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.
(Page 3 of 3)
There is no use in copying German incrementalism when America is in the transformation business. The "Swabian Tinkerer" is not the role model when your guy is the "Silicon Valley Creator."Skip to next paragraph
Gallery Monitor Political Cartoons
Subscribe Today to the Monitor
Just when America fell into disrepair at the turn of the millennium, Germany engineered its comeback.
The country took advantage of the newly introduced euro, thus avoiding appreciation and improving its competitive position. It streamlined the welfare state and bargained with trade unions to achieve long-term wage restraint while offering job security in return. It outsourced part of its industrial production to low-cost countries in Central and Eastern Europe, and as an exporter, it then took advantage of these countries' growing middle classes. Germany also aggressively embraced globalization and emerging markets.
Most of these recipes are not available to Americans. They cannot use a new currency; after two decades of flat incomes, wage restraint is hardly an option; and Eastern Europe is not in America's backyard.
That leaves globalization for Americans to embrace. They have done so with a half-hearted hug. They import, but do not export nearly enough to avoid a trade deficit. Yes, Apple and Microsoft, Oracle and Google are great exporters. But America's small- and medium-sized businesses do not play in the same league. Barely 3 percent of such businesses export. Overall, exports make up only 13 percent of America's economy.
For Germany, exports generate far more than a third of the country's income. In the past few years, Germany has increased exports by about 50 percent while reducing the number of unemployed by 40 percent. Most of the exporters are small- and medium-sized businesses. These entrepreneurs are overwhelmingly small-town business leaders with a small-town mind-set. Discovering the secret of their affinity for globalization should be worth multiple study tours and trade missions.
I am confident that Americans will accept the challenge of global competition because they must. And I fear that Germans will grow complacent because that is what success breeds. Therefore, the pendulum will swing yet again. At that point, it will be my pleasure to warn an American audience against writing off Germany too soon.
Thomas Kleine-Brockhoff is a senior transatlantic fellow at the German Marshall Fund of the US