What can British business learn from the Germans?

Germany's industrial strategy has deep roots in local firms, helping it solve common problems such as a lack of talent or commercial land.

by Paul Simpson
Last Updated: 05 Feb 2019

"If one looks back over nearly three centuries of Britain as the world’s first industrial nation, one single feature stands out… the utter want of any serious, thoroughgoing plan." Writer James Hamilton-Paterson pulls no punches in his new book What We Have Lost: The Dismantling Of Great Britain.

Between 1945 and 1979, three British prime ministers – Clement Attlee, Harold Wilson and Edward Heath – tried to execute an industrial strategy. The most famous is Wilson’s promise to use the "white heat" of technology to modernise Britain. The most successful was Attlee’s slow rebuild, built on the theory that the government should run the economy’s "commanding heights" and create a welfare state. The least successful was Heath’s. His economic interventionism – which in practice often meant bailing out lame ducks – seemed, to Margaret Thatcher and her disciples, a betrayal of conservatism’s basic tenets. In their view, the free market was sacrosanct.

Elsewhere in Western Europe, where many war-torn economies were rebuilt by the state, even most conservatives accept the case for industrial strategies. Take Frankfurt, for example. The economic powerhouse of central Germany put its first serious industrial strategy into place in 1994, heavily revising it in 2012.

One goal shared consistently by politicians and business leaders is to diversify Frankfurt’s economy. Manufacturing still accounts for 18 per cent of the city’s GDP (£52.7bn in 2014). Around 5.6 million people visit every year for holidays, exhibitions or conferences – most famously, the Frankfurt Book Fair. The city has a promising start-up scene, with companies developing muscle-activating sportswear and digital identity in the world of blockchain.

The metropolis on the Main is home to the European Central Bank and, post-Brexit, will provide the European HQ for Morgan Stanley, Citigroup, Standard Chartered and Nomura (all relocating from the UK). Frankfurt is also marketing itself as a tolerant, cosmopolitan city – more than a quarter of its 737,000 inhabitants are foreign.

There is nothing frivolous about Frankfurt’s industrial policy. Six years ago, a study of 100 local businesses identified a shortage of commercial land, planning uncertainty, slow regulatory approval and the availability of skilled labour as key concerns.

The Frankfurt Economic Development agency, in partnership with a body representing local employers, chambers of commerce and trade unions, organised eight working groups to attack these issues. Local employers have begun wooing skilled staff with subsidised lunches, English classes and share options.

One scheme being piloted in Frankfurt is a project to make the commercial area of Fechenheim Nord and Seckbach greener, financed partly by the federal government. Other projects concern public transport (beginning to creak after pioneering investment in the 1970s), mobility (encouraging walking and cycling) and renewable energy (predicted to supply all the city’s needs by 2050).

The cooperative spirit is bolstered by the fact that, in Germany, companies with 2,000 or more employees must allocate half the seats on their supervisory board to workers, an idea Theresa May has expressed interest in. Germany’s kind of interventionism is regarded as ideologically unsound by right-wing Brexiteers in the British Conservative Party. Yet, if anything, Britain’s departure from the EU will probably mean that Frankfurt’s policy – under Social Democrat mayor Peter Feldmann – becomes more interventionist, not less.

Frankfurt could attract 10,000 financial workers from London but Lothar Reininger, owner of the city’s renowned Club Voltaire, worries that this influx will exacerbate social inequality. In the past 25 years, he calculates, real wages have not risen at all for 30 to 40 per cent of Frankfurt’s residents. Since the Brexit referendum, Reininger says, "a gold rush mentality has driven rents and prices up".

As mayor, Feldmann is professionally obliged to be optimistic. Brexit could overheat the local economy, he admits, but it could also help him make Frankfurt the first city in Germany to effectively abolish unemployment (which currently stands at a record low of around 3.4 per cent).

Yet the Economist argues that Germany’s plans are too thorough. A tangle of federal and state red tape has contributed to the country having surprisingly slow internet speeds for such a powerful economy. In the service sector, pharmacies are regulated by laws rooted in Middle Age guilds. Some infrastructure is also deteriorating because of rules limiting government debt.

Despite the rise of the far-right Alternative for Germany, which won around 12 per cent of the vote in last year’s elections, the country’s politics remain less polarised than the UK’s. This can be a strength – it is easier to agree on an industrial strategy – but also a weakness; the mainstream could become out of touch. By contrast, in Britain, even though the government has identified what it thinks needs to be done in a new industrial strategy, a tranche of its own MPs believe it shouldn’t be done on principle.

The government’s Industrial Strategy Council, which met for the first time on 1 November, is a step forward but there is much to be done before the British government comes up with a plan serious and thorough enough to satisfy Hamilton-Paterson.

Image credit: Tembele Bohle/Pexels

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