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Six Routes

Six Routes: How to make it in Germany

Marketplace Contributor Feb 13, 2015
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In this series, we’re going around the world in 40 days, stopping at six countries in the middle of the new global economy: Nigeria, Brazil, China, India, Germany, and the U.S. We’ll meet the people who’ve made it, those who are trying to make it, and the people making the big decisions in the world economy.

The first stop on this tour is Germany: The country boasts the world’s fourth-largest economy and is the beating heart of the eurozone, the guardian of financial discipline. When it comes to money, what makes Germans tick?

DEBT AND GUILT

The election of Greece’s left-wing government on a promise to reduce the country’s mountain of debt has created a standoff with Europe’s economic powerhouse — and has thrown Germany’s ultraconservative attitude to debt into sharp relief.

Marcel Fratzscher, who heads the prestigious German Economic Research Institute, says debt-aversion is even rooted in the German language.

The German word for debt, “schuld,” is the same as the German word for “guilt.” “To get into debt, you have done something bad and that describes the German people’s attitude quite well,” Fratzscher says.

The German way is to “save now, have later,” rather than ‘have now, pay later,’ and it’s not just older Germans. On the streets of Berlin, young Germans told us what they would do if they won 1 million euro. A new car, a holiday, a new outfit? “I would save it for when I need it” was the typical reply. That savings habit is the key to understanding another characteristic of Germans: fear of inflation.

Common wisdom says this is due to scars left by hyperinflation in the 1920s that saw the exchange rate go from 4 marks to the dollar to 4 trillion. There may be some residual echoes of that period, but Germans have moved on. The real reason is found in the German love of saving, and inflation is the enemy of savers.

For a nation full of them, the idea of lowering interest rates and printing money holds a double threat: It reduces the rate you get on savings and potentially causes inflation in the future, which means savings buy less. The good news for Germany is that inflation hasn’t arrived and although interest rates are low, the related weakness of the euro has kept German exports like cars and machinery competitively priced.

That engineering and exporting success is the source of considerable German pride. They even have a name for it, “Wirtschaftswunder,” which translates to “economic miracle,” and refers to the decades after World War II in which the German economy rose from the rubble to become one of the strongest in the world.

But it wasn’t really a miracle that led to this resurgence. Economists attribute the “Wirtschaftswunder” to a set of basic interlocking economic principals — principals that you can see at work in the Menzel Electric Motor factory in Berlin.

INVEST IN YOUR WORKFORCE

Thomas Dobratz, a supervisor at the Menzel factory, has worked there for more than 30 years – since the company’s current owner, Mathis Menzel, was a young boy. Dobratz started as an apprentice at the factory, following in his family’s footsteps.

“My father was here, and my uncle was here, and my brother was here,” he says.

This kind of long family relationship between factory and worker is still common in German industry, Menzel says.

“It’s usual that people are working all their life in the same company,” Menzel say. “There’s lots of skills developed and loyalty.”

And the loyalty goes both ways. Good wages keep Menzel’s workers loyal to his company, and those workers’ skills and experience keep Menzel loyal to them. Even though he could hire workers for less money in other countries, he’s not tempted to outsource because it could compromise the quality of his products, he says. The kind of quality that helps explain why exports make up a whopping 50 percent of German gross domestic product.

LONG-TERM THINKING

Menzel’s decision not to outsource — as tempting as it might sound in the short-run but wouldn’t pay off in the long run — is the kind of thinking that brings us to another reason that has helped Menzel’s factory and the wider German economy. Menzel says because his company is relatively small and family-owned, a kind of company known as a “Mittelstand” company in Germany, he is not beholden to shareholder’s short-term quarterly demands. He can think in terms of decades, not quarters. 

But it is not all roses for German workers. After reunification in 1989, Germany agreed to an exchange rate that swapped one East German Ostmark for one West German Deutsche.

Politically, it may have been the right thing to do, but almost overnight workers in East Germany’s unproductive state-run factories became too expensive to employ. Their productivity lagged western peers, and plants lost contracts and were closed. This hampered growth, until German Chancellor Gerhard Schroder introduced huge cuts to wages, benefits and social services 10 years ago.

This saw the rise of the working poor whose pay doesn’t cover their cost of living. This also helps explain German impatience with other European countries, most notably at the moment, Greece. Many feel they had to make painful economic sacrifices to meet their political goals, so why can’t others?

Stefan Schneider, chief economist at Deutsche Bank, says: “We had to shoulder the cost of reunification, which was a big stress for the economy and we did it on our own, and I think this might explain why Germans have limited patience when they say other countries [are] dragging their feet on reform.”

But others would say German memories are short when it comes to debt forgiveness. The German postwar “miracle” might never have happened if Germany hadn’t been let off half its postwar debts in 1953. This is not lost on Yanis Varoufakis, the Greek finance minister who recently said “no one understands the Greece position better than the Germans.”

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