Ze problem with ze Germans

Streetwise Professor has a post up about the difficulties facing Deutsche Bank and the arbitrary nature of the $14bn fine the US has foisted upon it.  It is worth reading in full, as are the comments, but I want to expand on this paragraph left by SWP himself below the line:

German hypocrisy on these issues is pretty amazing. It’s not just an incestuous relationship among companies, but between companies, unions, and the government. A very corporatist model.

There is a general view of the world, which is probably held by a majority of people, which goes something like this.

The Western world is in decline because they don’t make stuff any more.  China will soon take over the world because they are making stuff and building things.  Europe is screwed because they aren’t making things and their economies are in freefall.  The only thing keeping Europe going is Germany, because they make things.  They make good cars and machinery that works, and so they have money and are rich, and they support everyone else.  Britain could have been like that but switched their economy to financial services which is just making money out of nothing for a handful of people and not producing anything of real value.

There are some grains of truth in this, but it is largely wrong.  Reinsurance, legal, and project financing services delivered out of London are equally valuable and viable as a cornerstone of an economy as a fleet of BMWs delivered out of Munich.  But that doesn’t really matter, Europeans are about to find out post-Brexit how “unsustainable” Britain’s financial sector is (hint: those banks won’t move to Paris).

What makes the view dangerous is that Germany is viewed as the model to aspire to in terms of how to run an economy and get a population doing something productive.  When in doubt, look at how it’s done in Germany.  Germany has become the father figure of Europe (Fatherland?): provided he is alive and bringing home the bacon, everyone else will be taken care of.  But putting Germany on this pedestal has meant too many people are turning a blind eye to what is actually going on.  European politicians, state bodies, and regulators believe that what is good for German companies and banks is good for Germany, and what is good for Germany is good for Europe as a whole.  I am certain that this is what led to the VW emissions cheating being tolerated for so long (please don’t tell me nobody knew it was going on), and the interests of German companies always seem to be at the forefront of their relations with Russia (Gerhard Schroeder’s appointment to the board of Gazprom’s Nord Stream days after he signed off on it as Chancellor being the most egregious example).  In other words, provided Germany is seen as a father figure in the provider role, everyone will pretend not to notice that Dad is stopping by the casino on his way home from work, taking in a hooker or two at the weekends, and his credit cards are maxed out.

People have been turning a blind eye to Germany’s structural and ethical issues for a long time in the hope that the engine will keep running.  The $14bn fine levied on DB by the US might seem unfair and destabilising, but if it exposes what has been swept under the carpet and bring in transparency and better corporate governance without which Europe’s leading economy might collapse taking the continent with it, it will be a bargain.

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19 thoughts on “Ze problem with ze Germans

  1. I understand that their cars aren’t as well made as they used to be.

    Anyway, this is all beside the point. Quite soon there will be more invader males aged 18-25 than German males. Kaput!

  2. Though I suppose the German might try to solve that problem by recruiting lots of young males from, let us say, Poland, Slovakia, Ukraine, and so on. God loves a merry joke.

  3. I understand that their cars aren’t as well made as they used to be.

    I believe that is the case. Although I hope not, because I have a fairly new one. 🙁

  4. Yes the nostalgic view that manufacturing is good for the economy and less of it is somehow bad for the economy is the generally held view, but absolutely wrong.

    As a share of GDP manufacturing has declined since the seventies by roughly half, China was a late starter to fall but is well and truly on trend now. This decline coincided with the introduction of the microchip which heralded the start of the information age. What the well pronounced global decline means is that consumers do not need as much manufactured stuff anymore in relation to the size of the economy. This decline and the associated improved productivity also correlates with greater prosperity and wealth for all which is a good thing. We are obviously still making things, with less workers, and other areas of the economy are rapidly growing and have pushed manufacturing share of the pie down. Building a jet engine is just as good for the economy as painting a ladies toenails.

