Europe Takes Its Own Path Toward Economic Recovery

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

De produktie in Duitsland is vooral gebouwd op een fundering van wat bij
ons de MTS-ers (meer dan VMBO) waren. De gedegen opleiding was/is deels
praktijk en deels theorie.
Het is echter tot op vandaag nog niet gelukt om Oost-Duitsland op het
nivo van West-Duitsland te brengen. Er zijn daar vele miljarden verspilt
door Treuhand.

Gezien hun opmerkingen over het wel/niet ontslaan van tijdelijk
overtollige werknemers krijg ik de indruk dat ze niet in de gaten hebben
dat hún economie op z'n gat ligt en daar voorlopig ook blijft liggen.
De economie en economische struktuur in Duitsland (en bij ons) is
overeind gebleven.

Groet / Cees

February 4, 2010
Europe Takes Its Own Path Toward Economic Recovery
By NELSON D. SCHWARTZ

BERLIN — The soaring glass and iron Siemens factory here opened almost
exactly a century ago. At first, it churned out turbines to generate
electricity, then switched to munitions during World War II before being
looted by the Soviets, which required it to be rebuilt at the dawn of
the Cold War.

Today, it is manufacturing turbines again — except the models being made
now are among the most advanced in the world, each one able to power all
the homes in this city of three million people by itself.

“It’s not a museum; it’s a workshop,” said Michael Schwarzlose, a
project manager at the Berlin plant.

The same might be said for much of Europe itself, despite American
suspicions to the contrary. European companies may not be as nimble as
their U.S. counterparts, but in moving to preserve jobs in the midst of
the worst global downturn since the end of World War II, they have
forged a different path toward recovery.

In doing so, they are making old plants more modern and effective rather
than starting over elsewhere or shifting jobs to less expensive locales.

“American companies have been faster to adjust their work forces and
quicker in protecting profit margins,” said Gilles Moëc, a senior
economist at Deutsche Bank. Indeed, while overall profit margins have
fallen for both European and American companies, European firms have
been willing to accept lower profit and productivity in the short term.

But that does not mean companies on the Continent have fallen behind in
innovation, experts say, especially when it comes to green technology,
despite increasing pressure from China.

Instead, Europe relies on its large companies to maintain a cutting edge
in key industries, a sharp contrast to the American pattern of turning
to newer, smaller companies to drive innovation and create jobs.

“The large incumbents in Europe, which might have been considered
technological laggards, have used green technology and sustainability as
a core new element of growth,” said Luc Soete, a professor of
international economics at Maastricht University, in the Netherlands.

They are also remarkably resilient. The Siemens factory added 500
workers here during the depths of the economic crisis last year,
beginning production of new gas-burning turbines that are the most
powerful Siemens makes but emit substantially less carbon dioxide than
older models.

Barbara Kux, the chief sustainability officer at the company, points to
the state-of-the art products made by the century-old factory as an
example of green innovation.

“It’s part of sustainability and it shows you think long term and are
there to stay,” she said. “It gives you the chance to keep experienced
people, to keep their knowledge in-house and develop a high level of
loyalty and trust so they feel like part of a family rather than just
doing a job.”

The varying responses to the economic downturn come amid a fierce
intellectual debate in the United States about whether the country is
headed toward a more European economic model, given Washington’s
nationalization of big banks and intervention in the auto industry, as
well as President Barack Obama’s proposal to overhaul the health care
system.

“The end result would be an America much closer to the European model of
a social-welfare state, which prioritizes cohesion over innovation,”
warned a recent article in National Affairs quarterly by Jim Manzi, a
former software executive who is now a senior fellow at the Manhattan
Institute, a conservative research group.

While unemployment has soared into the 20 percent range in hard-hit
countries on the periphery of Europe like Spain and Latvia, the relative
success of other European countries in avoiding deep job cuts adds a new
wrinkle to a long-standing trans-Atlantic argument.

When it comes to jobs, the most powerful political issue in the United
States today, “companies in Europe are probably much more aware of the
social limits in which they operate,” Mr. Soete said.

