The End of the German Economic Miracle | Wolfgang Münchau
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What's up, everybody? My name is the major cofinec, and you're listening to hit in forces a podcast that inspires res investors, entrepreneurs and everyday citizens to chAllenge consensus, narrates and learn how to think critically about the systems of power shaping our world. My guess in the episode of hidden forces is wolfgang munch w, the director and cofounder of euro intelligence and the author of a phenomenal new book about posture to germany, the rise and fall of the german industrial sector in the end of what he dubs the german miracle. As I said, this is a phenomenal book and this was a phenomenal conversation.

Wolfgang and I spent the first hour laying the foundation to help us understand how germany became the economic and financial g that we IT to be throughout the one hundred and ninety and most of the twenty four center, we discuss the two pillars of the german economic miracle, super charging of its industrial growth model during the period of globalization and uniquity, and the cultural, technological and geopolitical sources of its economic decline. In the second hour, we zero in on the ten structural sources, german weakness, including the german capital model and banking system, a corporate sm, that missiles, incentives between the interest of politicians and those of the economy. The fiscal doomed the machine in the form of germany's Debrah, a radicalizing elector and a political mindset among german lead that treats geopolitical risk as an economic extraordinary to be safely discounted, ignored entirely.

If you want access to that part of the conversation and you're not always subscribe the hidden forces, you can join our premium feed. Listen to the second hour of today's episode by going to hidden forces that I O slash subscribe, all of our content tears give you access to our premium feet, which you can listen to under a mobile device using your every podcast APP. Just like you're listening to this episode right now, if you want to join in on the conversation and become a member of the hidden forces genus community, which includes Q N A calls with guests, access to special research and analysis in person events and dinners, you can also do that on our subscribe page.

And if you still have questions, feel free to send an email to info at hidden forces that I, O and I, someone from our team, will get right back to. And with that, please enjoy this incredibly educational and clarifying conversation with my guest, wolf guy munchin. Wolga moonshi welcome the hidden forces.

Thank you for lighting me.

It's my pleasure having on with gun. I have to say your book is incredibly timely. I wanted to do before I was recommended to me by one of our genes, community members.

I wanted to do few episodes on germany, at least one dedicated to its economy and one dedicated to to the politics in germany, of course, is. So enter twined. And then this book was recommended to me.

And IT was the perfect book. IT was the perfect introduction into germany for me because I also provided a historical context for wide german's economy. Looks the way that IT does the political chAllenges that faces today. So before we getting to all that, I would just love to know little bit more about your background. How long if you've been writing about and thinking about the german economy and german politics?

I've been writing about this since the one thousand nine hundred eighties. I'm a journalist. I've started journal m in the one thousand nine hundred and eighty. And my interest was mostly european politics and european economics. And germany played A A larger and live role in this, and have been writing about the subject, not permanently, but for most of my career, about european politics and economics and about the german economy since about the mid to late one thousand nine hundred eighty.

So obviously, this book is focused on what's happened to germany and the german economy, but in in some sense it's also IT seems to me a story about the rise and fall of the international rules based order and of globalization, of which one might argue that germany was the greatest beneficiary. I'm curious, do you agree with that framing and how much of that story is synonymous with the story you tell in the book about germany's economy?

I would agree with that story. This is a story of change. Germany was indeed the probably the single greatest beneficiary of globalization. You could probably add china to that, but IT was A A country that benefit from that exploited IT.

The supply chain revolution was a big issue for german companies, the expansion of global markets, the discovery of china as a favorite export markets, the strategic link germany had with a russia. All this would not have happened before the age of globalization. IT allowed germany tools internationalize its economic model IT was very much until then, the case of mate in germany.

But I was able to to internationalize its supply change to optimize supply chains and get countries to produce parts of the import chain. And there was an awful lot of, you know, importing may importing reexported going on. Very difficult to say, you know how much germany was actually importing and exporting you context of a net.

But on the company based IT was a very of confused picture. Germany was a that exporter of a very significant extent. And that became a characteristic of this model that during that period, germany created massive exports of substance count account surpluses, culminating, I think, the highest was just at the end of the last decade of about eight and a half percent of GDP.

This is for a little economy. This is absolutely massive. Small economies do that all the time, like small island economies.

But the larger economy, this is now the third largest economy in the world. You would not expect, you know, the third largest economy in the world to do this. China does that.

But for china to do this, IT requires a significant manipulate tion of savings and investments of the way the system Operates. You would not expect a free market, western economy to generate such a high imbaLance. So until about that time, the system seemed to have worked very, very well for germany.