    So those harping for a romantic return to the bygone days of higher employment in manufacturing will never realise their false dream, trade unionism will also continue to decline in alignment with the falling significance of manufacturing in terms of share of overall GDP output does. Things like manufacturing replacement knee caps by 3D printing for $10 will still be great economic breakthroughs, I am not saying that manufacturing is dead and buried but just like the agrarian age its time at the forefront of the economy has passed.

    https://www.uschamberfoundation.org/blog/post/manufacturing-s-declining-share-gdp-global-phenomenon-and-it-s-something-celebrate/34261

    On Germany and machines I attended the Bauma exhibition in Munich this year which is the largest exhibition of mechanical equipment in the world and has a high percentage of German manufacturers there as well. Its a great event and I would recommend it to anyone interested in machines. Amongst other things we were meeting with a German company that supplies us our major specialist plant around the world. Their CEO confided in me that they were actually at a point where they were actively embarking on a process of de-engineering their equipment, their engineering sophistication has actually led them into a very difficult market position to sustain.

    On the Finance Investment and Real Estate (FIRE) sector. There are two economies, the productive one which is measured in terms of GDP and the non-productive extractive one called the FIRE economy, some call it the parasite economy. The landed gentry being born rentiers don’t have to bother with the risk of success in the productive economy and only need to keep expanding their asset ownership and rental incomes within the FIRE economy and not fuck it up, whereas new entrants must qualify by firstly working the productive economy to produce something of real value and then invest this value into the FIRE economy in order to lay claim on their right to the future economic rent collection from the asset that is now held within the FIRE economy.

  5. “the interests of German companies always seem to be at the forefront of their relations with Russia”

    Sure, but it’s the same with the US and their relations with, say, China, or the UK and the Middle East – the rule rather than an exception. It terms of consequences, it’s even worse, since – in the long term and in the big picture – Russia is doomed but China and the Islamists less obviously so.

    In terms of talent distribution, the finance vs. manufacturing dilemma is not so much about traditional financial/legal services vs. engineering. Pretty much anyone can become either a decent lawyer or a decent engineer with the right training and experience. One problem is the enormously, if one-sidedly, gifted young people taking quant jobs on Wall Street when they could be doing, say, computational genomics.

    A bigger issue is how to avoid an expansion of the underclass in a post-industrial economy. Germany is famous for its vocational training and apprenticeships that help people with moderate IQs make a good living while retaining a sense of dignity. That would be far more problematic in a de-industrialized economy.

    Anyway, all these intra-European differences are next to nothing in the face of the ongoing Muslim invasion.

  6. Sure, but it’s the same with the US and their relations with, say, China, or the UK and the Middle East

    See, I’m not convinced by that. I can’t think of an occasion in the past decade where US foreign policy has been shaped by the interests of an American corporation. For all the talk of the Iraq War being fought on behalf of American oil interests, ExxonMobil still had to bid for a crappy service agreement (and the nonsense about the war being fought on behalf of Halliburton was just that). As I said at the time regarding Nord Stream:

    If true, this stinks to high heaven. Unsurprisingly, the European press has raised barely a murmur over this. Can you imagine the noise that would be made if the US signed an historic deal to export Alaskan crude to China, and George W. Bush took the reigns of the pipeline consortium weeks after leaving office?

    And it is the American Foreign and Corrupt Practices act which is forcing non-American companies to clean up their acts, not their own legislation.

    Europeans always seem to assume that American corporations have their own government over a barrel, but having worked for both American and European corporations, it is the former who are more afraid of their own government.

    A bigger issue is how to avoid an expansion of the underclass in a post-industrial economy.

    This I agree with.

    Anyway, all these intra-European differences are next to nothing in the face of the ongoing Muslim invasion.

    Indeed, and I think Germany’s supposed stewardship of Europe’s economy has meant people giving Merkel a free pass on immigration. She is the one who supposedly pays the bills, and she who pays the piper, etc.

