January 30, 2018

LAM | The German Remedy for America’s Manufacturing Ills

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On a recent road trip to the Midwest during winter break, I indulged in various podcasts on science, politics and history when my music selection ran out.  One of them was Freakanomics Radio’s “What Are the Secrets of the German Economy — and Should We Steal Them?”  It was a few months old, but seeing the remnants of industry along the plains of the Rust Belt reminded me the importance and immense scale of America’s manufacturing decline.

After all, Trump’s focus on it as a campaign issue was a key factor in sweeping an inexperienced, vulgar celebrity into White House.  In fact, the Rust Belt states of Ohio, Wisconsin, and Pennsylvania directly tipped the presidency in his favor on election night.  As I had written in a previous article, That 70’s Show also handled the issue of American industrial decline on the micro scale, when patriarch Red Forman has to work part-time at a G.M. plant.  However, he later loses his job because the plant had been closed and later takes up a supervisory role at a supermarket.  Trump took on the issue with diatribes on China and US trade officials and shallow promises on renegotiating trade deals.  Although his solutions were incoherent, the Republican at least acknowledged the issue and that fact arguably won him the election.  Clinton, on the other hand, provided a tepid response on trade.

Even a year later, however, the Democrats still do not seem to have a narrative, a solution.  They are against Trump, but for what?  Beneath their opposition to Trump’s ridiculous policies and antics, which should continue, Democratic politicians need a positive alternative.  Being anti-Trump is not enough.  Desperate for the Democrats, I listened to this podcast episode, as the lightly-snowed fields became increasingly flatter and Ohio came into view.

The show first highlights the well-known fact that Germany remains the sole developed nation that has a trade surplus.  While American plants were being outcompeted by counterparts in developing nations like China, German plants stayed afloat.  The most obvious reason is that there is an insatiable Chinese demand for German goods, especially cars — which are seen as luxurious and reliable.  As China’s economy grew, partially at the expense of American manufacturing, so did its demand for German goods.

Trump drew the national spotlight on this problem by invoking anger against trade deals. But I believe that economic forces — way more powerful than any one trade deal—  are behind this great decline.

At the root of it, it’s supply and demand — there is American demand for Chinese, Japanese, German, and Mexican goods, and not enough international demand for American goods.  And why is there such high demand?  Their product is better — well, for the price.  After buying a Saturn S-Series Twin Cam in the 90s, my father swore he would never buy an American car again.  It was noisy and unreliable.  The sun visors fell off within a year.  Yet, that car and its other domestically-produced counterparts, were actually more expensive compared to Japanese rivals.  For such low quality, no one in the world would be willing to pay such high prices, besides an oblivious first-time buyer like my dad.  On the other hand, buyers around the world are willing to pay a premium for Germany’s high quality cars.  And given developing countries’ competitive advantage of low costs, American manufacturing firms can only compete with a model of premium quality and high prices, like German firms.  Don’t blame it on “bad” trade deals — no matter how advantageous a trade agreement is, if American goods are subpar and overpriced, there won’t be any demand for them

Instead of breaking trade deals and putting uncertainty in the market, government should invest in initiatives that invest in American workers, like German-style apprenticeship programs.  Post-recession, there has been a clear demand for this type of vocational training for Americans.  New York’s subway cars are literally filled with ads for vocational schools for jobs like plumbers, mechanics, and electricians — more than half of which look very sketchy.  Washington should work with the private sector to create legitimate, respected programs that can better equip Americans who are not going to college or need to switch industries.  The Department of Education can at least authenticate private options and sponsor students.  Of course, Germany is a very different country than the United States.  But our people are currently desperate enough for change that they voted in a reality TV show host into the White House.  Our leaders must take up the courage and try something, even if it means copying another country.

In fact, the last thing to learn from Germany is for us to swallow our throats and accept help.  Despite its portrayal of German economic success, the podcast does mention Germany’s recent struggles of post-war reconstruction, division, and reunification.  And many of the German guests on the show still point to current imperfections in their system.  American exceptionalism has allowed our people, government and businesses to become complacent.  The financial crisis and deindustrialization process has been difficult for many, but we cannot just eat up and cling on to false promises and scapegoating from a charlatan.  We must learn and accept help from the world, instead of antagonizing it.

History has shown that countries and civilizations often benefit from humility and decline with hubris.  Peter the Great recognized this and personally went to the Netherlands to learn European shipbuilding and technologies to import them back to his country.  On the other hand, the Qing Dynasty was unable to defend itself, after locking its country from outside influences for decades.  Peter’s later successor, Nicholas I, in an effort to insulate his empire from liberalization movements on the Continent, also closed off his country — Russians were literally banned from traveling abroad.  And his rule, from 1825 to 1855, resulted in thirty years of stagnation, which arguably led the Russian Empire to collapse at the turn of the century.  We cannot let these four years become America’s period of false hopes and inaction, and worse, being left behind.

Matthew Lam is a senior in the College of Arts and Sciences. He can be reached at mhl82@cornell.edu. The Despatch Box appears alternate Wednesdays this semester.