How Germany is reaping the rewards of bailing out its workers than banks


9:30 am - December 23rd 2010

by Claude Carpentieri    


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When the biggest global recession in decades kicked in, Germany was able to weather the storm and recover much quicker and better than Britain, the US, or any other major Western economy.

Between 2000 and 2007, unemployment in Britain was never any higher than 5.5% (see this) while, in the same period, the German figures were regularly double that rate – between 8 and 10 per cent (see this).

But over the last two years UK unemployment has overtaken Germany’s at a hair-raising pace. While our jobless rate is now tickling 8%, in Germany it decreased to 7.3% at the start of 2010 and then further lowered to 6.7% in October – again, its best figures since reunification.

And so a number of legitimate questions arise. Why is it that after registering a slump of -4.7% last year, Germany is now forecast to end 2010 with a GDP growth of 3.6%, its fastest pace since reunification, while Britain is still finding its feet?

What are the Germans doing that we’re not, to the extent that many analysts are now openly talking of a “German Miracle“?

The answer lies in a policy that the German government adopted at the start of the crisis. It’s called kurzarbeit and it literally means “short work”. While other countries spent unprecedented sums on bailing out banks or dubious stimulus programmes, Chancellor Angela Merkel’s government (at the time a coalition of centre-right CDU and centre-left SDP) took a unique gamble by spending huge sums bailing out its work force.

And that’s because, under kurzarbeit, employers hit by the downturn are encouraged to keep their workers part-time rather than make them redundant. The Federal Employment Agency () will cover up to 67% of lost wages and will also take care of national insurance and other contribution.

The idea is that:

a) mass redundancies often mean a permanent loss of skilled work and specialised trade, especially in the industrial sector. By keeping workers active through a combination of part-time and training, the economy benefits the moment trade picks up – which is exactly what happened as Germany boomed in 2010;

b) the focus on employment and wages spared the country a vicious circle of mass unemployment leading to a drop in both tax revenue and consumer confidence – in turn leading to vast numbers of people defaulting on their mortgages and loans. In other words, as the money reaches consumers directly, it flows back into the market straightaway.

This may look expensive at first (£5.1bn a year), but it saved Germany a fortune in both welfare costs and bailing out banks.

Compare what Germany spent on their bail-out: 1.4% to 2.2% of gross domestic product (between €34bn and €52bn). In Britain it was a staggering 19.8%, almost a fifth of its GDP – and that’s before the official cost was actually discovered to stand at an even higher £850bn.

Of course, the experiment is not without its critics. From the left, it’s often said that Germany’s recovery has taken place at the expense of the rising numbers of low-wage workers and unprecedented wage restraint. From the right, the objection that kurzabeit would simply lead to “a backlog of job cuts”, to quote what the president of the German Bundesbank said last year.

But more recents news report that Germany’s industrial sector is currently in need of 34,000 engineers and 23,000 factory workers. Indeed, a German success story.

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A longer version of the article is here

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Claude is a regular contributor, and blogs more regularly at: Hagley Road to Ladywood
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Reader comments


Although I am generally a libertarian free-markets guy, I have to admit that German “Kurzarbeit” seems to be quite a good thing.
But we should also note that Germany never had the same kind of crisis as the US, the Uk or now Ireland, because we (yes, I am from Germany myself) didn’t have any housing bubble. People in Germany buy a house when they can afford it, which is often in their 30s or 40s. We don’t buy houses if we don’t have secure jobs, and we wouldn’t be able o get a mortgage either. Also, we buy houses to live in, not to speculate on a resale value.

Comparing this to the bank bailout doesn’t work very well as the bank bailout saved the UK a fortune too. Not only was it almost entirely done in a way that will see the public get their money back, it was also done to save the government having to compensate millions of savers, and save local government having to house newly homeless people when banks panicked and started rapid repossessions.

And while unemployment of 8% is high in the UK, we should not overlook that this is still a lot lower than many countries who siffered less deep downturns than us. (Though granted, that was because Labour intervened to prop up the economy, and so we are facing potentially double-digit unemployment in 2011 as the tory cuts come through.)

That said…

This was a smart policy by the german government. It took worked out a relatively affordable way of mitigating the worste implications of the downturn. Companies have responded well, as have workers. Additional measures like the car scrappage scheme and funds to get infrastructure works back off the ground have also played their part.

Labour in this country did much the same on the second part of that – and it worked (look at construction growth in 2010 for a success story) – but sadly intervention in the labour market remains taboo in the UK – and that holds us back badly.

Please let’s not talk of economic “miracles”.

Germany just manages its economy better than we do.

It’s still no panacea, but it is closer to the model we should all be following instead of the self indulgent neo-liberal folly of the last 30 years.

“How Germany is reaping the reards”

Headline issues again?

That might be because Ireland and the other PIGS are bailing out the German banks….!!

cjcjc

how so?

5 – Because German banks have substantial exposure in loans made to Greek and Irish banks. If either Greece or Ireland defaulted, it would cause a domestic banking crisis in Germany.

