Is it necessary to move jobs abroad, just because more and more of the customers are abroad? A look at Germany suggests otherwise. Despite the global downturn, the German economy has been booming, exporting so many goods to the expanding markets of the developing world as well as to the rest of Europe that its net trade surplus -- the net value of its exports over its imports -- comes to 7 percent of its GDP, the highest of any major nation. Germany is anything but a low-wage country: The average hourly compensation -- wages plus benefits -- of German manufacturing workers is $48, well above the $32 hourly average for their American counterparts. Yet Germany is an export giant while the U.S. is the colossus of imports.
German multinationals have their own affiliates overseas, but they have also maintained robust, high-quality production at home. Siemens, which is more or less the German equivalent of General Electric, has hundreds of thousands of employees who work abroad, but it recently announced a deal with its major union, IG Metall, that included a pledge not to make any unilateral reductions in its 128,000-employee German workforce. BMW, ThyssenKrupp, and Daimler have gone even further, signing deals with IG Metall to maintain a fixed number of employees in Germany.
These domestic employee-retention pacts are an outgrowth of Germany's more consensual, stakeholder version of capitalism. German workers' organizations have a far greater say than American workers do in the conduct of their employers. By law, employees in large companies get the same number of seats on corporate boards that management does. Unions and management collaborate to ensure that German manufacturing retains and expands its high-quality products and markets.
IG Metall has been working with automakers, for instance, to train workers to mass-produce electric cars. "Our goal is to really retain high-value-added manufacturing in Germany," Martin Allspach, the union's policy director, told me when I visited IG Metall headquarters in Frankfurt in November.
The German experience also shows that the structure of finance can have a profound effect on the retention of manufacturing. An entire stratum of German banking, municipally owned savings banks, provides the funds that enable the nation's prosperous, largely family-owned midsized manufacturers, the Mittelstand, to upgrade themselves into export dynamos. About two-thirds of Germany's small and midsized businesses get their loans from these banks, which shun capital markets and are restricted to doing business in their own towns. "Over the past decade, banking largely became a self-fulfilling activity," says Patrick Steinpass, the chief economist of the national organization of savings banks. "But our banks are restricted to doing business in their regions; they have to concentrate on the real economy."
The Mittelstand is thus able to remain largely immune from many of the pressures that financial markets, with their pressure for ever rising profits and share prices, inflict on American businesses. Klaas Hubner, a former member of Germany's Parliament and the owner of a Mittelstand company that sells axle-box housings to Chinese and other nations' high-speed railroads, believes that this freedom from American-style markets is the key to Germany's success. "We don't have short-term strategies, only long-term strategies," he told me. By preserving a vibrant sector of small-scale manufacturing, Germany also has a local capitalism. "I live where my company is located," Hubner said. "I want a good reputation in the town I live in."
No such localism can be found among American business leaders, whose brand of capitalism is keyed solely to their shareholders and top executives. "For a lot of American companies, their actual and psychic energy is focused abroad," says Matthew J. Slaughter, associate dean at Dartmouth's Tuck School of Business and a member of George W. Bush's Council of Economic Advisers from 2005 through 2007. The American way of business is aptly summarized in the McKinsey Global Institute's 2010 report on U.S. Multinational Corporations: "U.S. multinationals must pursue new growth opportunities and continually improve operations to remain globally competitive," it says. "They go where the markets are expanding, where the talent lives, and where they can earn superior returns.