‘Capitalist’ US vs ‘Socialist’ Germany

In this video, there was one particular point about Germany that stood out. Germany is 1/5 the size of the US and yet has the second highest trade surplus in the world (after China). They’ve accomplished this while having higher rate of unionization and higher pay. Interestingly, the US economy was also doing better when unionization and pay was higher in the US.

Unions in the US are considered socialists even though they represent the working class. In Germany, it’s required for worker representation to be half of board members of companies. In Germany, the industrial and financial sectors are highly regulated keeping jobs from being outsourced and ensuring main street benefits rather than just wall street. According to conservative ideology, this kind of socialist practices and union power should destroy the economy and destroy innovation and yet the complete opposite is the result.

This seems to support Noam Chomsky’s arguments. Chomsky thinks the world would be a better place if workers had more power to influence the companies they work for and influence the economy they are a part of. As a socialist liberal, Chomsky genuinely believes it’s good to empower the average person. It would appear Germany has done exactly this and has become immensely successful by doing so.

Here is an article by the interviewee:


Most Americans, I suspect, believe we’re losing manufacturing because we can’t compete against cheap Chinese labor. But Germany has remained a manufacturing giant notwithstanding the rise of East Asia, making high-end products with a workforce that is more unionized and better paid than ours. German exports came to $1.1 trillion in 2009 — roughly $125 billion more than we exported, though there are just 82 million Germans to our 310 million Americans. Germany’s yearly trade balance went from a deficit of $6 billion in 1998 to a surplus of $267 billion in 2008 — the same year the United States ran a trade deficit of $569 billion. Over those same 10 years, Germany’s annual growth rate per capita exceeded ours.

Germany has increased its edge in world-class manufacturing even as we have squandered ours because its model of capitalism is superior to our own. For one thing, its financial sector serves the larger economy, not just itself. The typical German company has a long-term relationship with a single bank — and for the smaller manufacturers that are the backbone of the German economy, those relationships are likely with one of Germany’s 431 savings banks, each of them a local institution with a municipally appointed board, that shun capital markets and invest their depositors’ savings in upgrading local enterprises. By American banking standards, the savings banks are incredibly dull. But they didn’t lose money in the financial panic of 2008 and have financed an industrial sector that makes ours look anemic by comparison.

The above video reminds me of another video I watched a few weeks back.

The author in this second interview is comparing the US to Europe, but he specifically talks about Germany. He also mentions the importance of unionization in Germany and he puts it in the context of their quality education system. German students are taught to understand politics and the role of unions. Also, students are taught real trade skills and taught the importance of unions in protecting trades.

As Hartmann points out, the middle class in the US has been become an endangered species. The author agrees in saying that US society only helps the plutocratic rich and even disadvantages the average rich person. There actually is more entrepreneurship in ‘socialist’ Europe than in the ‘capitalist’ US. One thing that helps small businesses in some European countries is single payer which lowers business costs. Of course, ‘socialist’ Obama simply ignored single payer during the health care debate. What right-wingers in the US don’t understand is that ‘socialism’ helps both the workers and small business owners… whereas ‘capitalism’ (as practiced in the US) helps only big businesses while hurting both workers and small business owners.

Here is another interview with the author in the second video:


Why is it useful to compare ourselves to the Germans?

Germany has the highest degree of worker control on the planet since the collapse of the Soviet Union. When I saw German labor minister Günther Horzetzky in April of 2009, he said “Our biggest export now is co-determination.” He meant that other European countries were coming up with versions of it.

How did Germany become such a great place to work in the first place?

The Allies did it. This whole European model came, to some extent, from the New Deal. Our real history and tradition is what we created in Europe. Occupying Germany after WWII, the 1945 European constitutions, the UN Charter of Human Rights all came from Eleanor Roosevelt and the New Dealers. All of it got worked into the constitutions of Europe and helped shape their social democracies. It came from us. The papal encyclicals on labor, it came from the Americans.

[ . . . ]

Thomas Friedman’s “flat world” theory predicts that in the future, all countries will be competing on an equal playing field — paving the way for highly-populated countries to dominate the world economy. Do you agree with him?

How does he explain the existence of Germany? What country has the highest exports in the world today? It’s the country with the highest wage rates and union restrictions. Germany has become more of a power, not less of a power as the world has become more global. Our problem isn’t competing with China, it’s competing with Germany in China. We’re so focused on China all the time, and low-wage assembly stuff, that we’re missing what’s going on. It’s Germany that’s going in and selling stuff in China that we ought to be selling that would hold down the trade gap between the U.S. and China. It’s not China’s fault; it’s Germany’s. But no one wants to talk about that. Because that would raise questions about the whole U.S. model: Why is this high-wage country beating us? Why are the European socialists beating us? It’s too subversive an idea so we don’t allow in the discourse.

