In recession battle, Germany and China are winners

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    Jul 01, 2010 11:55 PM GMT
    "...

    Germany and China don't have a lot in common. Germany has a mature economy and is a stultifyingly stable democracy. China has a rising economy and remains disturbingly authoritarian. What sets them apart from the world's other major powers, purely and simply, is manufacturing. Their predominantly industrial economies meet their own needs and those of other nations, and have made them flourish while others flounder.

    This used to be true of United States, too. In 1960, manufacturing accounted for a quarter of our gross domestic product and employed 26 percent of the labor force. Today, manufacturing has shriveled to 11 percent of GDP and employs a kindred percentage of the workforce.

    For the past three decades, with few exceptions, America's CEOs, financiers, establishment economists and editorialists assured us that the transition from a manufacturing to a post-industrial economy was both inevitable and positive: American workers would move to more productive jobs, and the nation's financial security would only grow. But after rising steadily during the quarter-century following World War II, wages have stagnated since the manufacturing sector began to contract.

    Increasingly, it's our most productive jobs that are being offshored. Until 2001, the United States exported more advanced technology than it imported, but since then, as Clyde Prestowitz reports in "The Betrayal of American Prosperity," his persuasive new book on the need for an American industrial policy, we've been running annual high-tech deficits that reached $61 billion in 2008. Worse yet, as we lose manufacturing, which employed 63 percent of our scientists and engineers in 2007, we lose many of our most valuable professionals. Last year, reported Business Week, the number of employed scientists and engineers fell 6.3 percent while overall employment fell 4.1 percent.

    Most Americans, I suspect, believe we're losing manufacturing because we can't compete against cheap Chinese labor. But Germany has remained a manufacturing giant notwithstanding the rise of East Asia, making high-end products with a workforce that is more unionized and better paid than ours. German exports came to $1.1 trillion in 2009 -- roughly $125 billion more than we exported, though there are just 82 million Germans to our 310 million Americans. Germany's yearly trade balance went from a deficit of $6 billion in 1998 to a surplus of $267 billion in 2008 -- the same year the United States ran a trade deficit of $569 billion. Over those same 10 years, Germany's annual growth rate per capita exceeded ours.

    Germany has increased its edge in world-class manufacturing even as we have squandered ours because its model of capitalism is superior to our own. For one thing, its financial sector serves the larger economy, not just itself. The typical German company has a long-term relationship with a single bank -- and for the smaller manufacturers that are the backbone of the German economy, those relationships are likely with one of Germany's 431 savings banks, each of them a local institution with a municipally appointed board, that shun capital markets and invest their depositors' savings in upgrading local enterprises. By American banking standards, the savings banks are incredibly dull. But they didn't lose money in the financial panic of 2008 and have financed an industrial sector that makes ours look anemic by comparison.

    So even as Germany and China have been busily building, and selling us, high-speed trains, photovoltaic cells and lithium-ion batteries, we've spent the past decade, at the direction of our CEOs and bankers, shuttering 50,000 factories and springing credit-default swaps on an unsuspecting world. That's not to say our CEOs and bankers are conscious agents of foreign powers. But given what they've done to America, they might as well have been."

    http://www.washingtonpost.com/wp-dyn/content/article/2010/06/30/AR2010063004199.html?hpid=opinionsbox1
  • calibro

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    Jul 02, 2010 2:27 AM GMT
    if only there were a way to manufacture the american brand of crazy and export it...
  • jonhyboy

    Posts: 44

    Jul 02, 2010 2:52 AM GMT
    wow I'm impressed by Germany

    Thanks for the article, this is interesting
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    Jul 02, 2010 3:03 AM GMT
    jonhyboy saidwow I'm impressed by Germany

    Thanks for the article, this is interesting


    The culture of Germany honors those with an interest in manufacturing and engineering. They have a long term vision that includes high margin manufacturing.

    In the US on the on the other hand you are only as good as what you did for me last quarter. We have become a "quick buck at all costs" society. This has made us a debtor nation and we will pay for that.
  • bobcatman

    Posts: 37

    Jul 02, 2010 3:27 AM GMT
    tomk7 has it right, we only think about the last three months and about the next 6 months. Americans have become more superficial and only want whats in it for them and them alone. Asian cultures think more about the long term outlook 10 years in many cases. In America we had everything handed to us and we want it now. This is actually killing our country. everyone expects to have a BMW car in their 20s. They don't believe they should have to work for it anymore.

