8 The EconomistApril 14th 2018
SPECIAL REPORT
GERMANY21plains Mr Sonntag. He is a member of Verdi, a trade union, but
Amazon refuses to enter wage negotiations and has hinted it
might move the warehouse across the border into Poland.
The growth of low-paid work, combined with rising rents,
is reshaping German cities. In Leipzig a typical monthly rent for a
flat used to be around €4.50 a square metre, recalls Ms Pfeiffer,
but now €7.50 is not uncommon: “People are being pushed out
to the city limits.” That, says Ines Kuche of Verdi, creates so-called
“Hartz IV” districts: areas with a concentration of social pro-
blems that rely on welfare, sometimes exacerbated by racial ten-
sion as immigrants move in. The politics reflect these divides. In
the smart city-centre area round the bar “Pilot”, the Christian
Democrats came first in last September’s election, closely fol-
lowed by the Greens; out in Grünau, a kilometre from the centre,
it was the far-rightAfD, followed by the socialist Left party.
Away from the big cities, rising rents and traffic jams seem
distant, but life can be tough in different ways. Bitterfeld, about
20 minutes’ journey from Leipzig, was an East German chemi-
cals town with 76,000 people. After reunification, work dried up
and many of the younger residents moved out. In the suburb of
Wolfen Nord, boards are nailed over the windows of old fac-
tories, and communist-era tower blocks stand empty. Many of
the 41,000 remaining inhabitants are poor and angry, and many
are planning to leave.
Such economic exclusion can also be found in western
post-industrial regions like the Ruhr valley. In the two decades to
2015 the share of low-paid workers in former West Germany rose
from 11.9% to 19.7%. But in former East Germany it remained al-
most unchanged at 36.3%. At the time of reunification West Ger-
many’s chancellor, Helmut Kohl, had promised “blooming land-
scapes” in the east. Their failure to materialise, apart from
big-city successes like Leipzig and Berlin, helps explain why the
AfD did so well in the east in the September election. The Social
Democrats (SPD), traditionally the champions of the less well off,
took just 23% of the working-class vote nationally, down from
48% in 1998—even though as a partner in the grand coalition they
had just shepherded through a minimum wage designed to help
precisely such people.
In other ways, too, public policy could do much more to
help make German society fairer. The country’s education sys-
tem, which separates academic and vocational streams, en-
trenches inequality. And although Germany has the most un-
equal distribution of wealth in the euro zone, the tax system
relies heavily on regressive indirect taxes such asVAT.
The new government
plans to use some of the coun-
try’s giant budget surplus to
level some of these inequal-
ities. Some €4bn will go on
new social housing and en-
couraging housebuilding gen-
erally. Short-term employment
contracts will be restricted and
new pension provisions will
be made for low earners. Peter
Altmaier, the new business
minister, has said that priority
will be given to strengthening
the social market economy
and to economic development
in the former east. The new
government seems to want to
“re-Germanise” an economy
that has become increasingly
Anglo-Saxon. 7More richer, more poorerSource: University of Duisburg-Essen
Work and Qualification Institute (IAQ)Distribution of gross household
income, by income level, %0204060801001992 2000 05 10 13LowLower middleMiddleUpper middleHighLAST YEAR GERMANY exported a record €1.28trn-worth
of goods, 6.3% more than the year before. The infrastructure
can barely keep up. In Rotterdam in the Netherlands, the main
port through which these exports are shipped, Rhine barges
sometimes have to wait for four days. Germany is suffering a
dearth of pallets, and labour shortages are becoming more acute.
These are problems that other countries would love to have.
One reason for Germany’s success is that its labour reforms
of the early 2000s, combined with the relatively cheap euro,
have made its exports highly competitive. Another is a specifical-
ly German magic formula: an abundance of conservative, metic-
ulous firms that are good at fine-tuning tried-and-tested methods
honed over many decades. Most of the firms in the DAXindex,
which consists of Germany’s 30 largest traded companies, still
make the same sort of things the country was making almost a
century ago: cars, chemicals and machine parts. SAP, the youn-
gestDAXcompany, was founded in 1972. Germany’s corporate
birth rate is the lowest in any large European economy.
The country’s conservative industrial model is now being
put to the test “on a scale that perhaps has not yet been fully un-
derstood”, as Angela Merkel puts it. Technological disruption in
many important industries is forcing them to compete with new
rivals. Nowhere is that truerthan in the mighty car industry,
which accounts for one in seven jobs in Germany, one in three
euros spent on innovation and one-fifth of all exports by value.
A visit to Stuttgart brings these numbers to life. The home of
Porsche and Daimler (the owner of Mercedes-Benz), this south-
west German city exudes wealth and success. But in the labora-
tories and factories, angst hangs in the air. The cause is summedIndustryAI meets autoland
An economy built on caution must learn to live with
disruption