While many first-world, high-tech countries have seen their manufacturing outsourced to nations with lower labor costs, Germany has maintained some level of domestic production. To be sure, German firms have some amount of offshore factories, but relative to other economies - the USA, the UK - there’s more domestic manufacturing.
This trend is powered not only by the big companies - BASF, Bayer, Bosch, Siemens, VW, BMW, Porsche, Audi, Mercedes-Benz-Daimler, Birkenstock, etc. - but also by the small and medium sized companies.
Standing between the large companies and the individual proprietors, these firms are called the Mittelstand and are the source of as much growth and innovation as the big firms.
When recession hits, the Mittelstand allows Germany to bounce back quicker than other nations. The BBC’s Stephen Evans writes:
This recovery is spread widely because every German town seems to have its periphery populated by the famed “mittelstand” of small and not-so-small companies, exporting countless unglamorous but profitable products. These companies are often family-owned and founded on values of quality and investment, combined with a shrewd search for markets.
In addition to policies carefully crafted to encourage a positive balance of trade, Germany also enjoys a superior worker-training system. While the USA and other nations have competitive university-trained professionals and large pools of unskilled labor, they lack the middle level: skilled craftsmen.
Germany’s skilled tradesmen create the legendary quality that goes along with brands like Porsche, BMW, and Zeiss. These artisans are produced by a thorough educational system which siphons good students away from the university-bound track and places them into apprenticeships.
The German economic structure ensures that master craftsmen are paid as well as the professionals coming out of the universities, and sometimes even better. There is no social stigma attached to being a machinist or a tool-and-die maker.
Can other nations replicate the results of the German system? Newsweek’s Rose Jacobs writes:
The Mittelstand is the envy of the western world – and beyond. The Economist reported last week that officials from South Korea, Iran and Egypt have been in touch with the German trade body for mid-sized companies, asking for advice on how to emulate its members’ success. In fact, the German model is already being exported in very concrete ways: several German companies with manufacturing facilities abroad have decided to address local skills shortages by recreating overseas versions of Germany’s apprenticeship system, with future workers recruited young and given a mix of classroom and on-the-job training that both prepares them for solid middle-class jobs and inspires loyalty. It’s proved so successful that, in the US, American firms are following suit, and in China, the government is adapting Germany’s apprentice training exam for its own young people.
The German economy provides a stable and predictable environment, which in turn encourages investors to take more risks, and look further into the future, foregoing short-term results for long-term ones.
The German model works even outside of Europe, as shoppers in North America flock to German retailers like Aldi and Trader Joe’s.
