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German economic model – American style

The debt crisis is shaking Europe – and now Germany, too. But no Western country weathered the storm of the Great Recession as well as Germany. America can't copy the German model, but it can learn much from its small-business exporters.

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When Treasury Secretary Timothy Geithner went to Europe in September to suggest a stimulus package to his eurozone colleagues – a proposal to "do-as-we-did-in-the-US," he was nearly sent packing. When former German Chancellor Gerhard Schröder, writing recently in this publication and others, suggested the US adopt a government-subsidized program to keep workers on the job during economic downturns, the idea did not resonate.

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Mr. Schröder had simply overlooked differences in political culture. Welfare-state solutions for problems of a stalwart, free-market economy are recipes that a minority loves and a majority loves to hate.

So, can the US really learn from Germany? I'd say: Yes, please, but American style! When Germany tanked in the '90s, it slept through a whole phase of modernization. When Apple and Microsoft, Oracle and Google grew to become global powerhouses, Germany stood by. Except for the software company SAP, there simply are no German equivalents. There is no German Bill Gates or Steve Jobs.

Germans barely do IT innovation. Why, then, would a country be seen as a global role model for industrial modernization after it has just about skipped a full cycle of innovation?

Well, Germans may not be good at transformative innovation, but they are great at incremental innovation. Germans, the saying goes, make things that go inside the thing that goes inside the thing. They produce niche products, and do that well. By the end of, say, 10 improvement cycles, German tinkering has produced a completely new product.

Tinkering doesn't earn you Nobel Prizes, but it does help to build successful businesses. Today, the ascent of the emerging economies is powered by German high-tech machine tools, though they may be controlled by hardware and software that Americans invented. The same goes for medical equipment and all sorts of other high-tech gear.

And the lesson in all of this? America is sleeping through the green- and energy-economy boom, mostly because it chooses not to believe in it; it is thus missing out on an efficiency revolution that is transforming the globe while making countries and businesses rich. The German example shows that no Western country is doomed to fail permanently just because it takes an innovation and modernization pause. But a country needs to get back into the game – and on its own terms, building on its own strengths.


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