WASHINGTON — My summertime in Germany with family and friends gave me the warmth and many pleasures of the visitor. On the level of the economy, unfortunately, my visit provided me with the pains of the outside spectator who sees things unfold with the distinct impression that the prognosis is not good.
After having long been a symbol of economic progress, Germany has now had more than a decade of poor economic performance, and unemployment hovers above 10 percent. But the long decline has not yet led to enough learning to offer hopes for a better future. Here are some examples.
In Nuremberg, we went shopping in the area around the former imperial castle only to find much of it deserted by businesses — a sad sight for what used to be a central town square. We did find one store that carried some nice antiques, but the salesperson told us to come back later, after his lunch break. When asked why he didn’t want to make a sale, he explained that as a salaried employee he would not be affected by our purchase.
A lack of economic realism seems equally present on the level of professionals. Take DaimlerChrysler, the German multinational known for its cars. The firm just signed an agreement with its unions that has been hailed by many in Germany as the answer to the nation’s outsourcing challenge. In exchange for an expansion of the workweek from 35 to 40 hours at no extra pay, the corporation committed to no layoffs in Germany until 2012.
But this “breakthrough” only papers over the actual problem of decreased competitiveness. Automotive workers in Germany have unsustainable benefits: 35 days of vacation plus up to 10 paid local holidays, a five-minute break every hour and a special bonus paid to workers who start their shift after 12 noon. All this makes it hard to compete against other carmakers around the world. A few more hours a week are hardly enough to re-establish competitiveness.
And there are other concerns. The number of old people in Germany is rising rapidly, and people are living longer. Many baby boomers will soon join them in a retirement system that was designed to be generous and carefree. Funding for these benefits was to come from a new generation of dedicated Germans working productively.
But Germany’s birthrate is far below replacement levels and there are not enough young people paying taxes. Many young adults are unemployed, and those with children can’t find child care anywhere — sending a warning to others considering starting a family.
To reduce government expenditures many benefits are being cut — to the growing dismay of those who had counted on them. Expected government services are in the process of disappearing in a country where in the past an increase in beer prices at the Oktoberfest gave rise to riots.
In the Frankfurt area a recently formed consulting firm had all its business and personal bank accounts frozen by authorities wishing to gain a better understanding of what future taxes might be due if the firm were successful. It is mystifying why a government with a dire need to foster business innovation and creativity would take such an action.
Some observers have high hopes for a better German economy but offer little rationale for such hope. Take the crucial area of manufacturing. In the 1960s, Japan, Germany and the United States reached the zenith of their employment in that sector — which has declined ever since. In the U.S., the manufacturing sector has shrunk to about 14 percent of employment.
In Germany, the reduction has only been down to 22 percent. (For Japan it is about 20 percent). This means that the U.S. has already taken an adjustment “hit” that is yet to come for Germany.
The German economy has avoided deep pain so far. But pain is only a symptom for needed change. That need keeps growing — and postponed change will be more costly by the day.
Even though many Germans deplore “American economic conditions” due to their unpredictable flexibility, perhaps it is time for them to take heed and think of borrowing some lessons that have been shown to work.