So we're going to have a chance to get into that in more detail. But one of the things that I mentioned at the top that this book does very well as IT IT builds a foundation for understanding the historical context in which germany finds itself in today.

And you open the book with an anette from your time, growing up in a city at the western edge of the world basin, where you were surrounded by what you described as the two pillars, the german economic miracle. The first is the corporatist industrial model, which will get into in. The second was that of the self made entrepreneur. Can you retell the story for our listeners and explain how IT tells the story of the german economic miracle coming out of world war two?

Of course, I grew up in the city of mohamed, a mediumsized city bush, between the bigger cities of s and dial and duse burg and the rural values of notice. You consider this the german rules bet. Um IT was a like so many rural cities, a place of mechanical engineering.

The coal mines had already closed by the time I grow up, but steel dusty was still active, and especially the the industry that use steal for other purposes. For example, one of the factories I passed on my way to school every morning was a pipeline factory, and they made large pipelines. And today these pipelines are still made in in real time and these are pipelines that are used for, uh to transport gas oil through the north y and the big sea.

And the other company I passed was a company that produce nuclear power actors, which became the of the quint essential source of power of postal germany. Right until about two years ago, the other germany that you mentioned, the entrepreneur germany that you mentioned, was also evident in my city because we were the home of the german retail industry. We had two of germany's largest retailer that had their base in our city, and they were both the creation of, you know, individual entrepreneurs.

The most famous one was already, which is a Bakery. Tailer is now spreading all over the europe. IT offers extremely low Price food products. And what the revolution was that he basically took the sales people out of the, out of the chain. And you know, in the old days, he packed the ali brothers were the founders of this company.

They just left packages and stores, and people just getting, you know, picking up there, the products in large of cartons s IT was very basic, but extremely cheap by comparison to the other thing. This is a model that called on and IT became the most successful retail concept in all of europe. These color Operate lift in my city was a man who became germany's richest man.

He arrange on the top, I think, twenty list in the world at one point. And what I also found particularly astonishing, and especially in comparison, all the, you know, company bosses in germany today, during his entire life, he never met a german chancellor, virtually all german C, E, O. These days, you know, walking and out of the office of the chancellor all the time, their political players, just a stair corporate players.

That was not the case with him. He was a pure corporate guy, didn't care about politics. They left him alone. He left them alone. He was not a sponsor to parties as as far as I knew, he was just a purely private individual.

So private effect that nobody in our sitting you where he lived and IT would became a bit of a sort of a hobby of of some people to figure out which of the, you know, wealthier houses in our town would be his. And we wouldn't have been surprised to know that I would have actually, even he would have lived in a very ordinary terrace house like most people did. They were kind of very private.

And from what we understand, also not very flashy in terms of their habits, in terms of they know they were not the kind of people who would drive around in bars or and eaten expensive restaurants or also also that IT was a generation of true entrepreneurs who are mostly interested in the business themselves, rather than in the money that made. They became very rich. No question about that.

And that was, I think, the last time germany had this type of entrepreneur. S there were other entrepreneurs in the one thousand and eighties, there was a competitor to allow that was also the creation of an individual, not somebody I know, but this is the company called leader, which is a sort of a competitor. There's also very successful.

There are a number of companies that Operated in in very specialist mechanical engineering sectors. German companies are very good germs are very good at mechanical engineering. And some people just got themselves into business producing Better screws or Better, Better gear boxes or or small components that were so highly specialized that they they have knowledge in in producing.

So germany y carved out market issues in in many areas of engineering. And so until about that time, seventy one thousand and eighties, that was sort of the last big phase of, know the entrepreneurial germany. And then things really changed.

So we're going obviously a chance talk about why things have changed and why things changed. I'm curious to understand that, you know, as a non german, most non germans think of germans as hard working, regimented and as part of, you know, one of the most formidable industrial workforces on the planet, they don't necessary think of them as entrepreneur.

Ian so was interesting for me in the book to read about this history of entrepreneur ism in germany. Was this a cultural artifact, something that, I mean, where did this come from? And how long was an entrepreneur spirit alive in this country?

The entrepreneur spirit occurred in two phases. The first one was the late nights century, when that was a time in germany, was the most advanced country in the world, in physics and chemistry, and also an engineering. This was A A S of the golden age.

I wrote about the university of getting in this, one of germany's s most famous university at the time, IT accounted for over forty forty nobel prize ment in the prewar area era. Some of the world's most famous mathematicians, an unlikely cluster of famous mathemagician, taught there. And all that changed obviously with the second world war.

Many of the scientists were jewish, most of them left before the northeast came to power, or in the early years of of the power. Some were murdered, some committed suicide, but the majority left. And by the end of the war, germany had obviously lost the cutting edge in those disciplines, but IT hadn't lost the cutting edge in engineering.

