What Are the Secrets of the German Economy — and Should We Steal Them?

What Are the Secrets of the German Economy — and Should We Steal Them? - Freakonomics Freakonomics

"David AUTOR: We estimate that as much as 40 percent of the drop in U.S. manufacturing between 2000–2007 is attributable to the trade shock following China’s accession to the W.T.O. in 2001... the Hartz reforms lowered government assistance to the poor and unemployed; made it easier for firms to fire employees; and encouraged more part-time, low-wage, non-union jobs...

SUEDEKUM: It had a huge political cost because he lost the left wing part of the Social Democrats. It cost Schröder the chancellorship. He lost the election in 2005 to Angela Merkel. But ultimately, the common narrative is those Hartz reforms created the turnaround...
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REINHARDT: I always used that as a metaphor for businesses. The customers pour in the Tender Vittles and in the U.S., when you had a union, they would fight and spill the whole bowl of Tender Vittles. In the end, no one could eat anymore. I looked at U.A.W. “It’s insane, they’re going to kill their company.” Sure enough, they damn near did. General Motors was almost bankrupt. In Germany, the unions have representatives on the board of the company. Yes, they say, “The first thing” — that this bowl of Tender Vittles — “we have to make sure that the bowl is there. We can fight all we want, but don’t spill the bowl.” You don’t destroy your company. That was not the attitude of Anglo-Saxon unions, either in England or the U.S...

SUEDEKUM: Culturally, there is a sense [that] you have to be flexible when circumstances change, when new challenges arise. This is deeply embedded in the German approach of doing things...

Germany is a stakeholder economy in that sense. Yeah? It’s not a shareholder economy, it’s a stakeholder economy...

German C.E.O.’s are more willing to grant decision-making power to lower management. And that, she argues, improves quality. Because those are the managers who have the best sense of what customers want. This requires C.E.O.’s to have quite a bit of faith in their managers...

Also had these losers of globalization here in Germany, people who had problems because of trade. But [the] big difference is, in Germany, these people receive more support from the government. There’s a safety net. There is trade-adjustment assistance. There’s active labor market policy trying to bring these people back to other jobs elsewhere and subsidies, trying to keep the communities alive. We do a relatively better job in cushioning the losers...

ZETTELMEYER: A very important reason why traditional manufacturing has declined in the U.S. — which is completely under-emphasized, particularly by the Trump administration — is domestic competition; extremely dynamic growth in new sectors in the United States, particularly, of course, the computer industry and the software industry, the platforms, the I.T. giants. This growth sucks away labor and makes it harder for traditional companies to compete.

This has nothing to do with globalization. This has something to do with technical change, but it has a lot to do just with the general dynamism of the U.S. economy. One of the reasons why the manufacturing share is high in Germany is because the German industry lacks this dynamism. The U.S. has traditionally been a much more dynamic economy. The U.S. has a very good model and what the U.S. should focus on is to maintain and improve its model, not about copying the German one.


I wonder what the relationship of the Hartz reforms were to Germany's economic success

Socialism (in the form of a social safety net) can promote capitalism (in the form of free trade)