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America Can Take a Lesson From Germany

America Can Take a Lesson From Germany

By Scott N. Paul - June 19, 2013

Five summers ago, candidate Barack Obama stood before Berlin’s Victory Column and paid homage to America’s ties to Germany. “Look at Berlin,” he told the massive crowd, “where the determination of a people met the generosity of the Marshall Plan and created a German miracle.”

Today, Germany remains a model of resiliency, rebounding nimbly from the 2009 global recession that greeted Obama as he took office. Today, Germany’s unemployment rate is low, 5.4 percent, and its GDP is steadily climbing. Dubbed the sick man of Europe by The Economist in the 1990s, Germany has become the lender of last resort for debt-laden neighbors needing bailouts.

Its transformation was no miracle, though. By carefully following a national industrial strategy, Germany has been demonstrating President Obama’s first-term observation that a healthy economy successfully emphasizes both consumption and production.

Unfortunately, U.S. industrial policy has been adrift for the past decade and has overlooked Germany’s vital example. Instead, there are frequent pronouncements that regulatory red tape, expensive labor, and a restrictive energy policy are serious impediments to growth.

It should be incredibly instructive, however, that manufacturing is absolutely thriving in regulation-thick Germany. Despite strong unionization and a focus on green energy, manufacturing accounts for 23 percent of that nation’s GDP -- far more than the 12 percent share American manufacturing represents -- and German workers earn an average of $47 an hour, far eclipsing the $36 per hour of U.S. manufacturing counterparts.

With encouragement from its political leaders and financial institutions, the American economy has spent the last 15 years consuming and paying its way on credit. In sharp contrast, Germany has invested heavily in its ability to produce. It reworked its education system to guarantee manufacturers access to a skilled workforce through trade apprenticeship programs. It funded dozens of applied science research institutes that nurture advanced manufacturing projects. It assured access to funding for many small- and medium-sized manufacturing firms via municipal banks. And the German government works with its powerful national unions to identify smart capital investments and resolve workforce issues.

Berlin’s strategy is paying off. While the U.S. ran a $540 billion trade deficit last year, Germany hasn’t run a trade deficit in decades. Its 2012 surplus was the second highest since 1950. Roughly one-fourth of its workforce is now employed in manufacturing -- and with all of those workers earning high wages, Germany has guaranteed itself a healthy middle class with the spending power and savings to weather future recessions.

The good news is that the U.S. can emulate Germany’s economic model. By applying the ingenuity that made America the manufacturing envy of the world after World War II, we could re-create that success.

President Obama has intimated that he understands the value of such an approach. He made the promise of a domestic manufacturing renaissance a key part of his re-election campaign stump speech. He pledged to create 1 million new U.S. manufacturing jobs by the end of his second term (to offset the 5.5 million we’ve lost since 2000). He’s called for a network of manufacturing institutes, not unlike Germany’s, to nurture advanced manufacturing fields. And he’s set a goal of doubling U.S. exports by the end of 2014.

But since his second term commenced, manufacturing job creation has essentially flat-lined, our trade deficit hasn’t showed any meaningful sign of easing, and the proposed manufacturing institutes remain largely unfunded. The conventional wisdom -- that manufacturing is a dead-end in our new economy -- still holds sway in some policy circles.

During this week’s visit to Berlin, Obama will speak with the Brandenburg Gate as his backdrop. He will presumably recommit the United States to a new trade deal with the European Union that Chancellor Angela Merkel is very keen to sign.

But before making that commitment, the president would be well-advised to strengthen America’s manufacturing sector and make eliminating the U.S. trade deficit a top priority.

There’s nothing miraculous about Germany’s economic strength: While manufacturing employment and output have declined as a percentage of the economy both in Germany and in the U.S., few in the Bundestag see a future without it -- nor without the public policies that support it. When the president looks at Berlin this week, I hope he will consider what has set our two countries on such different economic paths. 

 

Scott Paul is president of the Alliance for American Manufacturing (AAM).

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