West Germany’s Unsung Economic Miracle

Tom Peters

What country’s workers toil 12 fewer weeks (450 hours) per year than Japan’s, yet export 2.5 times more per capita and run an overall positive trade balance that exceeds Japan’s? The answer is easy: West Germany. What nation’s export base is broader than Japan’s and not dependent on a single “customer” (as Japan is upon the United States)? Easy again: West Germany. Why does the average bookstore sport a dozen volumes on Japanese management, but none on West German management? The answer to that is not easy.

While I can’t explain the eerie silence surrounding West German management, I am examining the economic miracle itself. The results of several visits, seminars, and deep digging for written sources can be summarized by eight factors.

1. Training. The Germans are training fanatics. Some cite Germany’s 150-year-old apprenticeship program (with 500-year-old roots) as its chief competitive economic advantage. About 1 million young folks join yearly, banker and baker alike. The typical apprentice (Azubi) spends two or so days at work, two or so in an academically sophisticated vocational school. Firms and regions vie to offer the best apprenticeship programs.

2. Labor harmony. In 1983 the West Germans lost 41,000 days to strikes while we lost 17.5 million days—and we’re not a strong union nation. Consultation, involvement, and partnership are watchwords of West German labor relations. In firms of five or more employees, workers can demand a Works Council (an idea started by Bismarck a century ago); the council has limited formal authority, but symbolizes a no-baloney commitment to sharing responsibility with workers.

3. Quality/constant improvement. The Germans fare poorly in high-profile science prizes, but excel at what one observer calls “technical flair.” The German obsession with quality and ease of manufacture has never been of greater importance than in today’s world markets.

4. Niche markets. The Germans never fully bought into the so-called “Fordist paradigm”—traditional U.S./British mass production schemes. From autos to chemicals to textiles, the Germans are relentless creators of smallish, very high-value added niche markets. For instance, they successfully matched new-found Japanese strength in machine tools (a West German preserve) by moving further up the customization chain; fully two-thirds of the German machine tool industry’s output is now “one-of-a-kind” products. That’s specialization!

5. The Mittelstand. BusinessWeek‘s list of the world’s 1,000 biggest firms includes 345 Japanese companies, 353 U.S., and just 30 West German outfits. The peerless West German economy is not dependent upon its giant firms. The Mittelstand, or mid-sized company, domination of Germany’s economy stretches back centuries. Hugo Kunze is typical: With only 130 employees, the firm dominates the global market for stirring, kneading, and shredding machines. West German “little warriors,” unlike their U.S. or Japanese counterparts, have an almost
instinctual global mindset.

6. Export orientation. Peter Drucker insists that an abiding export orientation is the most important contributor to German economic performance. Everyone is trade oriented—small companies as well as the giants; labor and the government as well as corporate managers.

7. Innovation. The Germans often lag in high-technology industries, particularly in information technology. On the other hand, they often lead in applying technology, including information technology, to commercial ends. For example, German machine tool firms have radically “smartened up” their products. Moreover, thanks to the apprenticeship program and labor harmony cited above, West German workers welcome rather than resist (as do their U.S. counterparts) computer-integrated manufacturing and other technically based process-improvement tools.

8. Fiscal conservatism. The West Germans remain spooked by inflation. (It ran so high in 1923 that wages were adjusted twice a day. Workers got their first daily payments and rushed out to buy goods before the prices boomed in the afternoon.) Inflation is kept low, even at the expense of lingering high unemployment; bank involvement in corporations is high and investment strategies are conservative. The advantages of continuing stability far outweigh such costs as the shortage of risk funds for entrepreneurs.

The West German “phenomenon” is real. And with the coming of the open Single Market in Europe in 1992 and the shift to market economies in Eastern Europe, Germany should become even more potent. But the horizon is hardly cloudless. The vibrant, post-World War II Mittelstand leaders are aging—and replacements are scarce. The Japanese challenge to Europe (like that to the U.S. 15 years ago) is still in its infancy. And folding in 18 million East Germans may be more than West Germany bargained for.

We can learn a lot from the West Germans nonetheless. The so-called “cultural gulf” between Stuttgart and Seattle is certainly a lot narrower than that between Tokyo and Toledo. If you want to learn how to master the coming global economy, look to Germany’s unsung Mittelstand as much as to Japanese conglomerates such as Hitachi and Mitsubishi.