And as the country's have tried to rebuild itself, phone rubble in the fifties, there was a second generation, was a second phase of entrepreneurial ism, the one that gave rise to the economic miracle in the one thousand nine and fifties and sixties. These were nova lot of companies that were created at that time by people who just entrepreneurs. There are still, they had opportunity.

Regulation was low. Taxes were low. This was a country that was very friendly to entrepreneurs.

M, so the point I wanted to wanted to make is that whether we are entrepreneurial or not is not really to do with our national culture of me had faces when I was and faces when IT wasn't. And today is clearly you face when IT isn't and when IT really, really isn't. I mean, it's.

A very long way away from being from this. There have been changes. We can talk about this, but the country today is very different, and entrepreneurs still exist and are still Young people who want to be entrepreneurs. But to the extent that germs are entrepreneurs today, they are more likely to be entrepreneurs abroad than at home. Okay.

so I pull the call from the book. Actually this a number of times. I'm gonna do IT a number time. Turn the interview.

This one I particularly liked because I feel like IT sums up the story that you tell in IT and that we've started to tell now. And in describing the predict that germany fight itself and you write, quote, the world changed, but germany did not. And this is a story of how germany mismanaged industrial capitalism and misjudge technology and geopolitics.

IT is also a story of national narratives, the myth we keep telling each other and eventually start to believe. And like all tragedies, this one begins during the good times. So obvious, a lot of questions come up there, including, what about national narratives and the myths we tell ourselves, but what are those good time?

So we have talked a little bit about germany coming out of world war to the entrepreneur ism. When did things begin to change? And what are those good times that you're focusing in on in this particular quote.

in this particular to the good times I was focusing on where the period after unification? So i'm not going back to the sixties or seventies is not so united nineteen eighty.

Well, let's go. I want to make sure just in that case, I do want to go through that. I don't exactly where I pulled IT from, but I would like to actually go as earlier as we can in terms of identifying because there were two stages, I believe, so will have a definitely definite have a chance again to the unification portion. But there's something that we're leaving out. I definitely would like you to cover IT.

okay. I mean, the early phases that are detected of where things went wrong was in the nineteen eighties and the one thousand nine hundred and seventies. The german government, under chancellor velly brunt was a social democrat, had a working or not a working group, but a committee that had foreseen the information revolution.

They said, we need to work towards optical fiber networks and digital networks. And this was geras, the first country that recognized this. So in the early seventies, things were still ahead of the time, and certainly write up there with anybody in terms of keeping a pace of modern technological developments.

And had they followed the plan that they laid out in those years, germany would have been one of the global tech leaders. They certainly have had optical fibre coverage by now. They're still struggling.

One of the legends in europe today, but IT went wrong in the one nine hundred eighties when helmet call came to power. He wasn't interested in anything that was digital. He prioritize a different project, which was H D T V, A high definition television, but based on an existing old analog standard.

IT was him and his partner, crime from swima to along the french president, who both champion this project. IT was supposed to be the know. IT became a technical wide elephant. But IT was supposed to be no technology for the ordinary person to enjoy.

And he wanted something that that would exist inside of the political time, something that would happen, you know, would help in getting reelected rather than something that would happen in thirty or forty years wh, he couldn't care less about. And that was the moment when germany stopped or started to be deflected away from development of digital technologies. And IT was in that period, that sort of an anti digital mindset was created.

There was one incident which I didn't write in the book, which I recall. IT was A A committee in the german bond stock, the parliament, which discussed email in the early nineteen and ninety. And one of the members stood up and said, we don't need this thing because we have a very well functioning telegraph service that becomes of endemic of the mindset that existed in germany's very skeptical towards, not generally towards the computer, but towards the modern, you know, the internet deflecting internet.

That also started to come out in the early ninety ninety. This was of the moment where they parted company with the technological modernity. They were digging their fee.

They were still stuck in analog technologies on telly communications. I I was writing the story of a manager of zeman's, uh, a company that was actually at the time a produce of mobile telephone systems. But they decided this wasn't for them.

They were more interested in telephonic exchanges and they were producer of analog telephony exchanges at the time and felt that this was a much more profitable business. The culture of germany that's around the ninety eighties was very much based on on the analog, on a log world. This was the time when the car companies optimized the engines.

This was the time when they started to become really clever about diese engines. IT is technological. A marvel I after tell you that I don't understand how these engines work.

They are very complicated. And what I understand is the optimization, the quality they produce, was of the highest older. So they really, they really manage to get a lot in this sector.

