President Obama Wants America to Be Like Germany—What Does That Really Mean?

Want a smarter workforce? A stronger manufacturing sector? Germany seems to offer a blueprint for Obama's middle-out economic agenda -- if we take away the right lessons

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Reuters

Americans have experienced a strong case of Germany Envy throughout the recession and slow recovery. In 2010, when the president pledged to double export growth in five years, policymakers looked to Germany for tips. In his latest State of the Union, the president plugged Germany, not only as a manufacturing powerhouse, but also as a standard for vocational training for young people.

The new liberal vision of a competitive economy built around a resurgent manufacturing sector and an educated middle class seems to ape what Germany does best. But how much do we really understand what makes the German economy a world-class leader?

It's true that, by U.S. standards, Germany has a model system for technical training of workers. The Land of Bismarck has fed its manufacturing machine with a steady supply of technicians, engineers and skilled workers through a superb apparatus of vocational training and technical apprenticeships. Companies work closely with regional technical schools, sometimes sponsoring programs to prepare the graduates so they are immediately job-ready.

But Germany's vocational training isn't top of the class by European standards. That prize goes to Denmark. Over four percent of Danish gross domestic product is spent on job training and support -- about the same percentage the U.S. spends on its military budget while allotting a mere 0.7 percent to job retraining and support. And Danes have job placement down to a quasi-science. Experts prepare what is known as a "bottleneck analysis," using pollsters to survey employers on what jobs they will need in coming years. The feedback is then used to identify the next labor shortages and to pick the correct training courses for individuals. One Danish jobs analyst said, "In our system, we can make supply and demand match," an impressive boast that shows a proactive government can help a flexible labor market.

THE SECRET SAUCE IS S.M.E.

Beyond vocational training, a huge factor in Germany's manufacturing and export success lies in its vibrant mittelstand -- those small and medium-size enterprises (SMEs) that form the backbone of the economy. Germany has a cornucopia of Fortune 500 companies that are manufacturing leaders -- global brand names like BMW, Siemens, ThyssenKrupp, Volkswagen, Daimler and BASF -- but what really sets Germany apart is its beehive of small and medium-size businesses.

About 99 percent of all German companies are SMEs, which are enterprises with annual sales of below EUR 50 million and a payroll with fewer than 500 workers. And around two-thirds of all German workers are employed in this sector. While that's the same as the EU average, it's higher than the United Kingdom (60% SMEs) and much higher than the U.S. (about 50%). While America's policy makers pay lip service to sound bites like "small business is the backbone of the American economy," Germany actually follows through with smart policy. The results speak for themselves.

While Germany's entire SME sector is impressive, its manufacturing SMEs are world-class. Nearly a third of Germany's SME workers are employed in the manufacturing sector, but those workers account for a disproportionate share of Germany's total exports, about 40 percent (compared to American SMEs which account for 31 percent of U.S. exports). Many enterprises have been run by the same family for decades, and companies are often handed down from generation to generation.

'KING OF NICHE MARKETS'

"America concentrates on the mass market and quantity, but Germany is king of niche markets," says Professor Bernd Venohr of Berlin's School of Economics. That entrepreneurial strategy has allowed these German companies to be manufacturing and export dynamos, providing developing nations like China and India with the high tech precision tools they need to become the mass production factories of the world.

A typical enterprise will focus on making a single, high quality product that is crucially needed by other industrial enterprises, and they are the best in the world at producing it. Many manufacturing SMEs have become world market leaders in their field, dominating the global market in an astonishing range of areas.

-- Tente specializes in heavy duty casters and wheels for industrial uses.

-- Würth is the leading industrial supplier of assembly and fastening materials worldwide.

-- Dorma makes doors and related accessories.

-- Rational makes ovens for professional kitchens.

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