Lessons from a Christmas market

This is my Perspective column from this week’s Fund Strategy magazine.

Standing in the middle of Frankfurt’s Weinachtsmarkt, its Christmas market, it is easy to see why many Brits envy aspects of what others still view as The Old Enemy.

Crowds happily mill around in the cold fortified by alcoholic drinks such as Feuerzangenbowle (literally “fire tongs bowl”, mulled red wine with melted sugar cone and rum) and regular Glühwein (regular mulled wine). There are also numerous stalls selling warming winter food including Langos (Hungarian deep fried dough), Kartoffelpuffer mit Apfelmus (deep fried grated potato pancakes with apple sauce ) and multiple varieties of sausage (such as Bratwurst, Currywurst and Rindwurst).

Indeed in the midst of the German speakers there is a smattering of English being spoken in some cases with clear British accidents. No doubt some work in Frankfurt’s substantial financial centre while others are tourists over from Britain.

Indeed many imitation German Christmas markets have sprung up in British cities in recent years. I first came across one in Leeds a couple of years ago and last year I went to one on London’s South Bank. There are other such markets in several British cities. All of the Germans I have asked have insisted these are not like the real thing back home.

I suspect some German-style purveyors of Currywurst and the like are entrepreneurial eastern Europeans – and good luck to them. But the popularity of such markets suggests that, at least in some respects, many Brits are open to learning from Germany.

All of this raises once again a question I have here discussed here before: to what extent can Britain benefit from copying the German model? Politicians from across the main parties have talked of learning from what is sometimes called “Rhineland Capitalism” but Labour is generally the keenest.

Stewart Wood, a key adviser to Ed Miliband, looked at the German model of capitalism for his Harvard PhD. He also contributed to a well-known academic text, Varieties of Capitalism, which distinguished between liberal capitalist economies (such as America and Britain) and coordinated capitalist economies (such as Germany, Japan and Sweden).

Supporters of the German model generally admire several of its features including its industrial strength, its apprenticeship system, relatively low unemployment and greater cooperation between management and employees. While there is a kernel of truth in some of these points they are also typically one-sided.

It is certainly true that Germany has some enviable industrial firms including global brands such as Mercedes and Siemens as well as excellent middle-sized companies. But in many respects Germany’s economy is more troubled than the British experts either recognise or acknowledge.

Although its industrial base is impressive it has fallen sharply as a proportion of total output over the past three decades. In this respect deindustrialisation is not a peculiarly British disease. Industrial output in Germany fell from 48% of GDP in 1970 to 28% in 2010 according to World Bank figures.

German manufacturers also benefitted for many years from an artificially depressed currency. If Germany had retained the Deutsche Mark, rather than switching to the euro, such firms would have found it harder to compete internationally.

Germany is now paying the price for this arrangement through the eurozone’s troubles. In effect it was lending to eurozone countries to enable them to buy German goods and it is having to pay the tab for the credit binge.

In any case Germany’s economic performance is not particularly strong. The most recent forecasts from the Organisation for Economic Cooperation and Development make for depressing reading. The German economy is only expected to grow by 0.9% this year, 0.6% in 2013 and 1.9% in 2014.

As for the apprenticeships they are difficult to replicate. It is easy enough to label many sorts of work experience as “apprenticeships”, as British governments have done, but something else to inculcate high levels of skill. There are many barriers to achieving this objective but one big problem is the way Britain has blurred the distinction between academic learning and skills training. Both have suffered as a result.

Unemployment levels are lower in Germany than in America or Britain but are not that good. A key reason, although again difficult to copy, is that Germany has geared a substantial proportion of its exports to growing Asian markets. As a result employers have also held on to workers, often through Kurzarbeit (short time working schemes), rather than making them unemployed.

Finally, it is relatively little noticed in Britain that German wages have stagnated for two decades. In that respect austerity has existed for many years longer in Germany than in Britain. Part of the reason for this phenomenon is that trade unions, which still have a significant presence in Germany, have collaborated with employers to keep wages down.

No doubt this aspect of Germany’s recent historical experience, the acceptance of austerity by wide sections of the public, appeals to all of Britain’s main parties. It is a great pity that the positive aspects of Germany, such as its broad engineering base, are much less likely to be adopted.

For those who are taking their holiday early, Merry Christmas and Frohe Weihnachten.