Realist, not conformist analysis of the latest financial, business and political news

Identifying Germany’s Actual Problem

It’s the beer that’s interesting, Tsk. Bởi File:Hacker-Pschorr Oktoberfest Girl.jpg by Markburger83Derivative work: Lauro Sirgado (Thảo luận · đóng góp) – Self-photographed (Original text: Personal photoshoot 2011, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=37602748

I’m a great believer in it being systems which go wrong, not individuals who nominally control them. Russian style socialism didn’t fail because Brezhnev, or Andropov, were in charge, the Soviet system failed because the Soviet system was a shite manner of trying to organise the world. Pol Pot may well have directed the Khmer Rouge but that death of a third of the population or whatever was because an attempted return to rural peasantry will kill a third of the population. That it is directed to happen might well be the result of the individual idiot gaining power. But the failure is the result of what is attempted, not who is directing it.

At which point Mutti in Germany:

A masterful manager, always working from the best available evidence, and presiding over an economic powerhouse. Over the 16 years she has been in power, German Chancellor Angela Merkel has always received glowing write-ups in the international press. And yet the floods over the last weekend have highlighted a more uncomfortable truth. The German state is increasingly dysfunctional, its infrastructure is crumbling, and its economy remains rooted in the past.

Of course, any country can be hit by extreme weather. The floods over the weekend affected Belgium almost as badly, while the UK’s record is hardly anything to be proud of. And yet the scale of the devastation in western Germany is unprecedented in Europe, and comes on the back of a chaotic vaccination programme, and disastrous infrastructure projects. All of those reflect a Chancellor who has postponed tough decisions, been obsessed with controlling debt, and pursued a mercantilist economic policy that prioritises industrial exports over anything else.

Merkel can be blamed for the system, yes. But not for the failure of the system. The point being that whoever was in charge of the current German system would face exactly the same problems.

The problem can be described by borrowing from William Baumol. Who insisted there was a significant difference between innovation and invention. In his definitions innovation is the incremental sharpening, improvement, of something that already exists. Large companies, extant organisations, are often very good at this. Factories that do exist tend to become more efficient over time. No one quite knows why but they do, several percentage points a year. Peeps in them just get more efficient at whatever they’re doing. This tends to happen whether someone is driving productivity change or not.

Invention is a different thing, this is the creation of something new. This is something that large organisations (and it’s easy enough to see Baumol meaning both government and large corporations here) simply aren’t good at. Sure, it happens occasionally but more often by mistake than anything else. It’s the two deluded idiots in the garage that make the new thing that changes the world.

To borrow this. The German economy is indeed highly efficient. It has a plethora of small and innovative companies – the Mittelstand. But here’s the problem, the German economy is efficient at doing what the German economy does slightly better each year. What it’s not good at is doing new things.

That highly detailed ordnung thing, the system of bank finance rather than equity, the co-decision making with the unions and on and on. It’s just great at fine tuning extant processes. It’s terrible at even accommodating, let alone encouraging, new things.

The German economic model produces efficiency, quite so, so we cannot say that it produces stasis in productivity. But it does produce stasis in the structure, rather than the efficiency of extant processes. And, well, given that over the long term it’s the new things we do that matter, not how much better we do the old, this is something of a systemic problem, isn’t it?

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Quentin Vole
Quentin Vole
4 months ago

Large companies, extant organisations, are often very good at this. Factories that do exist tend to become more efficient over time. No one quite knows why but they do, several percentage points a year. Peeps in them just get more efficient at whatever they’re doing. This tends to happen whether someone is driving productivity change or not.

I doubt that governments are very effective at this – what would be their motivation for becoming more efficient?

Jon Jermey
Jon Jermey
4 months ago
Reply to  Quentin Vole

So that the people in government who are doing the actual work have to do less of it, and the people that aren’t can go on doing none of it.

A general Tim fan
A general Tim fan
4 months ago

What’s the analysis got to do with the statement of the problem? Germany has lots of firms who are very good at what they do (and at marketing themselves worldwide). They aren’t very good at doing radical invention. I know of a couple of people who started small businesses in Germany but couldn’t make them worthwhile. These seemed to be side hustles they couldn’t expand and closed down as too difficult to keep going so it seems to me that being an entrepreneur isn’t encouraged. Let’s not forget that the BioNTech vaccine was a German invention, even if the inventors… Read more »

jgh
jgh
4 months ago

“Factories that do exist tend to become more efficient over time. No one quite knows why but they do, several percentage points a year. Peeps in them just get more efficient at whatever they’re doing.” Practice. Once you’ve been doing a task multiple times you get used to how to do it, you get used to thinking ahead into the possible futures as you’ve encountered them before, and can anticipate them, and you know what the rectifications are as you’ve already found them. Which is why, when I was teaching, if somebody had difficulty reading I’d advise them (nb: not… Read more »

Michael van der Riet
Michael van der Riet
4 months ago
Reply to  jgh

In an advanced society, before you fart you have to do an environmental impact study, clear it with the unions, and make sure it is diverse and gender-accepting. Are farts racist? This tends to put on the brakes a bit and there are a lot of bottled-up farts.

jgh
jgh
4 months ago

Similarly, before you’re allowed to learn to read, it has to be “proper” reading. God how I used to rage against that. I DON’T CARE, JUST READ ANYTHING! Words are words are words.

TD
TD
4 months ago

There are some pretty funky factories out there. What keeps some trying to become more efficient, or even innovative or possibly inventive, is competition breathing down their necks. Unions, of course, are often dedicated to keeping them overstaffed and less productive, until the proverbial golden goose dies.

I always thought German lack of inventiveness, which many might say is not just limited to Germany but the entire continent, was considered a feature and not a bug.

Snarkus
Snarkus
4 months ago
Reply to  TD

Ironic. In 1930 and 40ss German advanced aircraft designers came up with ideas that were taken by the victors. Bell X1 for instance, Was a Messerschmidt development. Lets not talk about rocketry or orbital skip bomber. I digress. Since the Euro seems to be originally the German Mark, what happens when the German economy crumbles due to high energy costs etc ? Will Greece and Italy declare independence ? Will France decide to punish its old nemesis by cutting off its nuclear electricity to remove an industrial rival, once demand for electricity exports becomes too much ? One wonders if… Read more »

dodgy geezer
dodgy geezer
4 months ago
Reply to  Snarkus

The Bell X1 was developed by the US, from ideas and detailed design work done by the British. Look it up on the Wiki, and read about the Miles M.52 …

Snarkus
Snarkus
4 months ago
Reply to  TD

In my own limited experience, the arrival of Continuous Improvement, under whatever nom de jeur, fossilized processes and procedures, stifling innovation and change. Perhaps the German efficiency has created the seeds of its own obsolescence ?

Michael van der Riet
Michael van der Riet
4 months ago
Reply to  Snarkus

That’s the way it’s always been done around here. Just shut up and get on with it.

Louticus
Louticus
4 months ago
Reply to  Snarkus

CI, TQM, zero defects, quantitative performance metrics (KPI !!!), all modern management techniques that enable professional management to get paid six figures while doing the job of a $150 computer and $10 spreadsheet. (Keeping in mind that TQM is great for what it was designed for; repetitive manufacturing processes). Not just Germany, its the whole western industrialized world.

Boganboy
Boganboy
4 months ago

Hard to see how you could improve the bird and the beer.

But I’d argue that the cancelling of the nukes and the turn to the Greens means that the old national socialist tendencies have revived. Though I’ll admit it’s now global warming instead of Welteislehre.

Leo Savantt
Leo Savantt
4 months ago

Flooding in Germany is partly a result of European Union Directives which have largely prevented the dredging of many water courses, classified that which is dredged in such as way as to make it prohibitively expensive to process and more broadly prevented sensible land management. The UK have previously suffered the same issues. The blame might then be laid either at the European Commission’s feet, although the Chancellor being a committed supporter of German’s membership and adherence to EU rules is a cog in this spectacularly dysfunctional machine.

Spike
Spike
4 months ago

1. Invent and innovate are essentially synonyms. 2. Both sequential improvements and game-changers (getting to Manchester more efficiently versus obviating the trip) are part of applying brains to processes, always because increased efficiency means real income gains. 3. Prosperity brings the ability to dabble in Zero Risk, prior restraint, and national suicide. This inhibits invention and innovation. 4. Germany may be the poster child for stasis but it is not unique. Wildfires and rolling blackouts in California and Texas are also the result of eco-affectations. 5. Countries are filling up and full of permit requirements. It’s impossible to build a… Read more »

Louticus
Louticus
4 months ago

There often is a “tyranny of success” thing going on. Once you have a track record for success, its hard to change, even though the world changes around you.

The thing about factories is they don’t all become more efficient. Various firms try various things; things that work usually result in success, things that don’t work usually result in failure. The marketplace enforces accountability, in the ideal of course. With governments, how much accountability is there? When was the last time you read about a retired/fired politician or bureaucrat living in poverty?

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