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Wednesday, October 30

Lessons for Americans in Germany's cultural, educational, and business models

"In German, borrowing is 'schulden', [the same word for] guilt. There is an attitude that if you have to borrow, there is something wrong with you."

"There is a culture of business owners acknowledging and rewarding the efforts of the workforce," says Andreas Woergoetter, head of country studies at the OECD's economics department. No wonder, then, that Germans work fewer hours than most.

School finishes at lunchtime across much of Germany due to what Mr Woergoetter calls a "societal preference", designed to allow children to spend more time with their families.

Strong employment protection legislation and a degree of trust on behalf of the workforce in well-capitalised companies that had not over-borrowed, meant the Social Democratic government was able to use its close ties with labour unions to push for moderation in wage inflation.

The reforms laid the foundation for a stable and flexible labour market. While unemployment across Europe and the US soared during the global downturn, remarkably the jobless number in Germany barely flickered.

"Half of all youngsters in upper secondary school are in vocational training, and half of these are in apprenticeships," says Mr Woergoetter.

Apprentices aged 15 to 16 spend more time in the workplace receiving on-the-job training than they do in school, and after three to four years are almost guaranteed a full-time job.

And in Germany, there is less stigma attached to vocational training and technical colleges than in many countries.

"They are not considered a dead end," says Mr Woergoetter. "In some countries, company management come from those who attended business school, but in Germany, if you're ambitious and talented, you can make it to the top of even the very biggest companies."

The German education system, therefore, provides a conveyor belt of highly skilled workers to meet the specific needs of the country's long-established and powerful manufacturing base, which is rooted in the stable, small-scale family businesses that have long provided the backbone of the economy.

While the rest of Europe gorged on cheap credit throughout the 1990s and 2000s, German companies and individuals refused to spend beyond their means. One reason for this, says David Kohl, deputy chief economist at Frankfurt-based Julius Baer bank, is that real interest rates in Germany remained stable, unlike those in other European economies.

"In the UK, Italy, Spain and Portugal, for example, higher inflation meant real rates moved down, so there was a huge incentive to borrow money," he says.

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The U.S. Treasury has published an economic report that levels rare U.S. government criticism at Germany; it contends that the country's export-driven strategy has hurt the eurozone and the world economy. See the BBC's October 30 report for details. Given that Germany has been chiefly responsible for propping up the eurozone and by extension the world economy, I take the criticism with a grain of salt. 

Perhaps as a mild editorial comment on Treasury's report the same BBC news page features a link to another report on Germany, one filed August 15, 2012 by BBC Business Reporter John Anderson, and headlined German economic strength: The secrets of success. This post leads with quotes I pulled from the report.

While the vast differences between the geographic size and population of the USA and Germany have to be taken into account, I think it would be hard for many Americans to read Mr Anderson's report without feeling shame and bitterness about what our cultural, educational, and business models have wrought for us -- and for our children.

I hope you will read the entire report.

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