I don’t think he’s being any more selective in his views than you are. There is a huge amount of support for German style trade unions in the Conservative Party. Unfortunately in the post war mess, it didn’t happen.

Austerity worked very well for the Germans in the many years following re-unification. In fact the standard of living is probably about the same now in the whole country as it was in West Germany before re-unification. It has given them a strong, low debt (relatively) economy from which they can build growth. Why wouldn’t the German approach work here?

Hi JC.

Thanks for taking the time to comment on my piece.

I take your points on German austerity, post unification, however I would contend that, at least to a point, the large mistake that the UK Government is making, is that they are trying to starve the nation back to health when the industrial cupboard is bare.

I debated this with people advicating austerity on the back of Canada’s experience in the 90′s, where hospital etc were literally demolished and the state hacked to its bones in an attempt to balance the books..

My take on this, is that the difference between us and Germany, as well us and Canada for that matter, is that we simply do not make and engineer products in anywhere near enough quantities and diversities to be able to stomach the toxic effect that austerity is having.

In Germany, they have established, well supported industries that offered jobs, created wealth, and contributed to the growth that, as you stated, has seen Germany assume a relatively low level of debt in comparative to EU neighbours.

We do not have that industrial safety net here. We rely heavily on the confidence tricks and paperless dealings of the financial sector. We are not a blue collar economy anymore.

Following the decimation of industry in the UK, former industrial areas have become largely reliant on public sector jobs, which when taken away through austerity, plunge regions (including my home city of Hull) into decline and hopelessness. People stop spending, shops close, more redundancies follow, and the benefit and NHS bills rocket, whilst the tax take falls through the floor.

My point essentially in the article was that, rather than talk about emulating the germans in terms of skills matching via an education system that is being hacked at for the sake of satisfying international bankers in the credit agencies (something which was lost slightly die to editing and space constraints) Cameron should emulate them by harnessing the passion, knowledge, drive and enthusiasm of the workers on the shop floor, so we can grow our way to health rather than starving our economy to a painful death..

Could it be that the competitiveness of German manufacturing industry has less to do with concessions to trade unions and more to do with Germany’s outstanding system for industrial vocational training and German membership of the Eurozone, where other members with chronic trade deficits have depressed the value of the Euro in foreign exchange markets?

Was there “austerity” post-unification? Certainly wages were suppressed, but were there 20+% cuts in the German State? I think not.

Germany’s last Social Democrat chancellor, Gerhard Schröder (October 1998 to October 2005), introduced many social security and labour market reforms with the intention of increasing work incentives and making labour market more flexible. Try this assessment in Der Spiegel:
http://www.spiegel.de/international/business/fixing-the-labor-market-schroeder-reforms-bear-fruit-in-german-recovery-a-528757.html

Before the welfare reforms, because of Germany’s generous system of social security, it was possible to enjoy a greater income by staying sick than returning to work as sickness benefits depended on earned income prior to falling sick, including overtime and bonuses so if overtime and bonus opportunities declined meanwhile income on returning to work could be lower than sickness benefits. The Schröder reforms also included the legalisation of prostitution so prostitutes would pay taxes like other workers.

Schröder retired from politics in 2005. He was born in 1944 so no one could credibly claim that he was tainted by Nazi connections or was unpatriotic during the war, as was said of Willy Brandt. Schröder is something of an anglophile.

@Bob B

A squeeze on working terms and conditions has been almost universal in the advanced European economies (if you see what I mean) under governments of all shades since the 80s. Certainly unification gave the Germans a further excuse for increasing the pace of the squeeze. But I still think that to call this “austerity” is hyperbole – compared with current policies in the UK and Eurozone. In fact it rather normalises the term austerity, which is what Osborne would like.

Gastro

Schröder’s reforms intended to boost Germany’s economic comptitiveness were begun years before the onset of the financial crisis in the autumn of 2007. The likelihood is that the motivation was a belated recognition by the German government that the economy was headed towards daunting competitveness issues ever since the DMark became part of the Eurozone in January 1999 as that closed off any option to devalue the currency to restore competitiveness.

Concerns about looming competitiveness issues had motivated more than 150 German economists to write open letters in February 1998 to the FT and to the Frankfurter Allgemeine Zeitung newspaper in Germany calling: “for an ‘orderly postponement’ of economic and monetary union [EMU] because economic conditions in Europe are ‘most unsuitable’ for the project to start.”
http://www.internetional.se/9802brdpr.htm

The fact is that by the late 1990s, the German economy had become cost-uncompetitive with unit labour cost indices running well ahead of the comparable unit labour cost indices of Germany’s main trading partners. With the advent of the Euro, something had to be done to restore Germany’s trading competitiveness.

