Fareed Zakaria on Why Germany is Booming

Fareed Zakaria tried to explain why Germany is booming and the US is not. (Krugman claims that Germany is not booming yet.) Only two of the reasons he mentioned are significant. While the US manufacturing sector has shrunk to a raisin size, Germany maintained its manufacturing. The reasons are that the US has built up the myth that the future economy will be information as product. In that case, there is no urgent need to keep the "old" industries and the US governments have done nothing to discourage outsourcing.

The different business cultures in the US and Germany are a major factor. While Germans, as most European countries, see unions as a natural part of the economy, American business regard any unionization as Satanism. It has nothing to do with profits or costs; it is the American business religion. It is an old religion practiced by business with the help of brutal police as early as the 19th century. Outsourcing for American business is not a particularly lucrative move. It increases drastically management expenses that are much higher than workers expenses. Outsource, however, eliminates the hated unions.

The reasons German employers kept their workforce relatively intact is a combination of good business practices and government subsidy. When the workweek of a German worker shrank due to the recession, the government bridged the gap with money to keep the worker fully employed. When recently US businesses could not find enough worker was that laying-off workers was not smart in the first place and the Obama treasury has not jumped in to help businesses and the workers. The money went to the banks.

Another reason Germany maintained its industry is the pride factor. The "old style" countries have understandable pride in their products. Germany is proud of the Audi and it precision tools. Italy still makes the best men clothing. In the US, it is all business. Banks steal money because it pays; few banks are proud of their community services. Outsourcing came easily; no one felt loss of quality or product. It was a business decision, not particularly smart one, that appeared to pay. While the GM management was devising ways to sell bad cars and make money on maintenance, the VW people tried, successfully, to produce even better cars.

While Germany maintained a balance between manufacturing and finance, the US economy shifted into being mainly a finance industry with declining manufacturing. The financial sector in the US has grown to be 40% of corporate profits. It is not highly surprising that the US is at a standstill.