Two Economies, Two Mind-Sets: Germany Gets It, France Doesn't

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By Steven Pearlstein
Friday, June 24, 2005

LYON, France

Behind the undeniable crisis in the European economy lies this important distinction: The Germans are better off than they fear, while the French are in worse shape than they smugly presume.

That's the top impression I take away from a whirlwind tour through factories, offices, universities and union halls in both countries this week.

The most recent statistics, of course, suggest the opposite. Germany's economy is barely growing while France's has been growing (barely) at 2 percent. But, as Rolf Kroker of Cologne's Institute of Business Research points out, what growth there is in Germany comes from a growing and competitive export sector, while France's growth comes from private consumption, with almost no contribution from exports.

Several factors are at work here, among them lower benefit costs, tamer inflation and higher productivity growth that, according to several executives, have noticeably improved Germany's competitiveness relative to other countries in the euro zone. And while hand-wringing Germans might be better off in the short run if they stopped saving so much and splurged on a sporty new Ford coming off the assembly line just outside Cologne, they are likely to be better off in the long run than the profligate French, many of whom believe their country can spend its way out of double-digit unemployment.

The industrialized world, as we know, is moving toward a service economy in which customer focus will be a key discriminator. Say what you will about the Germans, they take pride in providing efficient service and have built some of the world's most powerful brands.

In France, by contrast, you come away from encounters with the strong sense that it's all about producers rather than consumers, whether the consumers are visitors renting a car at the Lyon train station, or thousands of Lyon residents forced to pass up the annual music festival this week because of a transit strike. It tells you a lot that local airport authorities and Air France have made sure that low-cost airlines have made few inroads in France. Or consider that the great triumph of French marketing in recent years has been to persuade the rest of the world to get excited about drinking foul-tasting Beaujolais nouveau.

During the boom time of the late '90s, unions in both France and Germany pushed successfully to lower the workweek to 35 hours without any reduction in pay. Now that times are tough, German unions have given it up or bargained it away for job security. But in France, where class struggle seems to be hard-wired into the national psyche, preserving the 35-hour week has become the Maginot line for unions determined never to give anything back.

One of my favorite stories of the week comes from the French subsidiary of pharmaceutical industry supplier Becton Dickinson, located outside Grenoble, where employees who already had a 35-hour week won a further reduction, to 32 hours.

"This is, by a large amount, the highest-cost plant that we have," said Alexandre Conroy, president of BD Pharmaceutical Systems, which has similar facilities in the United States and Mexico. "But if I even brought up the subject of the workweek, I'd get a strike."

At the Lyon chamber of commerce, the new, young director general, Jean Martin Jaspers, outlined the city's aspirations to be a player in global markets and a center of biotech, venture capital and nanotechnology. Then, when he almost had me convinced there might indeed be a "new France," Jaspers announced confidently that Lyon would be a big winner when the French government announced its new industrial policy next month, designating the clusters deserving of government subsidies, encouragement and protections.

"We don't make the distinctions you do between government and markets," Jean-Paul Giraud, president of Grenoble's gas and electric utility, explained to me later that day.

But while France may not have broken free from its dirigiste roots, Germany is noticeably further along toward much-needed market reform.

"Things have changed dramatically in the last two years," said Martin Welcker, president of Alfred H. Schutte, a maker of complex tooling machines. Like many firms, his has negotiated reductions in Christmas and vacation pay, increases in hours and flexibility in layoff procedures that he says are the new reality of doing business in Germany. "The companies and workers are way ahead of the politicians."


© 2005 The Washington Post Company

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