    At the same time, many other cultures value education more. Many Americans have just given up. did you know that China will graduate more engineers then we graduate college students. We are loosing the war in brain power and it will kill this country.
  • roadbikeRob

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    Jul 03, 2010 3:24 PM GMT
    It is greed and short term thinking that is killing the US. Also our country is very wasteful, we still don't recycle enough and our landfills are still expanding. Another thing that is killing this country is the suburban sprawl that gobles up farmland and environmentally sensitive areas. Instead of investing more money in existing cities and communities along with investments in education and technology, we instead blow billions of dollars on new infrastructure to accomodate new outer ring auto dependant suburban housing and commercial development just because a lot of the white upper and middle classes don't want to live and work with other types of people.
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    Jun 18, 2012 2:09 AM GMT
    Caslon19000 said"...
    Most Americans, I suspect, believe we're losing manufacturing because we can't compete against cheap Chinese labor. But Germany has remained a manufacturing giant notwithstanding the rise of East Asia, making high-end products with a workforce that is more unionized and better paid than ours. German exports came to $1.1 trillion in 2009 -- roughly $125 billion more than we exported, though there are just 82 million Germans to our 310 million Americans. Germany's yearly trade balance went from a deficit of $6 billion in 1998 to a surplus of $267 billion in 2008 -- the same year the United States ran a trade deficit of $569 billion. Over those same 10 years, Germany's annual growth rate per capita exceeded ours.


    http://www.washingtonpost.com/wp-dyn/content/article/2010/06/30/AR2010063004199.html?hpid=opinionsbox1


    Thank you.
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    Jun 18, 2012 2:31 AM GMT
    calibro saidif only there were a way to manufacture the american brand of crazy and export it...


    Thats would fix all the US economic woes icon_lol.gif
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    Jun 18, 2012 2:40 AM GMT
    What does this have to do with the price of rice in Chinaicon_exclaim.gificon_question.gificon_mad.gif

    Wait... EVERYTHING*icon_neutral.gificon_neutral.gificon_neutral.gif
  • allatonce

    Posts: 904

    Jun 18, 2012 2:42 AM GMT
    Canada hasn't done too bad either. But that has more to do with our natural resources than manufacturing in our case.
  • John6311

    Posts: 165

    Jun 18, 2012 2:46 AM GMT
    The problem with the American economy is the American consumer. They (we) are spoiled and want to pay nothing for stuff. We are willing to sacrifice quality for price and we consume and consume and consume. We don't give a shit about the environment and we don't want to pay any taxes to update our infrastructure or improve our well being. And we complain when gas is too expensive but we drive huge cars and don't walk or ride bikes.

    China has peaked. It's huge labor force is unwilling to work for cheap now and they lack creativity and entrepreneurship. Germany is stuck with all the problems of the European Union.

    My bets are on Brazil!
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    Jun 18, 2012 2:52 AM GMT
    Utterly incorrect. This ignores the complex play of monetary and other issues that have impacted trade balances between the US, China and Germany. If you'll note, Germany is part of a currency union that artificially depresses the value of an ersatz 'mark', while China continues to engage in currency controls and artificial pegs in order to retain an advantage.

    However contrary to your way of thinking, in fact it is the Germans and Chinese who have been short-sighted in this policy. As we are currently seeing - Germany is facing a multi-state sovereign debt default crisis and China is beginning to experience a downturn in the face of a massive asset bubble promulgated by its currency policies.

    I find this hilarious because if the author had any sense of historical perspective, he would realize that the same arguments were trotted out for Uncle Joe in the 50s. People would ooh and ah over the rapid increase in industrialization in Soviet Russia, and the American left would howl about how clearly a command economy worked better. However those gains were unsustainable, as we are now seeing them to be in China.

    As for the idea that Germany consistently grows faster than the US, you can quickly put the lie to that by noting that per capita GDP in the US is roughly 33% higher than in Germany. Germany's debt-to-GDP ratio is also higher than the US figure, so their recent fiscal restraint is newly discovered and largely a result of the Maastricht requirements. Oh, and those photovoltaic cells you want to praise? Germany is losing that battle to China, since polysilicon is much more cheaply produced in Asia and the government subsidies artificially supporting that immature technology have evaporated. Now the global photovoltaic industry is in a slump everywhere that isn't China - Solyndra is not the only victim, despite its high profile.

    Furthermore, were we to implement a flat tax with a negative income tax, as advocated by Milton Friedman, we would not be facing the same incentives for manufacturing to move abroad. I would also point to the obviously positive impact that economic liberalization has had on nations as diverse as Chile, China, India and Brazil. Yes, they may not be perfect, but it is the relative movement towards a freer economy that has created relative movement towards a wealthier society. This is, with hundreds of millions of the world's poor being lifted up, an incontrovertible fact at this point. The Washington Consensus works, and is the most powerful long-term solution - it just isn't the quick fix that Keynesian policy is.

