Ahhh Germany.
It’s the place where BMW, Ramstein, and FKK (nudist) culture, and BMW cars were born.
Nevertheless, Germany has something even more important than all of that and that is that
it is the world’s ultimate factory.
Yep, you heard that right… and I know what you are thinking…
“Isn’t China the country where TV screens, mobile phones and, practically, every good
we buy is made?”
Well, that’s not entirely true.
Now, of course, China does lead the charge when it comes to exports.
But…
do you know what?
In order to manufacture all those products, they need to import a lot of things from abroad.
Germany, instead, sells way more that what it buys.
In fact, 1 of every 10 products sold on the international market is made in this country
which has a population 15 times smaller than China.
Yes, we all know those big car companies: BMW, Audi or VOLKSWAGEN…
But there is way more than that!
Don’t you believe me?
Well, consider you mobile phone.
Sure, I know it says right there ‘Assembled in the People’s Republic of China’ or
something similar.
But, and I’m not recommending this, but if you did open it up you are going to find
a lot of microchips…
As an example here , the little chip that makes your screen rotate when you move the
phone is made, most likely, by a German company called BOSCH SENSORTECH.
But not only that!
Many of the robots used inside these Chinese factories assembling the phones are probably
made in Germany.
In other words, in Germany, they manufacture the things that go inside of the things manufactured
by others.
And now you might be wondering…
How is that possible?
Factories should be built in places with cheap labour costs, right?
I mean how is that possible that Germany, with relatively high salaries, is such an
industrial powerhouse?
Well, today, we are going to answer that question.
But before we do, let’s take a look back at history...
ORDOLIBERALISM
After World War II, Europe was pretty darn destroyed.
Countries like Italy, France and Western Germany (which was the capitalist side of Germany),
got a massive money grant from their beloved friend, Uncle Sam.
But wait a minute because each of those countries used that money in really different ways!
The French president, for instance, was this guy you see on the screen.
General Charles de Gaulle.
De Gaulle came from the military and was no friend of private companies.
His political creed, the so-called DIRIGISME, was about nationalizing big businesses and
leading the whole country’s economy as if it was an army!
In Western Germany they choose a different path...
Both the Chancellor KONRAD ADENAUER and his finance minister, LUDWIG ERHARD, spent years
thinking about their own economic system.
A mixture between the competition of free market capitalism and the safety net provided
by the government.
Then they decided to give this system the worst name ever...
They called it ORDOLIBERALISM or SOCIAL MARKET ECONOMY.
“Competition is the most promising means to achieve and secure prosperity”—Ludwig
Erhard
In other words…
While De Gaulle centralized the economy in Paris, Konrad Adenauer designed a system where
the government would put into place a set of conditions, but the other players would
make their own decisions.
This explains why in Germany, trade unions, regional governments and, of course, companies,
are so important.
And now you might be wondering…
What are the keys for that system to work?
And has it really worked out?
Well let’s get right into that.
AN STABLE CURRENCY
I’m pretty sure you’ve heard at some point some economist saying that devaluing a currency
boosts exports, right?
For instance, imagine we have a shoe manufacturing facility in Mexico and we want to sell a pair
of shoes to the American market.
Let’s say, the price for those shoes is 2000 Mexican Pesos.
At the time we are making this video those 200 pesos equal to 110 USD.
But let’s say that, all of a sudden, the Mexican Central Bank decides to print money
and, therefore, devalue its currency.
From one day to the next, that pair of shoes could be worth 90 USD.
Therefore, it would be easier to sell it abroad.
This is a theory supported by most governments today.
Nevertheless, the German Government did exactly the opposite.
During the second half of the 20th century the GERMAN MARK became one of the most stable
currency on the planet.
And this might lead you to wonder…
How is it possible that Germany could export so much when their products are not that cheap?
Well… let’s get back to the shoes example.
But this time I’m going to tell you the story of a real company.
This is a company from the North of Germany and it’s called DESMA.
It is a SME with around 200 staff.
They started out right after the war in 1946, and they specialized in making machines for
shoe manufacturing.
In order to do this, they needed to import lots of machines from the United States.
Thanks to having a stable currency, the price for importing those machines was relatively
low.
They decided to rent a facility - at the end of the day, since there was no inflation,
rents would not go up, and they could calculate the future cost reliably.