And I kept on giving. IT was a very successful product, and the fueled driving car was a an innovation of the an invention of the nineteen century. But IT kept on giving until about a few years ago. Well.

you know, as a child of the one nine hundred and ninety, this part of the book was fascinating. First of all, I didn't know about the extent of this technophobe bia that exists in germany. You'd also tell a story, an maybe you can help later of a particular individual who has a very large following in germany, who is not just technophobic, like, very anti technology.

So that was fascinating. But there was also like a an element of nostalgia for me. They came up because also made me realized just maybe how silly some of my dreams are, because I do miss a lot of the analogue world. There's a lot about the modern world today that is chAllenging for at the some of us to live in culturally. And so in a sense, what you find is in germany, IT seems almost like a bit of an experiment in what what happens if we try to stave off moderate.

Oh, indeed, I don't think IT was quite so conscious. Ly, and here I would say he was a cultural thing. And I think IT is to do with the fact that the internet was the first technology that had no german involvement.

The genes was not involved in the early stage of the east of electronic revolution. They were, after all, the, you know, german scientists invented, you know, least discovered quantum physics. They were quite.

They had decent competitive electronics or electric companies. They produce television sets and radios and high five systems. So until about the sixties and seventies, germany was still right up there.

And the computer was not a german invention, but they produce computers and at a reasonable profit. And there were german computer companies. They are. There were gone software companies. And one of the still today, one of the very few european and software giant, S A P, was a creation of that period, one thousand nine hundred seventy. So germany was sort of right up there until about the nineteen and seventy ninety eighties.

And then things started to diverge with a personal computer that was obviously not something the german invented, and then the internet, that was something that was really aliens to them. And ungama hao still said, IT, in two thousand and thirteen, that the internet new territory for us, that was two thousand and thirteen. You know, that was seen, I don't know, we had the iphone seven by that or something.

This was something. And I heard the story the other day from A A car deal in germany who had apparent told somebody that he felt the internet was a temporary phenomenon. I mean, that is today twenty twenty four so people still, I mean that I was not I mean, how could you say this when you're basically, you know, tune to the world and I was around the ninety nineteen where that where that happened and I always, you know I the german are no no loud ites.

They get told, you know, mass and school and yeah even computing, computer science and engineering. But this was not a technology they had invented. And there was a feeling that this was a game.

IT was a bit like hollywood. They they never took holly's wood is hollywood huge industry, but IT was always the case. Okay, we do this and I do that. And you know, let them do dish to let let us do the, you know, engineering for adults. And IT was always seen as that our stuff is bigger anyway.

You know, if you look at the turn off of german companies, even back then know microsoft IBM, they were tech giants, but they are not giants compared red to these large german conglomerate ced, no heavy moving equipment and chemicals and older stuff. And so they didn't feel that this was an industry that they wanted to get into. And companies were not particularly interested in either.

There wasn't a lot of pressure for the government to invest in five or optical cables in later mobile telephone networks. So IT became a foreign children. They did, however, and I have to say, there was a short moment when IT appeared to go in the other direction.

And that wasn't the late nineties when the dot com bubble happened. And that was a period when germany kind of discovered the new world. And then people were saying, oh my god, this is the future.

And unfortunately, in germany, the dot com bubble was, rather than IT was in any other country I know. And that had to do with the fact that companies were register on a new stock market. IT was especially created new stock market created for text.

Talk of them, you could say that german not like, but nothing as mature and nothing as sophisticated. And IT was an unregulated sort of penny stock market, and lots of companies went only, but most of these companies were not very good. And this market created a sort of generated a cuyp tile bubble, not only in quality, but also in set of size, in terms of how much money went, went into IT, in terms of the valuations.

And this market completely collapse, like the two little bubble. And I calculated the number. I don't have IT in my head.

Ninety five percent, ninety seven percent fall from peak to bottom. So people who invested in this market completely got completely wiped out. And that was an experience that was during the period when geht roda was in power.

IT was the period of the social democrats and the Greens and power in berlin, and this was of the first of backlash against the economy. And he, the german council then, was very much, you know, like they all work very much of analog error creatures. And fortune, his economic policy, very much to the needs of big industry, of old industry.

And the holds of this whole new tech internet bubble went now in the united states. As we will know, that dot com bubble was not the end of dot coit was the beginning of tot com IT was just the beginning of new companies, that this was the age of google and then facebook and others. That was not the case in germany.

In germany, IT really ended, ended the enthusiasm force of modernity. And then they had a few other venture. The one was called White card, which was a financial fin tech company that became one of the biggest fraud case of fraud and german history.

So they have the experience with this modern world was one of either fraught of financial collapse. IT was not something they were comfortable with. Many people didn't understand this.