While this policy may have helped the German economy this article overlooks the crucial fact that Germany is benefiting massively from an under valued currency. With Greece, Ireland, Spain et al pulling down the euro Germany is able to be incredibly competitive in international exports, boosting the need for manufacturing jobs mentioned in the article. This as much as any German economic policy is the real key to their economic success.

“employers hit by the downturn are encouraged to keep their workers part-time rather than make them redundant. The Federal Employment Agency () will cover up to 67% of lost wages”

What measures, if any, has germany taken to avoid this becoming an incentive for employers to threaten redundancies/manipulate accounts in order to recieve a wage subsidy that wouldn’t have been necessary?

Germany’s economic situation might be helped by the fact that from watches to houses the best products at reasonable prices are made there, something Britain could have chosen to compete against in the late 70s instead of flushing manufacturing down the toilet in favour of services and finance. Oh and I suppose the 200 billion they’ve spent attempting to upgrade infrastructure in the East over the past 20 years could have something to do with it

“Compare what Germany spent on their bail-out: 1.4% to 2.2% of gross domestic product (between €34bn and €52bn). In Britain it was a staggering 19.8%, almost a fifth of its GDP – and that’s before the official cost was actually discovered to stand at an even higher £850bn.”

I’m not wholly convinced that you are comparing like with like there. I have a suspicion (but because the article you link to is paywall, cannot prove) that the German costs are total out of pocket costs. The UK costs are absolutely certainly the value at risk (ie, guarantees offered) not the out of pocket costs. UK out of pocket costs are currently estimated to be from £20 billion to a profit (I think, but don’t hold me to that).

“Between 2000 and 2007, unemployment in Britain was never any higher than 5.5% (see this) while, in the same period, the German figures were regularly double that rate – between 8 and 10 per cent (see this).

But over the last two years UK unemployment has overtaken Germany’s at a hair-raising pace. While our jobless rate is now tickling 8%, in Germany it decreased to 7.3% at the start of 2010 and then further lowered to 6.7% in October – again, its best figures since reunification.”

So let us try to unpick that.

We have two possible systems (OK, let’s pretend we only have these two choices). In one the unemployment rate is usually low (the UK’s 5.5%, the US 4% say) but in times of stress or recession these rates leap to the UK’s 8% or the US 9.8%.

We have our alternative system in which unemployment rates in general times are much higher than that first system. Near double in fact. However, in times of stress, or recession, in this second system unemployment does not rise.

One more assumption (and it is purely an assumption for the sake of argument). Times of stress will be what, one year in ten? Three years in 30? Something like that?

So, we’re now saying that the system with greater variability but much lower average unemployment is worse than the one with less variability but much higher average levels of unemployment?

You have to place a very high price on the value of stability to get to that conclusion I fear.

Surprise, surprise.

Shorter Tim Rand……… Fuck the workers

Sally, do you bother reading things before moving to gratuitous insults?

sally,

If you’d bothered to read Tim, you might have noticed his key point was that there is actually less unemployment under the British system, although it rises to slightly above the stable German level in times of stress.

Or in other words, more workers will have jobs on average in the British system. So surely that is good for workers?

Wasn’t that difficult now, was it?

You are all idiots.

One word. Inflation.

Nothing is free, not even bank bailouts.

UK unemployment figures are being kept down by a large increase in part time working. Last year the UK standard of living was worse than 2005 and I suspect its worse still this year. If higher unemployment, (though is German unemployment really higher if it doesn’t conceal the unemployed the way “training” and disability are said to in the UK?) is the price of Germany’s better standard of living and public services then its a price most ordinary people would think worth paying

“But over the last two years UK unemployment has overtaken Germany’s at a hair-raising pace. While our jobless rate is now tickling 8%, in Germany it decreased to 7.3% at the start of 2010 and then further lowered to 6.7% in October – again, its best figures since reunification.”

Seems quite easy to understand. Unless you are Watchman. It does not compute with his tory talking points.

Another factor is that Germany did not wipe out it’s manufacturing base like we did under Thatcher so that the unions could be destroyed.

Service industries like banks became all the rage. And they tory Right likes shipping British jobs off to China, because it helps to destroy the welfare state. The Rand race to the bottom continues.

18. Luis Enrique

Claude,

afaics, this looks like an admirable policy, and I think you’re right to highlight that it’s possible to alleviate downturns by helping workers directly.

That said, I really don’t think you should be talking about the UK bailout costing us £850bn. It didn’t. We might even make a small profit from the bailout. Do the firms for whom the German government contributes to their payroll repay the money? I think it’s very misleading to misuse figures like that. Also, it’s not clear to me how kurzabeit saved the Germans from having to bailout their banks. Didn’t they bailout Commerzbank, for example?

There are also other reasons why German may be doing well. Its economy is set up to export capital goods (machinery) which I think is a good place to be right now.

@ 9. Schmidt

Just about right. I lived there for several years and it should be noted that a number of key differences exist between Germany’s economic structure and ours.

One of their main differences is that their enormous manufacturing base in the Ruhr Valley is mainly owned by their big financial institutions. The advantage of this is that they are prepared to put money into manufacturing for 25-30 years at relatively low return. This policy does however guarantee pension security.

