What Minnesota can learn from Germany

MUNICH, GERMANY – The United States seems in awe of China’s economic miracle, but rather disdainful of Europe, especially Germany. To the contrary, there is great wisdom in the German economic model from which Minnesotans can learn.

Germany is a jobs machine. Its unemployment is just over 5 percent vs. 8.5 percent in the United States. In Munich unemployment is only 2.2 percent. Germany exports four times as much as the United States with only 30 percent of the population. It has a positive $200 billion trade balance, compared with negative $700 billion for America, and favorable trade balances with China, India and Japan, as well all European countries.

Germans are well-paid, have excellent health care and pension benefits, and save 11 percent of their income. Yet German health care costs only 9 percent of GDP compared with 17 percent in the U.S.

Politically, the country operates like a grand coalition, with narrow differences between moderates on both sides. Politicians put the country’s interests ahead of their parties. A decade ago the government went through a restructuring that moderated the cost of wages and benefits to be competitive with Asian countries. Germany is fiscally responsible: inflation is just over 1 percent, and deficits are 3.3 percent of GDP compared with 11 percent for the U.S.

German industrial strategy focuses on sectors where its technology and highly skilled workforce provide competitive advantage: machine tools, automobiles and auto parts, chemicals, electrical equipment and construction. Its financial sector finances German industry at home and around the world. It operates with conservative ratios that enabled most German banks to escape the 2008 financial meltdown.

Leading German companies like Siemens, BMW, Volkswagen, Daimler, BASF, and Thyssen-Krupp are flourishing these days. But there are deeper reasons for Germany’s success: relationships between labor and management; its apprentice system, and the Mittelstand — small and medium-size privately held enterprises.

Labor-management relations. German unions have long practiced “co-determination” with management on corporate boards, but their approach differs dramatically from American counterparts. They are committed to ensuring that their companies do well, produce superior products, and are cost-competitive. Work rules are flexible. Strikes are rare. They focus on collaborative relationships to make their enterprises competitive on a world scale.

Apprentice system: German education utilizes a rigorous system of preparing students for jobs and careers. Students are divided into those who enter gymnasium (high school) to prepare for university education and others who are better suited for careers in skilled positions in 342 recognized trades. They complete their education prepared for a career suited to their talents; dropouts are rare. Those in skilled-labor tracks move into three-year apprenticeships where they learn specific skills, such as computer programming or operating complex computer-controlled machinery. Educators work closely with industrial counterparts to understand skills required for future jobs. Heinrich Heimbold, CEO of Thyssen-Krupp, the world’s second-largest steel company, believes labor relationships and apprentices have given his company advantage over U.S. and Asian competitors.

Mittelstand companies. These small and medium-sized firms are export-oriented and focus on high-value manufactured products utilizing skilled apprentices. Typically, they are rural and privately owned and occupy worldwide niche market leadership positions. Mittelstand companies combine long-term approaches with modern management practices like lean manufacturing and total quality management. They work closely with universities and researchers and cluster around large manufacturers. Owner-managers often rub shoulders with workers.

Steven Rosenstone, the new chancellor of Minnesota State Colleges and Universities, believes in the German approach to education and industrial competitiveness. “It’s a painful reality that many of the 215,000 Minnesotans without jobs don’t have the education needed for the new economy,” he said. “By 2018, 78 percent of all Minnesota jobs will require some post-secondary education.” Rosenstone is restructuring MnSCU to train people for future needs, and also creating custom retraining programs for existing employees.

Minnesota’s CEOs are recognizing the importance of Minnesota’s skilled workforce. Cargill CEO Greg Page is leading a task force to address these education issues. Ecolab CEO Doug Baker Jr., who chairs Greater MSP, said: “Ultimately, the education and skills of the workforce is MSP’s competitive advantage.”

In my view, Minnesota gave up too soon on manufacturing competitiveness to focus on the service sector. It’s time to refocus on manufacturing advanced technology products, using skilled labor to enable Minnesota companies to compete globally and restore full employment. It’s not too late.

Originially Posted in the Minneapolis Star Tribune on January 7, 2012

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