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Germany's days as an industrial superpower are coming to an end

bloomberg.com

41–50 of 157 posts

Re: Germany's days as an industrial superpower are coming to an end

#41

People are blaming energy prices but I don’t understand: As far as I can tell, wholesale prices for both gas and electricity are lower than before the start of the war.

I think the problem is that German energy is expensive compared to other countries. On top of that you have regulation and lack of subsidies making other places more attractive to produce in ie. the US, Eastern Europe or China.

Correct. BASF is investing heavily in China. Nothing tells you more about this problem than the most German of companies moving to China.

BASF's largest plant in Germany was hooked up directly to Russian gas. Russian gas is now going to China. So are BASF.

I don't think regulation or subsidies are to blame either. Eastern Europe is receiving heavy investment because they have costs for workers under control and can provide a more stable political environment. The problem with Germany specifically is that they papered over a lot of bad fundamentals in the early 2000s with cheap energy and very close relations with Russia.

Re: Germany's days as an industrial superpower are coming to an end

#42

People are blaming energy prices but I don’t understand: As far as I can tell, wholesale prices for both gas and electricity are lower than before the start of the war.

Yes, because industries (chemical especially) have already shut down their operations. Gas throughput is lower than before.

Re: Germany's days as an industrial superpower are coming to an end

#43

Which developed nation isn't in this position? America is an Industrial super power? Japan? England? Korea?

Yes. Yes. No. Yes.

To add to this, from https://en.wikipedia.org/wiki/List_of_countries_by_motor_veh...:

    #  Country        2022
    ----------------------------
    1  China          27,020,615
    2  United States  10,060,339
    3  Japan           7,835,519
    4  India           5,456,857
    5  South Korea     3,757,049
    6  Germany         3,677,820
    ...
    18 United Kingdom    876,614

Re: Germany's days as an industrial superpower are coming to an end

#45
The reliance of the German industry on the prolific use of petroleum and gas products isn't just an energy/heat generation story. Their economy sits on a foundation of cheap downstream intermediate products produced domestically with very few middlemen compared to other national industrial complexes: cheap propylene oxide, cheap monoethylene glycol, cheap acetaldehyde, cheap acrylonitrile, cheap cumene, cheap C4 aromatics, etc, etc,

Each of these chemicals, plus more that I haven't mentioned, sit at the base of their own value chains. All of those have recently lost their comparative savings versus product refined elsewhere which means an end to German manufacturers enjoying cheap rubbers, resins, coatings, greases, fuels, paints, plastics, etc

Re: Germany's days as an industrial superpower are coming to an end

#46

Germany's strategy has been to offer higher quality products at a huge markup. Just using the auto industry as an example, in the past twenty years the difference in quality between a mass market vehicle and a luxury vehicle has compressed. Competing on quality seems to be getting harder. The Anglophone economies, whose shift to services away from manufacturing has been ballyhooed and decried in many quarters, embrac…

I agree that we need to keep what you call here mid-skill jobs.

Too often I see people say to the disappearance of manual labor jobs: good, retrain people to use computers. I have slowly come to the belief that there are some people for whom working with their hands is the only kind of sane work they can do.

You can call them blue-collar, or working class (these are the people incidentally that raised me, the people in my neighborhood growing up).

Why would anyone not want to work in a clean office with only a compiler as your boss and a big paycheck waiting for you every two weeks? When I was younger I assumed that anyone not in the tech field were people not smart enough to pass Algebra in high school. It had not occurred to me then that it might go beyond aptitude and instead be due to something more fundamental about a person's nature or character.

I know I'm getting hand-wavy with nature, character but I'm not sure what other words to use. I came to believe that though many people who are like me find some satisfaction from having solved a difficult problem, or having created a functional framework that can now do work to solve problems there are many others where satisfaction primarily comes from having changed something with their hands.

I don't know if all of that makes sense or resonates with anyone. I'll add this though, the older I get, the more I recognize even in myself the satisfaction that comes from doing something physical (even mowing the lawn as an example). I seem to take some pleasure from taking something unordered or in a raw state, and ending up with a thing in an ordered or "finished" state. It's no doubt why I have pursued woodworking as a hobby, print making, creating PCBs. (And that fresh mown lawn looks so much nicer than the ragged lawn that was there before.)