Contrast that with our city practices, we have far too many short term ‘bed@breakfast’ type share holders who just seek a quick profit. The effects of this to our manufacturing industry are self explanatory. Managers of our industry can’t guarantee long term funding for high-tech industrial developments.

We would require a major shift in our education, cultural development and work practices to bridge this gap. Personally I doubt that’s possible in the foreseeable future.

20. Margin4error

Tim J

In that case sure lit would be sensible to point out that Ireland is also bailing our banks out – since our banks also have high exposure.

Not sure the case for feeling it has much baring on German policy beyond the baring it has on ours really.

#8 Planeshift
There are guarantees in place and are very complex and technical to explain. Let’s just say it;s very difficult to take the piss in Germany. I read the other day in a German newspaper about their federal agency investigating after firms frauding kurzabeit. I can’t remember the figures but it was a small fraction though.

#17 Luis Enrique
They did spend some money on bank bailouts, just nowhere near the same as the UK. I must also add that, as well know, German banks had traditionally been less reckless than UK ones.

#10 Worstall
Forget £850bn.
Check this article which was linked in the OP in the first place.

It’s not me saying it. It’s the IMF. Quote: “It calculates that the UK has spent as much as 19.8% of its GDP, topping the table of G20 countries”.
Now, if words mean anything at all, “topping the table of G20 countries” means that our bailout was more expensive than in Germany. This is undisputed.

Also,
One more assumption (and it is purely an assumption for the sake of argument). Times of stress will be what, one year in ten? Three years in 30? Something like that?“.

I don’t know where you get “year in ten” or “three in 30” calculation from. It has no leg to stand on.

Simple fact. It took Britain 15 years, well into the John Major years to recover from the mass unemployment of the 1980s (courtesy of [… fill the dots]).
Throughout the 1980s and the early 1990s the jobless rate in Germany was never over 8 per cent – consistently below that of Britain.

It started rising only from 1992 on, after the supermegaginormous impact that the reunification had was starting to take its toll, as they suddenly took on board literally masses of impoverished people from the former DDR, many of whom found themselves unemployed overnight.

Schmidt makes an excellent point @15. Britain has now got the highest number of part-timers by default (as in people who have to switch to part-time work because they could not find a full-time job) since 1992.

@ 19. Margin4error

There is little comparison between the Eire economy, UK and virtually none with Germany. Scale of operation, geographical position in Europe and indigenous skill base in their populations are only a very basic start if comparing.

23. Torquil MacNeil

“ts a price most ordinary people would think worth paying”

You mean the price of high unemployment? Well of course it is a price ordinary people are prepared to pay, they aren’t unemployed.

@8 Planeshift
It’s too technical and dull to explain, but there are guarantees in place. It’s not easy tot ake the mick in Germany and I read the other day in a German paper that an investigation into kurzabeit-related frauds exposed a small number of firms frauding. I cant remember the exact figure but it was a small fraction.

@15 Schmidt
Excellent point. In Britain we have the highest number since 1992 of people turning part-time because they can’t find a full time job – according to the ONS.

@17 Luis Enrique
“Also, it’s not clear to me how kurzabeit saved the Germans from having to bailout their banks. Didn’t they bailout Commerzbank, for example?
I never said they didnt bailout any bank. I never wrote that. I wrote that the cost of their bailout was much lower than in Britain, even when you discard the £850bn figure.

Which takes me to Tim Worstall @10:
It’s not me saying this. It’s the IMF (the link was already in the OP, but here you are again). Britain topped the table of G20 countries in terms of the money they spent on banks bailout. It’s a fact. We spent more than not just Germany, but everyone else, including the US of A.

As for unemployment and your “Times of stress will be what, one year in ten? Three years in 30? Something like that?“… I don;t know where you get that line of thinking from.

Britain spent 15 (fifteen) years recovering from mass unemployment — well into the John Major years. Throughout the 1980s and early 1990s German unemployment was consistently lower than in Britain! It only started going up after reunification took its toll, when Germany had to absorb masses of impoverished people from the former DDR, many of which had lost their job overnight. That took years to sort out.

sally,

Tim put those figures in context – so citing them to prove I haven’t understood is hardly smart now is it. Perhaps if you thought before you typed…

Just a typically persnicketty point about this:

“we have far too many short term ‘bed@breakfast’ type share holders who just seek a quick profit.”

Bed and breakfasting is a technique to aid you in long term shareholding, not an attempt to make a short term profit.

It is not a description of buying one evening and selling the next morning (or even vice versa). What it is is a description of being able to use up your allowances for capital gains tax while maintaining a long term shareholding.

For example, say you’ve two shareholdings. You’re there for the long term, decades possibly. Now, coming towards the end of the tax year you’ve a decent profit on one and a bad loss on the other. You don’t want to sell out, you want to keep both holdings.

But you note that if you sell and then buy again those same shares, then you’ve crystallised your profit and loss as far as the tax system is concerned. And you can net the two off against each other. You’ve nw rebased the CGT calculations for whatever happens in hte future.

And instead of actually selling and then buying back the shares through the market, you tell your broker “umm, I’m B&B ing these” and he just takes them onto his books overnight. Charges you a ha’penny a share or something, not the 2 or 3 p spread on the shares.

