So why does the German economy work?

Long piece here. Coioperation, unions, apprentices, manufacturing, local finance….almost all of the standard arguments are trotted out.

And yet not the most important one.

For a decade Germany specifically and deliberately screwed down the wages of the workers. By agreement with the unions.

It\’s the sort of thing that really ought to be mentioned: but obviously not thought worth it in The Observer.

14 thoughts on “So why does the German economy work?”

  1. Plus being a member of the Euro which has given Germany a more competitive exchange rate than it would have had with the DM.

    Plus the growth of China which has resulted in a massive boost to demand for capital equipment and other heavy machinery and machine tools. All Germany’s particular speciality.

    The issue is surely how Germany copes when China is fully tooled up (and copying that Siemens turbine).

  2. I think the point that you’re skirting around is that the German unions are not run by a bunch of Psychotic wankers like the UK unions are…

  3. “Policy-makers” in a very broad sense had the good sense to realise that Germany’s manufacturing economy was a very low-margin proposition and keeping it healthy meant higher labour productivity was required. Even the political left realised it and under Shroder implemented some pretty tough reforms.

    From sick man of Europe to champion via a series of supply-side reforms? Sound familiar?

  4. Did you skip the middle part Tim? It includes:

    …new flexible hours and pay were negotiated with the IG Metall union, along with performance targets and training schemes. The then chancellor, Gerhard Schr

  5. There’s an umlaut in GS’s name, can’t be having that…

    UK unions, far from being psychotic, have long been willing to reach similar agreements.

  6. It used to be said that one of the problems was that German unions were industry unions and Japanese unions were company unions and UK unions were craft unions, meaning that there were incentives for individual unions in the UK to demand special treatment relative to other unions (to maintain a certain gap/parity etc).

    So the rise of single union firms was seen as a major benefit – Nissan when it came to the UK demanded a single union.

    UK unions were not the only villains of the piece in the 1970s and 1980s, but some of them were psychotic.

    Interestingly no one cares about any of this stuff any more. No one even talks about the difference between UK, German and Japanese union structures.

  7. Thanks, Tim. I’d noticed the collusion between Reichstag and Unions, but put it down to the onset of Swivel-Eyed Loon-dom. Glad to notice I’m not alone.

  8. PaulB (#5) – you are correct in that some Unions are better than others – However, The likes of the RMT (arguably an extreme example) would be looked on with near total scorn in Germany, and historically in the 1970s, Many larger Unions certainly warranted the title ‘psychotic’ as Closed shops within Producer dominated Nationalized industries basically ran amok leading to the UK being diagnosed as ‘the Sick man of Europe’

  9. And then along came a mad woman and sorted the unions out and ever since real wages have fallen and there’s no demand in the economy to keep the private sector going. Who’s the psychotics?

  10. DBC Reed. Real wages have fallen? No. Real wages have risen.

    http://www.ons.gov.uk/ons/dcp171776_286266.pdf

    UK median wages are up 62% in real terms between 1986 and 2011, for the worst performers, the 10th decile they are up 47%. The rich did best.

    Some of the unions were psychotic. Some of the problems were down to management.

  11. Sometimes the union has been useful. However every time they went on strike while I was a member of the union in the civil service it was pretty hard to notice – and do not recall a single instance of a better pay rise being given in the end.

  12. Socialist Barbara Castle criticised the unions some time before Thatcher became PM. Callaghan and the unions stopped Castle’s proposals. I think you have to wonder about the unions if socialists and Tories were critical.

    Nicholas Ridley’s proposals were quite interesting from a thinking about counter-factuals perspective – give the docks, mines etc to the workers.

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