NYT: Germany Has Lost What It Did Best

Pic.: NYT

It’s a tough time for Germany, The New York Times stresses.

A year into Chancellor Friedrich Merz’s tenure, his approval ratings are low and the coalition government he leads is roundly disliked. Capitalizing on widespread discontent, the far-right Alternative for Germany is rising in the polls, inching closer to power. To make matters worse, America, in a Trumpian tantrum, has announced a withdrawal of troops from the country, endangering its bedrock geopolitical relationship. All the features that defined Germany’s recent past — political stability, social cohesion and Atlanticist foreign policy — are under threat.

Yet underlying all these problems is a more profound one. The German economy, once known for its efficiency, orderliness and stability, is in a terrible mess. It’s not just that the numbers are dire, though the country has basically been in a recession for three years. Or that every week or so, another famous old company announces thousands of layoffs. (The latest was Commerzbank, founded in 1870.) Or that last month, the venerable weekly Die Zeit ran a series called “Where Germany still works” — which means the situation must be pretty bad indeed.

No, the worst of it is that our dynamic economy gave postwar Germany a sense of identity. For all our flaws, we had a country that functioned better than others. Now it doesn’t anymore, and we’re mystified.

At its most prosperous, Germany was a high-tax, high-wage, big-bureaucracy country — something to remember for those whose recipe for renewal is simply to cut the cost of doing business. In the postwar decades of vigorous growth, the economy itself resembled the kind of product that it so excellently manufactured, an expensive and highly complicated machine whose cogs meshed.

Those cogs included an education system geared toward supplying businesses with technically proficient workers; managers trained as engineers or scientists rather than as generalists; banks and insurers with major stakes in the largest companies and focused on long-term goals over short-term profits; and stable labor relations that offered workers secure and well-paid jobs as well as a vote in key decisions. Together, these elements contributed to the technological superiority long associated with the Made-in-Germany brand.

On the face of it, Germany thrived in the first two decades of the new century, weathering the financial crisis better than others and hanging on to its industrial core. But in hindsight, the country was on borrowed time. Automakers, for instance, sold millions of cars in East Asia but failed to invest in a much-needed transformation to electric vehicles. The same mix of risk aversion and short-termism characterized other German companies, too. What kept the profits coming was a combination of cheap Russian gas, a booming Chinese market and the multilateral free-trade order led by the United States.

That order is now gone, sundered by American protectionism, Chinese competition and the disruption from artificial intelligence. But the setback needn’t be fatal. The country can overhaul its business model, re-equipping the successful elements of the old system for a newly hostile environment. There are three key areas to focus on.

First, the financing. Many German corporations are now majority-owned by non-German investors, and some of the country’s vital Mittelstand firms — family-owned medium-size enterprises — have been taken over by private equity or other outside money. The influence of detached investors focused primarily on financial results can be beneficial, of course. But it’s gone too far.

Then there’s education. The country’s famous dual-vocational system, which allows students to complete their schooling in the workplace, long ensured that industry got the kind of skilled labor it needed. But the system now lacks applicants, partly because of demographic decline and partly because too many young people choose to pursue other careers. Germany’s high school students, what’s more, are struggling in the very subjects that the country used to excel in: math and natural sciences.

Finally, the labor market. The country’s welfare state has become too expensive, and Germans will need to work longer hours and more years to sustain it. Yet changes should be pursued in the spirit of “Sozialpartnerschaft,” the consensus-based labor relations that played an important role in the postwar economy. Mutual trust has been eroded in recent decades, for which both parties share responsibility. Business leaders squandered good will by awarding themselves lavish salaries, while the unions too often refused even minor compromises and readily reverted to class-war language.

There is no returning to the past, of course. Yet something precious has been lost: an innate confidence in the country’s strengths. Today, the mood in Germany seems way too bleak. What’s missing is a cleareyed sense of where we should be heading.

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