That’s what the phrase actually means,. it’s a method of making easier long term shareholdings by aiding in dealing with the tax system.

Although it does have to be said that various Chancellors have been trying to stamp it out for decades.

“UK unemployment figures are being kept down by a large increase in part time working.”

OK. And the OP is telling us that:

“The answer lies in a policy that the German government adopted at the start of the crisis. It’s called kurzarbeit and it literally means “short work”. ”

So both systems are reducing unemployment by employing people part time then?

28. Luis Enrique

the headline makes it sound as if countries were faced with a choice between bailing out banks and bailing out workers, and Germany chose workers and is reaping the rewards.

I don’t think subsidising ‘short work’ would save your bacon if all your banks have collapsed, likewise I don’t think preventing your banks from collapsing stops you from also doing things like subsidise ‘short work’.

The German kurzarbeit has done well in supporting employment and absolutely no one is disputing that. Aside from the employment issue output has bounced back well from recession because they were starting from a lower base. See this industrial production index up to March.
http://euromonitor.typepad.com/.a/6a01310f54565d970c0134809605a5970c-popup

I simply do not get the employment connection you make with bank bailouts. This is a capital injection chart with regard to interventions in the banking sector.
http://av.r.ftdata.co.uk/files/2010/12/Belgium_banks_Citi.png

Moreover, in Germany the 100 per cent state owned Landesbanks do not appear anywhere in the story. Those state owned entities are the ones who got in most trouble and their balance sheets are full of toxic loans. Just being state owned effectively bails them out.

To compare unemployment across nations you also need to take account of the age structure in the respective nations. The fact that you say Germany are running up against skill shortages is a bit of a clue. The German population is ageing faster than the nations you compare it against. Therefore, it is not an exact comparison.
http://3.bp.blogspot.com/_ngczZkrw340/THwZqVV3cfI/AAAAAAAARXQ/gCM3CjY76Yc/s1600/German+median+age.png

I think Germany in some respects are doing well and have got a lot of things right. However, I always find it fascinating when left-wingers praise Germany for doing what they would go ballistic at if it happened here. Germany in the last decade regained competitiveness by screwing their workers and now they are screwing the euro periphery.

Germany is unfit for the euro

By: Joerg Bibow

Euroland has agreed to support Greece after all, really? Germany and its media are in uproar about Mrs. Merkel’s bowing to foreign pressures. After many years of belt-tightening, stagnant wages and fiscal austerity, it seems unfair that the spendthrift should be “bailed-out”. Germans have done everything right, they are being told by their political leaders and the media, boosting competitiveness and balancing the budget. Don’t make the Musterknabe pay for others’ sins. Instead, let Europe follow the German example. Let the Greek do their homework and get their own house in order through hard work and thrift – the German way. There is talk that Germany’s constitutional court might get busy again, providing new landmark judgments on what constitutes “stability” and what does not. For Germans have a constitutional right to stability, they are made to believe. If Europe is not ready to comply with the standards of stability, Germany will be forced to pull out. Perhaps the Bundesbank is already preparing for reissuance of marks. Germans are said to lose faith in the euro. Berlin does little to convince them otherwise. The train of European integration is rolling fast backwards.
Not for the first time in its history the German people have been irresponsibly misled by a political leadership that seems to have lost any sense of history, any sense of order and stability in Europe, and any sense of Germany’s key contributing role to the current crisis. As ever, the mindset of lawyers frames the political debate among a political class that seems inhumanly uneducated in matters of economics. If economic voices are heard at all, it is usually the voice of the Bundesbank. It is a peculiar democracy that expects either its constitutional court or central bank to have the final word of wisdom.

Regarding Euroland’s economic performance since 1999, three stark facts or policy blunders stand out. First, while similar in size to the US economy, Euroland is remarkably export dependent and prone to domestic demand stagnation. The world economy boomed at record rate in 2003-7. Euroland for long was the “sick giant”. Joining late, it crashed all the harder as the global crisis hit. Second, the 2001-5 period of protracted domestic demand stagnation saw finance ministers at pains to cut budget deficits below 3 percent, as the so-called Stability and Growth Pact prescribes, and the ECB similarly at pains to squeeze headline inflation below the 2 percent mark that seems to constitute price stability. Obsession with what lawyers judge to be stability produced rather perverse results. Hiking indirect taxes and administered prices to achieve their magic number, finance ministers thereby helped to keep inflation above the ECB’s magical number. In turn, the ECB’s obstinate refusal to care about domestic demand kept budget deficits above 3 percent, triggering further indirect tax hikes, and so on. Contrary to the notorious stability-oriented gospel, it is hard to conceive of a more counterproductive macroeconomic regime than this. Third, the brief history of the euro saw the emergence of stark divergences and buildup of grave imbalances within an economic area that can no longer rely on exchange rate realignments to solve them – imbalances the implosion of which have left Euroland stuck in the mess it is in today, once again hoping for strong global growth to pull it out.

