The Germany That No Longer Works
How can Germany assert itself in the global economy?
July 6, 2004
Can Germany hold its own in the New World of a reconfigured Europe, an ascendant China and a 21st Century America? Is German economic decline exaggerated? Or inevitable?
The answer to the first two questions is "no." Unless it rapidly changes course, Germany cannot hold its own in the new world of a newly configured Europe, a rapacious China — and a flexible, highly adaptive American economy.
Germany's economic decline is, if anything, understated — rather than exaggerated. And the decline of Germany's economy and Germany's role in the world is all but inevitable unless dramatic reforms are taken soon. Very soon.
Germany cannot hold its own without a wholesale revamping — without reinventing its economy. I do not say any of this lightly. Throughout my career, I have always felt a special affinity and closeness to Germany.
This is the challenge of German political leadership, be it for Angela Merkel or Roland Koch of the opposition Christian Democrats or Wolfgang Clement (Social Democrats) or Joschka Fischer (Green Party) — or maybe perhaps even Horst Köhler, the new President.
I understand the German fear of "strong leadership." I know that the bogeyman of "der Führer" lives in many German closets. But, come on!
One hundred and thirty-three years after the Franco-Prussian War and the Treaty of Frankfurt, 86 years after Compiegne and 60 years after D-Day and the Nazi surrender in that little red schoolhouse in Reims, the meaning of what Helmut Kohl and Francois Mitterrand — building on the work of their predecessors — achieved is clear: There is no risk of war between the great Western European powers.
The likelihood of strong German leadership turning warlike and to territorial expansion is non-existent. The likelihood that continued poor leadership will lead to German ruin, however, is certain.
I understand that Germany has been impacted by the psychosis of defeat. It was defeated first by the Japanese in consumer electronics.
Then it was defeated by Intel and Microsoft and the technology giants of the United States, then by bankers from New York, London and Zurich — and now Germany is besieged by the Chinese.
For a while, the impressive accomplishment of the Wirtschaftswunder propelled Germany from the devastation of World War II to become the standard of the industrial age. It was a sort of alchemy created by a cooperative mixing of the government, industrial and labor sectors — yielding the gold of economic prosperity.
But we no longer live in an industrial age. That is now the province of lower-cost labor and technically capable people who have been liberated by the end of the Cold War.
Think of the eastern side of Europe at least up to the Urals, the emergence of the southern countries of Europe as they moved into the modern era of Europe, the implementation of the plans of Deng Xiaoping in China — and, now, in response to the successful example of China, the emergence of India.
This is the province of others who are building themselves up from the devastation of the Soviet domination or Communist misrule or simple bad management.
We have literally billions of people eager to improve their lot in life by becoming productive members of the global work force.
Labor in the ten new EU member countries is available for a fifth of the cost of German labor. Chinese labor is available for less than 5% — one twentieth — of the cost of German labor.
No amount of currency revaluation of the renminbi and no amount of foolish bluster about the need to raise taxes in Poland or Estonia or the Euro-acceding countries will make up for this reality.
With the end of the Cold War and with the entry into the global economic system of a whole new set of eager, hungry countries, ownership of the lowest value-added manufacturing processes has shifted elsewhere from the Old West.
Inevitably, these new competitors will creep up the value-added ladder, hollowing out the comparative advantage once held by the former leaders of the industrial age.
This means that not only must there be a change in "product mix" of the German economy, but that old methods of business and financial and labor organizations must also change.
It means that the mentality of government must change — and perhaps even its structure.
The massive changes required of Germany will be hard. It is always easier to choose a certain present over an uncertain future.
The beginning of the end of an old regime, of the old way, of business as usual, is always a troubled time. It requires new thinking, bold thinking. Transitions are full of pitfalls, of risk, of pain.
To succeed, Germany needs to stop hiding behind both the failures and the successes of its past. It needs to identify a leader or leaders who will take the kernels of promise that begin with Agenda 2010 — and truly make this the beginning of the end of a Germany that no longer delivers.
Make this the end of the beginning of reform. Get on with the real reform and a vital, renewed Germany that can lead Europe upward rather than downward.
It is time for Germany's leaders to be serious and discipline themselves. To stop talking and moaning about their predicament, to stop making convenient patchwork solutions to sustain themselves in office or position themselves for the next election.
They also need to stop feigning ignorance of the severe consequences of maintaining the status quo, to hope against hope, that exogenous forces (like last year's floods in the East) somehow will miraculously bail them out.
It is time to get on with making the changes necessary to save this great nation from economic and geopolitical mediocrity.
Standing up to George W. Bush will not create a single German job or secure the future of a single German child. "Standing up to America" will not determine Germany's future (other than possibly fueling support in the United States for an even more rapid withdrawal of U.S. troops).
Nor will seeking a permanent seat on the UN Security Council. Only bold reform of the domestic structures in Germany will do the job.
Today, Germany faces the kind of profound crisis of confidence the United States faced in the late 1970s. Just as the late Ronald Reagan moved the United States towards the vision of a brighter future, Germany's leaders need now to inspire the people of this great country by deeds, in addition to words.
So, come, be serious and discipline yourselves. For the sake of Europe, the Atlantic Alliance and of the world. For your sake. And ours. Get on with it. Now.
This Globalist Document is adapted from a speech that Ambassador Richard W. Fisher gave to the Atlantik-Brücke Annual Meeting on June 9, 2004.
President and CEO, Federal Reserve Bank of Dallas Richard W. Fisher assumed the office of president and CEO of the Federal Reserve Bank of Dallas on April 4, 2005. Mr. Fisher is former vice chairman of Kissinger McLarty Associates, a strategic advisory firm chaired by former Secretary of State Henry Kissinger. Richard Fisher began his […]