And so they they saw refuge in something they were good at. And that was engineering chemicals cause steal. This was the big ones. So IT seems .

almost like the classic innovators dilema. But instead of happening at intel, kotch IT happened nationwide. And that the bubble in the text talks and late nineties basically served as A A story that the german people could tell themselves to say, say, we were right. We need to stick to what we're good at. Would you agree with that?

absolutely. This is the the innovative dilema, except that in a country like the U. S, no such innovator would be representative of the whole country.

If one company, if internal, fails, there's another company that succeeds. The way germany works is an economy that works through consensus. And this consensus gulls, the government IT, includes the corporate sector IT also CoOperates the media that very much tell the story of this consensus.

And this is a country different from others, which, if they go wrong, they go wrong down. Any vesle blowers out there who who there are, aren't any people who say, I disagree. I invest in something else.

This is what the capital market does. A capital market does not work by consensus. A betting market does not work by consensus. These markets do not work that way. But germany, with its banking system, works that way. So this was the case of imagine nation committing an era of judgment, and there were no correctly tires to this error of judgment. Markets provide an error, a corrective mechanism, but the market mechanism has not been able to cook in because the way the german markets work, they're not sufficiently sophisticated or or developed.

Is this or part of what or an outgrowth of what you have described as the new mercantilist mine?

Said the new mercantilist is indeed related to this idea. You know the what new merchantman st has has to words. One is merchants', and this is the old seventy and sixty thousand eight hundred french tradition of a massing gold through export surplus.

As this is how the old gold standard worked. The german system also seeks export surplus is no longer about gold. This is why I called IT the new, new merchandise m today.

This is about achieving large profits for companies, profits that these companies used to create jobs, social structures at home. So this was basically a compact between workers and industrialists that they created and for which they needed to generate large export surpluses in order to fund IT. Now, a large expert surplus is something that needs to be absorb by somebody else.

My counter is never out about this, because always somebody in the world like the united states that would always do this in europe had the U. K. As a large absorber of current account surplus.

Not the case anymore, but that was the case back in those days. The U. S. Is still the world largest sub store, but china runs a very similar policy to germany. So we have these global imbaLances that germany created, and that's what what basically this new merchandise system was. And the like merchandise anywhere they are like physical goods.

That's what mercantilists do mercantilists are not entrepreneurs mercantilists um establish companies that work together with the politicians and the bankers who basically achieve some over article like a um like a surplus, like a trade surplus. And that became the german model. And if you ever talk about IT, and there is a like in any country, there is a debate between the left on the right, but whether you on the left of the right, they all tend to support this model.

There isn't anybody now, there are not many people in germany is say, let's know, let's lose n up a little bit. Let's try to do something different. Let's try to become less dependent on these economies, these these industries and, uh, you know, let's give some breathing space entrepreneurs, and that exists on the political fringes, but is not mainstream. You know.

that's also fascinating, which is that I learned from your book, which is that the fringe parties are even more invested in this model, more invested in this maybe make germany great again idea of doubling down and tripling down on the golden years. That's right.

What the french place, especially if you look at the alternative for germany, the A F D, which is a far ride party. You know, I i've always say that don't mix them up with trump. This is not trump.

Trump is an ultra berteri. Whether these guys are not, they are welded to the old industrial models. Also on the left, there are now a new french party that rose on the left.

And they both have together about twenty five percent of the votes. That is a fail. They have a very large share of the popular vote. They both hanger back to the good old days as they they believe they were.

H where germany got its cheap guards from russia with was, you know, in business, but put in where IT was focused on industrial production, that a vagon connection is the leader of the this prince party of the left. He always said, the industry is what we could at, and therefore we have to return to that. So this is also the position of the the center left party.

You know, when all of shoulder recently discovered that he had a economic crisis, he invited the chairman of all the car companies, the chemical companies and the seal companies to him, that is the german economy. And on the right then there was a counter summit. IT was a little bit of a ridiculous show where they invited the leaders of the social middle one.

These are the medium to small to medium size companies that produce no also analog error, mechanical engineering. These were the companies that were mostly found and in the hundred and fifteen and uh highly specialized and some successful but still specialized in a different in a different technological you phase of modern development. And there wasn't anyone who who was particularly interested in entrepreneurs.

The horse will start up seeing. There aren't that many. There are some, you know, there are some people to try in adversity cum stances. And I I write about some stories in the book of what happened to some of these start up companies, but in general, they don't have political support in germany.

So going back to the passage I quoted earlier ah, we've talked about how germany has managed industrial capitalism, how they mismanaged technology. What about geopolitics?

