Greg’s Note: We know that the
Whiskey & Gunpowder
January 30, 2008
Caxias Do Sul,
Stein Half Full
MAYBE YOU HAVE HEARD ABOUT GERMANY as the sick man of
I lived in
It is true that after the end of the European unification boom in the late 1990s, the German economy experienced malaise until 2003. The high cost of unification put a huge burden on the people. Domestic demand was weak. Yet in these years of slow growth, German companies did their homework. Today, the German industrial sector is at the top of the world when it comes to modern capital equipment. Infrastructure in
German carmakers are household names. So are chemical and electronics multinationals like BASF and Siemens. But these large companies represent only a part of the German economy; mid-sized companies are its backbone. These companies possess very specialized technological know-how. They are extremely competitive and industrial companies all over the world seek their products.
These mid-size companies are behind
Many of these so-called “Mittelstand” companies produce tangible capital equipment. Linked together by a well-established network of cooperation, they are capable of executing large-scale projects — including the planning and construction of whole factories.
The competitive position of “Mittelstand” companies helps them cope with cost increases. Currency appreciation does not hurt them as much as it hurts most other export-oriented companies. The recent strength of the euro has barely affected demand for the products of these companies. This was also the case in the past when the German mark was in a decade-long uptrend.
The German economy will continue to profit from the investment boom in emerging economies. Demand from
For these German mid-size companies, a quick hire and fire system is out of the ordinary. Intensive in-house employee training provides the specialization these companies need. Company loyalty is relatively high. Performance hinges on a culture of trust that runs from the top to the bottom.
Nevertheless, structural problems plague the German economy. The welfare state is overextended and the population is ageing. There is a shortage of young engineers. Social contributions and taxes are high. The steep cost of labor has driven German companies to invest in technology and equipment that enhance worker productivity. Like the
An ageing population limits the chance that
Yet they seem to ignore the worldwide appeal of German exports. One can also argue that the boom in emerging market infrastructure is far from over; in fact, it may boom for years and even decades to come. German capital equipment producers enjoy a strong reputation among their emerging market customers. In the eyes of foreign multinational companies,
Bank credit and the stock market are not as important to the German economy as they are to the
Even if the
The German stock market, measured by the DAX index, performed well in 2007. This index rose more than 20% even as the euro gained 10% against the U.S. dollar. In the years to come, many a top performers can be found among the smaller companies, even if the major index should decline.
So why things may seem bad here, don’t believe that they are all going wrong for everyone. The Germans might not be the most chipper people in the world, but don’t let their pessimism fool you, things in