With the Schröder reforms in Germany – which lowered GDP growth and depressed wage settlements – and then the benefit of the depressed value of the Euro as the result of the chronic trade deficit countries in the Eurozone, the Germany economy has become fiercely competitive.

Today’s The Economist reports the annual surplus on Germany’s current account for its balance of international payments as running at 5.9pc of Germany’s GDP – the source of a tremendous boost to the German economy. The comparable figure for China is only 2.7pc of China’s GDP and American administrations have been dubbing China as a “currency manipulator”.

Karl,

Thank you for taking the time to reply to my comments. We may disagree on this, but I understand your arguments. We have to accept that history has not put us in the position we would like to be in.

No one has mentioned an important point. In Germany workers representation on the boards of companies is enshrined in law. IMHO this is far more important than any equality bollocks, or stuffing boards with impotent NEDs, because it puts a brake on the natural tendency of rentiers to empty the till and sod the company. Hence they have sustainable industries and in built employment protection. It’s a lot harder to outsource/offshore jobs just to put a few more quid in your share option pot. It doesn’t seem to harm their economy either.

IDS wants to learn from Germany as well, albeit the “arbeit macht frei” portion of it’s history.

Karl

> we simply do not make and engineer products in anywhere near enough quantities and diversities

True.

But I think you’re simplying why that is – and avoiding what is a large cultural difference.

My wife is German, and we speak German at home in the UK: and so I get to read german newspapers and have debates with the family when over there.

I think we have to recognise that there is also a cultural difference with Germany – and that alot of the things they do that folks here approve of, come from the culture.

I think they are more engineering orientated – technology is understood as a good. People there will tell me how in the early days of the industrial revolution it was British technolgy they copied -the first railway used a Britosh-made locomotive etc: not many Brits have any such detail knowledge of industrial history!

They are also more coherent socially: we have ‘the englishman’s home is his castle’ – but the bulk of Germans live in rented flats: where each tenant has to take turns with shared chores such as mopping hallways etc. They work together more readily.

They do have workers representatives on the boards of companies of more than 50 staff. But their workers in big industry never went on the strike-mad madness that British workers did, that resulted in driving up salaries to the point that the UK car industry at the time was unprofitable.

Their workers /unions seem able to be more reasonable than ours – though in the last 10 years we’ve become more similar.

They have less personal credit – borrowing and debt is less acceptable there. Credit cards not universal even now.

Their culture and education is much more engineering & practice orientated: university is less isolated from the workplace (Media Studies anyone?).

They have had a system of local banking that is willing to invest into local, small ( < 250 staff) MittelStand companies that are family owned. These companies are often specialist: there is little chance of them being the next Facebook so do not attract Venture Capital investors at all; but they are stable, growing, profitable companies.

In the UK, short term thinking means such lcoal companies get no such support: and indeed for the last 10 years bankers and investors have shied away from manufacturers: on the basis that China will win: but of course the Chinese do not do inovation in the same way, and there are many niches where small companies can thrive, create jobs and develop technology.

–
Phew – sorry about the length! But culture seems to me to be the root cause of why Germans do things differently/better to us in,

@11 You are making a circular argument:

“We aren’t good at engineering because we have a different culture”.

You could equally easily argue that *because* we aren’t good at engineering we have a different culture.

It wasn’t that long ago that we did make stuff, and not rubbish either, world leaders in aero engineering and (still) some of the best car marques in the world. The decline of manufacturing and engineering is a complex issue but hasn’t been helped by the poor teaching (and thus status) of mathematics and science in state schools since the 1970s and the parallel decline of apprenticeships as the state took technical education over with polytechnics, giving industry the perfect excuse not to bother investing in its own workforce.

The transition to the service economy (the Financial Services “Industry”, shopping and opening hotel/conference centres) blatantly hasn’t worked, it’s not resilient to recession and is too dominant at 80% ish of GDP. Nor does it generate high wage/high skill jobs in enough numbers for a country of this populace. Over 30+ years we completely threw away what was a valuable specialism.

@12

Over 30+ years we completely threw away what was a valuable specialism.

Yeah but we also broke the unions and smashed working class power, so it achieved its aims…

German unions were differently organised (with input from the UK oddly enough).

The key difference was that unions were industry rather than trade-focused, which meant they didn’t suffer from inter-union disputes.

