Collapse of the Chinese economy considerably impacted the German export-dependent economy
Although it is almost never reported in Japan, in recent years, in Germany, the railway service is almost never operated according to the time table, the public infrastructure is aged, and it is very difficult to book an appointment with a doctor.
To give the example of the railway, as a result of maximizing cost reductions to increase profits, and failing to invest in necessary facilities and maintenance of corporate organizations, it has stopped functioning properly. For instance, as a result of increasing the profit rate by reducing nominal assets through removing costly bypass railways, whenever there is a problem, the railway operation comes to a standstill. Inevitably, it became normal that the trains would not arrive on time. Moreover, on top of the difficulty of getting an appointment at a hospital, as the budget for public insurance which insured people took out reaches the limit at the end of each term, the number of stories of it being difficult to consult a doctor using public insurance is uncountable.
At the time of 2023, Germany has already turned to negative growth. This was mainly caused by the export-dependent economy that was created by the nation. Germany’s export dependency rate is as high as 40% of GDP. Owing to the collapse of the economy of China, on which Germany is most dependent, the performance of companies was aggravated all at once. This year, some calculated that Germany’s economic growth rate will drop by 1.5% owing to China’s economic crisis.
They just created a simplistic economic model of increasing exports, and for a time after the 2008 financial crisis, their exports to emerging countries especially went very well. This led to a particularly good economic performance among developed countries. However, after COVID-19, as soon as this premise was undermined, nothing went well any more.
Originally, Germany was some sort of home country to general chemical corporations or general electric-appliance manufacturers. However, they created an export-dependent economy and focused only on areas in which they could become profitable. As a result, instead of conducting research and development by aggregating everything in their own company assets as before, they became a M&A major power, where they would make do with buying from outside the company if they had anything that was missing within their own. As a result, also in the automobile industry, they cannot maintain the technological power to compete with Japan’s hybrid cars. In order to resolve this situation, as soon as they tried to discard and shift all the existing technology to EVs, cheap Chinese EVs, supported by an enormous amount of subsidies from the country, started to dominate Europe. Then, German cars have ended up in a situation in which they do not sell.
Unrealistic environment-centric economic policy and simplistic business model causing a miserable situation
Their policy is also problematic. The current German administration is called the traffic light coalition. This term was created to express the coalition among three parties that do not seem to have much in common with each other concerning their original policies. They have different image colors. The Social Democratic Party of Germany (SPD), supported by the labor union, is “red,” the Free Democratic Party (FDP), which believes in a liberal economy, is “yellow,” and the Green Party, which prioritizes environment protection, is “green.” These three parties continue their coalition despite not having so much in common with each other concerning their policies. Moreover, since “green” took the ministerial position in charge of the economy, over-idealistic environmental policies have been adopted and are causing various confusion.
From the perspective of environmental protection, the following issues are pointed out. In Germany, both thermal power generation and nuclear power generation are officially abandoned. However, clean energies are more expensive than these energies. Traditionally they dealt with it by importing cheap energy mainly based on natural gas from Russia. However, as soon as the supply stopped after Russia’s invasion of Ukraine, household energy prices, including electricity, significantly jumped. As such, they lost capacity to control the energy cost organizationally and technologically. Then, all these strains were put onto the citizens. Furthermore, while claiming that nuclear power is not allowed, they are buying electricity that was generated by nuclear power from France, which is a nuclear power generation superpower. This is a major contradiction.
Moreover, owing to EU policy, in order to protect the environment, the goal to reduce the use of chemical fertilizer by 50% was also established. In addition, although the taxation for diesel oil that is used for agricultural machines so far has been reduced from the perspective of agricultural policy, they started to say that they wanted to abandon this. This is during a time when the fuel cost is already rising. Farmers’ anger exploded, and since December 2023, a farmers’ group obstructed roads as a demonstration to protest against the abolition of tax reductions.
On the other hand, during the local election in the autumn of 2023, the so-called populism party Alternative for Germany (AfD) advanced dramatically. This is not incomprehensible if you are living there. It seems that the voters have the feeling that their voices are not heard concerning the politics that have been developed in Germany so far. On the election posters that are hung all over the streets during this election period, you can see something like: “We hear the voice without a voice” or “We will carefully listen to your voices that were not reflected on the current party politics, and will reflect them in our policies.” When I look at these streets, I feel like I understand why AfD is popular.
Importance of cherishing the good old German tradition and responding to the reality
Germany and Japan are similar, in a sense. A major commonality regarding the employment relations includes four points: long-term employment, seniority treatment, capability development, and labor-management consultation (based on the classification of components of the Japanese-model employment system by Professor HISAMOTO Norio). At its foundation, there is a thought to place utmost importance on technological power in their corporate activities. There are no other cases in the world that have wide industry areas as well as basically valuing the manufacturing technology as much as these two countries. Both countries are not good at becoming successful worldwide in service, finance, or digital industries. However, they share unusual and valuable fundamental thoughts that are far from global common sense, of leading to economic growth for a long time by making constant efforts and studying and improving their technology.
Therefore, for a long time, both countries have maintained a solid basic stance to accumulate knowledge by cooperating with everybody and tried to achieve economic growth by people’s wisdom instead of resources, instead of collecting excellent people and abandoning them when they become useless as in the U.S. Corresponding to this, they maintained long-term employment of regular workers and applied a seniority salary system to reward the improvement of performance based on the accumulation of their long-term empirical value. In addition, that their investment is focused on human resources rather than goods, and that the labor and management communicate and make decisions about the company by agreeing with each other, are also similar.
It was after the 1990 reunification of Germany when the two countries started to show a difference in their directions. The bursting bubble in Japan gained momentum, and we entered into an age of restructuring and a merit system. This trend also started to advance in Germany at the same time. However, in the case of Japanese companies, although they went through lots of restructuring, they did not dramatically change the existing system, but tried to reconstruct with efforts within their company. On the other hand, German companies forced through massive workforce cuts for reconstruction, while the government tried to generate new employment by encouraging early retirement. To be more specific, until the first half of 2000s, there was an employment practice for large companies to let their employees retire at the age of 55 and replace them with young and cheap human resources. However, because of this, special knowledge that was accumulated, and was embodied in companies by employees until then, started to fade.
So far I have mainly shown the negative aspects. However, there are also things that we should learn from Germany. For example, the managing class such as department managers also has a labor union and selects the ones to represent their interest, and they are negotiating the basic working conditions on an equal footing with the senior management team. Since 1990s, German companies positioned rewards that are connected with short-term achievements as a central incentive for managers. However, this is not necessarily commensurate with the working style of the manager. Thus, they have negotiated in such a way as to replace it with the remuneration system and the position evaluation system that are consistent with the reality. Thus, at the manager level, to introduce the system enabling labor and management to talk on an equal footing is extremely effective to maintain corporate health. On the other hand, Japan’s managers are basically excluded from the labor union, and they became a cause of the so-called “abrasion of the middle.”
As a result of accumulating intellectual assets that were embodied by employees, both Japan and Germany showed a possibility to grow without having mineral resources. What is important for both countries from now on is to improve the freedom of economic activities without being restricted by biased ideology, boost their intrinsic growth potential to the fullest, and take advantage of what they already have. In the case of Germany, extreme economic ideology that obstructs their development is restraining growth. I think it is important to abandon self-trapping thoughts, cherish the good old German tradition, and respond to the reality. As their national character and the history they followed are similar, Japan can learn a lot from Germany as a negative role model.
* The information contained herein is current as of July 2024.
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