American exceptionalism, apparently, has its limits.
Of course, if you listened to the Republican presidential candidates’ debate this week, you’d conclude that the way to revive the economy generally and manufacturing particularly is simply to deregulate business and eliminate its taxes. (This is also the Republican remedy for measles and gout.) Throw in the defunding of the National Labor Relations Board, which Newt Gingrich advocated, and you’d get an economy that competed with Asia’s low-wage manufacturing regions. They’d pass us on their way up; we’d pass them on our way down.
Fortunately, that’s not the only economic model out there. For a growing number of economists, pundits and even the occasional CEO, Germany offers lessons in how an advanced economy can compete globally and actually raise, not lower, its living standards.
In a March paper for the Council on Foreign Relations, Nobel laureate economist Michael Spence and New York University researcher Sandile Hlatshwayo argue that Germany’s success at building a booming manufacturing sector that constitutes almost twice the share of the economy that ours does is largely the result of “a broad agreement among business, labor and government” to keep wages competitive and high-value-added production at home. Leslie Gelb, former president of the Council on Foreign Relations, also attributes Germany’s overwhelmingly positive trade balance and comparatively low unemployment rate (7 percent) to that tripartite system. David Leonhardt, the New York Times economics columnist, wrote last week that Germany owed its edge in global competitiveness to a range of policies that could not be more different than ours: limiting homeownership, improving education (including vocational and technical education) and keeping unions strong — which is why “middle-class pay,” he noted, “has risen at roughly the same rate as top incomes.”
This growing appreciation of the German model is a welcome change from the laissez-faire approach to globalization that has dominated U.S. policy and discourse for decades, dooming many Rust Belt denizens to lives of crystal meth and quiet desperation. But some of these analyses still understate the crucial distinctions between Germany’s stakeholder capitalism, which benefits the many, and our shareholder capitalism, which increasingly benefits only the few.
First, German manufacturers, particularly the midsize and small-scale ones that often dominate global markets in specialized products, don’t seek funding from capital markets (there’s a local banking sector that handles their needs) and don’t answer to shareholders. They make things, while we make deals, or trades, or swaps.
Second, the key to both the retention and the continual upscaling of manufacturing in Germany is the composition of corporate boards, which are required by law to have an equal number of management and employee representatives.
President Obama recently appointed a new council on jobs and competitiveness, chaired by General Electric chief Jeff Immelt. As reporter Jia Lynn Yang noted in Tuesday’s Post, the council includes the heads of multiple companies that, like GE, rely so heavily on offshore sales and production that they are increasingly decoupled from the U.S. economy. At a meeting with Obama on Monday, council members proposed some helpful but not-very-transformative ideas: more and better worker training and retrofitting programs, more streamlined permitting for business.
But if they take seriously their charge to create jobs and make us more competitive here in the States, they should recommend restructuring the boards of American corporations along German lines, as the German model of corporate decision-making is the most successful — and incomparably more successful than ours — at creating and sustaining a dynamic, competitive, high-wage manufacturing sector. Of course, this would require Immelt and his fellow CEOs to share their power with representatives of their employees, but who can doubt they’ll put their egos aside in the cause of a national economic renaissance?
Jeff, your country needs you. Gentlemen, duty calls.