What went wrong there, the focus on industry that get hard, sure to brought back in the early two thousands LED to realization that this cannot happen unless germany supplied stable and cheap sources of energy. The politics of that period was that getting through to the S. P.

D. Chancellor was in a coalition with the Green party. IT was the only power option for his party at the time, and the Green party insisted on the facing out of nuclear energy.

That now happened actually two years ago. But I started in the only two thousands, trade. A concluded that in order to pluck the gap that germany would be left with, a facing out of nuclear energy would have to be filled by gas.

And as a result, he became very friendly with bloody important, who was needed to power at around the time when he did, and the at the turn of the century. And they actually became personal friends. And later, when suit a left office in two thousand five, putin gave him the job of building the pipelines that have crossed the botox sea from somewhere near san Petersburg, russia, to eastern germany.

These pipelines bypast other european countries, suddenly the politic republics and poland. IT was a russian german venture. IT was the gas will stand fed into A A domestic german pipeline.

And IT was made available to german companies and knocked on Prices. And in particular, the gas contracts were long term so that they were not subject to vag aries of financial market pricing. They could calculate the energy because germany never had the cheapest energy cause IT was not like IT was undercutting others. But IT was stable and IT was stable and relatively cheap. And that became the mantra in german politics that we needed to have these relationships because our model depended on.

IT IT depends on cost competitive ess.

on cost competitive ess, but especially on cost competitive energy supplies. But you're right, IT IT depended on cost competitors in general. So the policy, the reforms that the should a government date was to, was to reform the welfare system such that IT would lead to a fall, or at least moderation of wages.

And that in fact, succeeded IT. German wages had not reason very much in those years. From two thousand five to two thousand fifteen, IT was a period of extraordinary rage moderation.

Germany did become more competitive. The exchange rate fell because of the euro zone crisis. So there was another boost to jump competitive ess.

And then these gas pipelines came on stream. I think the first one came on streams. And in the early two thousand tens, and the gas was cheap.

So germany had everything basically going for IT until about two thousand and fifteen, when a number of things started to change. And the first thing that change was two thousand forty and put in invaded or an next crime. That was the beginning of something that now later turned into a full scale war fare, which germany was not prepared.

Germany chose to ignore the inaction of crimea and continue to insist that its pipeline had nothing to do with this. And the famous statement by people on the left and the right was that we have to keep business in politics separate. And they try to do this until about twenty twenty two, and put in dead in vade, ukraine, at which point that position was no longer sustainable.

In fact, they tried to sustain IT in the beginning when a shell, he only cut off the new pipeline, north stream too. He did concede that to the americans, the americans were opposed to the whole north stream business because I made germany dependent on russia, was simply the sold as 是 security risk。 And so that pretty much everyone else in europe.

So shortish concession was okay. We're not onna expand the capacity. We just gonna close that newly built north strea m 2 pipeline。 But we keep the old one open.

But then six months later, the old one was blown up. Initially, everyone suspected the russians. Later IT emerged that a ukraine and commander was the most likely. So as IT was not necessarily a ukrainian government command, but IT was a privately funded Operation, and that internally, that again, encourage people in germany to talk about conspiracies, you know, anti german, that might have been a play.

So germany has become, you know, in this period from two thousand and fifteen to today, know a lot of things went wrong for them, or everything they went right and they were lucky. I mean, this was the the period until about that, that time was lucky. They're got an exchange rate worked in their favor.

They got the wages that worked in their favor, or the energy became cheaper, the supply chain became more efficient at the international. The markets were big. Suddenly they had markets everywhere in the world. China and germany were compatible in that period, the chinese would produce consumer gods, and the germans would produce the plants that made the consumer goods. So this was A A dream of an economic boom, and many people must took this as a sustainable economic model, which IT wasn't.

That statement. A we have to keep business in politics separate is remarkable and sounds remarkably in naive in the context of where the world is today. You know, we talked a bit about the nineteen, nineteen ninety, but we didn't go into the level of detail that I think we should.

I'm going to throw out a few things that happened in the nineties that I have identified as the most important. And i'd love to hear from you on whether you agree what you would add to. That one is an easy one, an obvious one, which is the investment boom in china and china's economic demand for german industry machinery components, and know how another that a lot of people enough familiar with is the liberalization of container shipping and logistics.

I'm curious, understand where that really sits in all of this, which obesity came handling glove with globalization in the for the soviet union and the eventual entry of china to the W. T. O.

And another really big one is the signing of mass ich. Treaty and european monetary union. Those to me seems like the most important ones that happened in that decade. But i'm curious if you'd had anything else that list. D care to elaborate on those.