Sadly enough, Germany has been central to all of this. Germany is the biggest factor in Euroland’s export dependence, growing on exports only while domestic demand, especially private consumption, is notoriously stagnant. Among the first countries to break the Maastricht deficit limit dreamed up by its own lawyers, Germany contributed most to the ECB’s misses of its headline inflation mark by hiking indirect taxes. Worst of all, Germany reneged on the euro’s cornerstone to abstain from beggar-thy-neighbor policies.

Germany likes to see its international competitiveness as the fruit of hard work and productivity. Yet, German productivity growth since 1999 does not stand out. What stands out is wage stagnation. Germany’s improved competitiveness was derived from reducing German wages relative to its European partners; the equivalent of a beggar-thy-neighbor devaluation in pre-euro times. The consequences of this strategy have proved disastrous: domestic demand stagnation in Germany, housing bubbles in partner countries with higher inflation, given that the ECB sets one rate that has to fit all. One way or another, the country that runs up trade surpluses must either lend or grant transfers to the deficit countries that make its own surpluses possible. Today, German policymakers refuse to do either. Fooled into believing that beggar-thy-neighbor was the right thing to do, popular demands appear to be just that. One cannot fail to see that insane austerity in the periphery serves to keep the euro low enough so that Germany can now grow on external exports.

That is neither what Europe needs nor what the world may reasonably expect from Europe. Sooner or later Europe may have to conclude that Germany is unfit for the euro. Let the Germans have their mark back if they are so keen. Let the new euro-mark rise to US dollars 2 or 2.50, so that the joys of stability are real. Euroland may then regroup around France. With Germany once again proving immature to provide constructive rather than destructive leadership, Europe’s fate is in France’s hands.

30. gastro george

Too much nit-picking over details here. The truth, as suggested by the OP, is more general. The long term German strategy is to support the German-owned manufacturing sector. The UK strategy, if there has been a long term one, is to support the international finance sector. One is transparently better than the other.

So, we’re now saying that the system with greater variability but much lower average unemployment is worse than the one with less variability but much higher average levels of unemployment?

Er no – his point to is to ask what factors, following the crash, led to Germany recovering faster than us.

32. Torquil MacNeil

“The long term German strategy is to support the German-owned manufacturing sector. The UK strategy, if there has been a long term one, is to support the international finance sector. One is transparently better than the other.”

Which one? The UK system which results in generally low unemployment or the German system which results in generally high unemployment?

@ 23. Tim Worstall

Thanks for the full explanation of BandB shareholding. I was aware of it but used the term to highlight the problem of short term investment in our high-tech industries. Put simply, it damages industrial confidence in major investment by moving vast sums of money at short notice. As you say, Chancellors over many years have been trying to remove this practise.

@ 27 gastro george – agreed.

The article is basically good but needs development or better still rewriting.

34. gastro george

I feel that can make a better assessment of which country’s unemployment is “generally low” in four years time.

UK employment has been floating on a credit bubble that has just burst – and has was artificially lowered by Thatcher pushing the unemployed onto disability, and the increase in (permanent) casual and part-time work.

I suspect that a good argument can be had about unemployment benefits as well. German rates are higher than ours, so an argument could be made that their statistics are more honest than ours – Germans out of work are more likely to register as unemployed, whereas we have hundreds of thousands that have fallen out of the statistics.

“Thanks for the full explanation of BandB shareholding. I was aware of it but used the term to highlight the problem of short term investment in our high-tech industries.”

No, I know that’s what you were using it to mean. But that isn’t what it does mean. Which is why my pedantry. The implications of B&B are entirely the opposite of what you were using it to mean. It’s a way of managing long term investments, not a description of short term ones.

For the sort of short term investments you are meaning and trying to describe we use another term. “Short term investments”.

BTW, as to the larger issue. It doesn’t matter a damn how long shareholders hold shares for. They could sell every share they own every day and buy others ones and it would make noy one iota of difference to the long or short term investment horizon of the company.

Because of course when someone sells or buys a share on the secondary market the company doesn’t get any money anyway. They got their money to make the investments when they issued the shares for the first time. The primary markets, not the secondary, are where companies get their investment money.

The only influence the secondary markets have on capital raising for companies is if they want to come back for another bite, to issue more shares for more capital. And here the important thing is the share price: which doesn’t depend upon long or short term holders. It depends upon the balance of supply and demand.

In fact, as a second order effect, more short term sellers and buyers means more liqudity. And more liquidity does translate into higher share prices.

@ 31 ….”Germans out of work are more likely to register as unemployed, whereas we have hundreds of thousands that have fallen out of the statistics.”

Not sure about that one ? In our case removed and juggled around in order to avoid realistic measurement is more like it.

37. gastro george

It doesn’t matter a damn how long shareholders hold shares for.They could sell every share they own every day and buy others ones and it would make not one iota of difference to the long or short term investment horizon of the company.

Only in the limited way that you look at it Tim. But if the management’s objective is a high share price (rather than long term business development) and the shareholder’s objective is a high share price (in the short term) then short term shareholdings don’t lead to long term business development. That’s why the “German system” has advantages in long term business development, through long term shareholdings.

But I suspect that we won’t agree on what the objectives should be.

Some random figures.