In the UK, more days were lost through strikes arising between unions, than between unions and employers.

The heady days of “Demarcation Disputes” ….

@14 As opposed to the meaningless faux managerial “skill sets” we have now, most of which amount to nothing more than reading the manual for the latest release of some software.

@13. It was a very counter productive way of doing it. A lot of middle class jobs indirectly depended on manufacturing (the middle class grew out of mercantile, not the service industries) and I don’t buy this shite that in the future everyone will be lawyers and we therefore don’t need manufacturing. It hasn’t worked out that way anywhere else.

Lots of important points in contributions:

- (DHT) The German system of mandatory “mitbestimmung” (co-determination – see Wikipedia entry) for big companies, an option regularly rejected by Conservative and Labour governments in Britain. Why?

- A long German tradition of engineering, hence the “mittlestand”, SMEs which often have niche global monopolies for highly specialised manufactured products, such as printing machinery, bottle labelling, machine tools. Germany has the largest automotive industry in Europe by far. Britain has an outstanding tradition of making specialist cars – GP racing cars, Rolls Royce, Aston Martin, Lotus – but our indigenous volume car industry went down the tubes although the Japanese volume car makers – Nissan, Toyota and Honda – can run successful volume car manufacturing in Britain. What conclusions can we draw from that? Germany also had a strong tradition of chemical engineering – on the eve of WW2, German companies held the majority of world plastic patents. Aspirin, a wonder drug, was a German discovery in the late 19th century.

- Germany, like other mainland west European countries, has a bank-based capital market, with banks investing for the long-term in companies, taking equity stakes and having representatives sitting on mittestimmung boards. In contrast, Britain and America have finance-based capital markets. British banks have always been reluctant to take equity stakes in companies because the banks believed this leads to conflicts of interest if companies get into difficulties. Pre-crisis, the London capital market was a global leader, generating lots of buoyant tax revenues which enabled New Labour to boost spending on healthcare and education.

Important analytical and policy issues: (a) it is challenging to impossible to assess which, if any, of the structural differences between Germany and Britain was crucial for the differences in economic performance; (b) picking on one difference in institutions and trying to transpose that difference from one country to another doesn’t work because the different institutions in each country tend to be self-reinforcing.

We tend to overlook the benefits that German manufacturing industry had from: (i) the inflow of skilled wokers from eastern Europe until the Berlin Wall was built in 1961 to block migration; (ii) Germany’s relatively large farming sector at the end of WW2, which amounted to about 25pc of the German workforce, as compared with only 4pc for Britain.

Manufacturing accounts for 18pc of German GDP but this is an outlier among affluent, industrialised economies. In America, Britain and France, manufacturing contributes only about 12 pc to national GDP.

But note this observation in the FT by Sam Brittan: “The relative decline of the British economy in the century up to the late 1970s has been reversed. Since then, the UK has caught up with and even overtaken its principal trading partners. The previous two sentences are neither a typing mistake nor a daydream. They are the sober conclusions of the country’s leading quantitative historian, Prof Nicholas Crafts”
http://www.samuelbrittan.co.uk/text399_p.html

@15 Why would the ruling class care about the destruction of the middle class too?

On the importance of SME’s, try this recent video clip on: Germany’s Mittelstand – A model of success

AS THE world gazes admiringly at Germany’s economic success, we discover why the country’s small and medium-sized companies have performed so well
http://www.economist.com/blogs/schumpeter/2012/04/germanys-mittelstand

In Britain, SMEs employing up to 249 account for just over half of all business sector employment.

Derek Hattons Taylor

> You could equally easily argue that *because* we aren’t good at engineering we have a different culture.

So (A) do you think Germany has a different culture to us regarding engineering ?

(B) do you yourself that culture derives from their engineering success – or the other way round.

My point was not that the UK doesn’t have great technologists or great technology companies.

It’s that across the country – we don’t as a country value what they do, and are not really interested in it.

@ 19. Yes, but you could argue that we aren’t interested in/don’t value it precisely because for reasons I set out up thread, it doesn’t provide much GDP and therefore jobs. In North/Central England in particular, and until relatively recently, it was valued.

@ 16 “although the Japanese volume car makers – Nissan, Toyota and Honda – can run successful volume car manufacturing in Britain. What conclusions can we draw from that? ”

That there is no such thing as a bad workforce, only bad management, and British management is among the worst. My pet theory is that is caused by the way the class system operates in this country.

Heseltine as DTI minister in the early 1990s initiated a series of competitiveness studies to identity factors contributing to or impeding the competitveness of Britain’s economy.

