To Europeans, America is a puzzling economic giant

In a wood-paneled room in a posh, members-only club near the Brandenburg Gate, dozens of tech entrepreneurs recently gathered to hear a pep talk from a British venture capital firm.

“Venture capital in Europe 10 years ago was underdeveloped. It was like being in no-man’s land,” said Roberto Bonanzinga, a partner at Balderton Capital, as he spoke to the eclectic mix of entrepreneurs, mostly male and young, many wearing sneakers, designer suits and hipster glasses.

But that has changed, Bonanzinga said. He now believes the next Facebook could emerge from Berlin, a magnet for artists, programmers and designers: “We really think there is something unique cooking here.”

Similar gatherings are happening all over Berlin, as well as Stockholm, Paris, Dublin and other European cities, because good old Europe is becoming a hot new place for startups.

The American tech industry is the world dominator, the clear leader in recruiting tech talent, creating wealth and developing products that change the way people live. Markus Witte, CEO of the Berlin-based language-education startup Babbel.com, said despite the exploding number of new businesses here, compared to Silicon Valley, Berlin is “still the Third World.”

But Europe, as well as Asia and Latin America, is offering ever stronger competition to the United States, even in its strongest sectors, such as Internet technology, aerospace and pharmaceuticals.

When it comes to manufacturing, workforce education and training and public infrastructure, many Europeans see the United States as downright weak.

In fact, many analysts here are puzzled as to why America is not paying more attention to its manufacturing base and its public infrastructure — roads, rails and airports that are critical to private investment and development.

While the United States has the most extensive freight rail network in the world, its passenger rail system lags behind many European and Asian countries. Along with forgoing the economic development that surrounds European train stations, many American cities have congested highways and roads that cost businesses and commuters time and money.

The World Economic Forum Report on Global Competitiveness for 2011-2012 ranks Switzerland as the most competitive country for its innovation, technological readiness and labor market efficiency. Sweden, Singapore and Finland also rank ahead of the United States, which slipped to fifth place.

The report lauds the United States for its innovation, a university system that collaborates with business for research and development, and a flexible labor market. But the report also points to deepening problems in the United States such as its national debt, mistrust between the business community and government and burdensome regulations that harm business and innovation.

Manufacturing woes

Europeans are impressed by America’s industrial prowess. It has not been forgotten that during World War II, the United States increased production by 96 percent, creating millions of jobs as it churned out bullets, bombs and tanks.

But despite recent gains in manufacturing employment, the overall trend in the past decade has been to increase manufacturing production with fewer workers. In 1961, 28 percent of U.S. jobs were in manufacturing; today, 9 percent are. In the past decade, American factories have lost about 4 million jobs.

American competitiveness has eroded since the 1980s, in conjunction with its slide in manufacturing.

Manufacturers produce more innovations, per capita, than non-manufacturing firms. Business and government officials in Germany, Switzerland, France and elsewhere in Europe see long-term domestic manufacturing as crucial to ongoing innovation.

Felix Oldenburg, the European director of Ashoka, a global network of social entrepreneurs, said that in Germany, the government does much to support engineers and entrepreneurs in public-private training programs. “Nearly every invention in Germany in the last 120 years has been built by government or through platforms built by the government,” he said, noting that the wind and solar power industries grew out of such an alliance.

A focus on quality and people

During the financial crisis, Germany had fewer layoffs and lower total unemployment than the United States. Many attribute that partly to a government and union policy called “Kurzarbeit” – or short-time work week, which allows firms to temporarily reduce working hours while the government funds some of the difference in the income and benefits that workers lose.

Nearly 1.5 million German workers made use of the short-time work program according to the Federal Employment Agency, preventing nearly 400,000 layoffs, and helping to hold national unemployment to 5.5 percent.

Olaf Wortmann, an expert on business cycles at Germany’s association of mechanical engineers, points to the “dual-education” system that has employees work at a company while also attending specialized classes at schools.

There is growing discussion about the need to expand similar programs that have sprung up in the United States and to cluster factories and universities in new innovation zones.

The famed “Mittelstand” companies — small and medium-sized companies in Germany, Austria, and Switzerland that make everything from office cubicles to machine parts — are known for high-quality exports, highly trained workers, and a focus on long-term success. They are the engine of Germany’s economy as much or more than large firms such as Daimler, Siemens and BMW are.

Germans remember that in Britain a century or so ago, the “Made in Germany” label on products was disparaged, emphasized as a way to get British consumers to buy British goods. Today the “Made in Germany” label has become a badge of excellence.

Many business experts here suggest China is on a similar trajectory. They believe the most populous nation in the world will only get more competitive.

The view in Germany is that the winners in manufacturing will have invested in education and workforce training.

President Obama’s recent Jobs Council report notes that the United States ranks 16th internationally for the number of 25- to 34-year-olds with college degrees. And only 15 percent of U.S. college graduates go into scientific and technical disciplines, compared with 23 percent in the Group of 7 countries and 39 percent in China.

Stuttgart vs. Detroit

Detroit, America’s “Motor City,” is roughly the same size as Stuttgart, Germany’s “Cradle of the Automobile.” But Stuttgart’s unemployment rate, at about 5 percent, is about half that of Detroit.

Stuttgart was bombed during World War II and rebuilt into a thriving metropolis. In Detroit, there is much talk about a renaissance.

When asked about Stuttgart’s strategy and how it might relate to Detroit, Veit Haug, director of the Stuttgart Region Economic Development Corp., said, “Don’t stick to old paradigms. . . .The important thing is to put money in research and generate new ideas.”

Stuttgart diversified its economy into businesses besides autos, with many mid-size, family-owned companies manufacturing products such as electric-powered bikes and power tools. Companies in the Stuttgart region pour the equivalent of 6 percent of gross domestic product back into research and development, higher than the national average.

Haug keeps a locally invented, battery-powered Elmoto electric bike in the garage of his office. He hops on it wearing a suit, zipping around concrete poles and showing off how well it maneuvers. “We try to foster innovation and new business models,” he said, including a special push to create better fuel cells to power electric cars and electric bikes.

Haug and others in Stuttgart are aware of the emphasis in Detroit on ramping up research and development for advanced batteries. The United States aims to make 40 percent of the world’s lithium-ion batteries by 2015, up from 2 percent in 2009, and President Obama has put stimulus funds behind that effort.

Peter Cornelius, an economist with AlpInvest Partners in Amsterdam and former chief economist at the World Economic Forum’s Global Competitiveness Program, said the U.S. economy has its problems, but “a key strength is its extremely high innovative capacity.”

Glader, who is based in Berlin, is a frequent contributor to The Post. He is managing editor of the web site www.WiredAcademic.com,  which follows education innovation.

 
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