Tag Archives: Germany

Europe on the Brink

30 Nov

The collapse of the eurozone would likely have a very negative affect on our economy, but would devastate Europe. The euro’s survival depends on large part on Germany, the EU’s largest economy. While founding members like Germany and France are quick to blame rapid expansion of the EU into developing countries of the former Eastern Bloc, but Polish Foreign Minister Radoslav Sikorski gave a speech to the German Society for Foreign Affairs in Berlin, basically imploring – and demanding – that Germany get off its ass and save the eurozone.

Excerpts of Sikorski’s blockbuster speech are summarized in this Financial Times op-ed (registration required).

To the always-Euroskeptic United Kingdom, Sikorski had this to say:

A critical issue is whether Britain, such an important member of the EU, can support reform. The eurozone’s collapse would hugely harm Britain’s economy. The UK’s total sovereign, corporate and household debt exceeds 400 per cent of gross domestic product. Can London be sure markets will always favour it? We would prefer Britain in, but if it can’t join, please allow us to forge ahead. And please start explaining to the British public that European decisions are not Brussels’ diktats but results of agreements in which you freely participate.

The two euro zone economies with the largest growth over the past four years have been Poland and Slovakia – relative EU newbies who are often blamed by the founding economies for being the root of all eco-social evil.

The EU has always been a sort of quasi-government – not even rising to the level of a confederation, its union has always been more about economics than politics. Sikorski believes it’s time to strengthen the EU into a “fiscal federation”.

What, as Poland’s foreign minister, do I regard as the biggest threat to the security and prosperity of Poland in the last week of November 2011? It is not terrorism, and it is certainly not German tanks. It is not even Russian missiles, which President Dmitry Medvedev has just threatened to deploy on the EU’s border. The biggest threat to the security of Poland would be the collapse of the eurozone.

I demand of Germany that, for its own sake and for ours, it help the eurozone survive and prosper. Nobody else can do it. I will probably be the first Polish foreign minister in history to say this, but here it is: I fear German power less than I am beginning to fear its inactivity. You have become Europe’s indispensable nation. You may not fail to lead: not dominate, but to lead in reform.

It’s created quite a stir throughout EU, which boasts 500 million residents and represents 20% of global GDP.

Buffalo’s Mittelstand

9 Feb

The general post-Super Bowl consensus is that the commercials sucked, except, perhaps for this one:

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Imported from Detroit. Catchy, right? Chris Byrd, Broadway-Fillmore advocate and general Buffalo booster, summed up the feelings of plenty when he said he wished Buffalo had such an ad.

The commercial reminded me, though, of how Buffalo, probably through accident, or at least necessity, took a different path from Detroit some time ago, and how we will be better off for it. Fifty years ago, Detroit and Buffalo were muscular brothers towering astride Lake Erie between them, cranking out cars and steel and prosperous lives for millions of workers. Bethlehem Steel failed faster and harder than the American car industry, but Buffalo’s current manufacturing prowess, a legacy of the worker boom, positions us in fine global company. 

It is a myth that American manufacturing output has fallen along with manufacturing employment. In fact, we still produce as much as China, India and Brazil combined, a sum that accounts for 20% of the world’s capacity and hasn’t changed in 40 years. But the sector’s impact has shrunk as a percentage of the US economy: it is down to 11% of our GDP, and is only 9% of our employment and dropping, as outsourcing and productive technologies continue their advancement.

Contrast the United States with the world’s current economic darling: Germany. Manufacturing still accounts for a full 25% to 30% of their GDP (depending on the fact sheet one checks), and 12% of employment. And while globalization has affected Germany as well, it has largely been for the better, through planning, culture and geographic luck. The great savior of German manufacturing is the mittelstand, small and medium sized family owned firms that specialize in and dominate their niche markets. 70% of German manufacturing employment is at mittel firms, and they have taken advantage of globalization by making machines that make other things. As The Ecomomist notes: “If a particular job can best be done by a machine, then the chances are that the machine in question was built in a small town in Germany.”

Chinese factories are humming with equipment made by small German firms. The machines themselves were probably constructed in part in Czech or Poland, where labor is cheaper but supply lines are far denser and parent company influence is stronger and more proximate than General Motors’s Michigan-Mexico chain. Yet, the Mittel-Management trend – focusing on slow growth, family firms, industry specialization, business to business sales and international exports – is not confined to Germany. It is spreading to Harvard Business School, Silicon Valley and the industrial Midwest.

Image courtesy apiheattransfer.com

And in this way, Buffalo resembles Germany more than the greater United States. Despite the rise of the health care industry and business back off services, manufacturing still accounts for 11% of Buffalo’s jobs. That’s twice as many as our growing financial sector, and three times as many as work for state government (including UB). International exports account for 11.8% of our region’s GDP, compared to 9% nationally. And like Germany, Buffalo is not dominated by huge companies that boom and bust. Detroit still suffers from going as the Big 3 go. We made the painful transition from such corporate dependence, and now Tonawanda, Buffalo, Lackawanna, Niagara Falls, and Cheektowaga are full of companies you’ve never heard of, employing 50- 200 workers each, making heat transfer coils, laminates, valves, shelving and storage units, conveyor belts and air separation equipment. Yes, we are still home to GM, Ford, Delphi, and Moog. But there are far more K-TECHs, Audubon Machineries, Kraftwerks, and AirSeps, and they increasingly represent the future of American value-added manufacturing.

Why? Because the challenge for all manufacturers is to reduce the cost per unit of production, and mittel firms leverage their expertise to move than statistic beyond simple labor costs.  In Italy, where the mittelstand exist as textile firms, much cloth production was outsourced to Romania, where labor costs were lower. New factories were established, and after much diligence, the quality of cloth at the Romanian factories was equal to the Italian. The cost per unit was higher, however, and many jobs are now moving back to Italy. Why? The machines at the Romanian factories would often break, requiring costly repairs and many hours of lost production. The Italian workers, using the same machines, had such expertise that they could anticipate breakages – a change in pitch, a slowing of a system – shut the machines down to prevent damage, and then fix them themselves. High quality cloth, higher labor costs, lower cost per unit, ultimately higher productivity. This is how the United States, and Buffalo, compete with China in the 21st Century.

It goes without saying that Buffalo can do better to encourage, reinforce and reinvest in this trend. Our school’s BOCES programs are larger and more comprehensive than most, but still not the equal of the German Gymnasium system. Whether by planning or accident, Buffalo is well positioned to emulate a global leader.