Online Extra: The German Way: Slow but Steady

Management expert Ulrich Steger argues that his country's economic system has advantages in times of turmoil

Few people have observed the German economy from as many angles as Ulrich Steger. Now a professor at the International Institute for Management Development in Lausanne, Switzerland, Steger served on the management board of Volkswagen through the early '90s. He has also been a member of the German Parliament and was economics minister of the German state of Hesse. Today, Steger is among those who believe the German economic model -- more deliberate but also more stable -- could prove to be advantageous in unstable times. He shared his views in a recent conversation with BusinessWeek Frankfurt Bureau Chief Jack Ewing:

Q: Do you think we could be entering an era where Germany's traditional strengths give it a competitive advantage?

A:

American forgot that in the '70s and '80s they were really in the doldrums. Everyone was complaining about the deindustrialization of America...We have a couple of branches where we are very strong, such as autos, chemicals, and machine tools.

Q: What's the fundamental difference between U.S. and German business?

A:

Germans are by nature engineers and not entrepreneurs. One of the reasons Ford and GM never get their problems fixed is they have too many entrepreneurs and controllers and not enough engineers. To bring 30,000 parts together so you have the ultimate driving machine, that requires attention to detail and not bold entrepreneurship. That's especially important now that the hype of the New Economy has gone up in flames.

Q: Should German business be more diversified?

A:

We have areas where we are still weak, where we have always been weak. We do not produce great movies. We cannot compete with Hollywood. But the traditional strengths have been maintained. If you believe in trade and the advantage of trade, you believe that different economies have different strengths and comparative advantages. Why shouldn't we import T-shirts from China if we can sell them our Volkswagens? The successful strategy is that you build on your strengths.

Q: What about the criticism that Germans are too cautious.

A:

In Germany, everything takes more time. We are not like the U.S., where you take it to the limit, see what you can get out of it, and then bounce back. This overinvestment boom in IT is a typical example. Sometimes we move too slowly. This is true for corporations as well as politicians. If you look at U.S. companies, every time a new CEO comes in, they turn everything upside down. By the way, the dream of every German CEO is to have the salary of his U.S. counterpart and the comfort of German corporate law.

Q: So which system is better?

A:

In Germany you have much more continuous evolution. You can argue endlessly what is better. This is rooted in deep cultural traits you cannot change overnight. This is a problem for Americans. The Americans always set themselves as the benchmark. It's hard for them to understand other countries which may be different and quite successful.

Q: What about unemployment?

A:

It's true that in recent years we have lost more jobs than we have created. There is a shift from labor to capital. The question is: Where do you create new jobs? There is no doubt that big industrial companies will not create on balance big job numbers. In industry you have rationalization, so you have on balance you have job losses.

Q: Do you think German bureaucracy puts the nation's business at a disadvantage?

A:

I was on a panel with David Buzelli [a former vice-president of Dow Chemical]. We had a debate about which country has the most contradictory legislation on environmental protection. I argued the Germans, he argued the U.S. He finally beat me on one argument. In Germany, the regulations are implemented by engineers and in the U.S. they're implemented by lawyers. Americans pretend that they are a freewheeling country without intervention...[laughs]. We are far too regulated. But industry is to blame at least as much as anyone else. Every special group wants special legislation.

Q: How do you explain the current pessimism about Germany? Is the outlook that bad?

A:

The German business community is great on self-pity. Germans are world champions in complaining. If you listen to the complaints, you would forget we are a pretty prosperous and well-organized and successful country.

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