German Lessons for US Manufacturing

German Lessons for US Manufacturing

FINANCIAL TIMES 03/07/12
By Michael Shank and Thorben Albrecht

Sir, With reference to your report (“Romney talks China to Ohio”, US Politics & Policy, March 2): if the candidate is looking for manufacturing answers, take a lesson from Germany. Losing 4m jobs over the past 10 years, US manufacturing has hovered at roughly 12 per cent of America’s gross domestic product, less than half its percentage in the 1950s. In Germany, however, manufacturing is well on its way toward 25 per cent of GDP. How Germany stayed economically healthy, while maintaining a strong working class, might offer a lesson or two for Ohio’s – and America’s – woes.

Unlike the US, Germany recovered quickly from the economic slump in 2009, mainly because German industry managed to keep its skilled workforce during the crisis. This was possible because the German government sponsored short-time work, or a reduction of working hours, thus avoiding lay-offs. This measure was possible only where decent wages and management-union trust existed, what Germans call a “social partnership”. Now, despite some growth in non-unionised companies and income inequality, the export-oriented manufacturing model of social partnership is strong.

Those who believe unions, high wages and workers rights are a burden for business should consider that this sector has been Germany’s most successful. Instead of trying to out-compete global markets in cheap goods, German industry specialised in high-quality products and kept its share in a growing global market as other European countries, Japan and the US lost shares to China. This strategy is possible only with highly skilled and motivated workers and requires managers who promote a constant evolution of improvement in products and processes. Strong union representation on the shop floor, in the form of “work councils”, and on supervisory boards ensures that workers’ interests are always considered.

German manufacturing workers’ representation remains strong despite global competition. It proved successful because it incorporated the knowledge of workers and their representatives, countering change with fewer conflicts.

Contrast Germany’s model with the American one. The way the US has treated its workers has helped create a highly precarious socioeconomic reality. One out of every two Americans is in poverty or low-income, and the US is experiencing the highest income inequality since the Great Depression, a gap that mushroomed in the past 30 to 40 years in part because of trade, tax and labour policies. US trade policies undermined America’s working class through the outsourcing and offshoring of US manufacturing and the erosion of labour protections. US tax policies moved wealth from the majority to the minority, thanks to tax loopholes such as low capital gains and dividends taxes, thus favouring non-labour wealth creation. US labour policies failed to increase minimum wages for the majority of America: the minimum wage is worth less now – adjusted for inflation – than in 1968 when the inequality trend started to take off.

The US would be well advised to take a look at the German manufacturing sector. The US is facing global competition that will only increase. If it wants an economic tide that lifts all boats, the answer is in its workers.

Michael Shank, US Vice President, Institute for Economics and Peace

Thorben Albrecht, Head of Strategy and Policy, Social Democratic Party of Germany