I think this list would suggest, yeah, I think this is a good list. Mastery gave germany a single currency. In the beginning, germany was opposed to single currency because IT felt that IT was a know I would bring inflation, but the way IT was ultimately incited had very much the opposite effect.

And IT what I did IT guarantee germany stable exchange rates. And that was for german industry, the best thing that could ever happened. IT made sure that there was no european country, at least that could devalue against jmi.

That was always the case before there were french country is italian companies that would specially devalue and gain themselves a competitive advantages in that period that was no longer possible. And the countries then had to work through the consequences of the stable exchange rate, you know, through other means, much more painful means. So the monta union was a big deal, especially combined with the fact that germany managed to cut its wage cost, or at least managed to allow its wage costs to rise by less than any other european countries.

And that period germany did improve its cost competitiveness against the rest of europe. The supply and revolution that you added to the the liberalization of container shipping and also technical advancements. And one of them was, uh, the just in time production technology. This was first invented or or muted in the early nineteen nineties, which was an optimization of a supply chain arrangement such that the inputs to your factory wouldn't be stored anywhere.

They would be know the container ship or the derail container would drive onto into your factory and IT would upload the material pretty much in time onto your convey about t so the whole system was so perfectly optimized, but then that was clearly exposed in the during the pandemics. But this no longer work. But IT worked until IT did, and IT generated significant efficiencies.

The, you know, the supply chain for a product complicated as a motorcar. I mean, an engine has five thousand parts, and then there are other things. I mean, you know, this is not something you can produce locally.

So each of these parts I can produce somewhere. Many were produced in germany, but also many in china and many in other parts of the world. And this became A A giant optimization of exercise to get everything together without having to store this material.

So the container shipment, the freedom, the cheapest of container ship, and there were later in the two thousand tens, china build transportation links by rail through russia. There were three of parallel lines that goes through one of northern line, the middle line, one one through of turkey in the south. Um they they had different set of efficiencies, but the whole idea was now for china also to link into this market, and china playing a very similar logistics game.

The idea was basically to to connect up the various parts of the uranian continent. The russians came in with an idea of an arctic sea route. Now that we have climate changed, a lot of these arctic C I is melting.

So you could create an alternative route from china to europe rather than going through the zoo. And and nowadays, ys know, keep on, you would take the arctic sea route, and that was shorter. So there was a note, lot of planning going on, on ideas of really optimizing european supply in the in that period.

Yeah I mean, to you a point about china, and I think you made this point in the book, germany was a huge beneficiary of china's rise, but at the same time, they are also now becoming victims of its position in the global trading system. The words they wanted them to be successful, but not so successful that they would replace them.

Which interesting is when we look at the the example of china's rise, we look at globalization hand in glove with container logistics and just in time manufacturing. These are two trends that have reversed, and not the reversal of the rise of china, but china's integration of the global system the european monetary union r has held together. I think maybe that's an interesting question to ask, which is what your view is on the future.

V M U. Before I ask that or in conjunction with IT, i'm just curious you mention wage suppression in germany. This, of course, is key to the cost competitivity.

IT wasn't just about cheap brush. An energy was also about cost. Competitive qualified labor was the main mechanism by which germany suppressed wages via the exchange rate. Or were there other things that were important?

The wait a person worked because of the system of industrial relations, wages are set in germany by negotiations between trade unions and employer's associations. The trade unions are still very powerful even today. And in that period, two thousand and five germany had before the reforms, german's welfare system became, I wouldn't say, bloated, but IT was very generous.

And the method that shorter use is to cut down on welfare payments. So IT made alternatives to work extremely unpleasant through A A period of reforms. All is the ability to take off time from work, like a few months or years.

All that was became less lucrative. And people had to apply for a new form of welfare systems. If they refuse jobs, that that money was be cut. So IT was a difficult one. And what helped them?

Worst demographics, IT was the first of the generation of the bombers who were then in the fourth and fifties, who had become very averse to the idea of unemployment. Because if you have been fired in germany in the time when you work with with you an industrial worker, if you have been fired at the age of fifty, you would not get another job. Unemployment was high at the time.

There was unemployment was at five million, over ten percent of the workforce. IT was an environment that was very concise, to which repression todays is totally the opposite. The bombers are have retired.

The Younger generation does not care about jobs and job security anywhere nearly as much as the older ones. They'd taking whatever money they can get, which inflation is actually quite high, especially in the service of sector. The unions grip on these wages is much lower than then I used to be.

So people are negotiating nonunion zed wages ish. I can often exceed those of the union ze sector. So you have a completely different dynamics that cannot be repeated. I mean, you mentioned everything went into reverse.

