Henry Kissinger, one of the most influential advisers of Richard M. Nixon, President of the United States (1969-74), was born in Germany. He was 18 years when he and his parents migrated to the United States and became an American citizen.
As an envoy of the American government, he was instrumental in several peace deals. He once said about his land of birth: “Germany is too big for Europe, too small for the world.”
Now, many people would say Germany is big enough for both Europe and the world. They would come to this view after picking up a copy of The Economist dated July 8 -14 2017 whose front cover is headed “The Germany problem”; preferably the heading should have been “The second Germany miracle”.
The Second World War left the German economy in ruins. The Germans did not just bear the destruction with fortitudes but with their reputed energy and ingenuity, they went ahead with Wiederaufbau reconstruction.
I was working in the Malawi Embassy in Bonn in 1966 when the world press was talking of the German Economic miracle. In a period of 20 years, Germany had achieved economic recovery and prosperity as no other industrial country had done.
That prosperity lasted until 1990 when a sharp decline started. Analysts give two explanations for the Germany’s decline to the extent of being dubbed the ‘sickman of Europe’. First was the reunification with East Germany which cost the west just too much and, secondly, the collapse of the economies of east Europe and Soviet Union, which deprived Germany of its traditional markets. Moreover, China was now a great competitor in international markets where Germany had been dominant.
In 2001, I was a member of the Food Agriculture Orgnisation team which went to Guatemala and Ecuador, South America, to study agricultural practices. There I met a man from Germany who had come on the same mission.
I said ‘gutemororgen’ good morning. He asked me if I had been to Germany and I told him I had been there at the time of the Germany miracle.
“But now things are very had, we no longer need guest workers because there is too much unemployment.
“For you Germans, the problem won’t last long. You are a nation of great achievers. Just as you rebuilt the economy after World War II, you will do the same.”
He made no further comment but looked grim.
In 2002, Chancellor (Prime Minister) Gerhard Schroder of the Social Democratic Party of Germany asked a commission chaired by Peter Hartz, an executive of Volkswagen, and including company bosses and union chiefs for a blueprint to tackle unemployment. The commission’s proposals which became part of a broad package of reforms known as Agenda were implemented in four stages.
“The Hartz reforms should take at least as much credit as pay restraint for the job recovery.” Michael Burder of the Humboldt University in Berlin told The Economist.
The reforms are still being celebrated by the Mittelstand Germany’s much admired association of medium seized mostly family-owned firms.
The economic success has taken the form of $300 billion current account surplus. During the past two decades or so, China has been having the highest foreign reserves but the Federal Republic of Germany has surprised the Peoples Republic of China by $100 billion. Such a country is not too small for the world.
What made this possible according to a study of Christian Dustann of University College London and his co-authors was a deeply rooted system of cooperation in industrial relations. Employees and unions in Germany cherish the idea of being in the same boat.
For example, unions are represented on company boards of directors and unions representatives are able to see for themselves that pay rises may hurt a company’s competitiveness. German workers prefer job security to pay rises. Therefore, they are willing to engage in wage restraint so as to make sure that imports from China do not destroy their jobs by being much cheaper.
Peter Befinger, one of the German Council of Economic Experts, which advises the government, believes there is a simple explanation of the German foreign reserves surplus.
“Pay restraint,” he says, “is a simple explanation, it is all about wages pay restraint, as practised not only in Germany but in other Euro area countries so as to claw back their competitiveness.”
German exports compete not only on price but also quality. The country’s talent for precision engineering meant that for decades it had an edge on luxury cars, chemicals and machines. Despite Japan’s success with its auto models, German’s Mercedes Benz remains the number one prestige car.
To ensure continued success, there is a high commitment to vocational training and to research in Germany. To stay ahead in the domestic and global market, German firms continuously plough back profits into innovation and skills.
The culture of any country has an impact on the state of the economy. Both employers and employees in Germany have a strong preference for industrial stability and peace. Wildcat strikes are rare. In their demands, unions tend to be moderate bearing in mind that if they make the employer insolvent, their members will lose jobs. In exchange of wage restraint, employers guarantee employees to security. During the 2007- 2008 economic depression, which visited Europe and America, in most countries, firms dismissed redundant employees. In Germany, firms kept them on the payroll till better time came back.
Other industrial countries complain that German surplus reserves are hurting their economies. They attribute the surplus to Germany’s prosperity to save rather than to spend. German is seen as not spending enough on imports, thereby forcing other countries to have current account deficits.
To appease those who register such complaint, Befinger at one time, argued in favour of faster wage rises in Germany instead of pay cuts in southern Europe. He was taken task by a union leader who reasoned that Germany would lose jobs to China as a consequence.
There are several lessons to learn from Germany. One is that the government there has a Council of Economic Experts. We should find out how the council operates. The annual jamborees that the Economics Association of Malawi holds by the lakeside have been ineffective in influencing government policies. A presidential economic adviser must be bolstered by a committee of experts on a regular basis.
When negotiating for wages, both employers and employees should be cognisant of how the rise might impact on the country’s exports competitiveness. Time and time again, we are told that Malawi must be an export country rather than importing and consuming one. But when we continually hike the minimum wages, this contributes to cost push inflation which is reflected in the prices of exports. Malawi’s exports will never become competitive if employers and employees do not, as they do in Germany, value wage restraint in exchange for job security.
Germany has a culture that Max Weber identified with the prostant ethic; hard work and frugality. Here in Malawi, we see people who earn enough to make ends meet staging strikes in the public sector or making threats if they are not paid more to access luxurious living.
When are we going to adopt the habits that have been behind the economic miracles of Germany and the Far East. There is a lot in the maxim fumbi ndiwe mwini; it is we, who should make the sacrifices if Malawi is to grow.
Donors can only give us a measure of support; we have to toil, sweat and live frugally.
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