The German economy and a ‘Sputnik moment’ for British jobs

On my way from Frankfurt to Davos, driving around the Alps. And ringing in my ears is the sound of British economic existentialism. What exactly is the point of the British economy? Clearly yesterday’s awful GDP figure is a starting point, and the snow-capped mountains are a vivid reminder of that horror.

But I’m struck by President Obama’s use of the notion of a “Sputnik moment” for America after Chinese children utterly outscored US children in recent tests, and the angst in the West around Amu Chua’s book on regimented Chinese style parenting of multitalented wunderkinds. The Sputnik moment is what Time refer to as “the humbling realisation that another country is pulling ahead in a contest we’d become used to winning”.

And yesterday, in Bavaria, I had such a moment in relation to Britain and Germany.

So we all know that Germany retained its manufacturing base. We know of the meticulous attention to precision engineering. But the price for that was a sclerotic labour market and high unemployment for those unable to get the plumb export jobs. Since I began studying economics at university, an axiom of European economics was that Germany had a structurally higher rate of unemployment than free market Britain. It was a law of modern economics. It gave this island comfort as we lost marquee national car manufacturers and Germany kept them.

Well that is now over. Forget it, it’s passed. Where just five years ago German unemployment, at 11.6 per cent was well over double Britain’s (4.6 per cent rate), now the tables have turned. Since May 2009 Germany has had less unemployment than Britain, and from my visit to Germany it seems like this is the new normal. Unemployment is 7.9 per cent in Britain and rising, and just 7.5 per cent and falling in Germany.

German ministers talk of being on the “expressway to full employment”. Employment is at a record. Germany is booming, just as Britain’s economy buckles under the weight of snow. (Worth noting that the German economy appears to have grown by 0.5 per cent in the same quarter that UK shrunk by 0.5 per cent, and yes Germany was paralysed by snow, and ran out of grit).

I’m going to call this the Bundesboom. Last year the German economy grew 4 per cent year on year, more than double the UK at 1.4 per cent. Yet inflation at 1.7 per cent, less than half that of Britain at 3.7 per cent.

But forget the numbers, what about the people? I was struck by meeting 17 year old Jens Zerkler, an apprentice at a forklift truck factory. He was genuinely delighted at his job in the Bavarian town of Aschaffenburg. He told me that “it was his dream” to work at the factory. Small surprise that the factory’s output is sold out and Germany finds a niche for itself selling premium forklift trucks in a market you might expect to have been snapped up by the Indians or Chinese.

Everywhere I went in Germany the talk was of the strength of the economy. It’s a stark contrast to the dark clouds from the eurozone periphery. But the structural change in Germany’s labour market and growth is remarkable. You could call it Der Uberholung, or The Overtaking. It arises from unpopular labour market and welfare reforms enacted by Gerhard Schroders government called Hartz IV (hartz-fier). This has helped to hold down German labour costs improve productivity, growth and employment.

The Coalition Government would no doubt say that analgous policies such as the Universal Credit could provide the same economic fillip. The Opposition could point to the public spending largesse from the German government that subsidised a million workers up to a third of their wages through the downturn, to leave the country in rude health to capture the benefits of the upturn from the East.

When ministers and central bankers warble on about “rebalancing the British economy”, I think they mean they would like Britain to magically morph into Germany. My sense from here is that “rebalancing” is not some organic natural process, but something that requires active state participation.

So far though…German growth is reaching ever higher heights…economists here openly talking of a new economic miracle in the heart of Old Europe…and the idea that Germany might reach full employment: unthinkable for decades.

A salutary lesson for the politicians trying to reshape Britain’s stalling economy.

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