I agree with Paul Krugman that we can learn something from Germany:

 

Consider, for a moment, a tale of two countries. Both have suffered a severe recession and lost jobs as a result — but not on the same scale. In Country A, employment has fallen more than 5 percent, and the unemployment rate has more than doubled. In Country B, employment has fallen only half a percent, and unemployment is only slightly higher than it was before the crisis.

Don’t you think Country A might have something to learn from Country B?

This story isn’t hypothetical. Country A is the United States, where stocks are up, G.D.P. is rising, but the terrible employment situation just keeps getting worse. Country B is Germany, which took a hit to its G.D.P. when world trade collapsed, but has been remarkably successful at avoiding mass job losses. Germany’s jobs miracle hasn’t received much attention in this country — but it’s real, it’s striking, and it raises serious questions about whether the U.S. government is doing the right things to fight unemployment.

However, I think we probably disagree about what lessons should be learned. Dr. Krugman continues in his column by supporting German-style employment policies, central planning, and a WPA-type program.

I think that a somewhat broader look at the differences between the two countries might be enlightening:

  Germany United States Source
Population (in millions) 82 307 1
National language German None 1
Unemployment rate in 2006 11.7% 5.1% 2
Current unemployment rate 7.8% 10.2% 2,5
Per capita GDP $35,400 $46,900 1
Industry as percentage of GDP 30.1% 19.2% 1
Exports as proportion of GDP 51% 9% 1
Population growth rate -.05% .98% 1
Foreign population 8.9% 10.4% 3
Percentage of graduates by cohort from tertiary i.e. college programs 21.2 35.5 4

There are many, many more differences. For example, relatively few of Germany’s foreign population speak no German; many of our foreign population speak no English. Our foreign population is nearly half the size of Germany’s total population. We share a long land border with a country that has a per capita GDP 20% of our own; Germany does not. Our percentage of urban population, oddly, is higher than Germany’s and our area vastly larger. Consequently, there are enormous areas of the United States that are very sparsely populated, not the case in Germany.

We are significantly more diverse than Germany is in race, ethnicity, and nationality. In Germany there continue to be established churches in the sense that the state collects tithes from adherents and distributes them to churches based on adherents’ claiming affiliation with a particular church or sect. My experience in Germany was that Germany has a significantly stronger class system than we do.

In Germany it is very difficult for companies to shed employees. That has the perverse secondary effect of making German companies reluctant to add employees, particularly German employees since there are different requirements for terminating foreign employees than for terminating German ones. Germany’s relatively high level of social services takes a good deal of the sting out of unemployment, making it more palatable to remain unemployed. It was also my experience in Germany that Germans have different attitudes about conforming to rules than Americans typically do.

Note that with Germany’s negative population growth rate the unemployment rate will decline without adding jobs. Here we’ve got to add between 100,000 and 200,000 jobs per month to keep the unemployment rate from increasing even when economic times are good.

What should we learn from Germany? That we are over-educating our young people? How does that square with the rhetoric of the last three administrations, Republican and Democratic? That we should rely more on manufacturing and exporting than we do? I agree. That the same policy that works in manufacturing and export oriented Germany can be effective in the service and consumption oriented United States? I doubt it.

Looking at the enormous number of differences between the countries I don’t draw the same conclusion as Dr. Krugman does. I conclude that Germany and the United States are different countries and a prescription that is effective and deemed fair in one country might be neither effective nor seen as fair in the other.

Sources:

  1. CIA World Factbook
  2. Index Mundi
  3. NationMaster
  4. OECD report, “Education at a Glance 2008”
  5. Bureau of Labor Statistics

Dave Schuler, an independent businessman who has lived and worked in Germany, blogs at The Glittering Eye, where this essay previously appeared.

Germany