Archive

Economic Calendar       Archives        About

Inside the Market

1/24/2011

The key to achieving success in this struggling global economy….promoting a stable domestic labor force (take some tips from Germany).

Just about all the news that most Americans hear about the state of economic affairs for the EUROZone is that struggling economies like Spain, Greece, Portugal, Italy and Ireland are weighing so heavily on the trading block that its future outlook looks bleek.  Uncertainty over investor demand for bond auctions for these nations, unsustainable deficits and backlashes from residents in reaction to government tightenings have dominated the media space.  One almost unbelievable bright light amidst all of this turmoil is the state of the German economy which is actually showing signs of significant growth and stable domestic employment. GDP for the Eurozone’s core economy came in at 3.6% in 2010, the strongest rate posted since it absorbed the old East German region, while unemployment registered about 6.7%.

Reasons behind the almost unbelievable success story stem from solid exports, investment from abroad and sound employment policies.  Some of Germany’s labor policies (e.g. strong arm tactics from large unions) have attracted criticism for years and perhaps deservedly so, given the anti-competitive marketplace they can create.  However another tactic that is common place in the region involves the commitment of large organizations not only to enhance share prices but also to consider the well-being of their workers.  The mighty BMW boasts that it rarely, if at all, cuts workers from its plants but adopts a flexible workforce policy where labor hours are reduced during economic downturns but jobs are not cut.

The US on the other hand. has not been able to reduce the unemployment rate anywhere near under the 9% mark, an albatross that is continuing to plague other parts of the economy.  Instead of preserving a stable labor force, many US corporations are adopting destructive productivity, or achieving domestic productivity by outsourcing jobs and manufacturing capabilities outside of the country to lower wage zones despite the fact that the core to the success of many of these organizations (the US worker) continues to be marked as expendable.  Once again, structural change is needed to avoid future disruptions in the US economy.