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October 10, 2005 U.S. Edition
Germans: A Lot Like Us
Last year Germany became
the world's No. 1 exporter, larger even than America, despite the fact
that the U.S. economy is five times as big.
German voters have spoken. "We don't want to become Americans." That's how a senior German politician explained the recent election to me. And it's the conventional interpretation. Germans are said to have rejected the Christian Democrats' program of economic reform. And they did this despite overwhelming evidence-extremely low growth and high unemployment-that the economy needs restructuring. (Anything can be discredited these days by attaching the label "American" to it.) Reformist voices are quiet, and anti-globalization forces are gleeful. But the latter should put away their party hats. Germany is changing, and it will change no matter what the new government looks like.
It is strange to call this a vote against reform. Angela Merkel's Christian Democrats ran on the most explicitly market-oriented platform in their party's history, promising painful medicine. With their coalition partners, they received 45 percent of the vote. This was unexpectedly low for them, but still, it represented a large part of the country. Merkel's coalition partners in the Free Democratic Party, with an even stronger free-market agenda, jumped to one of their best results ever. But perhaps the main reason the election cannot be seen as anti-reform is that the Social Democrats (SPD) and Greens, who received 42 percent of the vote, are the parties that, just two years ago, put through the country's most comprehensive economic-reform program in 40 years. That program has its problems, it is not nearly enough, but the fact remains that this was more reform than in any major European country in a decade. The SPD campaign posters read creating jobs requires the courage to reform. Merkel's posters said germany needs change. Between them, the two got more than 70 percent of the vote. Does that sound like a mandate against reform?
The real story in Germany is that despite the noisy surface battles, there is a growing pragmatic consensus among political elites. Compare Germany with France. In Germany, both parties have serious reform proposals, and one has carried out some of these. There are numerous think tanks that explain why such reforms are necessary. A large part of the German press and business elite supports them vocally. None of this is true of France. There is more serious discussion about economic reform in one month in Germany than there is in one year in France.
And it is not just talk. German industry has begun a process of deep restructuring, forced by the pressures of global capitalism as much as by any government policies. Last week, despite the election results, Mercedes confirmed 8,500 job cuts and Volkswagen announced that it would keep a plant open because its union had agreed to large cost reductions. As a result of such measures, Germany's most competitive industries already are strengthening. Only two major economies have actually gained in their share of global exports of manufactured goods in the past five years: China and Germany. Last year Germany became the world's leading exporter of goods, larger even than the United States, despite the fact that the U.S. economy is five times as large. Germany's labor productivity is as high as that of America's, and its unit labor costs are now lower.
It has been able to do all this despite massive constraints. Unlike the United States, Germany cannot lower its interest rates to smooth over its troubles, because it doesn't control the European Central Bank. It cannot depreciate its currency, which would make its wages more attractive, because it doesn't control the euro and continues to pay for reunification. Germany spends 4 percent of its GDP on transfer payments to the east. The country has many deep problems, but it still has an impressive economy with world-class companies.
Germany's real problem is not simply economic but psychological. Despite being the third richest country in the world, it is among the gloomiest. And this hyper-angst translates into low consumer spending. In the past five years, the American consumer has kept our economy going through the stock-market crash, recession, 9/11, war and high oil prices. In economics, confidence is a self-fulfilling proposition. You spend and invest because you think things are getting better, and presto, they do. If Germans spent half as much as Americans, the German economy would be booming.
Here German politicians are to blame. They have presented reforms to the voters entirely in terms of pain and sacrifice, heightening insecurity. Chancellor Gerhard Schröder's speech introducing his reforms was almost Churchillian in asking for blood, toil, tears and sweat. Merkel spoke in similar tones. A better model might be Ronald Reagan, who enacted tough measures while speaking of "morning in America." Or Franklin Roosevelt, who told his country at the worst moment of the Great Depression, "The only thing we have to fear is fear itself."
John Kornblum, a former U.S. ambassador to Germany, thinks Americans have also contributed to the problem. "We love to trash Germany. We sell more to it than virtually anyplace, buy more from it, invest more in it. It's been a friend for decades, a democracy that shares many of our basic goals around the world. Why do we keep telling them how bad things are, how pathetic they are? How does this help us?" How indeed.