The German Model For Prosperity


Many economists in the United States have turned their attention to the economies of East Asia for models of success – and with good reason. However, Germany is currently providing another paradigm for excellence, and the U.S. should take notice. Germany’s income is more evenly distributed than the vast disparity that exists in the U.S.In 2010, Germany’s economy grew by 3.6 percent versus America’s 2.8 percent. Manufacturing in Germany also makes up approximately twice the percentage of total economic activity than it does in the United States, while at the same time the average compensation for a manufacturing worker is 50 percent higher than it is here. Let’s not forget that Germany also has a trade surplus. So how has Germany achieved this while other capitalist countries continue to struggle?

The German model of capitalism looks very different than that of the United States. In Germany, many companies continue to be privately owned, eliminating the need to appease shareholders. While financing in the U.S. comes from capital markets, local banks finance the smaller facility operations that comprise most manufacturing in Germany.

Focus on workers is another major difference. Large firms in Germany are required by law to have equal representation on their boards for both management and labor. This requirement ensures that workers’ rights and jobs will be protected when decisions are made about where and what to produce. It does not mean that jobs will never be offshored, but it does ensure that good jobs stay in the country when they will be beneficial to the company and the workers long term, and jobs are not moved for short-term gains.

Additionally, when recession did strike, Germany didn’t misdirect its bailout at the top of large corporations. Instead, it provided a wage subsidy for certain workers to keep them employed, stimulate the economy and ensure its labor force remained skilled.

The German model certainly is not perfect, but there are lessons that can be drawn from it, such as a focus on long-term growth and strong consideration of workers in corporate dealings and government policy. When workers have money in their pockets and job security, a strong economy cannot be far off.

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