bundesländer and/or the companies/employees/... > finance oriented and service oriented

Germany is also finance and service oriented, just to a slightly different degree and with slightly different domains. Even the manufacturing companies are often extremely service oriented. Selling not just products, but a lot of services around these products.

While in the UK, they decided to become finance oriented and service oriented and shifted their manufacturing overseas.

Good luck with that.

pjc502• 7 years ago

Just because it doesn't have the dominant city center like London and Paris doesn't mean it isn't centralized.

That's .. kind of the definition we were using? If it's centralized, in which city is it centralized?

The London dominance of the UK is almost debilitating; it's very hard to get any kind of policy discussion that sensibly includes even Birmingham or Manchester. Let alone all the Brexity post-industrial towns.

It's also not entirely true that the UK has lost "manufacturing" - we still make a lot of stuff in £ value terms, but it tends to be small production runs of expensive stuff. Scientific instruments, aerospace, weapons, pharmaceuticals. The industrial relations disaster of the 1970s caused a backlash against vast production lines - not very many of those left apart from Nissan.

flukus• 7 years ago

You'll find many of these companies in rural regions.

In so much of the developed world we're becoming more and more politically split along urban/rural lines, is this the case in Germany is does their distributed industry even things out?

usrusr5• 7 years ago

It has always been a struggle and after reunification federal focus has shifted, naturally thethe rural/urban imbalance took the backseat to the easy/west imbalance, city or not. But a lot of anti-centralistic intertia has remained, and a lot of the political fight against rural/urban split was on state level anyways. The split is growing in Germany just like everywhere else, but it probably hasn't proceeded as far yet.

lispm3• 7 years ago

Growing larger cities is also a trend in Germany. Especially the young mobile population moves to cities to study at universities. Cities are also attractive for their infrastructure.

Small and medium sized towns often (not always) struggle with that and are looking into ways to become more attractive...

Just imagine, Adidas (sports, revenue 21 billion Euro), Puma (sports, 4.6 billion Euro revenue) and Schaeffler (14 billion Euro revenue, from manufacturing) have their home in Herzogenaurach, a small town in Bavaria with 23k population.

http://herzo.adidas-group.com/#working/places/intro

How do you get people working there? When Munich, Berlin, etc. are trending?

jl2718• 7 years ago

What does this game look like with a fixed money supply and no trade or movement restrictions? My naive Econ 101 guess is that wealthier nations would export more, not less, and higher value goods. Why does inflation work to produce a trade surplus? It seems that the only reason is decreasing internally-sourced costs like labor, but this just props up obsolete value chains instead of promoting capital innovation. Does this work long-term? Also, in a game with one inflator, how does that turn everybody else into a leisure services economy without a whole bunch of inflationary distributive spending on their part as well? It would seem that the fixed-supply result would look like deflation plus capital excess, which is perfect for investment in new industries. It seems to me that maybe Germany is in roughly this situation whereas the US/Japan/etc can manage money supply according to political will, so a larger portion of productivity is diverted to leisure services and structural inefficiency. Also, is Chinese currency manipulation an economic success story? What would we see with a free market fixed currency in China?

harikb• 7 years ago

I blame the lax bankruptcy laws in United States (in comparison to Germany). I think it creates a safety net that is too comfortable that the business can (a) give up too early or (b) use this as a pump & dump scheme where the owners walk away with money they had siphoned off early.

Compared to German insolvency procedures [1]

The aim of insolvency proceedings is not to protect the cor-porate debtor from its creditors, but to maximize the insol-vency dividend payable to the creditors. To achieve this aim, proceedings may be directed either at a liquidation of the company’s business or at a reorganization of the company it-self by means of a plan of restructuring (Insolvenzplan). In the event of a liquidation, the company’s business operations may be sold as a going concern to an investor or the business may be wound up and the individual assets sold.

1. https://www.jonesday.com/files/Publication/1ec093d4-66fb-42a...

w_t_payne• 7 years ago

Competing with China, Germany and the US is possible -- but you have to be deliberate, disciplined and very very very organised.

graphicsRat• 7 years ago

According to American Society of Mechanical Engineers one reason Germany has kept is industrial base are the Fraunhofer Institutes you will find all over the country right next to universities doing essentially free R&D in almost every area of technology for companies that might otherwise not be able to afford them. (I had a student assistant job at one such institute when I was an MSc student in Germany)

https://www.asme.org/topics-resources/content/how-does-germa...

ThrustVectoring• 7 years ago

The financial side of things is probably the bigger driver - the German government is notoriously unwilling to issue debt, so domestic German savers have a huge shortfall in safe assets that they must purchase abroad to acquire. These foreign financial assets, on net, can only be bought by sales receipts of exports.

cyberpunk2• 7 years ago

As someone who lives and works in Germany I'm always surprised when I hear of the strength of the country. I've worked for several very large corporations here, financial and automotive, and how anything is achieved at all remains a complete mystery to me. It seems to me that all the success reported is directly in spite of their attitude towards technology and IT in general instead of because of it.