Banking employment percent of population 16-64 (2003)

UK 1.8%
Germany 1.4%
p145
http://www.mckinsey.com/mgi/reports/pdfs/sweden/sep_current_priorities.pdf

Not a huge difference considering the UK is the global centre of banking.

30. gastro george

” Too much nit-picking over details here. The truth, as suggested by the OP, is more general. The long term German strategy is to support the German-owned manufacturing sector. The UK strategy, if there has been a long term one, is to support the international finance sector. One is transparently better than the other. ”

The only figures I can find only go up to 2003.

Net job creation in the private sector percent of total employed 1992-2003

Manufacturing
UK : -3.5%
Germany: -8.7%

Services
UK: 10.1%
Germany: 8.1%

p25
http://www.mckinsey.com/mgi/reports/pdfs/sweden/sep_current_priorities.pdf

The support does not actually appear to stretch to paying workers.

Average gross annual earnings in industry and services.

1998:
Germany- 35,432.0
UK- 29,370.2

2007:
UK- 46,050.5
Germany- 40,200.0
( Enterprises with 10 or more employees, euros )

http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&language=en&pcode=tps00175&plugin=1%29

Conclusion? German workers screwed.

@ 37: I don’t think you understand how The City works. I was looking around a few weeks ago. Went to several meetings with financiers etc. I’m trying to finance a company.

90% chance of wasting everybody’s time and money. 10% chance of serious returns. Would take 3-4 years to find out whether the technology would really be economic (we know it works, but not if it’s profitable) and a decade to build full scale plants that would actually begin to make a profit if stage 1) works out.

“Yeah, we can finance that, nice one Tim”.

Of course, whether they actually will is as yet unknown, but I didn’t get thrown out of the room for asking for money for a decade.

I’ve a customer currently in their 8th year of Venture Capital support. Will be at least another 5 years before their product is ready for prime time, let alone actually profitable. They’ve swallowed $400 million so far.

It simply isn’t true that you cannot get long term equity financing. Shit, mines always take 5 years minimum to open. Yet the normal method of financing a mine is to float it on AIM or TSE. You quite literally go along and say “got some interesting rocks here. Don’t know how much, how deep, the precise chemistry, how we’d design the extraction plant, but we’ve got some nice rocks, we’ll let you know in 8 years whether we’ll make a profit. Give us some money.”

“£££”

That’s what stock markets are friggin’ for!

40. gastro george

I understand that, Tim, and it sounds fine and hunky-dory.

But given what you say, and putting to one side whether either of us think that manufacturing is what we should be putting our economic resources behind, how do you explain the relative decline of manufacturing in this country compared with Germany?

“The only figures I can find only go up to 2003”

Try Nomis (google it), although I think you have to pay for annual business survey data.

“how do you explain the relative decline of manufacturing in this country compared with Germany?”

Simply?

It’s the international division of labour playing out in a time of increased globalisation. Just as individuals specialise ( some are doctors, others carpenters, me in wierd metals, you in whatever it is that you do) and companies specialise so will countries have comparative advantages.

Germany seems to have a comparative advantage in capital goods manufacturing. England in finance. *Shrug*.

The last time we had a burst of globalisation, 1880s to 1910, exactly the same thing happened. Germany did the heavy industry, England the finance. So no, it isn’t Maggie, or the policies of the 1980s, there’s something much deeper in the society than that.

Me, I point to the legal system. The Common Law system of contracts is superbly adaptable and the German system famously not. Remember, The City isn’t just banks and derivatives traders, It’s also the centre for international law firms, accounting (to a lesser degree) and for all sorts of other markets: metals (LME….most world contracts for non-ferrous metals are pegged to LME cash prices, a lot of minor metals ones to Metal Bulletin prices), shipping (Baltic Exchange) and so on.

You could, if you so wished, curtail the banks, but the City would still loom larger in the UK economy than the international services one does in Germany.

Heck, there are more people who work in the City markets (widely defined as above) than there are in the entire population of Frankfurt, Germany’s financial centre.

And no, whatever your views of banks or finance, there’s absolutely nothing wrong with London being the centre of the world’s law, accounting, metals or shipping markets.

43. gastro george

Germany seems to have a comparative advantage in capital goods manufacturing. England in finance.

Sure, but these advantages are not “natural” nor immutable. Korea, China, etc., never had much of an advantage in manufacturing when they were largely agrarian countries. But by long term investment (much of it state investment) they’ve developed those advantages. I know many Swedes as well, and they (as a country) made a decision many years ago on how they thought the country could best develop their advantages, which is now standing them in good stead.

Of course if you’re satisfied that we can base our future economy only on finance and other services, then that’s all fine and good. I’m not so sure – of both the short and long term consequences.

42.

Germany seems to have a comparative advantage in capital goods manufacturing. England in finance. *Shrug*

I know which I’d rather have a competitive advantage in, and it isn’t the professional blagging that goes on in the City of London.

Of course, contrary to what some people believe the British financial sector as a share of GDP only surpassed the German share around 2000.

http://2.bp.blogspot.com/_tvshDVnXSLc/TGMgs2BpWDI/AAAAAAAADY8/AkTeaa87_LM/s1600/share+of+fin+sector+gdp.jpg

How did this change come about? By making their own population poorer and depressing demand.