In fact, IT true, everything went into reverse, not just not just geopolitics and energy, but the exchange, right? The, you know, the demos, demographics, the relationship with china and the important part of china in china obviously became part of the world trading system, but china and germany were a massively complimentary. And germany then later realized that china was starting to encourage on german goods.

They brought up the german solar panel industry and reiterated to china that was sort of the first of time, and people think of publicly realized that something wasn't quite right. And the german always thought, yeah, we have to make sure that china, we keep them down, but not completely out. And you know, as we say in the U.

K, this sort of too clever by half because the chinese decided to encroach on german technologies. Is they they? They have more than we in europe to and and sense that they need to be independent of the rest of the world.

And they didn't want to be dependent on germany for factories and machine tools. So they build their own industries and they are quite competitive in many sector's chinese products are very competitive and not just Price competitive, but also competitive and quality Prices. Chinese engineer engineering is not a bad engineering, and chinese electric cars are not just cheap cars.

They are actually quite good cars, and they they actually hard to compete against. So that's something that germany underestimated. And germany run very large trade surplus against china, and that has completely flipped. You know, china is one of the very few countries now that wants trade surpluses against germany because germany is buying more from china, comes integrated more into china. Speaking about china, there was something we we mentioned before on geopolitics, the use of geopolitical.

And I said earlier that the country takes out of consensual judgments across politics and business and businesses until very recently, continue to invest n in china, despite the fact that the relationship between the western china already started to in the latter part of the last decade, when who are I was sanctioned, john, companies kept on investing in into china. Some are still keeping on investment into china. They were largely ignorant of the geopolitical world around us.

B, S, after the chemical company is usually invested to china, they are building one of their main, their biggest plans ever in china. They say their chairmans used to say china is the future, and that sort of a view shared by the german industry. V, W, method.

Have thirty, forty percent of their sales in china. So they are massively dependent on the chinese market. And there wasn't a german chancellor who ever in those days, Michael, never, never told them to be careful because you police could again, you building up a race for your company.

I cannot guarantee that the geopolitics is going to be as benin in the future, as IT was in the past. There was no sense of that. The whole country became of geopolitically incompetent.

And in the german corporate sector, people who warned about china or who want about russia were sidelight. There was a case, I describing my book of a manager of B. S.

F. Who raised the issue of china dependence and who had to leave because, you know, that was the company's policy. IT was to be pro china.

So IT is a another example where this consensus model can go wrong. When everybody makes a mistake. There are on companies that they look, listen, we don't actually think so. We do something different that was not cool, basically.

嗯。 So on the conversation by demographics obviously brings up immigration, and we will have a chance to talk about that, because you write quite a bit the book about how the german political system makes IT difficult, and in fact, doesn't just distinctively high scale immigration to germany, but also high scale immigration of germans back to germany, which is quite self to feeding both cases of maybe children, for example, your children would have a more difficult time going back, and in some cases, and even give some cases of professors who wanted to return and shows not too. I also want to point out that the real self goal, our own goal that germany is experience on on an energy front, has also meant that IT is losing out not just on feet stock industries that taking natural gas for industrial plans, but also things like A I training models.

I also think you know, for people that heard what you have to say and hear echoes of Michael Peters, I definitely want to recommend they go back and listen to my conversation with Michael, and in particular, how he describes the chinese model suppressing consumption and elevating savings through the welfare system by making IT difficult, forcing people essentially to have to save more, which is money that then get rerated through the banking system, was going, i'm GTA move us to the second hour conversation, and I want to give listener's an idea of where we're going to go. So one thing I do want to do is reconcile what may seem like a paradox people, which is that germany's economy, in some ways, experienced its best period between two thousand five and two thousand seventeen. And in fact, the european exchange IT was, I think, one sixty to the dollar, or the dollar was one sixty for every euro, I think, in two thousand and nine, which also raised the question of the euro crisis.

And I think that also was a boon to the german economy. Have a chance. Talk about that. A chance talk about the three pillars of the german banking system, the private banks, state banks and the mutual banks.

I want to took a little bit more about Green tech because this really wasn't industry that germany was in a great position to dominate. And I wonder if that's still something that can be reversed for them. What that looks like.

You also mention that your real concern for the european union and for the future, the europe is a crisis in european core. You don't actually say that, but you describe IT essentially by focusing on the relationship between france and germany is the single most important relationship. And in europe, that's something I want to talk about.

And then I I want to end IT with a conversation about best and worst case in areas and that'll also bring up an opportunity, talk about german politics and some of these new coalitions that could be formed coming out of the the next elections. For anyone new to the program, hidden forces is listener supported. We don't accept advertisers or sponsors the entire shows funded from top to bottom by listeners like you if you want access to the second hour.

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