NYSE merger: Lessons from Germany Inc.

A German company looks set to acquire America's capitalist icon, the New York Stock Exchange. It's one more example of German economic prowess, and a chance for the US to learn from 'Germany Inc.'

The news came as a shock to those who work on Wall Street, and perhaps to many others: A German company is negotiating to acquire the icon of American capitalism, the New York Stock Exchange – or more accurately, its parent company, NYSE Euronext.

The move by the Frankfurt-based exchange company, Deutsche Börse AG, reflects the globalization of the financial trading business. It also points to Germany’s increasing economic prowess and the lessons this might hold for the United States.

Germany stands apart from other Western industrialized nations for its quick rebound from the Great Recession. Its 7.5 percent unemployment rate is its lowest in 18 years. Its people didn’t borrow in excess as Americans did.

In Europe’s crisis over the euro, Berlin has basically called the shots, saying – with Paris in agreement – that countries that belong to the currency union have to do things the disciplined German way: They must increase the retirement age, add balanced-budget amendments to their constitutions, and stop granting wage increases tied to inflation.

Just as America learned from Japan Inc. in the 1980s – installing robotics on the factory floor and adopting “just in time” inventory practices – the US should pick up what it can from Germany Inc.

(For a Monitor story on Germany as the new minisuperpower, click here.)

Not all of what makes Deutschland successful can be copied by the US. A parliamentary system means that an elected government controls both the executive and the legislative branches, making it easier to turn ideas into reality. And Germany is geographically small (about the size of Montana), densely populated, and has a relatively homogenous culture. Those factors make it easier to reach a general public consensus.

And let’s not get carried away with adulation. Germany has plenty of challenges, including an aging society and difficulty integrating immigrants, particularly Muslim Turks. Its high taxes and social safety net (less social than before, by the way) would be anathema to many Americans. But much can be adopted, at least in spirit – and yes, even in practice.

For instance, Germany is focused on exports, especially to the emerging “BRIC” countries – Brazil, Russia, India, China. The US can’t consume and borrow its way to economic health; it must increase exports.

More than half of German exports come from small- and mid-sized firms, the famous “Mittelstand” that employs 70 percent of the workforce. These companies are often family-owned, plowing profits back into their businesses instead of looking to go public as soon as they can.

They put a premium on worker loyalty, offering training or perks like child care. They prize innovation, quality, and seek niche markets. The phrase “German engineering” has become a global accolade.

By contrast, small- and medium-sized companies in the US account for only about 30 percent of exports. These businesses complain about lack of access to export financing, but much of the problem is also simply lack of imagination – they aren’t thinking beyond the US market. Yes, it’s the largest single market in the world, but 95 percent of the world’s consumers live outside it.

Germany has also invested tremendously in infrastructure, especially after West Germany unified with East Germany in 1990. That came at a high cost to taxpayers, who shelled out $120 billion a year during the 1990s to pay for unification. But now the country has a top-notch telecom, rail, and road system to move goods and people. And Berlin is about to open a new airport.

(For photos of Germany Inc., click here.)

Exports, infrastructure – does that sound familiar? It’s part of the message of President Obama, along with the need to invest in education and innovation. He pushed that message again today on a trip to Michigan, where he promoted his five-year plan to expand high-speed wireless communications to 98 percent of the country.

“For our families and businesses, high-speed wireless is the next train station, the next off-ramp,” the president said. “It’s how we’ll spark new innovation, new investments and new jobs,” Obama told the audience at Northern Michigan University, a wired campus where the students telecommute.

Republicans may not agree on the details of the president’s agenda to make America more competitive, but the president is voicing the right priorities. He ought to be able to find common ground here.

Unlike in Berlin, though, the White House is being too shy about necessary and controversial reforms. Germany bit the bullet and is emerging from a difficult period of restructuring, raising the retirement age and making the labor market more flexible (unions were not happy).

The president needs to stick his neck out and propose painful but necessary reforms on costly entitlements like Medicare and Social Security. That’s where the big savings are to be found.

America has much in common with Germany – a strong work ethic, for instance. And it has many advantages, including a proven record in entrepreneurship and innovation. But there’s a reason why a German exchange company is acquiring the NYSE and not the other way around.

It’s time to look at what the US can learn from Germany Inc.

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