Britain signed a landmark enterprise agreement last month with the US to celebrate its aspiration to follow the American way. Yet this alleged enterprise capital of the world has a trade deficit equal to 5 percent of its GNP, has racked up international debts now close to US$3 trillion and last April lost its place as number one world exporter to Germany.
This latter economy, running trade surpluses as proportionately big as the US's trade deficits, is written off as an economic basket case whose approach the UK wants to avoid like the plague. But perhaps, just perhaps, the story is a little more complicated than America works and Germany doesn't.
To see any merit in the German economic and social model in Britain these days is to invite howls of derision, especially from UK Treasury officials. And it's true that German economic performance has not been much to write home about recently; one in 12 Germans is unemployed while economic stagnation, inflating social expenditure and an eroded tax base have meant that the German budget deficit has exceeded the eurozone rules for three successive years, rules the Germans lobbied hard for. A Brit would have to be a saint not to enjoy just a little schadenfreude at Germany's plight.
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But much more is at stake. Germany stands as a proxy for European matters economic and social, and as long as it ails while America seems to prosper it blights the argument for Europe, for social democracy, for stakeholding and for the single European currency. The international common sense, faithfully aped by the British government, is that while the American world of `flexible' labor markets and companies that seek to do no more than maximize shareholder value may be tough, the system works in comparison with Germany's so-called social-market economy, mired in regulation, overpowerful trade unions, an expensive welfare state and featherbedded unemployed.
And yet, while it may be true that German companies have to export because demand at home is so poor, this nation didn't get to be number one world exporter if everything is as useless as the country's critics allege. When Chrysler was taken over by Daimler-Benz and Rover by BMW, the Germans were appalled at the primitive technology and low skills of their Anglo-Saxon rivals.
BMW's relaunch of the Mini is an object lesson in how to do high-tech, design-led quality manufacturing. But UK Finance Minister Gordon Brown is not preparing to send young British entrepreneurs to Germany to learn anything. Rather, they go to America, trailing behind Germany in industrial sector after industrial sector.
Capitalism US-style may have its virtues, accept the Germans, but at heart it's a financial engineering rather than a business-building culture -- and in the long-term, creating great businesses and international brands will pay off. German managers are passionate about the superiority of their system, which has created great wealth-creating machines, companies that are as attentive to their workers, customers, technology and supply chains as they are to their shareholders. They even believe in co-determination, where unions and managers talk about strategy, as a means of enlisting their workers' engagement and loyalty.
Talk to the more reflective British business leaders and they agree; one chief executive of a leading UK company I spoke to last week believes that Germany's great industrial brands (Siemens, BASF, VW, and so on) and the system that stands behind them are huge aces in an era of globalization.
By contrast, Britain is virtually naked. Small wonder Rolls-Royce, one of its last great international brands, is threatening to move its product development overseas, citing not just the US but Germany as examples of where the wider structure is more supportive.
Germany's problem is not the institutions, regulations and processes that create such formidably strong companies; it is that it has allowed the social part of its celebrated social-market economy to become too expensive, in particular towards the unemployed. Too little observed outside Germany, the Germans are now prepared to act.
Chancellor Gerhard Schroeder has bitten the bullet and for the last six months has been engaged in an epic struggle to persuade his party to vote for halving the time the unemployed get unconditional unemployment pay while insisting that they train and take up job offers where they exist. Pensions are to be frozen for two years, and token payments introduced for health treatment, a shock more fundamental to the German Left than foundation hospitals.
Last month, at a conference in Bochum, he confronted his Social Democrats (SPD) with the reality -- the welfare state was far too expensive and the unemployed are too little challenged to accept work. There was no alternative to change.
The shock to the SPD has been profound. Membership has hemorrhaged, the unions are in open revolt, poll support has plumbed new depths and Rudolph Scharping, its deputy leader, has resigned. Some leading party officials told me before Bochum that they feared the party might split, but Schroeder was re-elected and the line held.
He is trying to sustain social-democratic values but in an affordable way to allow them to regain legitimacy. By British or US standards, the unemployed will still be well treated. Beyond him, there are real conservatives in the German CDU, anxious to go further.
Yet even German conservatives want to sustain the essence of their social market system. There is a long German folk memory of the consequences of unemployment in the 1930s. In any case, part of Germany's problem isn't its system, but two bad decisions that would have poleaxed any economy: swapping the West German mark for the East German currency after reunification on a one-to-one basis, despite East Germany's chronically poor productivity and then, nine years later, compounding the mistake by entering the euro at an uncompetitive rate. A lesser economy would have imploded.
Germany is not out of the woods; it still has 4.4 million unemployed. The impact of reform will be slow and it is hamstrung by being unable to aggressively reflate its economy by the euro's self-defeating rules so clearly in need of change. But it is fighting to modernize its social-market economy rather than Americanize it; it's a system which has delivered Germany's fantastic physical infrastructure, its high rates of social mobility, its superior health experience and its world-beating companies.
For ordinary people, it is as least as good a place, perhaps better, in which to live, bring up kids and have a genuine chance as Britain or America, if only it could solve its unemployment problem.
Social democracy, Germany and Europe do have things going for them. Would that the Labour Party's leaders could think so as well; all economic and social virtue does not lie in George W. Bush's America.
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