German lessons

Posted on May 20, 2011 by jojimmy.com

It’s been few months since I wrote on this page. Many interesting topics had arisen, and I did many essays in my mind but never got a chance to sit down and write it here due to busy schedules – life, kids, job, studies, friends, relatives, sports, list is long; but life is still wonderful.

Recently I heard a lot on radio about Germany’s recent economic performance. Their recovery was impressive and faster than UK. Or did they actually have a recession, I doubt.

This is an excerpt from BB News site “…………… The economy grew by 3.6% last year, its fastest pace since reunification. Germany is the world’s second largest exporter after China and was buoyed last year by a boost in demand for its products as the global economy recovered. Its strong recovery has made it the main source of growth in the euro zone, as several other countries in the currency bloc have been struggling to meet their debts. ………….”.

And this is what IMF said: “…….The German economy and employment are above levels before the onset of the Great Recession, an achievement realized by only a few advanced economies…….,” the IMF said.

How did they do this?

No big economic theories of business strategies – they simply made and sold the goods others want – and kept doing it when others stopped.

Exports – they made goods the world wanted. And the lack of minimum wages helped to have a price advantage over other completing countries like UK. World wanted their goods, at par with other countries in quality, but at right prices. Simple!

One important item in their export basket was cars. Germans saw the rise of a new group of wealthy people in the fast growing countries like China and India, who always wanted BMWs, Benz, Volkswagen, Audi, etc etc. And they sold cars to them – again, Simple!

Another focus was machineries, tools and equipments. Fast growing countries like China and India, where industrial and infrastructural growth required large amount of engineering machineries and equipments for development, were depending on Germany, largely as countries like UK did nothing to protect manufacturing of these products or concentrated too much on banks and financial markets.

Manufacturing – Germans kept the production going on. Their Govt, rather than shouting “CUT CUT CUT” like UK, generously supported businesses that are under pressure, pumped more money in to the economy and kept the businesses live. This helped them to meet the world demand for their products and also to safeguard their labour force which was essential for supporting the increased production volumes. People had their jobs safe, and they had regular incomes, so they spend money back into the economy again and kept the system running.

What UK should have done?

The same – like Germans.

But hey instead closed down manufacturing, made people jobless – gave all tax income to banks, which mainly went into bonuses. They forgot the fact that banks and other financial institutions deal with money and the money has to come from people from their earning. If there is no earning – there is no money for banks. But still Govt focus too much on this sector than manufacturing where people get money as wages and companies get profit from selling products to the world.

Minimum Wage Impact

Once again, I refer back to one of my previous post on minimum wages in UK. Whenever there is minimum wage, cost of production cannot be brought down to the levels where the price is low enough to attract customers.

Germany has no min wages (except for some specific sectors, where it is set by collective bargaining). And this allowed them to have large scale manufacturing at a lower cost – and everyone is a winner. Look at UK, no one wants UK goods, including us, and that’s why our imports are higher than export. German goods are in good demand worldwide – good quality, at a price the customer want. And people got their jobs secure! In UK, not even UK people can afford their own products and they import cheaper stuff! – look at the ever growing deficit on balance of payments. Our minimum wages are blocking us from producing goods at a lower price to compete to other countries. No one wants to give us orders. Manufacturing companies are shifting their factories to overseas every day, especially high labour oriented ones – best example is automotive sector.

My advice to the most educated, most talented, economic policy gurus in the UK govt is this: Please come down to earth. Think simple. Just imagine you are running a small grocery shop, what will you do to survive? Just do it or just help citizens do it. Otherwise, disaster is not far. Just like what happened to Woolworth or other drowned businesses, the UK itself as a nation will have to be shut down or sold to some other countries or corporations.

Posted on
Friday, May 20th, 2011
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JIMMY JOSEPH