How Geography Explains Economics For Germany and the U.S.


Is there a German word for the mix of confusion, envy and regret one feels when facing a lesser ally who's starting to look a superior? Because that word would be useful for describing the media's reaction to German Chancellor Angela Merkel's meeting with President Obama this week.

Across cable networks and mainstream newspapers, commentators asked: What can we learn from this juggernaut across the Atlantic, with lower unemployment, higher growth, and enviable manufacturing economy? We could talk about work sharing, health care cost sharing, and higher income sharing through greater taxation. All of these factors contribute to Germany's healthy economic growth, even as some of its neighbors are collapsing under debt crises. But I want to reach back. Way back. Let's talk about state lines and geography.

The United States is a 3.79 million square-mile country separated from the world's largest economies by two oceans, one on each side. Befitting a large, geographically isolated country, we have a rich and self-sufficient consumer culture. The American wallet is the most powerful component of the world economy. Americans earn lots of money, save very little of it, and spend the remainder on stuff we make or import. We make and import quite a lot.

At 137,847 square miles, Germany is a dense country the size of Montana with a population three times the size of Texas and an economy almost twice the size of California. Befitting a dense, thriving economy wedged between France, Scandinavia, and Eastern Europe, Germany's merchants aren't afraid to sell across country lines. Germany's notoriously high savings rate makes them even more dependent on demand from foreign companies and consumers.

"Smaller companies in the United States are satisfied with huge size of the North American continent and market," Dr. Tim H. Stuchtey, director of the Business & Economics Program at American Institute For Contemporary German Studies, told me. "I think the size of your home market makes small companies lazy about exports. "Since [Germany's] home market is not big enough, companies have to go abroad."

If you're a small manufacturer in Berlin, it's not a big deal to sell in Denmark. If you are a small company in Iowa, it is a big deal to sell in Japan. When I spoke with Mark Rice, the chief executive of a rudder manufacturing company in Baltimore, MD, for an article in the National Journal, he described to me the harrowing experience of competing for a bid in South Korea without help from an export agency to explain international business customs, licensing rules, and export law. For many U.S. manufacturers and service firms, selling outside the country is outside the business model.

Geography can shape culture and economics, but it is not destiny. The Rhine didn't force Germany to adopt work sharing. The Pacific Ocean doesn't prevent the U.S. from broadening its support and financing for exports. This is merely to point out that landscapes and state lines can have a surprising impact on the cultural and economic assumptions we take for granted.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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