The once “strong tiger” of the German economy might be crumbling. For decades, the Made in Germany strategy pursued by successive governments suggested high quality goods worth paying for. Systemic faultlines, structural conservatism and policies of privatisation have created new lines of conflict domestically. Why this is bad also for the rest of Europe and the world explains Professor Peter Herrmann.

Introduction

In particular three features need to highlighted in order to gain some insight into the so-called success of the German superpower – and its likely demise:

• The export dominance
• The ongoing regional imbalance
• The lack of infrastructure investment/development

Export champion

Germany, in some respect typical of a large economy due what may be seen as national economies of scale, is economically an export-oriented nation. This is natural as far as size matters and the immediate access to a market is securing the supply with relevant items and a sufficiently high demand. However, the German ‘model’ is not based on the idea of such single (national) market. On the contrary, it explicitly risks dependency in two respects: a dependency on the development of economies that represent Germany’s key markets; and an acceptance of the lowering of living conditions of German citizens.

It can be seen as positive feature that of the 15 to 20 suppliers of the entire car manufacturing industry only three of German origin. This suggests that German car manufacturers – although Audi, BMW, Mercedes Benz and Volkswagen are major players on the global stage – do not have the all-domineering role one might expect. However, reading the situation in terms of the dependence of Germany’s economic fortunes on a small set of export industries and firms suggests something else. The problem with all this could be seen in the recent weeks: due to the return of recession on a global level the German economy is also slowing down, already seen by some as a new crisis. In any case forecasts from the government, advisory institutes and also the banks have been ‘corrected’.

National repercussions

The dependence of Germany’s export-oriented strategy on other economies is one side; the pressure on the national labour market and also working conditions is another matter of concern. Without doubt it is justified to criticise the German governments for what is commonly termed austerity politics. Writing this way emphasises that in Germany relevant measures are always a matter for the central government but also of Laendersache (meaning to be dealt with by the regional governments) and even the municipalities. While there are surely advantages of decentralisation, the German federalist system is well suited to serve as veiling switchyard. Not least the in terms of redistribution taxes and spending.

In actual fact it is in some respect true if politicians in Germany suggest they face a catch-22 situation: they are not attractive because of the need for investment in certain areas e.g. traffic, social provisions, education and culture but relevant legislation is the remit of the central government and in other areas they simply lack the financial means. To obtain the latter in order to fulfil the obligatory tasks or to take up voluntary additional tasks they depend on a transfer from (enterprises and private persons) who reside elsewhere. Indeed, there are a range of special policy measures that help to overcome this dilemma: there is a mechanism that aims at dealing with the regional imbalances (equalisation funds tackling imbalances between the Laender/ Laenderfinanzausgleich); still in place is a Solidaritaetszuschlag (solidarity tax), a special tax introduced in 1995 and paid directly to the federal government to used for special investment in the area of the former GDR.

However, there is only a very slow move towards using these resources given the fundamental shift that is required: ‘the East’ remains underdeveloped with the usual consequences of migration and, even worse, the political shift of people to the extreme right.

Structural conservatism

It seems to follow from here that the German industry and industrial policy is stuck in a traditional economic framework. While there is no reason to deny the successes of an overall modernisation, it remains particularistic. Bosch, a producer in the area of electrical engineering, seems to provide a symptomatic example of this. Whereas the company is a world leading supplier of parts for new industries such as those responsible for self-driving vehicles, German car manufacturers are lacking the expertise in the area even of e-mobility, lagging behind the success in other countries reluctant to fundamentally reshape their business models towards a genuine openness to new methods.

One likely reason behind this can be seen in the fact of traditional enterprise structures: large mammoth enterprises, even if noted as significant players in stock-exchange terms, are run as family businesses. One example is the Quandt-family, being one of the most influential and wealthy families and heading in a rather conservative style the car manufacturer BMW. Another example the Mohn-family, which controls a number of the media giants and allies with the Bertelsmann-Foundation openly on the political stage.

Recent attempts to push through innovative strategies, aiming on fostering industry 4.0, work 4.0, the digital industries etc. have been confronted with these conservative structures. Up to a certain point this conservatism had been reinforced by a strong social partnership model. Many things can be said against the partnership model, while one has to admit that it helped provided the basis for a relatively high standard of living standards and protections for workers. However, this partnership model is increasingly coming under question due to a growing number of enterprises stepping away from the negotiating table, many leaving the negotiating room entirely. This has exposed the weak protections afforded by individualised contracts on the one hand, the hollowing out of relevant legislation (employment law, working conditions, social protection).