But not only that!
Since German companies couldn’t offer lower prices, DESMA had to innovate.
In 1960, they invested in state of the art technologies to manufacture rubber-made soles.
Ten years later, DESMA was the world leader in machines to make PVC soles.
It’s likely that the sole of the shoes you are wearing today was made with a DESMA machine.
This company, with 200 staff, sells to every country in the world...
including China.
And this is just one example of the thousands of small and medium sized companies, the so-called
MITTELSTAND, that made up Germany.
And yes, I know, I know...
In 2002, the Germans abandoned the Mark and adopted the EURO as their currency.
But think about it… while other countries like Spain were using weaker currencies before,
Germany had had a strong currency for decades.
That means, that in 2002, German companies were already more competitive than anyone
else’s.
But hold on a minute because there are many other things that can explain the success
of the German model, so let’s dig into those now.
THE EDUCATIONAL SYSTEM
I know what you are going to say now…
Come on, Simon!
Germany isn’t really famous for its educational system!
Just check out the PISA report...
Germany is not even in the top 10!
But then again, German students can find a job right after they finish their studies.
So, why is this?
Well, the the answer is in their vocational training system.
Let’s imagine that you are high school student in Germany and you don’t want to go to university.
So instead you study to become a plumber.
Well… from the first moment, you are already working for a company which has an arrangement
with the school.
This means, from Monday to Wednesday, you go to a classroom and from Thursday to Friday,
you go the company’s workshop.
There, you would be trained by the experience plumbers and you would even get a small salary
of between 300 or 500 dollars a month.
And this salary is pretty important...
The simple fact that the company is paying means the employer has to make the students
work.
Otherwise, the firm will be throwing money away...
And the outcome of this is that German students know how it is to be in a real life working
environment.
In fact, many of them remain in the company where they did their training.
And, of course, those German firms, in exchange, get well trained workers.
And now that we are talking about workers, let’s talk about another key piece on the
German system...
GERMAN TRADE UNIONS
In other countries like France or Spain, most of the labour laws are made by parliament.
But not so in Germany.
Until 2015, Germans didn’t even have a minimum wage...
Salaries were negotiated by trade unions and employers.
In Germany, syndicates are extremely important.
Actually, those big companies like AUDI or BMW, with more than 2000 workers, are required
to have union representatives on their administrative board.
Consider this: Siemens has 10 shareholder representatives on their board and, therefore,
they must have 10 people representing the workers!
Remember this one because it makes a big difference!
In Spain, for instance, a big company like TELEFONICA has no trade union representatives
on their board of administration.
Trade unions can only participate in another body called the “company council”.
And they can only speak about matters that affect salaries or working conditions.
By contrast, in Germany, trade unions have a voice on every decision the company makes.
When SIEMENS wants to start operating in a new market, or launch a new product, they
have to ask the shareholders…
and the trade unions.
And now you might be wondering…
Is this just bad news for the companies?
We pretty much take for granted that unions are the enemy of a company, right?
Well, it doesn’t have to be that way...
Think about it.
Thanks to this set up, SIEMENS and BMW workers know whether if the company is making or losing
money.
And, of course, when things are going bad for the company, they can make compromises,
like reducing their working hours instead of being fired.
“Opel to cut working hours at German facilities”
This explains why during the financial crisis of 2008, German companies didn’t fire a
large number of people.
And this is good for the workers and the company.
But wait a minute because I know what you are thinking!
Those German trade unions are collaborating with big capitalists in order to exploit the
workers!
Right?
Well… the answer there is certainly NO.
The reality is that average wage in Germany is around $3,400 dollars a month.
That’s higher than the state of New York!
And that’s in a country with a pretty affordable cost of living.
A flat in Berlin is half the price of a flat in New York City.
And despite all of this Germany maintains its position as the third biggest country
when it comes to exports.
So now the question is…
Do you believe your country could benefit from the German model?
Or perhaps you think these policies are impossible to implement elsewhere?
Please, leave your answers on the comment section below!
Meanwhile, if you want to know another youtube channel that covers geopolitics, you can check
out CASPIAN REPORT.
Great channel.
Link in the description.
And of course, don’t forget to visit our friends at the Reconsider media podcast.
They provided the vocals on this video that are not mine.
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