The overall European unemployment rate of 10 percent matches that of the
United States, but northern and central Europe have fared much better,
with joblessness at 4 percent in the Netherlands and 5.4 percent in
Austria, for example.

Germany’s economy contracted by 5 percent last year, yet its
unemployment rate of 7.5 percent is actually down from where it was two
years ago. By contrast, the U.S. economy shrank 2.4 percent last year as
unemployment doubled to 10 percent over the period.

The ability of the German economy, the biggest in Europe, to stanch job
losses despite a markedly deeper recession than in the United States is
“something of an economic miracle,” contends Jorg Kramer, chief
economist for Commerzbank in Frankfurt.

Much of the attention on saving jobs has focused on the government’s
short-work program, in which taxpayers and companies share the cost of
furloughing workers. But Mr. Kramer said the government-financed program
of shorter work weeks, or Kurzarbeit, was responsible for saving only
about 20 percent of jobs.

“Half of this miracle can be explained because firms allowed workers to
do less; they tolerated a 2.5 percent drop in productivity,” he added.
“You can either cut workers or cut hours.”

In the more flexible U.S. labor market, where industrial unions are weak
and contracts far less rigid, companies responded more often by letting
workers go, sharply cutting costs and preserving profit margins.

German companies not only reduced hours on the job, they also made a
decision to accept lower profit margins in the short term, Mr. Kramer
said, a practice he called “labor-hoarding.”

In Germany, profit margins have fallen from 6.26 percent in the first
quarter of 2008 to just 0.58 percent in the latest quarter, according to
Thomson Reuters Datastream. Similarly, French profit margins have
dropped from 6.5 percent to 1.2 percent. By contrast, corporate
profitability in the United States have shrunk from 7.8 percent to 3.6
percent.

The choices may have fateful consequences. As the recovery picks up
steam, European competitors will be well situated to take advantage of
new growth opportunities while American companies are required to
rebuild their work forces.

But if the fears of a “double-dip recession” turn out to be true, the
leaner profile of big U.S. companies could help them hold up better in a
renewed downturn.

Whatever the outcome, European experts say that the varying strategies
of companies during the financial crisis, and the different ways they
treated their workers, ought to prompt a revision of the traditional
American view that Europe’s social democracies are condemned to slow
growth and high unemployment.

“It’s not true that there is a correlation between how much you spend on
social policy and welfare and economic growth,” said Paolo Guerrieri, a
professor of international economics at the University of Rome I.

“The best performing group — Denmark, Sweden, Holland, Germany — are
exactly the kind of countries that shouldn’t be doing well according to
the U.S. stereotype of high taxes and high welfare benefits.”

Siemens is an example of the kind of European company that is leading
the way.

Although its global work force has shrunk over the past five years as it
exited businesses like telecommunications and auto parts, that has not
stopped it making advances in facilities like its Berlin factory, even
if the setting resembles Fritz Lang’s 1927 film “Metropolis.”

The 163-year old company spent €500 million, or $700 million, to develop
the new turbines being built at the Berlin factory as part of a push
into green technology, which it broadly defines to include low
carbon-dioxide-emitting turbines and locomotives, solar paneling and
wind technology, as well as air and purification equipment.

With revenue increasing 11 percent from 2008 to 2009, Siemens’ broad
green portfolio is now growing faster than the company’s other
businesses, Ms. Kux added.

And it managed to save its customers an estimated 210 million tons in
carbon dioxide emissions last year, the equivalent of the amount
generated by New York, Tokyo, London and Berlin put together.

“The global economic crisis has actually allowed us to increase our
green advantage,” she said. “It’s an opportunity to jump ahead, cut
costs, and improve our own resources.”

**********
Dit bericht is verzonden via de informele D66 discussielijst (D66 at nic.surfnet.nl).
Aanmelden: stuur een email naar LISTSERV at nic.surfnet.nl met in het tekstveld alleen: SUBSCRIBE D66 uwvoornaam uwachternaam
Afmelden: stuur een email naar LISTSERV at nic.surfnet.nl met in het tekstveld alleen: SIGNOFF D66
Het on-line archief is te vinden op: http://listserv.surfnet.nl/archives/d66.html
**********