I decided to add one other comparison. I had recently perused some of the book The Spirit Level by Wilkinson and Pickett, and I had mentioned it in a post last month (Mean Bosses & Inequality). After posting all the above, I thought I should look at the data on wealth disparity and social problems in order to see if Germany does better than the US.

There apparently were problems with social disruption after reunification which led to some social problems, but the restructuring that followed decreased over time the income inequality and social problems (similar to what post-war restructuring did to improve Japanese society). Presently, Germany has less than half of the income inequality seen in the US (Germany having income equality that is about average for Europe and the US having high income inequality similar to countries such as Singapore and Israel). The US has a much higher average income than Germany, but because most of US wealth belongs to the upper class whereas most of the German wealth belongs to the middle class. Also, Germany has high social mobility and the US has low social mobility (most wealth coming from privilege and inheritance)… which is interesting to put in context of Americans working on average more hours and have less vacation time than Germans.

What this means in terms of social problems is that Germany has lower rates and the US higher rates of the following: mental illness, imprisoned per capita, drug use, homicides, infant mortality, obesity, teen pregnancy, and children’s experience of conflict (“reported fighting, bullying and finding peers not kind and helpful”, p. 139). And Germany has higher rates and the US has lower rates of the following: UNICEF index of child wellbeing, longer life expectancy, happiness, and recycling.

In The Spirit Level, the authors point out one particular impact this has on children. They write (pp 116-7), “when we first looked at data on children’s aspirations from a UNICEF report on childhood well-being, we were surprised at its relationship to income inequality.” They continue:

More children reported low aspirations in more equal countries; in unequal countries children were more likely to have high aspirations. Some of this may be acounted for by the fact that in more equal societies, less-skilled work may be less stigmatized, in comparison to more unequal societies where career choices are dominated by rather star-struck ideas of financial success and images of glamour and celebrity.

In more unequal countries, we found a larger gap betwen aspirations and actual opportunities and expectations. If we compare… maths and reading scores in different countries… it is clear that aspirations are higher in countries where educational achievement is lower. More children might be aspiring to higher-status jobs, but fewer of them will be qualified to get them. If inequality leads to unrealistic hopes it must also lead to disappointment.

Gillian Evans quotes a teacher ta an inner-city primary school, who summed up the corrosive effect of inequality on children:

These kids don’t know theyr’e working class; they won’t know that until they leave school and realize that the dreams they’ve nurtured through childhood can’t come true.

I brought this up because it’s another comparison of US and Germany. Going by the data (UNICEF – Child poverty in perspective), German children are about twice as likely to aspire to low skilled work. Most people probably think lack of aspiration for greater opportunities means lack of opportunities or lack of seeking out opportunities, but the data shows a very different picture.

In the US, children have a lot of aspiration and yet have less opportunity to fulfill that aspiration (because of income inequality and low rate of social mobility).

In Germany, children have less aspiration and yet are more likely to achieve further beyond the socio-economic status they were born into.

This goes against commonsense. Americans like to believe we live in a meritocracy, like to believe that if you dream big enough anything is possible. However, this has a dark side in that idolizing the wealthy leads American society to demonize the poor. To be working class in America and never striving to better yourself means that you aren’t living up to your potential and therefore are in some sense a failure. To be working class in Germany, on the other hand, is considered worthy. The American ruling elite told average Americans that working class jobs were undesirable and so sent most of our manufacturing jobs overseas, but Germany maintained it’s manufacturing jobs and through unionization made sure those jobs had good benefits.

Sadly, the American Dream will forever remain a dream for most Americans… and yet few Americans seem to understand why the American Dream has been dying.

– – –

Since posting all the above, I noticed an article about the relationship between economic growth and income distribution, specifically why inequality undermines sustainable growth:

Warning! Inequality May Be Hazardous to Your Growth
Andrew Berg & Jonathan D. Ostry

Here are some other related articles and papers:






And I noticed that there are several nice graphs from the Equality Trust website (which is related to the work and authors of The Spirit Level):

Physical Health


Mental Health

Mental Illness

Drug Abuse








Social Mobility


Trust and Community Life




Teenage Births

Teenage Births

Child Well-being

Child Well-being

Rich  and Poor Countries

Foreign Aid

Equality and Global Warming