Three major forces appear to be driving this awakening in the world’s third largest economy: greater efficiency in the labor market (as unions weaken and corporations hire more temp and part-time workers) in corporate organization and in the use of capital (plants and equipment). Of these three forces, the newest, most important and least well recognized is the capital revolution. German production has always been seen as a model of efficiency, obscuring the fact that it lagged behind in adopting new information technologies–the elixir of the Anglo-Saxon productivity revival of the late 1990s.
That is now changing. Germany’s IT share of business capital-spending budgets is on the rise and, according to statistics from the Organization for Economic Cooperation and Development, now exceeds that in France, the United Kingdom and even Japan. For years, business road warriors couldn’t connect their computers while traveling in Germany. As the Internet revolution swept the globe, the world’s third largest economy was on the outside looking in. Today wireless service is available everywhere one goes in Germany.
IT also helps drive productivity for industrial behemoths such as Siemens, Bayer and E.ON, which are unlocking efficiencies by spinning off subsidiaries and adopting new logistics and supply-chain management systems. IT reinforces efficiency breakthroughs coming from an increasingly flexible labor market. It breaks down communications barriers and enables the remote connections that many part-time workers need to work effectively outside the office.
Germany started late and missed the early stages of the IT revolution. But late movers need not be penalized. They may in fact benefit by acquiring more powerful and more recent vintages of new technologies at lower prices, rather than being burdened with the high-priced first-generation IT platforms. A wired Germany Inc. can only enhance this nation’s impressive global competitive prowess. In the latest Global Competitiveness Index published by the World Economic Forum, Germany was ranked No. 2 in business competitiveness behind the United States and No. 1 in terms of business sophistication.
Nonetheless, Germany still suffers from a major image problem. Budget deficits, high wages, a costly social contract and glacial reform create a false impression of a stagnant economy. If Germany can sustain this productivity revival, its stodgy image will fade away.