In any event, following that line of reasoning has made me realize we should keep a large number of manufacturing, construction, repair and other manual labor jobs so that we can serve the whole of society. Just expecting everyone to learn to code is misguided and will fail so many people.

It is sad to me that Germany appears to have tried this model, tried to keep manufacturing in their country, and yet it is purportedly failing. I'm not too optimistic about our future when we apparently measure progress by "cost of living standards".

Re: Germany's days as an industrial superpower are coming to an end

#47

People are blaming energy prices but I don’t understand: As far as I can tell, wholesale prices for both gas and electricity are lower than before the start of the war.

The fact that prices haven't increased noticeably sure seems like a sign that sanctions against Russia were largely toothless and their oil is making its way into the global supply all the same.

Russia is responsible for something like 12% of all global crude oil. If sanctions actually worked and global demand for oil went unchanged prices would have increased, likely quite a bit as the demand is very sticky and not likely to decrease quickly in response to prices.

Best I can tell, the temporary bump in prices in Europe were largely a factor of political plays making oil temporarily more scare while Russia and the oil industry adjusted. Prices are back down now because Russia and the oil industry found a new flow pattern to move Russian oil into the global supply.

Re: Germany's days as an industrial superpower are coming to an end

#48
post #28

The article lists a lot of things going bad for Germany. But was there some underlying reason? Like demographics, shrinking population? Or is it just the obvious , Russian gas, rising Energy costs, now their prices are too high, so exports are down.

Demographics is the big one. Obviously fewer workers and more retirees, but also a gerontocracy where many parties primarily want to go back to some idealised version of the past. The CDU is basically the party of 1960s car adverts. The Greens are hippies, recent management notwithstanding. The SPD has an identity crisis, but before that was classic cold-war social democrats. The Left is fortunately going extinct, bu…

Demographics aren't the issue.

Japan has had relatively bad aging, per capita growth for working-age population since 1990 is equal to the US.

Indeed, the issue of demographics has been a massive problem because politicians repeat the mantra: population cannot age, we must mass import. Okay...but most high productivity people aren't going to Germany (and to be clear, this has been the case in France, the UK, many other places). So they just get more minimum-wage workers who drag down productivity/incomes.

I agree with your point about the parties but Japan is a very backwards-looking society, they have had none of these issues. Their economic policy hasn't been perfect but if you compare to Western Europe: they haven't made a lot of those errors either so naturally ended up in a better place.

With Germany, there is an issue with pension sustainability without population growth...but the problem is: pension sustainability not a lack of population growth (even if it wasn't, as I explain above, it is quite literally impossible today to solve this issue with immigration...the productive people aren't leaving the US, it isn't happening).

You have seen Western Europe go even harder on population growth and (if anything) economic growth has just accelerated lower.

Economic growth is quite simple: make things that people want, train people to make those things, do it all very cheaply (look at Eastern Europe, higher standard of living, lower incomes so lower wages and more business investment, sensible investment in government services...these economies weren't even on the map when Germany was going through the 2000s slump).

Re: Germany's days as an industrial superpower are coming to an end

#49

People are blaming energy prices but I don’t understand: As far as I can tell, wholesale prices for both gas and electricity are lower than before the start of the war.

The fact that prices haven't increased noticeably sure seems like a sign that sanctions against Russia were largely toothless and their oil is making its way into the global supply all the same. Russia is responsible for something like 12% of all global crude oil. If sanctions actually worked and global demand for oil went unchanged prices would have increased, likely quite a bit as the demand is very sticky and not…

The sanctions are working. It's killing the German industry.

Re: Germany's days as an industrial superpower are coming to an end

#50

Which developed nation isn't in this position? America is an Industrial super power? Japan? England? Korea?

Yes. Yes. No. Yes.

When you first learn that the industrial revolution started in England, you imagine it must be still amazing given 200 years at it. Then you grow up, and learn what they actually did was 100 years of manufacturing with the same infrastructure since they could just funnel their product to the colonies, and when their empire collapsed, they were finally forced to compete in the open market, at which point they chose to close down manufacturing and focus on finance.
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