Sample of current EU unemployment rates. Source: Google Public Data Explorer.

A story from the Guardian (UK) written by John Kampfer has some interesting thoughts about why Germany now seems less prone to cyclical economic crises. In particular, Kampfer looks at this phenomenon through the lens of how that nation (and other parts of northern Europe) approaches engineering, manufacturing and the sciences in contrast to his home country. But the descriptions and lessons could, in my opinion, easily apply to the US.

According to Kampfer, while Britain (and the US) have been obsessing for several decades about targeting benefit, pension and unit labor costs, and at the same time shifting the core business structure from manufacturing to finance, Germany has taken a different route:

Instead, the German – and broader northern European – approach emphasises vocational training and apprenticeships, particularly in engineering, manufacturing and the sciences. It invests in research and development, and in strong education. With all of the above the UK government would agree – even if its policies have for decades not followed the theory.

Where the Brits and the Germans spectacularly part company is over employment. “Works councils” have been the staple of German industry, with unions represented by statute. Both sides actively work towards consensus, and strikes and other disputes take place on the rare occasion where agreement is not reached. The first response to the banking crisis of 2008 was for the two sides to come together and work out a deal that included cuts in working hours, and cuts in pay – across the board. As a result unemployment rose only fractionally.

Stuart Nathan over at The Engineer goes deeper on the topic:

[…] Germany just seems to get it right more often than the UK. From the success of the Fraunhofer Institutes — which we’re only just starting to emulate, over forty years after they were set up — to the ingrained importance of career progress for engineers, Germany consistently sets the pace in industrial innovation.

[…] And yet it’s true that Britain has a science base that puts the rest of Europe to shame; more papers published, with higher impact, across more sectors, than any other nation. Government asks why this is not exploited — well, anyone might think that the tiny proportion of GDP invested in R&D compared with our competitor nations could well have something to do with it.

The German economy has been through tough times, like every other economy. It’s been stagnant and slow-moving at times when the UK has boomed. But it always comes back. It comes back through solid, albeit sometimes unspectacular, performance by a strong manufacturing sector based around chemicals, materials, and automotive. German industry sees opportunities, such as in renewables, forms a strategy to exploit them, and does it, with government support. And as Kampfner argues today, it does that because of a philosophy that is built into German political thought and that is completely absent from the UK.

Nathan correctly adds, “It would be wrong to portray Germany as a paradaisical haven for engineers and engineering.” As the graph shows above, Germany has had its periods of economic volatility, too. But, after attending quite a few recent international science and technology conferences and speaking with many German and non-German scientists and engineers, I can report that I hear a lot of admiration for Germany’s current direction and priorities. Thus, I find it’s hard not to agree with a lot of what both of Nathan and Kampfner have to say. There is more of a sense of a reasoned and logical continuum among the universities, labs (public and nonprofit) and corporations that have the divisions of labor and alignment of incentives well allocated across the entire span of research (including basic research), development, demonstration and deployment.

Changes in the US don’t necessarily require more spending. According to the OECD (pdf), as a share of GDP, the US already spends more (2.62%) than Germany (2.53%) or the UK (1.78). A big problem is there is a lack of respect for reasoned, long-term strategies in the US, a weakness that means that much of the spending is not as effective as it could be and short-term thinking leads to being obsessed with finding the next bubble instead effectively leveraging our existing workforce, resources, talent and expertise. Xenophobia and a cultural acceptance of the loss of manufacturing bases and skills as just “world-is-flat” unavoidable collateral damage are enormously destructive in the US. Germany doesn’t have all the answers, but it also isn’t organizing its citizens and institutions to chase get-rich-quick schemes either.