Germany is in a major dilemma as regards to the
question of whether to optimise or maximise her economic strength after
experiencing sluggish growth that exasperated the ruling coalition. This got
accentuated as Ukraine war became intensified.
A position paper on the economic strength of
Germany before the Ukraine war was so rosy indeed. Boasting the third largest
economic power after USA & China she recorded a GDP of more than 5 Trillion
USD. Dubbed as ‘Engine of Europe’ she accounted for more than quarter of the
European GDP sans Russia.
The post-World War recovery quickly made the nation
to bathe in excellence as technology, trained labour and massive investment in
the manufacturing sectors such as automotives, machinery, chemicals, pharma and
information technology products boosted her image globally. Besides German
precision was proverbial, to say the least.
Behind this
achievement lies the economic strategy of maximization.
Anchored upon the twin aspects of expanding market share along with investing
in new capacity, this strategy bore fruits. The concept of industrial estates
known by its German name of “Gewerbeparks” were established in major areas with
industrial potential such as Rhine-Ruhr, Stuttgart and Munich. The parameters
required were vast areas of land for factories and labour quarters and
logistics in terms of transport and supply lines. The focus upon turning out of
products mainly for exports and remaining surplus to be infused into domestic
market remained as sacrosanct!
Sadly, once
saturated maximization fails to deliver the marginal profitability,
because cost efficiency has never been a parameter. In comes China which copied
all techno glitz of German products and started to produce the same quality
products at lower cost. As I said, German economy was primarily export oriented
where price competitiveness is the deciding factor. Consequently, German
manufacturing was quickly outpaced by Chinese companies. At this juncture
Germany made a fatal mistake, instead of improving cost efficiency she resorted
to promoting service industry which by and large has become the mainstay at 70%
of the GDP.
Today, German
annual economic growth rate is just marginally higher at 1%, whereas
Federal public expenditure accounts for 50% of the national GDP and still growing. Manufacturing being pushed to the back-seat
and more and more techno innovation being sought after, the resultant situation
became gloomier than ever. Export competitiveness is now a thing of the past.
What must
be done now to turn the tide? Planners at the higher echelons of the administration
has to make a Hobson Choice. Completely do away with manufacturing and become a
service oriented nation like America or resort to optimization of the economic
strength which of course is a bitter pill to swallow.
My suggestion
Germany must pitch upon “navigating strategy amid geoeconomics” and find a via-media between maximization and optimization of her economic strength. As I see, the level of optimization cannot be a tinge above maximization but of a quantum leap!
Cheers!
Muthu Ashraff Rajulu
Strategy Adviser
Mobile: + 94 777 265677
E-mail: cosmicgems@gmail.com
Blog: Strategy Adviser
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