Interesting podcast (Freakanomics) about how Germany's economy rose

LINK

some random points

1. Germany is pretty unique in that it segregates its country without having a single dominant city. it's a decentralized economic structure.

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To this day, Frankfurt has the biggest airport in Germany, with more than 60 million passengers a year. Berlin, while still easily the biggest city in Germany, has only the fourth- and seventh-busiest airports, which combined have only about half the traffic of Frankfurt.

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STURM: Germany is the only European country where the country’s main air hub is not in the largest city. You can see the unusualness of the German situation. If [the] division hadn’t happened, it would be very difficult to believe that Germany’s main air hub today wouldn’t be in Berlin.

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2. Germany reshaped itself with the Hartz reforms

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But just 15 years ago, things were looking pretty grim. The country was struggling to reunify after the Cold War; adopting the euro had its downsides, including a flight of German capital from Germany; and unemployment was at nearly 12 percent.

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SUEDEKUM: You can think of that period from ‘93 ‘til 2003 as a decade of stagnation. That was the mood that predated the Hartz reforms in 2003.

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Among other changes, the Hartz reforms lowered government assistance to the poor and unemployed; made it easier for firms to fire employees; and encouraged more part-time, low-wage, non-union jobs. As you can imagine, such reforms did not make Schröder universally beloved.

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3. German manufacturing has a lot of middle-sized companies who excel in specific niches

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MARIN: The interesting thing is that, normally, when you have small and medium enterprises, they are not international. The major thing about the Mittelstand in Germany is that they are very international. I’m talking here about the export superstars.

SUEDEKUM: You have all these so-called “Hidden Champions” in Germany. These are medium-sized firms often located somewhere in the countryside. But they are the world market leader for some very specific niche product where they offer the highest quality.

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4. German unions are much more realistic and rational than Anglo/American unions. We should not compare our unions to their unions.

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I always used that as a metaphor for businesses. The customers pour in the Tender Vittles and in the U.S., when you had a union, they would fight and spill the whole bowl of Tender Vittles. In the end, no one could eat anymore. I looked at U.A.W. “It’s insane, they’re going to kill their company.” Sure enough, they damn near did. General Motors was almost bankrupt. In Germany, the unions have representatives on the board of the company. Yes, they say, “The first thing” — that this bowl of Tender Vittles — “we have to make sure that the bowl is there. We can fight all we want, but don’t spill the bowl.” You don’t destroy your company. That was not the attitude of Anglo-Saxon unions, either in England or the U.S.

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Culturally, there is a sense [that] you have to be flexible when circumstances change, when new challenges arise. This is deeply embedded in the German approach of doing things.

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It’s part of the culture. You try to come to a common goal. This has a high value. Germany is a stakeholder economy in that sense. Yeah? It’s not a shareholder economy, it’s a stakeholder economy.

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5. Germany invests in training its workforce. This is something that is likely to never work in the US as an institution.

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SUEDEKUM: The system of apprenticeship is one of the biggest advantages that Germany has, especially for manufacturing.

ZETTELMEYER: The apprenticeship system ensures a flow of relatively talented young people into industry that might not even consider industry in other countries.

SUEDEKUM: We’re talking about kids who don’t go to college. In many other countries, they would just pick up a job somewhere and start working and receive on-the-job training for one firm, right? In Germany, you go through this system of vocational training. Half of the week you work for one employer and the other half of the week you go to school and receive some general training. The biggest advantage of that is that the workers acquire something that we economists call not just firm-specific, but industry-specific or occupation-specific human capital.

That helps you to adapt when your employer goes broke and you just need to find a new job. Then, you fare much better.

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6. As expected, with so much state support, innovation suffers and the "old guard" is protected

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The German industry is very much geared towards helping incumbents do well. The unions are supportive. The state is there to lend you a hand. We have a very generous supply of credit from specialized banking segments that specifically lend it to Mittlestand companies. We have lots of barriers to labor mobility in Germany, so there are very high hiring and firing costs. The typical churning that you get in an economy is lower and that’s arguably a good thing in the sense that we have good companies that make good products and have good jobs that are preserved. But it also has a bad side and that bad side is simply not visible, which is we are preventing the growth of impressive companies in new sectors. It’s not a very dynamic economy.

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You don’t have these big high-tech firms like Google, Facebook, Amazon, and so on. Germany doesn’t have that. There are some, but very few.

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7. The US culture/economy is simply different than the German culture/economy

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A very important reason why traditional manufacturing has declined in the U.S. — which is completely under-emphasized, particularly by the Trump administration — is domestic competition; extremely dynamic growth in new sectors in the United States, particularly, of course, the computer industry and the software industry, the platforms, the I.T. giants. This growth sucks away labor and makes it harder for traditional companies to compete.

This has nothing to do with globalization. This has something to do with technical change, but it has a lot to do just with the general dynamism of the U.S. economy. One of the reasons why the manufacturing share is high in Germany is because the German industry lacks this dynamism. The U.S. has traditionally been a much more dynamic economy. The U.S. has a very good model and what the U.S. should focus on is to maintain and improve its model, not about copying the German one.

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