One of the startling comparisons to emerge was that about the same proportion of graduates were coming out of universities in Britain and Japan with degrees in the sciences or engineering. But whereas the split between the sciences and engineering was about 1 to 2 in Japan, the ratio was reversed in the case of Britain.

Much the same A-level subjects – maths, physics and chemistry or biology – are required to gain a place as an undergrad student to read for a science degree as for an engineering degree but, for some reason, engineering has a bad image among 6th formers. Talking with academics, for decades past engineering departments in universities have found it harder to attract quality applicants for places for all the promotional efforts of the industry and university engineering departments.

Try this current brief on the graduate job market for insights into where the vacancies are and the salaries league table – investment banking jobs offer the best pay prospects:
http://www.highfliers.co.uk/download/GMReport12.pdf

@11. Just Visiting: “They have had a system of local banking that is willing to invest into local, small ( < 250 staff) MittelStand companies that are family owned. These companies are often specialist: there is little chance of them being the next Facebook so do not attract Venture Capital investors at all; but they are stable, growing, profitable companies."

Isn't there a bit more to understand about small company banking practice? OK, so locally managed banks talk directly with business customers, and few people would be surprised that this works better than a call centre.

But small businesses have trading relationships with other companies; business A sells to business B which does not pay bills promptly; sooner or later, business A will mention it to the bank manager. In the German model, the communication loop is shorter; business A and business B will comprehend the problem more quickly.

@ 21. One of the problems is that the science degree is valued but the career path is perceived as low status, un-glamorous and relatively low paid.

I have worked with a team from one of the big 4 accountants, corporate financiers/management consultants. The partner was a chemistry grad, the assistant Director was mech engineering grad and the senior exec a chemistry grad.

This is not just an image problem. The City values these degrees for their mathematical/analytical content. The graduates with the highest average earnings 6 months post graduation are maths graduates at £40k. Toiling for decades in a lab/workshop and maybe Winning Nobel prizes/advancing humanity would do it for some, but realistically has a hard job competing with that.

Derek Hattons Tailor

The senior posts you mention are science graduates, not engineers.

I certainly agree about the high value put on advanced maths skills by investment banks and hedge funds with corresponding salaries paid for jobs. Years back in pre-crisis times, the professional association of physicists was complaining online about the numbers being poached from academia by the financial services industry for “rocket science” jobs. There was no way that academia could compete.

But none of that addresses the poor image of engineering among 6th formers (or among undergrads, as I learned from my son) and the challenging task that university engineering departments have in attracting quality applicants. Moreover, until very recently, the numbers of A-level candidates taking physics and maths was on a downward trend.

My hunch is that this is very much more important for the prospects of Britain’s manufacturing industry than making concessions for trade union representation in companies. In the end, skills matter more.

So a trade union official loves a system that gives trade union officials seats on the board, power, executive salaries and as it turns out lots of Brazilian prostitutes?

Who could have seen that coming?

But German Trade Unions are not British Trade Unions. But by all means, let’s copy their system. And start by prohibiting any politicisation of the Trade Union movement – no Communist Unions, no Social Democratic Trade Unions and no Labour Party Trade Unions.

I would happily give some officials a bunch of perks and some freebies like said prostitutes if it meant the end of Trade Union involvement in politics.

I’m not close to engineering industry markets these days but one of the trade union and employment issues current in the early 1980s was the terms on which engineering apprentices could be employed. The union successfully insisted that once an apprentice reached the age of 18 he had to be paid the full adult wage. Understandably, employers found that to be a disincentive to providing engineering apprenticeships.

Derek

I think Bob’s last words above, prove the inaccuracy of your ridiculous sweeping statement:

> there is no such thing as a bad workforce, only bad management, and British management is among the worst.

27 Just Visiting

The counter – which needs to be taken very seriously – is the unhappy comparison between the failure of Britain’s indigenous volume car industry, with British management, and the success that the Japanese volume car makers – Nissan, Toyota and Honda – and Tata Manufacturing have made of volume car production in Britain. Add to that the new BMW Mini made at Cowley, Oxford.

I’m aware of a succession of research studies, from around 1980, which reported that British management in industry was poorly educated in comparison with their counterparts in other west European countries. It was this dawning recognition that led to the belated creation of the Business Schools in London and Manchester.

It has long been widely recognised that Britain’s fragmented system of tertiary industrial vocational education has been poorly organised and funded. The emphasis in schooling in Britain was always on academic attainment on route to gaining undergraduate places at the universities in Britain, which rank well in international league tables as compared with Europe but not as compared with America:
http://www.timeshighereducation.co.uk/world-university-rankings/2010-11/world-ranking

For academically-disposed teens, the routes to an academic education were clearly laid out while routes to any courses for industrial vocational education were obscure and complicated. For school leavers at 16, it was much easier to seek out the nearest work opportunity without reflecting on downstream career prospects.

Other postings in the thread reflect on the low historic esteem for academic degrees in engineering.

Perhaps more work based apprenticeships by giving firms training grants. Lost in the 80′s because of the short sighted view that we needed to become a service economy.
Bring back the OND and HND. These were good work based diplomas that allowed working engineers to take degrees,

@ 27 Do they ? How else do you explain the fact that a change of management can turn the same workforce from confrontational strikers to among the most productive in Europe ? I speak as a manger BTW and have no ideological axe to grind. I repeat, in my opinion british “management” is rubbish

The decline in the contribution of manufacturing to national GDP, along with the growth in the contribution of service industries, is not peculiar to Britain. In most of the affluent industrialised economies – such as America, France and Britain – manufacturing only contributes 11 to 12pc of GDP. In Germany, the percentage is 18pc but that is an outlier and lower than it was in the 1970s.

All those cool Apple iPhones and iPads are being made in China. Samsung, in South Korea, is the world’s leading producer of computer memory chips but ARM chips, designed by a British company, are the leading processors for cell phones and tablets. Even Microsoft has complied a version of Windows 8 to run on ARM chips. British management is not uniformly bad if London could be rated the leading global financial centre prior to the financial crisis in 2007.

“The worldwide volume of foreign exchange trading is enormous, and it has ballooned in recent years. In April 1989 the average total value of foreign exchange trading was close to $600 billion per day, of which $184 billion were traded in London, $115 billion in New York, and $111 billion in Tokyo. Twenty-one years later, in April 2010, the daily global value of foreign exchange trading had jumped to around $4.0 trillion, of which $1.85 trillion was traded daily in London, $904 billion in New York, and $312 billion in Tokyo.”
Krugman and Obstfeld: International Economics (Financial Times 9th ed.) p.355

@31 What do you conclude from the financial crash about management ? As you say, prior to it, London was a world financial centre and people like Fred Godwin were importing oysters for lunch, decorating the boardroom with designer wallpaper and winning business awards and knighthoods.
And yet these same “talented” boards, almost overnight, blew up their whole industry and took half the economy with it ?
I would conclude that the composition of a board is irrelevant to business success/failure, and that in boom times a trained monkey could head up a FTSE 100 and make money, in bad times anyone can head up a FTSE 100 and still loose it.
The obvious conclusion is that the board are not masters of their company’s destiny. Factors outside their knowledge/control are far more influential. Which begs the question – why do they get paid so much ?

It’s patently clear that bad board decisions in the cases of Northern Rock, RBS and HBOS led to the failures of those banks – as well as to the Lloyds Banking Group paying out £5 billions in compensation for mis-selling PPI to its customets. But it will take a lot to convince me that management board decisions had nothing to do with the commercial successes of the ARM chip or the size of the Vodaphone mobile phone operation or why London is the largest global market for foreign exchange.

News update – try this:

The Francis Crick Institute to open next to London’s St Pancras station in 2015 – it will become Euorpe’s largest scientific research institute in one building:
http://www.independent.co.uk/news/uk/nobel-prize-winner-builds-lab-to-culture-british-scientists-8423340.html

The mainstream media (msm) don`t like being studied – but Glasgow University Media Group (GUMG) have done a fine job of analysing coverage of the UK economy in the 1970s. In their 1982 book “Really Bad News”, GUMG examined the cause of UK decline:

The Chapter “REASONABLE MEN AND RESPONSIBLE CITIZENS”: Economic News – can be downloaded from this address:
http://www.glasgowmediagroup.org/images/stories/BookChapters/GMG_Reader/economy.pdf

Extract:

“The key problem underlying Britain’s economic decline is the failure of industrial investment. On rare occasions this has been acknowledged even on the television news. In January 1975 the industrial editor of ITN [Independent Television News] made the following reference: “Since the war, Britain’s overriding problem, almost universally agreed, has been a failure to invest adequately.” (ITN 22:00 21.1.75)
”…..the decline of investment was widespread across the whole of the manufacturing sector. Between 1960 and 1972 Britain re-invested 16-18% of its gross national product each year. By comparison Japan was investing 30-35%, almost twice the rate””