Note how the growth in private consumption stopped growing around 2000.
http://2.bp.blogspot.com/_ngczZkrw340/THwZVSaKjII/AAAAAAAARXA/KvWHKD1xSGk/s1600/Private+consumption.png

http://3.bp.blogspot.com/_ngczZkrw340/THwY9QhX7XI/AAAAAAAARWw/lCUbyIDhXew/s1600/German+Total+Mortgage+Lending.png

http://2.bp.blogspot.com/_ngczZkrw340/THwY30h4tDI/AAAAAAAARWo/XucLblFAluY/s1600/German+Total+Mortgage+Lending+Y-o-Y.png

http://2.bp.blogspot.com/_ngczZkrw340/THwY30h4tDI/AAAAAAAARWo/XucLblFAluY/s1600/German+Total+Mortgage+Lending+Y-o-Y.png

http://1.bp.blogspot.com/_ngczZkrw340/THwXwr88bKI/AAAAAAAARVo/nrv6IHEnHl0/s1600/German+Total+Private+Sector+Lending.png

So do these charts not indicate stagnating incomes? Err, yes.

What happened to the current account?

http://1.bp.blogspot.com/_ngczZkrw340/THwLewt3R7I/AAAAAAAARVQ/gDCm9Ipi2m4/s1600/Germany+Current+account.png

It moved into surplus as incomes were depressed. So share of national income was transferred from workers to the corporate sector. Err, yes. And they get praised from lefties for doing it? Yes. If the corporate sector did not reinvest the profits where did they go? Their financial sector stuffed them into toxic debt in the euro periphery. They then lecture them about debt.

Tim Worsall

And instead of actually selling and then buying back the shares through the market, you tell your broker “umm, I’m B&B ing these” and he just takes them onto his books overnight. Charges you a ha’penny a share or something, not the 2 or 3 p spread on the shares.

You’re way behind the times Tim. Overnight B&Bing was outlawed by Brown in April 1998. Now, over 30 days has to elapse between the sale and purchase and selling shares and buying them back 30 days later is less desirable since the shares could move significantly against you while you’re waiting.

‘dependance on exports’ in Germany is contrasted nicely with ‘dependance on consumption’ in the UK.

Given that the global market is a mite larger than the domestic market export dependance is a more stable form of dependance. Add to that the sort of heavy industrial goods in which German industry specialises operates on longer cycles and you can expect it to be more reliable.

Then, while Britain gorged itself on the credit boom, Germany was suffering relative stagnation as domestic savings levels boomed.

Furthermore the massive long-term investments made by Germany as part of efforts to physically unify the social and economic infrastructure of the country throughout the course of the past two decades is paying cumulative dividends.

Basically the German and UK economies are not easily comprable. The UK is more flexible and therefore more prone to phases of higher growth and sharper declines.

When UK is doing well Germany is criticised as old-fashioned and conservative, but when the UK system overreaches and falls back Germany is held up as a model of preogressivism.

Political commentators who fail to recognise and fall into the standard pattern this are shallow unthinking opportunists and are not to be trusted.

But it’s also worth understanding the traumatic consequences of the specific previous German credit booms has resulted in a generational memory which has a powerful political resonance to this day: Germans are much more credit averse than Britons. However I don’t think many people would wish a similar succession of events on Britain in order to effect their desired outcome.

Once again the obvious is being missed. Germany has a good manufacturing base and export market, this underpins everything the Germans do in their economy. The UK does not, I explained on another page that for Osborne’s austerity measures to work the British manufacturing and export base needs to expand sharply at an unprecedented rate, if it does not then we are in even bigger trouble than we were when the global economic crisis and banking crisis first hit.
The UK cannot keep depending on the financial sector, we see this does not work, this form of capitalism has only caused boom and bust throughout the world and it will do so again and again until a better way forward is found.

When the British economy suddenly recorded stronger growth than expected, this was solely down to two points, we were still benefiting from the measures that the previous Labour government had put into the economy to ease us through the global downturn and the construction industry, which had began to pick up at the end of January and February 2010, as soon as both of these measures were subtracted, Britain’s growth was again downgraded.

This country has nothing to fall back on, we are lurching from being a nation depending on the financial sector to a nation of Bob the Builders, it is ridiculous. Yet this Tory led government have abolished RDA’s which were working to attract industry to the regions and they refused a loan to Sheffield Forgemasters, both purely political moves, we actually desperately need both and more besides.
If this government really wants to avert another banking crisis (which incidentally is just a sigh away) it needs to start concentrating on building a secure manufacturing base and do all it possibly can to attract overseas investors to the UK. the previous Labour government did a fairly good job attracting Nissan etc, but also remember that Nissan would not come here if we had a belligerent attitude towards the EU and the euro. The Tories would do well to remember this too.

