Germany leads the EU economy, thanks to its strong manufacturing base
The European Union is in economic crisis mode, with diplomats working round-the-clock to stave off a serious recession. Their big hope is for Germany to rescue the wider EU by acting as a "lender of last resort."
Germany has the assets to help because, despite a wider European slump, Germany's economy continues to thrive. Germany's success is due in part to the ongoing profitability of its industrial sector.
By specializing in manufacturing goods for export, Germany shares the same high positive trade balance profile as China. This has enabled the country to weather the current financial storm.
Why is Germany's manufacturing base succeeding? A number of reasons, including:
- Germany benefits tremendously from the low level of the Euro. This currency exchange rate aids in exporting to the U.S. and other industrialized nations.
- About 80% of Germany's manufacturing GDP comes from small- and mid-sized companies. Many of these companies are family-owned and provide niche, specialized products. One example: axle box housing for high-speed rail. Another example: one German company is the primary worldwide supplier of the twist-wire used to hold the corks of champagne bottles.
- Many of Germany's manufacturers access funding from municipal banks. The banks are local and specifically support neighboring employers. These banks are statutorily directed to assist local businesses.
- Many German businesses are privately held, and thus are not responsible to vast shareholders and market fluctuations. They can move nimbly and swiftly to respond to market conditions. German labor policy also directs that, during an economic slowdown, workers are shifted to smaller work weeks rather than being laid-off. Similarly, a percentage of wages are set aside during robust times to provide a cushion during lean times. This helps to keep a trained, specialized workforce in continual operation.
Simply put, Germany has identified and implemented the key steps it needs to maintain a successful industrial sector.
Unlike Germany, the United States lacks any real semblance of a manufacturing strategy. The U.S. has no concerted plan to address predatory trade from other countries or to focus investment on new areas of technology.
Manufacturing matters. It generates value-added income. It produces wealth and supports well-paying jobs. The Alliance for American Manufacturing (AAM) has repeatedly offered a key plan for U.S. manufacturing, one that would pull together efforts in these key areas.
Hopefully, the U.S. will learn from Germany's success and work to revitalize its manufacturing sector.
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