Wednesday, 8 June 2011

Germany's competitiveness: Beyond myths and inside the systemics

On June 8, the German national statistics agency announced that in April (2011) German exports fell by 5.5% to 84.3bn euros compared with March 2011 (see eg BBCnews report).

The March 2011 German exports had been Euros 98.3bn which were:
1) +16% from March 2010
2) the highest monthly total since 1950 when record keeping began!

The April drop surprised analysts, according to the BBC. But it did not quite surprise me.

In my May 9 post, "German exports record high in March vs Euro/USD rate", I had wondered:

"But what was Euro/USD in March compared eg to last week (the week before "the weekend"? See a chart eg here and draw your own conclusions!"

The "here" was (and is) a EUR/USD Elliott Wave Analysis chart (May 9)(here is the latest one, June 6). They show that the price of the Euro vis-a-vis the USD not only had reached a "local" low in March 2011 but had been within the 1.35 - 1.30 USD per Euro range (roughly) from late 2010 until March 2011. One does not expect a country's exports to be correlated with the same month's currency value because after all, orders, especially international, do take some time, depending on the type of good or service (eg in tourism many bookings are made many months ahead).

But the fact that the Euro by March 2011 had been in a range lower than its local 1.5+ high that had been reached around Jan 2010 (then sliding from that 1.5+ high from roughly Jan 2010 to June 2010, when in reached a less than 1.2 "low", and the started to go up again), did pose some questions as to the factors/drivers behind the super duper German export record of March 2011.

Notably, after the March 2011 local low of approx. 1.3 USD per Euro, the Euro climbed somewhat steadily up to the 1.5 territory in the next 2+ months. Did that affect the April exports performance? That I do not know. Does someone? Feel free to comment!

In other words, German exports, which are said to be mostly manufactured "complex" goods, said to be mostly produced by sophisticated small and medium German manufacturing firms to quality levels that justify a higher price (be it due to "national" costs or the expensive Euro (successor of the expensive/hard DM or profit margin) in the world's markets was/is allegedly the "key" to Germany's export success (formerly No 1 in the world and now second only to China of the 1.3 billion people compared with 80+ million Germany).

Maybe it's my MIT education that taught me to ask questions such as "why" and "how" even for things that are pretty much taken as "facts of life" or "given" by many others, maybe it's my systemics analysis - operations research - decision science education as well as an MBA, but in any case, I was and still am eager to get to the bottom of the systemics of the German competitiveness model, beyond the myths and inside the mystique that surrounds them.

A myth that says that hard working Germans, working smart and with quality equipment and a knack for organisation and engineering, produce goods and achieve export power that the likes of Spain, Portugal, Ireland, Italy, Greece (aka PIIGS) and most of the other EUropean and other economies cannot (and should?) achieve!

Not being a believer in national stereotypes, but being a believer in systemics, I am willing to accept, after more research that there may be systemic conditions that render Germany a more competitive economy than eg the PIIGS (and if possible isolate and examine those conditions or, if you prefer, parameters or factors). But I need much more info and data than the ones offered by the analyses of German competitiveness that I have read so far. Feel free to recommend ones (via e-mail) if you are aware of.

One thing that IMO does not bode too well with the myth is the datum that 60% of German exports are to its EU Single Market partners. That means that the rest of the world, outside the EU, only buys 40% of Germany's exports. So 60% of these largely complex and 'expensive but worth it; manufactured goods are bought by a market of roughly 0.420 billion inhabitants, while the rest 40% by the rest 6.4 billion non-EU market of this planet!

And when at least 120 million of those 420 million (ie the PIIGS) are in some kind of austerity, hitting a record month in exports (March 2011) seems quite unsustainable unless there are data that other markets (eg the developing BRIcs etc) are picking up the slack one expects from the "austeritised" PIIGS (and to some extent the rest of the Eurozone and the EU).

More on this in the near future as I will be trying to dig deeper and deeper into the system/model of German competitiveness.

For now, one last note:

I read a lot of commentators, some German, some other EUropean, some from other parts of the world, urging the PIIGS to become (in terms of economic modeling) more like Germany. My question is the following simple (and maybe dumb) one:

If all of the Eurozone moved from production (and export) of simple to complex goods a la Germany, then that would increase up to 300% the volume of such goods produced in the Eurozone (80 x 4 = 320) and 500% in the EU (90 x 6 = 480). Ie for each German complex good produced by Germany now, there would be 3 more of the same produced in the rest of the Eurozone and 2 more in the rest of the EU. Making the total volume of German type complex goods produced in the EU 6 times the existing one.

In such a case, what would be, via the "law" of supply and demand, the effect on the equilibrium price for German+rest EU "complex' goods? To use a Marketing term, if the rest of the economies of the Eurozone or the EU would produce German type of goods, then there would be cannibalisation in the (EU and world) markets. Leading of course to much lower prices for these goods. Food for thought, huh?

3 comments:

  1. Cree que existe algun tipo de correlacion entre la productividad alemana y la crisis griega?

    ReplyDelete
  2. Do I think that there is some correlation between German productivity and the Greek crisis?
    What do you think? Is there a correlation between German productivity or the German conpetitiveness model and the competitiveness problems in Greece, Ireland, Portugal, Spain, Italy and other Eurozone members?
    In English, please (or Greek, lol)!

    ReplyDelete
  3. 60% is Europe NOT the EU!
    (Norway,Switzerland etc.)

    ca. 38% is EU and its on an down trend....

    If Spain,Greece, etc. would produce this or that...

    Look those exports are often niches.
    Like maybe a machine to produce the round packaging of anti baby pills.

    Or a Machine for the Wafer CPU Production.

    There are just a few companys world wide that do this. Very often from Germany/Japan And they hold patents in this special niche.

    the market is also not that HUGE and its relative UNINTERESTING for BIG global companies to enter this markets.
    Because to catch up would take 2much time and money.
    And the money that can be made there is not enough that it makes sense for this global players.

    Its also relative uninteresting 2buy this from China.
    Because if you buy these machines for 1/2 the price. Why should you?

    Why save millions if this can cost you billions?
    those customers that buy this products are not private people.
    They invest some millions to make billions of profits.

    I wrote this already here.
    It's blabla because Southern Europe has since 100+ years terrible low patents per capita.
    No comparable apprenticeship system.
    Low investments in Research and Development.
    Low numbers of Mid size companies.

    etc. etc.

    It will just not happen the next 20,30y or more years. Or maybe if Southern Europe would change everything completely then maybe.


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