    You can also look at fantastic examples of fiscal discipline like the Baltic states, despite Krugman essentially lying about their progress by presenting only dated data. Some of the controversy here:

    http://www.csmonitor.com/Business/Stefan-Karlsson/2012/0613/Correcting-Krugman-Setting-the-record-straight-on-Latvia-labor
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    Jun 18, 2012 3:01 AM GMT
    calibro saidif only there were a way to manufacture the american brand of crazy and export it...
    calibro is here... it makes it legit... well, at least look up to date. icon_neutral.gif
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    Jun 18, 2012 3:05 AM GMT
    roadbikeRob saidIt is greed and short term thinking that is killing the US. Also our country is very wasteful, we still don't recycle enough and our landfills are still expanding. Another thing that is killing this country is the suburban sprawl that gobles up farmland and environmentally sensitive areas. Instead of investing more money in existing cities and communities along with investments in education and technology, we instead blow billions of dollars on new infrastructure to accomodate new outer ring auto dependant suburban housing and commercial development just because a lot of the white upper and middle classes don't want to live and work with other types of people.
    Well said, but even sometimes we don't like to spend money on infrastructure.
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    Jun 18, 2012 3:14 AM GMT
    CrankyMcBadass saidYou all do realize that you're responding to a 2-year old thread and article. There has been a great deal of change in the economy and policies of Europe since this was written.


    But that's the best part, JP, because in retrospect this article is ridiculous. That fact should help people rethink the value of looking at economic policy from such a momentary and pecuniary perspective.
  • John6311

    Posts: 165

    Jun 18, 2012 3:23 AM GMT
    I try not to take anyone serious who mentions 'Berkeley' more than once in his profile. (get over it)
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    Jun 18, 2012 3:33 AM GMT
    John6311 saidI try not to take anyone serious [Principal0 Edit: seriously - adverbs are your friends; the word order is also off, possibly because you didn't attend 'Berkeley'] who mentions 'Berkeley' more than once in his profile. (get over it)


    Yes, that is a profound and interesting argument about economics. I feel enlightened already.
  • John6311

    Posts: 165

    Jun 18, 2012 3:37 AM GMT
    I would suggest getting a passport and travel a bit. You'll learn more about life and the world than any school or book could teach you.
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    Jun 18, 2012 3:43 AM GMT
    That's cute. So Rick Steves for Fed Chairman?

    http://en.wikipedia.org/wiki/Rick_Steves
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    Jun 19, 2012 2:27 AM GMT
    CrankyMcBadass saidYou all do realize that you're responding to a 2-year old thread and article. There has been a great deal of change in the economy and policies of Europe since this was written.


    Thank you.

    What would be the update? Is the US mfg sector doing better than those of Germany and China? Are US mfg unions doing better than Germany mfg unions?

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    Jun 19, 2012 2:38 AM GMT



    talk about a real estate bubble! China on many levels is all about facade and keeping face when in reality there are some serious problems. I have seen this for myself and its only a matter of time before this catches up with them.
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    Jun 19, 2012 2:53 AM GMT
    We'll see if China and Germany can maintain this over the longer term, given that both economies are heavily export-dependent and their markets are becoming poorer.

    The vast majority of German exports are to other members of the EU, many of which are now in crisis. A substantial portion of their export customers may therefore cut back and stop buying said goods. And as this continues, comparative labour costs may lead to some jobs being exported...
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    Jun 19, 2012 3:12 AM GMT
    pasfu31 said


    talk about a real estate bubble! China on many levels is all about facade and keeping face when in reality there are some serious problems. I have seen this for myself and its only a matter of time before this catches up with them.


    A long, long, time ago, I had a lot of respect and admiration for businesspeople. Business decisions like the ones featured in the video you posted are quite discouraging.

    That's all I can say at the moment.
  • jhill2456

    Posts: 285

    Jun 19, 2012 3:15 AM GMT
    roadbikeRob saidIt is greed and short term thinking that is killing the US. Also our country is very wasteful, we still don't recycle enough and our landfills are still expanding. Another thing that is killing this country is the suburban sprawl that gobles up farmland and environmentally sensitive areas. Instead of investing more money in existing cities and communities along with investments in education and technology, we instead blow billions of dollars on new infrastructure to accomodate new outer ring auto dependant suburban housing and commercial development just because a lot of the white upper and middle classes don't want to live and work with other types of people.


    To your point, Atlanta has a horrible traffic problem. Everyone complains about it. Atlanta has built out so much that there is no more room to build. So you have to take cars off the road. That means investing in public transportation. But there is a vast majority of people here that are against it because they will bring a certain element that is not wanted. So people continue to be miserable so they can stay with congruent people.
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    Jun 19, 2012 3:46 AM GMT
    allatonce saidCanada hasn't done too bad either. But that has more to do with our natural resources than manufacturing in our case.

    It's the same in Australia: the mining industry is absolutely booming here. Makes me wonder what'll happen to our "two-speed" economy once all our resources have been exhausted... this woman will probably be living on the Moon, in a palatial estate the size of Switzerland, by then. icon_evil.gif