US, Germany, and YOYOs vs WITTs

November 3rd, 2011 at 1:42 pm

I spoke this AM at an interesting meeting on economic differences between Germany and the US (sponsored by the Friedrich Ebert Foundation).  My focus was on manufacturing, an area where the German’s are much more explicit about their industrial policy than we are.

Some of that explicitness might map onto our policy agenda (i.e., if we ever regain sanity)—things like closer connection with the university R&D system and better technical training.  Much of it would be less likely here (high union density and close labor-management partnerships).

But here’s the thing I took from the discussion with German economists and policy analysts.  The way they think about the economy over there is just much more of a “we’re in this together” dynamic.  Their successful manufacturing story is, at root, a function of labor, management, and government working together, making necessary sacrifices and investments to benefit the broad spectrum of stakeholders (same re their broader strategy for dealing with the Great Recession).  In large firms, half of all the seats on the board are reserved for union reps; workers councils have an extensive say in production processes and decisions.

This picture is revealing.  It plots real GDP and employment for the US and Germany from 2007-2010 (hat tip, SC).  The folks at the meeting today described the lengths that German policy makers and employers went to on behalf of avoiding layoffs.  “Work sharing”—where all workers take hours reductions to avoid layoffs (and receive gov’t benefits to offset part of the wage loss)—was prominent in this regard.

Source: BLS

As you can see, the decline in real GDP was similar across our two countries—it’s the employment path that’s different.  The Germans traded away productivity to ensure that people kept their jobs.  Now that GDP’s rising again, firms are poised for expansion, having held onto their skilled workers.

I don’t want to overdo it—we’re different culturally, historically, and politically.  It’s wrong to think that their model can be imported, just as it was wrong in the 1990s to argue that our model should be exported.

But there’s something to learn here about the benefits of recognizing that at the end of the day, we really are in this together.  It’s got to be a WITT, not a YOYO, world.

(WITT: we’re in this together; YOYO: you’re on your own)

 

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17 comments in reply to "US, Germany, and YOYOs vs WITTs"

  1. jonathan says:

    Problem is admitting Germany has something to offer us is anathema on the right. Most of that is religiously influenced, though it often puts itself in the utterly simplistic and foolish guise of labeling everything else as “socialism”. Irony is this is not the history of the country. We used to pride ourselves on adaptation and common sense, on taking the best from whatever came our way. We are now highly dogmatic: no one can teach us anything.


  2. Chigliakus says:

    I could only find income Gini coefficients (45 US, 30 Germany) and I suspect wealth would be more telling. I think this difference in thinking is at least partially due to the reality that we’ve become an Oligarchy and unlike the Germans our governement no longer represents our interests, only the interests of the 1%.

    In large firms, half of all the seats on the board are reserved for union reps; workers councils have an extensive say in production processes and decisions.

    What magic is this? Looks like workers there didn’t lose the class war, or one was never waged against them to begin with.


  3. Gene Hollick says:

    I’m wondering to what degree the difference in the attitude is related to differences in the rate of weakining of the currency?


  4. urban legend says:

    Let’s let more people see what the Germans did and how they did it, and see how impossible it is to import the system. Rome wasn’t built in a day.


  5. Th says:

    We can pretend we are in a YOYO economy but we actually are in a WITT economy. Much damage can surely be done before this is realized by our leaders.


  6. Auros Harman says:

    And yet, for all of that, the German moneyed elite is still managing to do immense damage to their economy, by refusing to accept a mildly-higher inflation target (say, 5% Eurozone-wide, which maps to maybe 3% in Germany and 0% in places like Spain).


  7. perplexed says:

    Not only are WITT, but how we manage this has tremendous consequences for, well, just about everything of importance to a society: http://www.ted.com/talks/richard_wilkinson.html

    Maybe its just a coincidence and there is no causal link; that’s probably why you don’t see this mentioned in the “news shows.”


  8. AndrewBW says:

    A better way to say it than “You’re on You’re Own” is “Every Man for Himself.”


  9. Jill SH says:

    Another question for YAIA section:

    Since tax policy (ie cuts or expenditures) seems the preferred method of dealing with our economy by certain political actors, is it possible to create credits, deferments, whatever, for capital gains for investments made directly in manufacturing or other “hard” (employment-intensive) industries, as opposed to what I refer to as money-chasing-money investments that Wall Street engaged in and led to this mess? Might that be some kind of industrial policy?


  10. Bruce Ross says:

    “Work sharing”—where all workers take hours reductions to avoid layoffs (and receive gov’t benefits to offset part of the wage loss)—was prominent in this regard.

    —–

    I can’t speak for other states, but in California at least, it is not uncommon at all for factories to close one day a week or otherwise furlough employees. And the state does pay unemployment insurance for those missed days of work. Seems similar to the German system.


