The new paranoid mantra dominating Europe’s economic discussion is whether the “German model” can be replicated in other countries in order to achieve the same enviable economic results. Germany has posted impressive growth rates – 3.7% and 3% in 2010 and 2011 respectively – and is expected to grow during 2012, the supposed year of the Mayan apocalypse. Unemployment hovers between six and seven percent, thus boosting consumer spending. Moreover, Germany was the first country in Europe to really concentrate on Asia in its business strategy, achieving an industrial presence and market knowledge years before the others.
This is just a brief list of recent German economic accomplishments. Of course, every period of success comes with problems. We should not downplay the negative side-effects of recent German economic reforms, such as a slight rise in income inequality. Living costs in Germany are rising, and the invasion of tourists in some cities has led to “anti-tourism” demonstrations by residents. Protest took a Kantian turn in 2011, when the Kreuzberg neighborhood in Berlin hosted a “joint residents and tourists”:http://www.spiegel.de/kultur/gesellschaft/0,1518,765251,00.html demonstration against rising real estate prices.
Yet analysts are also quick to point out the virtues of the German economic model: Long-term planning, a focus on research and investments in education, the focus on manufacturing (rather than on finance), and an adequate level of labor flexibility – although some unions may define it as “too adequate.” The crucial question is: Would this mix work in other European countries? Well, no. It could work if the other countries were like Germany. But since they are different, simply super-imposing the German model would not work.
Beneath the usual tautologies, there are three main reasons for this. The first reason why copy and paste would not work is that Germany’s success did not happen overnight. Writing for ‘The Daily Beast,’ Andy Kessler informed us that “Germany’s industrial icons — Mercedes, BMW, Siemens, ThyssenKrupp — are so ‘80s. Teutonic efficiency hasn’t adapted well to modern-knowledge industries.” Nevertheless, these large companies are also the ones that led Germany’s expansion into Asian markets under the “Go East” strategy. These companies still make big profits – except for Thyssen, which doesn’t fit Kessler’s boutade. You cannot develop such manufacturing success overnight.
The second reason is that a wide set of labor reforms, like the ones introduced in Germany in the 2000s, call for the sacrifice of political leadership. Making labor contracts flexible and reducing social spending cost Gerhard Schröder his tenure as chancellor as unemployment remained high and reforms were poorly managed. Moreover, the 2000s were a turning point for Germany’s national personality as the country recovered from reunification. It was a “once in a lifetime” opportunity for far-reaching social reforms that the German leadership decided to exploit.
The third reason is that the power structure within Europe is already set in stone, and trying to leap-frog the gap would not work. Even within a unified market and a currency union (and under the umbrella of political coordination), it is normal that one region prevails above the others. In the European case, this region is not even Germany as a whole, but rather the productive South-Western belt, from Bavaria to the Ruhr. Today, these areas are restructuring the manufacturing map of the continent. Manufacturing is focused on Poland and other Eastern European countries rather than on Italy, France, or Greece.
Although the German model is not replicable as a whole, Germany may nevertheless inspire some degree of change. Long-term vision and investment on education have proven to be important leverages for growth in the medium-run. Instead of trying to copy and paste Germany, Eurozone countries should decide how to better be integrated in a “German-led” economic structure: How to supply components for value-added productions, how to modulate priority infrastructural investment, and how to allow for German direct investment in their territory – and vice-versa.
In order to achieve all this, countries need an accountable elite with a vision. Regular citizens, too, are implicated in this: People do not get any better politicians than what they demand – and German politicians are subject to constant and accurate scanning by journalists and newspaper readers.
Read more in this column Stefano Casertano: Steady as she goes