Mittelstand at work: At family-owned builder Jaeger & Brommer, 19 employees make about one instrument a year Thorsten Futh
In German, die rote Laterne—the red lantern that hangs off the caboose of a train—is slang for last place. Less than a decade ago, Germans were wondering whether that was an apt description for their own dawdling nation. Germany produced top-quality technology but seemed held back by an aging, risk-averse population and a sclerotic business culture. In 2005, Germany's 10-year growth rate was half, and its unemployment rate more than double, that of the U.S. rate The Mittelstand—Germany's small and midsize manufacturers, often family-run—seemed like a relic of Europe's industrial past.
That has changed. Germany is now growing faster than the U.S. and has a lower jobless rate (7.6 percent in August vs. 9.6 percent). In the second quarter its economy bloomed at an annualized pace of 9 percent. On Sept. 16, the Federal Labor Agency's IAB research institute predicted that, despite a shrinking working-age population, Germany is set to have the highest number of people working since reunification. While the U.S. flirts with Japanese-style deflation, Germany's looming problem is worker shortages. "The German economy remains the showcase of the euro zone," Carsten Brzeski, an economist at ING Group (ING) in Brussels, says.
Germany is Europe's largest economy, with 82 million people and a €2.4 trillion ($3.23 trillion) gross domestic product, sprawling from the Rhine to the Oder—the hinge between the European Union's East and West.
Its newfound success was two decades in the making. Early on, in 1990, reunification opened the door for massive investment by German companies, mostly in the former East Germany. In 1999 the adoption of the euro, which overvalued the deutsche mark, forced German companies to cut costs and increase productivity to compete in the export market. More significantly, labor market measures begun in 2003 under Chancellor Gerhard Schröder made it easier to hire and fire workers, and Germany's Mittelstand have proved nimble competitors. In its achievement, Germany may serve as a model for other Western economies competing with emerging markets.
German corporations saw reunification as a chance to grow. It energized the nation's businesses, says Karl-Ludwig Kley, chief executive officer of Merck KgaA, a family-controlled drug and chemical company that shares historic roots with Merck (MRK). "Reunification has given the German economy a serious boost in terms of investment, entrepreneurship, and a sense of creating something new," he says.
Labor reform played an important role. In the early 1990s multinationals such as Siemens (SI) and Volkswagen coped with a global slump by brokering deals with unions that allowed them to opt out of collective wage agreements. In 1994 companies got out from under rules that limited temp workers' tenure to just six months, after which they had to become permanent workers with full benefits. Such deals, combined with the introduction of the euro in 1999, produced short-term costs for Germany but long-term benefits, allowing companies more flexibility in hiring.
It was a start. Germany still had a long way to go. By 2003, Chancellor Schröder—known as the "Basta Chancellor" for his uncompromising ways—had had enough. The economy was in another recession, unemployment was high, and the social welfare system was underfunded and close to collapse. Schröder, leader of a left-leaning coalition of the Social Democrats and the Green Party, threatened the trade unions: If they didn't voluntarily agree to new wage and hiring rules, he would make them into laws. This allowed companies to break onerous wage agreements. For their part, German labor unions gave up wage increases in return for job security.
Post a comment about this story in Reader Discussion…
Track and share business topics across the Web.
RSS Feed: Most Read Stories
RSS Feed: Most E-mailed Stories
RSS Feed: Most Discussed Stories
Buy a link now!
About Advertising EDGE Programs Reprints Terms of Use Disclaimer Privacy Notice Ethics Code Contact Us Site Map
©2010 Bloomberg L.P. All Rights Reserved.
Read Full Article »