Yesterday’s Guardian contained an interesting article by John Kampfner on the economic miracle now taking place in Germany. Kampfner describes how Germany, strengthened by its long-term emphasis on planning and investment, has managed to ride out the worst of the economic storm currently engulfing much of Europe, most notably Greece, Ireland and Spain. He draws particular distinctions between the experience of Germany and that of the UK, noting how between 2000 and 2010 their exports to China were twice as much as ours. Though Kampfner doesn’t say it, similar comparisons can be found in our employment figures. While Germany’s level of unemployment is currently around 6%, the UK is still shouldering something in the region of 8%.
But why the difference? Although the origin of this economic success is said to be found in a number of sources, there are two in particular that stand out. First, the German economic model is based on highly skilled and efficient labour, nurtured through good quality education in high-tech subjects, investment in R&D and a sound vocational training system, all of which the UK seldom seems to enjoy.
Second, German industry and government have an exceptionally strong relationship with its trade unions, which allows for more effective dialogue and early consensus to be reached as soon as gloomy clouds appear on the economic horizon. The banking crisis of 2008 is just one example of this, whereby both sides agreed to cut working hours and pay across the board to ensure workers would be buffered by the worst of the crisis. In contrast, the UK’s poor investment in research and technology, a reliance on debt-financed spending and a fractious relationship with trade unions have apparently formed the perfect recipe for the woes we currently find ourselves in.
Despite many of these being obvious and intuitive truths – we know, for instance, that we need to catch up with Germany when it comes to vocational skills – there is something about the explanation of Germany’s success story which appears all to simple. Is their economic miracle – or as it is sometimes called, the ‘Wirtschaftswunder’ – really all it is cracked up to be?
Were we to go deeper we might find that the German economic model has caused not just significant problems on the domestic front but also in the wider European arena. Writing for The Globe and Mail earlier this year, Doug Saunders talks about how Germany’s economic strategy has for years been based on export-oriented growth by keeping labour costs low and productivity rates high. Europe’s smaller and poorer countries, many of whom became integrated into the EU this century, became valuable new consumers for the goods rolling off Germany’s production line. The money that this brought in enabled banks to ease the flow of credit for the nation’s consumers, while keeping interest rates low. In this way, Germany’s prosperity was built upon the growing debt (and ultimately the bankruptcy) of its neighbours, many of whom are now berated in the country’s media for being lazy, unproductive and reliant on the powerhouses of northern Europe.
Domestically, the picture is much the same. In order to keep the German manufacturing industry moving and the demands of its products from their Southern neighbours met, the country has had to rely strongly on immigration to supply a young and healthy workforce. With the smallest average family sizes in Western Europe this has been critical to their model. Saunders notes that economists predict Germany to need as many as 800,000 additional workers from Eastern Europe and Turkey before the end of 2012. Even for a country the size of 80 million, this will be a large and noticeable influx of people.
The problem is that the German economic model is based just as much on low wages as it is on high productivity. With figures showing that German wage rises over the last ten years have been the lowest in Europe, the prospect of a large amount of new workers further depressing the level of take home pay can only serve to increase the numbers of people holding Angela Merkel’s view that “multiculturalism” isn’t working.
So while there is a general sentiment among many social and economic commentators in the UK that we should marvel at the German economic model, a closer look at the current economic malaise in Europe presents a more complicated picture. Investment in R&D and a good vocational system simply doesn’t explain everything, nor does the harmonious relationship between trade unions and the government. If anything, this has only served to sustain an economic model which is built on low wages and which has sown the seeds of angst that many of its citizens are feeling.
To return to Kampfners article, for the UK this means not taking the economic success stories of other countries at face value. Most of us know that we require some rebalancing of the economy and less of a reliance of private and public debt to fuel growth. Likewise, from evidence such as that presented in the recent Wolf review of vocational learning, we know that we need to improve our educational offer and to better tailor training to the needs of our industry and manufacturing sectors. But we should also be wary of examining our economic model and that of other individual countries without looking at the wider economic (and political) context which they sit within, and the intricate international exchanges of labour, credit and capital which they rely upon.