The culture here is to outsource everything besides PM, then every few years when the projects fail or are over budget (time or money) to replace the partner with someone new and lose all the domain knowledge those teams had and then they have to start again. I've seen millions of euros wasted in this manner, the only way it'll be fixed is when the current generation of management retire.

I'd be keen to know if anyone else working here has a similar experience, I've tried to 'fix' this culture several times and haven't succeeded yet.

Weirdly, in the last 6 months Azure seems to be making huge inroads, perhaps that'll help.

crispyporkbites• 7 years ago

What you’re seeing are signs of a successful industry.

They have money to burn on irrelevant things. At the end of the day the IT system will typically not help your margin on a supply chain beyond a tiny amount.

cyberpunk2• 7 years ago

The finance gig I had the IT systems were core business. At one point there I was in a meeting where I was the sole engineer and there were 14 project managers involved in my project. We all had a nice laugh about it but, again, this to me is a sign of a sort of sickness, not a sign of success.

ahartmetz2• 7 years ago

If you only work for very large corporations, you work for some of the most inefficient corporations. You get a higher salary for the resulting frustration. That's the deal.

If you want to work in an environment that works according to common sense and achieve something, take a pay cut and join a smaller company. Of course, you still have to do your research and choose wisely.

d10r2• 7 years ago

That's why I call those salaries "Schmerzensgeld" :-)

neonate• 7 years ago

It might be even worse elsewhere.

trhway• 7 years ago

then every few years when the projects fail or are over budget (time or money) to replace the partner ... and then they have to start again

i've also worked with Germans a lot, and what you said is one of the keys to their success. Everybody makes mistakes. Mistakes are given. Majority of IT everywhere is mistakes, failures and waste :) What Germans do, at least in my anecdotal experience, is that they [slowly, with time, yet unstoppable] do ultimately notice the mistakes/failures and really react to it with strong reaction like you described, like closing projects, replacing partners, etc. - basically cutting the bad pieces out, cutting losses without fear of sunken costs.

Matthias2472• 7 years ago

I can feel you. I had exactly the same feeling when working for a big german cooperation. However let me tell you that the grass is not necessarily greener elsewhere.

One thing you mention is domain knowledge. This actually also a big problem in the US tech companies. The people fluctuation is so high that after some years nobody might really know anymore how a certain component works. This is not that much of a problem in german companies.

Also the bigger german cooperations have I'm aware of had better planning, project management and QA than things projects I witnessed elsewhere (sample size is obviously limited). While that sounds like more bureaucratic effort, it still reduces the chaotic aspects in projects and improves the chance they will finish on time.

cryptica• 7 years ago

This is a very interesting article.

I particularly liked the insight that currency stability may be desirable for the most successful economies but undesirable for the least successful.

Being in the cryptocurrency space, I can see how this also plays out on a much smaller scale as well. When your community is made up of nobodies, one of the few advantages that you have is that your cryptocurrency has more upside potential than established players. This can offset the significant downside of not having a reputation.

neilwilson• 7 years ago

Germany isn't Germany any more. It is a component of the Eurozone - which is a unified currency area - like the USA, or the UK.

What Germany does is 'vendor finance' other parts of the Eurozone. The Greek government buys German battleships and the savings the Germans are famous for buy the paper the Greek government issues to close the circle. Then they blame Greece for going into debt once the ponzi scheme reaches its limit.

You get the same effect with London to the wider South East of England, arguably England to Scotland and no doubt several areas in the USA where outside of the area, but within the currency zone, is encouraged to borrow to buy the output of the area.

China's mercantile currency lock does much the same thing.

The eternal problem is that exporting is giving away the output of your people in return for a shiny bauble. If you don't then exchange that shiny bauble for the output of some other people, what was the point of doing all that work in the first place?

You may as well have used your productivity to have Friday off instead and gone fishing.

d10r2• 7 years ago

The eternal problem is that exporting is giving away the output of your people in return for a shiny bauble

That's an important point!

In the case of China, I'd guess that it was a strategic decision to do so. Being in debt with others gives others political power over you - at least as long as you are not stronger (ultimately, in a physical sense) than them. I guess China wanted to avoid that as long as it wasn't strong enough. Now that China is getting stronger and stronger, they are starting to invest that accumulated capital in order to gain political power over other, weaker nations. That's btw. a hot topic even on Germany, if it's ok to let the Chinese buy local companies and other assets.

In the case of Germany, I don't really understand why it went that way. The surplus seems to have become some kind of fetish. During the Greek crisis, the risks of such imbalances became visible. The big risk for Germany is imo that a major country like France or Italy will tip over politically, leading to the destruction of the Euro. There's no playbook for how to handle that and I guess it would be a messy and ugly political process which may render quite some of those collected "shiny baubles" worthless. With European history in mind, I don't think taking that risk is worth it.

How Germany is able to run the world’s second largest export economy

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