  7. The US and Germany, at the PTB level behind the scenes, have long been at loggerheads for preeminence. This is more of that.

  8. “…but having worked for both American and European corporations, it is the former who are more afraid of their own government.”

    Sure – if you mean oil & gas and engineering companies. The Iraq war, I agree, wasn’t fought to boost Exxon’s reserves or Halliburton’s order book. (Which does not mean it wasn’t fought for oil. Just not for oil producers and associated service providers.) I was thinking about the finance sector rather than Main Street.

  9. “Russia is doomed but China and the Islamists less obviously so.”

    Hmm…I’m not sure I agree here. I certainly recognize Russia has serious problems but I think China has problems that are largely unrecognized and/or concealed pretty well. Their banking sector is a black box of horrors that is propping up this house of cards. Their real debt to gdp ratio is anyone’s guess and by all indications they’re way way out on a limb. Demographically they are in trouble and are now IIRC, reversing their one child policy. Combine that with the brain drain to the West for the last 40 years and the imbalance of eligible bachelors vs. marriageable women and that complicates matters further. They’ve been moving manufacturing ever westward to the interior to keep wages down and that can only go on so long. Let’s not forget the horrific environmental damage. If the preening greens here in the US had an inkling of how bad the air is in the cities there, they’d never leave home again.

    Anecdote: a few years ago I met a elderly woman from China on her first trip to the US. She had to wear sunglasses until dusk because the skies were to bright and clear she couldn’t bear it.

    As for the Islamic world, it’s been borne by oil and price fixing for 50 years. Fracking in the US and Canada has put a serious dent in their economy and now they’re talking about shaving a piece off ARAMCO to create a trillion dollar sovereign wealth fund. I’m not sure if this is a great thing or a terrible one. I think they are a pernicious force on the world stage and if I had my way, the house of Saud would be thrown out and Hashemites would be handed the two cities.

  10. Oh, lastly regarding the FCPA in the US: I can tell you, first hand, that the Finance/banking sector is very very afraid of getting hit by regulators. We have compliance officers in every line of business to ensure we’re on the straight and narrow. Things are so strict, one major bank here has told me that I am not allowed to recommend colleagues on either LinkedIn or as a reference for potential employers as this would be too close to the line. The days of the $25,000 line item for “entertainment” for foreign clients are long gone.

  11. @ Duffy,

    I have no doubt you’re right on both China’s hidden problems and people being terrified of the FCPA.

  12. @ Duffy: “Doomed” referred to Russia’s demography and decaying health care. China is also aging, but – with growing productivity – it should still be able to feed its old. Pollution is horrible there but it’s a side effect of fast growth based on outdated technologies, which can be replaced with cleaner ones. Most of China’s problems seem to be by-products of rapid growth and social change. In contrast, Russia’s dysfunction is in its failure to dispose of the Soviet system.

    The Saudi family could be removed from power but who would take this risk? That would cut off some of the money flow to assorted Islamists and some of the toxic propaganda but it wouldn’t end hardcore Islam and Muslim immigration to the West.

  13. Most of China’s problems seem to be by-products of rapid growth and social change. In contrast, Russia’s dysfunction is in its failure to dispose of the Soviet system.

    Actually, I reckon China has the bigger problem long-term. At some point its increasingly wealthy, well-educated, and well-traveled middle classes are going to start serious questions about the Communist Party and its monopoly on power. For all its faults, Russia did manage to shake off that aspect of the Soviet system, of sorts.

  14. Pingback: On the oil front, Iraq has advanced a lot (unlike Iran) | The Dilettante's Winterings On the oil front, Iraq has advanced a lot (unlike Iran) | At 55°45' N.L.

  15. That’s going to happen sooner or later and will be the biggest challenge to the Communists since Tiananmen. I guess if someone like Xi is in charge, things can get ugly and the country can self-destruct. With a more long-termist team in Beijing, you can’t rule out peaceful power sharing with the middle class.

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