Anyone who has seen the news anytime in the past few months knows that the USA isn’t the only place in the world with severe economic troubles right now. The Eurozone has been struggling with the near-collapse of many major economies within the EU, the most prominent ones being Greece, Ireland, Portugal, Spain and Italy (seems like having a nice coastline causes economic crisis). For years, there has been a push in America to be more “European” in our financial and social policies, however, with the recent economic crisis going on in Europe, that push seems to have died down a bit. Now anyone that suggests that America be more like Europe is met with criticism from those suggesting that the economies of the struggling European nations aren’t exactly the best model for our country.
This is, of course, rather selective. One needs to look no further than Germany to understand how America’s economic policies could have been better adapted to protect against the major financial crisis that we’re in.
The peak of Germany’s unemployment rate during this financial crisis came in August of 2009 and reached a rate of (hold on to your seats ladies and gents) 7.8%. In fact, the unemployment rate as of today is 6.1% and still declining. Germany’s unemployment rate at the moment is even better than it was BEFORE the crisis even began!
So what’s the secret to maintaining relatively low unemployment? As many people are well aware, Germany’s economy is heavily dependent on exports, especially in the area of manufacturing. This is where the idea of “Kurzarbeit” (German for ‘short-work’) comes in. During a recession, rather than laying off employees to cut costs during periods of reduced demand, companies enter into an agreement with the government where working hours are reduced for most or all employees. The government then pays these employees to make up for some of their lost income. This results in lower hiring and severance costs to the employer, reduced unemployment costs to the government, and sustained demand for goods and services.
Another issue lies within the manufacturing of the industries themselves. In order to stay competitive on a global scale, companies like BMW, Audi and Mercedes realize that they cannot compete on cost, especially given the low cost of labor in developing nations. They instead form their competitive advantages based on quality an customer satisfaction. Even with the strength of labor unions, high costs and standards of living, benefits and pay in Germany, companies still remain competitive because the products they produce are high quality and innovative.
In my personal opinion, I think that this is something the USA needs to focus more on. In this country we have some great engineers and some very innovative talent, but if we focus on all of our attention on competing with cheap labor in China, we’ll drive ourselves out of business. The USA should be competing with Germany on quality an innovation, not with China on price. As we transition from a manufacturing to a services economy, it becomes even more vital that American companies seek a way to diversify themselves and provide additional value to their customers all over the world.