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It happens every decade or so. Economic events align in such a way as to make the British economy look bad and the German economy look good. The last time this happened was in the wake of the Credit Crunch – when we experienced the deepest recession since the you-know-what, while German economic indicators held up remarkably well.

For many commentators this was final proof of the literal and moral bankruptcy of the Anglo-Saxon economic model and of the inherent superiority of Continental corporatism, as exemplified by our Teutonic cousins.

More than five years on, the anti-Anglo-Saxons have gone rather quiet. Obviously, we’ve had the first phase of the Eurozone crisis, which revealed that the banking system in Europe was every bit as dodgy as in Britain and America, if not more so. However, as Philippe Legrain explains in a brilliant article for the CapX website, there’s a whole lot more to Germany’s economic malaise:

“Germany also suffers from stagnant wages, broken banks, insufficient investment, poor productivity growth, dismal demography and sluggish growth. Merkel’s mercantilist growth model, which involves suppressing wages to subsidise exports, is beggaring Germans as well as their neighbours.”

Despite Britain’s massive exposure to the financial crisis of 2008, our cumulative growth since then has now nearly caught up with Germany’s – and our GDP continues to grow strongly, while German economy hovers on the brink of recession.

As for Germany’s future, that’s not looking too bright either:

“Businesses have stopped investing and so has the government. Investment has plunged from 22.3% of GDP to 17% in 2013: lower even than in Italy. After years of neglect, infrastructure is crumbling: highways, bridges over the Rhine, even the Kiel Canal, a crucial trade artery that connects the North Sea to the Baltic. The education system is flagging too: the number of its much-vaunted apprentices is at a post-reunification low, the country has fewer young graduates (29%) than Greece (34%), not to mention Britain (45%) and its top-rated university ranks 49th globally.”

The Vorsprung durch Technik image of the German economy induces an inferiority complex among the British – evoking a contrast between the global manufacturing powerhouse at the centre of Europe and a UK economy seemingly based on nothing more substantial than tax advice and boy bands.

But in analysing Germany’s exporting success, Legrain concludes that it isn’t based on dynamism – “it has simply cut costs’:

“Starting with a corporatist agreement between government, companies and unions, wages have been artificially held down. Thus while German workers’ productivity has advanced by 17.8% over the past 15 years, their pay has actually fallen (after inflation).”

The author reminds us that this is not how nations prosper in the long-run:

“…while a business owner may wish to minimise wage costs, for society as a whole wages are not costs to be minimised but benefits to be maximised, provided they are justified by productivity. Suppressing wages also harms the economy’s longer-term prospects, because it erodes incentives for workers to upgrade their skills and businesses to invest in going upmarket.”

Admittedly, wages have stagnated in our country too, but the point is that the solutions that British left-wingers propose are predicated on making Britain more like Germany – which is an obvious non-starter.

This doesn’t mean that our own economic, social and political model doesn’t need to change. Quite clearly it does, because it no longer delivers for ordinary working people.

But in finding our way forward, the last thing we need to do is impede progress with red tape, moribund state institutions and the deadweight of the Eurozone.

11 comments for: The German economic model? Nein danke!

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