Photographer: Krisztian Bocsi/Bloomberg

Merkel’s Problem: Booming German Economy Is So 20th Century

Low unemployment and high exports are masking a backlog in technology and investment.

Germany’s steady economy is a boon for Chancellor Angela Merkel as she seeks a fourth term on Sunday. Even the diesel-vehicle emissions scandal is barely denting national pride in German high-end manufacturing. Yet a closer look reveals a backlog in 21st-century benchmarks such as broadband and education, pointing to costly catch-up efforts facing the next government.  

Full Coverage: German Election

Europe’s Job Engine

Buoyed by a labor-market overhaul whose difficult implementation helped bring down her predecessor, Gerhard Schroeder, Merkel is presiding over the lowest jobless rate since East and West Germany reunified 27 years ago. It’s a testament to the global market strength of German companies, which depend on the free trade that Merkel has pledged to defend as countries including the U.S. flirt with protectionism.

Most Productive

Germany’s “social-market economy” features national health care, a minimum four weeks of annual vacation and high taxes. Its workers also are among the world’s most productive, beating France and rivaling the U.S. Education, including vocational training, and the large number of closely held Mittelstand—small and midsize—companies are prime reasons.

Powered Up

Germany’s lead isn’t just in industry. Renewables got a boost when Merkel decided to step up government promotion of wind and solar generation after legislating the phaseout of nuclear power in the wake of the 2011 Fukushima reactor disaster. While her policy was attuned to the public mood, the surcharges to fund it have given Germany some of the world’s highest power prices. Meanwhile, other G-7 nations are narrowing the gap on renewable energy.

Getting Smaller

The prospect of a shrinking population and the potential hit on economic growth is a challenge and a talking point for politicians from Merkel to the anti-immigration Alternative for Germany party, which wants ethnic Germans to have more children. Studies predict a growing population gap with France and the U.K., even though some 1.3 million refugees came to Germany in 2015 and 2016.

Out of Business

MBA culture has been slow to take hold in Germany and its business schools aren’t highly ranked globally.  There’s some growth in private business schools, but it’s driven in part by foreign students. Paying for a business degree is still a hard sell in a country accustomed to free higher education and where asset managers are denounced as “sharks of finance” even by pro-market politicians.

Underinvested

Merkel’s fiscal priority during her latest term was balancing the federal budget, prompting criticism that Germany is jeopardizing the future by neglecting public investment in everything from school bathrooms to defense. Even Germany’s BDI industry federation says the government should spend more at home and take international complaints about Germany’s trade surplus seriously.

Not So Fast

German parties are jostling to promise business and ordinary citizens a better digital future, including a pledge of “broadband for all” by the Social Democrats, Merkel’s main opponent. What’s less clear is how much money is available to spur fiberoptic networks, where Germany ranks last in the G-7. 

 

— With assistance by Hayley Warren

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE