Time for some German lessons?

I have spent some of the last few days making a programme for Radio 4. We are exploring whether Britain could learn from the economic success of Germany.

There are certainly many things to admire across the North Sea. It’s not just policies like the strong German apprenticeship system or institutions like the many family owned medium sized firms or the regional banks, which often have places on the boards of those firms. The Germans also seem to have a more responsible and solidaristic outlook, something illustrated by their system of industrial partnership, by the lower propensity of German bosses to pay themselves exorbitant wages and their enthusiasm for the ideal of ‘shop floor to top floor’ career progression.

German strength was in the news again today with a report on manufacturing prepared for the Government by Sir Anthony Bamford, Chairman of JCB. One disheartening statistic appearing in the report is that while Germany is behind only China in its spending on machine tools (a key part of most manufacturing processes) the UK languishes at nineteenth in the list spending less than a tenth as much as Europe’s leading exporter.

It doesn’t mean they are wrong, but the recommendations of the Bamford report are fairly predictable: tax breaks, tax incentives, a manufacturing ‘tsar’, and a publicity drive to promote manufacturing. Even in writing up the Bamford report this morning, the FT found commentators sceptical of the idea that manufacturing should receive special treatment.

As Vicky Pryce argues in the most recent edition of the RSA Journal, the picture is more complex than some gloomy accounts suggests. The UK does have strengths in areas like pharmaceuticals and aerospace, but even in those higher output doesn’t necessarily equate to higher employment. It is worth noting that even in the powerhouse of Germany, manufacturing only makes up about a quarter of domestic economic activity with a labour market that, like all other developed nations, is increasingly dominated by service sector jobs. The Germans I spoke to were envious of some UK strengths including our younger population and our best universities.

But, going back to Germany, it is interesting to observe how UK politicians cherry pick the ideas that most suit their political predilections. Last week saw a report by the Conservative backbench free enterprise group praising Germany for reforms to make the lower end of the labour market more flexible. Less was said about the corporatist system of industrial partnership which agreed these changes. This system seems to be part of why the Germans tend to have a flatter business cycle than boom and bust Britain. Which brings us back to Sir Anthony.

An interesting fact I came across making the radio programme concerned a comparison between JCB in Germany and England. While the firm laid off 20% of its staff here, in Germany the generous system of unemployment insurance meant that workers could be compensated for going to two-thirds time. As a result no one had to lose their job and now - as things pick up – JCB Germany can avoid the cost of rehiring and retraining.

Personally, I think we should aim to find our own mix of the strengths of the UK anglo-saxon model and the German social market model (in fact a few years ago ippr extolled the virtues of what they called the anglo-social model), but to avoid tendentious argument and bad policy advice we should seek to understand all the reasons the Germans are better than us at manufacturing, including the ones deep in their national psyche.