Thus there is a resulting constellation with the following dimensions:

1. Dominance of family-parochial conservatism in the entire economy, with the majority of the leading DAX (German stock exchange) enterprises going back to the 1870s – see here and here;
2. The claim of a successful, high quality Made in Germany strategy is still maintained despite the deteriorating conditions;
3. While collective agreements with a high level of employment standards and social protection had been part of the so-called Rheinian Model, the quality claim could now be turned around, the personalisation of contractual relationships, including personalisation of risk, are now been highlighted;
4. These factors have led to precarisation, expressed by a relatively high number of working poor, persons depending on multiple incomes and those working in so-called ‘mini-jobs’ (the income being below the threshold of taxability);
5. Finally this underlines the export dependency of the German economy, particularly as domestic income and demand are too low to allow sufficient spending that would compensate. This can be seen with the mushrooming of ‘One-Euro-Shops’ and various forms of bargain stores, whose workers are getting at most the minimum wage – and often not even that as many of these jobs are below taxability.

Privatisation

Finally, it is worthwhile to add that privatisation – one may see it part of an EU-induced secular development – has led to most dramatic consequences in the areas of housing/accommodation and health. In the first area the low level of homeownership and corresponding high level of provision was to some extent due to the strong position of co-operatives: one pillar had been the traditional trade-union co-ops, another strong pillar had been co-ops run by state enterprises as the Deutsche Bundesbahn (which has itself since been privatised). In addition, several small housing co-operatives have to be mentioned. The latter still do exist whereas the large coops have in one way or another been victims of the pressures of privatisation and marketisation.

Another strong pillar behind the non-ownership approach can be seen in a relatively large sector of public ‘social housing’. The crumbling away of these two pillars has been accelerated and deepened since 2007/2008 crash, accompanied by increasing pressure on income and aggravated by the fact of the accumulated power of some ‘developers’ and speculative housing societies. The results of this is a more and more acute accommodation crisis. The consequences cannot be discussed here, but they go far beyond homelessness, encompassing economically negative migratory movements.

The health sector is hugely under stress, and of special interest are three interrelated actors:

• the emergence of a two-tier health system with a widening gap between the private and public sector (while health insurance is in Germany obligatory, the different modes are resulting in huge qualitative differences);
• employment and working conditions (including income) across the public sector, making work unattractive for nationals while still attracting low paid migrant workers;
• the search for some treatment in other countries – in particular dental treatment but as well others, also in order to avoid long waiting lists.

With the further Europeanisation and globalisation of such trends a further culmination of these problems may be expected, most likely with negative structural effects especially in those countries that have relatively advanced systems in place.

Poor Europe resulting from impoverishing Germany? Some conclusions

“… but I would not start from here” – only if one has a choice there is some sense in saying so. However, while the once ‘small Germany’ had been the strong Germany, the larger Germany is becoming more and more a weak Germany. It is characterised by the following key features:

• the maintenance of an export orientation at all cost, not least the cost of impoverishing large and different social groups, with precarity moving into ‘the middle of society’;
• the lack of a sustainable developmental orientation, which would also require a holistic approach; and
• and a lack of clarity about what ‘industrial’ policies mean today while we find beyond this a general reluctance of the state to actively intervene the latter, evidenced in the current discussion about fiscal discipline, a financial stimulus and the reluctance to use it.

In consequence – and this is especially meaningful in respect of the geopolitical perspective globally and within the EU – the ‘strong tiger’, aggressively defending himself against fellows, is now weakened. The danger is increasing aggressiveness at the external borders (the case towards Greece can be seen as foretaste) and the acceptance of a poisonous internal therapy, destroying essential ‘body-parts’ such as the hitherto pacifying system of social partnership, the contented middle-class and the string and ‘skeleton’ of a well-established social (security) system.

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Professor Peter Herrmann is a social philosopher of German origin who has held several positions in academic institutions across Europe and China. From 2015 to 2017 he worked as Professor for Economics at Bangor College of Central South University of Forestry & Technology, ChangSha, PRC, and as Senior Foreign Expert in the School of Public Affairs, Dept. of Social Security and Risk Management, Zhejiang University, HangZhou. In September 2017 he commenced a one-year research position at the Max Planck Institute for Social Law and Social Policy in Munich, Bavaria, from where he changed in October 2018 to the Faculty of Economics and Sociology at the University of Lodz in Poland. Since November 2013 he has also been a Visiting Scholar at the Department of Chinese Studies at NUI Maynooth, Ireland.