Wednesday, May 27, 2015

Key Words for Understanding the Germany Economy

We often speak of "capitalism" or "the market" as if they are singular things. We are comfortable talking about how the economy is doing, if "it" is up or down today. And in this globalized world it would seem that it makes little difference if the "it" we refer to is in Berlin or London or New York or Shanghai.

Yet there are huge differences in the varieties of capitalism practiced in these places. Looking beyond the big boards, we find systems wrapped up in their own histories and politics and moral values.

For example,  The Economist recently had an analysis of the huge influence German's distinct system of "ordoliberalism" has had in defining the political economy of post-crisis Europe.

To understand the German form of capitalism, it is helpful to learn a few key words:

Sparpolitik: what we term "austerity," the Germans refer to in a much more positive light as "savings policy," invoking wise stewardship more than miserly witholding. So when the Germans are negotiating with the Greeks these days about getting out of debt, they see Sparpolitik as a value that should be desired as much as an austerity to be endured.

Ordoliberalism: it stumbles over the tongue the way a good German word should. It takes inspiration from the liberalism of the Austrian School in its heyday, with a value on personal liberty and a skepticism of central planning.  That the liberal part.  But the “ordo” part is, as you would suspect, an “ordered” (i.e. regulated) liberalism, largely based on the principles of Mitbestimmung.

Mitbestimmung: ("co-determination") is a system of labor relations that treats labor as stakeholders alongside capital and management; built around "works councils," tiered organizations of employee representatives (blue and white collar) elected by their peers; through works councils labor holds (by law) 50% of corporate supervisory board seats.

Mittelstand businesses, small to medium sized enterprises that are often family or otherwise privately owned, and comprise the export engine of the German economy. Many specialize in high value, high quality engineered products. The Mittlestand have a reputation for honoring a commitment to their employees, embracing the German system of stakeholding and co-determination.

Kurzarbeit ("short work") program provides government subsidies to companies to keep their employees on the payroll but reducing their working hours; in the financial crisis this allowed companies to keep workers, reducing their productivity but allowing them to keep the talent they have built up, to save it for better times.

Solidarit├Ąt ("Solidarity") is is a value extolled by the political left and right in Germany; the civic virtue that we are all in this together, and that living in a society together requires certain sacrifices for the common good.

Schuld: debt -- and guilt. 

Haftung: liability -- and responsibility





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