On the subject of the EU, how did it allow Ireland to have such low corporation tax ensuring that companies shut up shop in other countries in the EU and headed for Ireland? The credit bubble, the global downturn and Ireland’s ridiculously low corporation tax ensured that Ireland did not have anything in the coffers to help them withstand the global financial tsunami. I do not believe that the UK should have bailed Ireland out, unless Ireland promised to play with a level playing field, in any case surely as Ireland was in the euro zone it was up to the EU to bail Ireland out not us?
Why did Osborne bail Ireland out, when he did not want to bail out the UK banks when he was in opposition? He was then content to see people lose their businesses, jobs, homes, mortgages, pensions and savings, yet he borrowed £10 billion plus interest to bail another country out. The UK will never see this money back, nit this side of 50 years anyway. if we could not afford to continue with our schools for the future programme which would have helped our construction industry and the wider economy, then we certainly could not afford to borrow money to loan to another country.

Perhaps we should add £10 billion to the Government borrowing figures too? Not so because Osborne has conveniently connived this so he doesn’t have to.


Reactions: Twitter, blogs
  1. Liberal Conspiracy

    How Germany is reaping the reards of bailing out its workers than banks http://bit.ly/dOEBJW

  2. Germany

    How Germany is reaping the reards of bailing out its workers than banks: Source: liberalconspiracy.org — Thurs… http://bit.ly/f3p6AZ

  3. Steve Sinnott

    RT @libcon: How Germany is reaping the reards of bailing out its workers than banks http://bit.ly/dOEBJW

  4. Nigel Shoosmith

    How Germany is reaping the reards of bailing out its workers than banks http://bit.ly/dOEBJW http://twitpic.com/3io6qo via @libcon

  5. Amsterdamize

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  6. Bored London Gurl

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  7. Sara Beirne

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  8. Jonathan Davis

    RT @libcon: How Germany is reaping the reards of bailing out its workers than banks http://bit.ly/dOEBJW

  9. Morgan Dalton

    RT @libcon: How Germany is reaping the reards of bailing out its workers than banks http://bit.ly/dOEBJW

  10. Mike O'Brien

    RT @libcon: How Germany is reaping the reards of bailing out its workers than banks http://bit.ly/dOEBJW

  11. Greg Sheppard

    RT @libcon: How Germany is reaping the reards of bailing out its workers than banks http://bit.ly/dOEBJW

  12. Welsh Ramblings

    RT @libcon: How Germany is reaping the reards of bailing out its workers than banks http://bit.ly/dOEBJW

  13. Mili

    Germany reaping the rewards of bailing out its workers, not its banks: http://bit.ly/gEl2Xm

  14. Mili

    @Red_Nick Link fixed. http://bit.ly/gEl2Xm It's an interesting read. (And yes, that should perhaps be "as well as its banks".)

  15. JR

    RT @elmyra: Germany reaping the rewards of bailing out its workers, not its banks: http://bit.ly/gEl2Xm

  16. Kathryn Rose

    RT @elmyra: Germany reaping the rewards of bailing out its workers, not its banks: http://bit.ly/gEl2Xm

  17. Natalia

    RT @elmyra: Germany reaping the rewards of bailing out its workers, not its banks: http://bit.ly/gEl2Xm

  18. Jan Velterop

    Need a copy editor perhaps? "How Germany is reaping the reards of bailing out its workers than banks" [sic] http://bit.ly/e2cCxV

  19. Ian C. Smith

    RT @elmyra: Germany reaping the rewards of bailing out its workers, not its banks: http://bit.ly/gEl2Xm

  20. James Robertson

    RT @libcon: How Germany is reaping the reards of bailing out its workers than banks http://bit.ly/dOEBJW

  21. Steven Buckley

    RT @the_no RT @libcon How Germany is reaping rewards of bailing out workers rather than its banks http://bit.ly/dOEBJW <<– fascinating read

  22. Slow Bicycle Society

    RT @WestfieldWander: How Germany is reaping the reards of bailing out its workers than banks http://bit.ly/dOEBJW http://twitpic.com/3io

  23. Pucci Dellanno

    RT @libcon:How Germany reaps rewards of bailing out its workers more than banks http://bit.ly/dOEBJW @nick_clegg @NaomiAKlein @johannhari101

  24. Varun Kesar

    RT @libcon: How Germany is reaping the reards of bailing out its workers than banks http://bit.ly/dOEBJW

  25. Spir.Sotiropoulou

    How Germany is reaping the rewards of bailing out its workers than banks | Liberal Conspiracy http://t.co/VeVOEwA via @libcon

  26. Antje Bormann

    RT @spsot: How Germany is reaping the rewards of bailing out its workers than banks | Liberal Conspiracy http://t.co/VeVOEwA via @libcon

  27. ellispritchard

    How Germany is reaping the rewards of bailing out its workers [rather] than [its] banks: http://t.co/6eyLIso via @libcon

  28. Elise Benjamin

    RT @Scott_Redding: RT @libcon: How Germany is reaping the reards of bailing out its workers than banks http://bit.ly/dOEBJW

  29. Kevin Warnes

    Take note, Dave: “@Scott_Redding: RT @libcon: How Germany is reaping the rewards of bailing out its workers than banks http://bit.ly/dOEBJW”

  30. Jonathan Davis

    @SonniesEdge Yep, there was an interesting piece on LibCon about that a few weeks back. In fact, here it is: http://tinyurl.com/5t7jczm





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