Learn from Germany’s economic example

By Harold Meyerson

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A heretical idea has entered the national discourse: Maybe some other nations handle their economies better than we do.

The June 9 issue of Bloomberg BusinessWeek included the article “Fixing America's Economy: Nine Ideas from Around the World.” Looking at Germany, China, Turkey, Singapore and five other places, the magazine recommended stiffening qualifications for mortgages, mandating corporate retraining of employees and imposing a national sales tax.

If you listened to the Republican presidential candidates' debate last week, you'd conclude that the way to revive the economy generally and manufacturing particularly is simply to deregulate business and eliminate its taxes. Throw in the defunding of the National Labor Relations Board, which Newt Gingrich advocated, and you'd get an economy that competed with Asia's low-wage manufacturing regions.

Fortunately, that's not the only economic model out there. For a growing number of economists, pundits and even the occasional CEO, Germany offers lessons in how an advanced economy can compete globally and actually raise, not lower, its living standards.

In a March paper for the Council on Foreign Relations, Nobel laureate economist Michael Spence and New York University researcher Sandile Hlatshwayo argue that Germany's success at building a booming manufacturing sector that constitutes almost twice the share of the economy that ours does is largely the result of “a broad agreement among business, labor and government” to keep wages competitive and high-value-added production at home.

Leslie Gelb, former president of the Council on Foreign Relations, also attributes Germany's overwhelmingly positive trade balance and comparatively low unemployment rate (7 percent) to that tripartite system.

This growing appreciation of the German model is a welcome change from the laissez-faire approach to globalization that has dominated U.S. policy and discourse for decades, dooming many Rust Belt denizens to lives of crystal meth and quiet desperation. But some of these analyses still understate the crucial distinctions between Germany's stakeholder capitalism, which benefits the many, and our shareholder capitalism, which increasingly benefits only the few.

First, German manufacturers, particularly the mid-size and small-scale ones that often dominate global markets in specialized products, don't seek funding from capital markets (a local banking sector handles their needs) and don't answer to shareholders. They make things. We make deals, or trades, or swaps.

Second, the key to both the retention and the continual upscaling of manufacturing in Germany is the composition of corporate boards, which are required by law to have an equal number of management and employee representatives.

President Barack Obama recently appointed a new council on jobs and competitiveness, chaired by General Electric Chief Jeff Immelt. The council includes the heads of multiple companies that, like GE, rely so heavily on offshore sales and production that they are increasingly decoupled from the U.S. economy. If they take seriously their charge to create jobs and make us more competitive here, they should recommend restructuring the boards of U.S. corporations along German lines.

This would require CEOs to share power with representatives of their employees, but who can doubt they'll put their egos aside in the cause of a national economic renaissance?

Harold Meyerson is editor at large of American Prospect magazine (http://prospect.org/), dedicated to progressive policies and social justice. Comments: columnist@harold

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