German Example Shows How to Run a Successful Manufacturing Economy

Germany, with unemployment rates lower than the United States, and higher GDP growth, is a model of how to run a successful economy.

Germany’s success is based upon its manufacturing sector. Manufacturing makes up almost 25 percent of the German economy, as opposed to only 11 percent in the United States. When the U.S. and United Kingdom expanded their financial sectors at the expense of goods production, Germany stayed the course. The results have been phenomenal.

Germany is second only to China in its trade balance, which is especially remarkable considering Germany only has a population of 82 million. Germany is able to achieve this through a capital and knowledge intensive production system that stresses efficiency.

German mittelstands are key to that efficiency. Mittelstands are small, family-owned and mid-size manufacturing companies. These mittelstands have highly trained employees thanks to Germany’s vocational school system, and these excellent workers tend to stay with the same company for decades. They are buffeted by a bank system that has a mandate to fund local business and not engage in risky, speculative behavior.

“What we have here is stakeholder capitalism, not shareholder capitalism,” said former parliament member and business owner Klaas Hubner. These small production companies do not have to worry about shareholders, and are able to focus on long-term growth and development. Even publicly-traded German companies, such as BMW continue to invest domestically to ensure their future profits.

While other nations buffeted unemployment programs to weather the Great Recession, Germany tried a novel approach called kurzarbeit, where the government paid part of the salary difference if companies reduced full-time workers to part-time, instead of laying them off.

There are several lessons America would be wise to emulate, in order to turn around our struggling economy. The most important of all is that a manufacturing society with high wages and growth is obtainable, and efforts to push this country in that direction through reform of trade agreements, education and our banking system would allow this to happen.

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