The secret of Germany\’s success

While both countries had the same sorts of export surplus in the early 1990s, they have diverged massively since the D-Mark and franc were fixed in perpetuity. Germany has a current account surplus of 5pc of GDP: France has a deficit of 2.7pc, anathema for Colbertistes.

You can see from IMF data that the silent coup took place in the fat years of the global boom when Germany forced down unit labour costs; -1.7pc in 2003, -4.0pc in 2004, -3.3pc in 2005, -1.8pc in 2006.

Just a little note for the various lefties insisting that as Germany has been a successful economy we should therefore do what Germany has been doing.

I\’ve no problem with the idea of looking at what works then copying it. Seems like a very sensible thing to do in fact. But you do have to identify what it is that has been working.

And in Germany it hasn\’t been apprenticeships, nor unions on boards, it isn\’t manufacturing and it\’s not a bank rather than stock market financing system.

It\’s been screwing down the workers\’ wages.

So, when you start advocating screwing down the workers\’ wages so that we can copy Germany I\’ll be all ears. Until then, perhaps you could continue to work on that analysis of what did go right in Germany?

7 comments on “The secret of Germany\’s success

  1. Falling unit labour costs doesn’t necessarily mean falling real or actual wages if productivity growth has been higher. And this productivity growth may have been driven by bank financed investment in capex or a higher trained workforce through decent apprentice-training programmes.

    Tim adds: Indeed. Now go and read the actual complaints of our local lefties. Wages have not risen as productivity has. The labour share of income is falling. This is outrageous, should not be allowed to hapen.

    But it is exactly what Germany has done, is it not?

  2. I would not rate Germany as an economic success just yet either.
    Too many eggs in one basket.
    If the global economy goes belly up which is looking increasingly possible manufacturing based economies will be the first to suffer.

  3. Didn’t they also make quite a bit by exporting to southern Med. countries who borrowed enthusiastically to buy German goods (or evaded taxes equally enthusiastically to buy them)?
    My impression was that it was turning out to be a zero-sum game, with Germany transferring all those export profits back.

  4. I wasn’t disagreeing that German wage growth had either been flat or much slower than productivity improvement, and obviously this is something the left choose to ignore. But even if we think that Germany’s current “success” isn’t all its cracked up to be (too dependent on an artificially weak Euro and too dependent on selling machine tools to China) there are probably some things they do well which the UK could copy or adapt.

    After all aren’t apprenticeships actually a good way of getting cheap but talented workers for five years (they are effectively being paid in education and training for their future career).

  5. Shinsei67 – You’ve pretty much answered your own question there: “they are effectively being paid in education and training for their future career”.

    Those are indeed costs and so the remuneration for an apprentice isn’t as low and therefore cheap to employ as may initially appear.

  6. Germany’s success is built mainly on exports to other Eurozone countries, funded by lending from their banks. Over 60% of their exports are within the Eurozone. So they’ve held down production costs and benefited from a Euro that is weaker than a DM would have been. So what, frankly. Their success is a bubble and their prosperity an illusion. When the Eurozone collapses so will Germany.

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