Duncan’s Economic Blog

Learning from Germany: A Reply

Posted in Uncategorized by duncanseconomicblog on August 9, 2011

Last week myself and Maurice Glasman had an 800 word op-ed in the FT.

The first half focussed on the failures of the British economy over the past twenty years – how financial dominance has led to a narrow tax base, little real investment, low productivity (once one removes excessive risk taking) and a lack of real, private sector growth & jobs in the regions.

The second half looked at some lessons that might be learned from Germany– in terms of banking reform, vocational training and corporate governance.

Denis MacShane and Aditya Chakrabortty have both responded. Whilst both have fair critiques and raise very useful points, I do feel that their central objections to the article, in some ways, misunderstand the point – which is possibly due to the limitations of us covering so much ground in 800 words.

MacShane lists 10 differences between Britain and Germany whilst Chakrabortty’s critique is two pronged – that the ‘German model’ we wrote of no longer really exists and that what remains contains many objectionable elements.

Both note how German wages have declined in recent years – something I have written about myself. However this phenomenon, whilst not desirable, is global (and also present in the UK).

MacShane notes that the UK outperformed Germany between 1998 and 2008. On that point I’m not so sure – subtract the effects of an unsustainable credit bubble from UK growth and the picture isn’t so rosey.

Both MacShane and Chakrabortty nopte that we can’t import the German model wholesale into the UK. MacShane writes that:

to wish Britain were more like Germany without acknowledging that there are massive differences between politics, history, society, law, unions and economic culture makes a good FT column but is not serious political economics

Whilst Chakrabortty notes that:

Germany isn’t a cut-out-and-keep model of how to manage a sound, socially just economy. We need to think a bit harder

Both are very fair points. But as the original article stated:

we should re-examine the lessons to be learnt from the German social market economy

‘Re-examine the lessons to be learnt’ in training, financial reform and corporate governance does not mean ‘entirely adopt every element of the German Political Economy’.

Back in the early twentieth century, during the debate on Tariff Reform, Joseph Chamberlain was keen to learn lessons form the Germany of that time.

The Liberal response, headed by Lloyd George has a rhetorical attack on all elements of the German system nd a claim that the Conservatives wanted to introduce it all. Lloyd George argued that ‘German tariffs mean German militarism’ and that the Tories would introduce ‘Black (rye) beard and horse meat sausages’.

As I wrote back in March:

There is certainly a lot to learn from Germany but, as ever, things are more nuanced than they seem.

Speaking personally I am quite attracted to many elements of German’s economic model, although not all of it. I am also not keen on horse meat sausages.