  11. davesnyd says:

    The central doctrine of capitalism is that each individual working for his or her own best interests is what guides the market or the economy.

    Is it in the companies owners’ best interest to work with labor? It may be good for the overall economy, but does doing so maximize their individual profits? What about management? What about venture capitalists? What about bankers? What about other members of the financial industry?

    If not, how do you make a similar system work in the US– especially given one party’s rabid insistence on economic libertarianism when it comes to cooperation between management and labor, how labor is treated, and how management is compensated?


    • perplexed says:

      Tie marginal tax rates and wealth and estate taxes to the Gini coefficients for income & wealth. We’ve got to align the interests of the wealthy to the interests of the rest of the country. When they pursue “investments” that benefit themselves without regard to the damage they inflict, their tax rates will rise and help offset the costs and the inequality that cause so much damage. This way they can choose their own tax rates by “investing” in things that benefit the country.

      We have to align the incentives with behaviors that are in our interests, not opposed to them.


      • davesnyd says:

        I believe you are correct in spirit but do not see how this can occur in practice.

        As long as the owners or management or consultants can see (or even claim, whether true or not) more profit from offshoring, eliminating benefits, fighting unions, replacing well compensated employees with outside minimally paid contractors, shutting down factories and switching to overseas imports, or the like– well, that’s where we’re at now.

        I’m torn. There’s part of me that wants to see these things reduced or eliminated. But I’m concerned about how governmental intrusion in the marketplace will make innovation more difficult and stifle growth. Yes, I know that sounds like a right wing statement.

        Perhaps a challenge for JB: can you paint us a map from “here” (employment insecurity and income inequality) to “there” (cooperation between management and labor that leads to rising GDP and a larger share of the pie for labor)?

        Keep in mind, an intransigent opposition that has no hesitation to prevaricate to protect their interests. And a populace brainwashed by a generation of supply side snakeoil salesman.


        • Jared Bernstein says:

          I’ll post something soon on that challenge…I’ve asked that mapping question of some labor experts and their answers were not encouraging.


        • perplexed says:

          It starts with the understanding that inequality itself is destructive to both our economy and our society and is a (maybe the) problem we need to solve. Watch this presentation by Wilkinson: http://www.ted.com/talks/richard_wilkinson.html & consider this from another post on the work of Wilkinson & Pickett: “There is a wonderful book on inequality called “The Spirit Level”, by Richard Wilkinson and Kate Pickett. The US is the most unequal society in the entire world, and also has the most health and social problems of any country. Right behind are the UK and Portugal. On the other hand, Japan, Norway, Sweden, and Finland are the most equal countries, and correspondingly have the least of those problems. There is a strong correlation here, deeply examined and researched by the authors. Japan achieves a more equal society by paying it’s workers very well, while the Scandinavian countries basically redistribute the wealth to everyone. We need to have the collective will to change things here…”

          Keynes pointed it out, other research supports it. If Economists had spent 1/4 as much time researching this question as they have on fine tuning monetary policy to avoid inflation over the last 70 years perhaps we’d understand the relationship more precisely. The study of Economics was originally a branch of the study of Moral Philosophy; separating the two seems to have allowed many of the most important questions to be relegated to the “back burner” in favor of sophisticated mathematical models that rely on assumptions that often don’t hold; the same problem Keynes tried to address with classical economics more than 70 years ago (only without the sophistitacted models).

          -“As long as the owners or management or consultants can see (or even claim, whether true or not) more profit from offshoring, eliminating benefits, fighting unions, replacing well compensated employees with outside minimally paid contractors, shutting down factories and switching to overseas imports, or the like…”

          If we focus on redistribution and setting tolerable limits for inequality, owners & managers can solve the problems in whatever way seems best; the tax rates will adjust to address the “inequality problems” they create and investors can feed this into their calculations when they decide where and what to invest in.

          Un-managed, laissez-faire capitalism has never worked anywhere; its a preposterous notion that should no longer be part of any intelligent discussion of what we need to do get out of this mess. Keynes and Marx both recognized that capitalism would likely self destruct if left to its own arbitrary outcomes; we are only having to “re-learn” this because denial of it benefits some very wealth, powerful interests. There are no “automatic” corrections; we need a government that manages the outcomes in the interests of all and Gini coefficients provide good, objective, easy to understand measurements that we can use measure our “management effectiveness” at controlling these damaging outcomes. Inequality effects everyone in this country; every tax policy proposed should be required to include a projection of the effects of the tax policy on the income and wealth inequality that results from it. This would have ended the discussions of 9-9-9 & Perry’s tax plan before they ever got started.

          I look forward to hearing what Jared and the other labor experts have to say about possible solutions. Its late in the game, we can longer allow the Republicans and their wealthy owners to control our discussions and what our options are. They haven’t bought everything; yet.


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