Lessons for South Africa from Germany in a challenging global environment

Nice speech by Gill Marcus, Governor of the South African Reserve Bank.

He points how SA can learn from Germany. The lessons actually apply to most econs:

Much of Germany’s post war economic success can be attributed to its Social Market model. While this model is peculiar to Germany, there are many lessons for South Africa. Allow me to expand on three of these aspects – industrial relations, training and investment in continuous competitive enhancements. Naturally, these three aspects are mutually reinforcing.

Germany’s industrial relations are characterised by a high degree of cooperation between employer and employee organisations. Both workers and firms take a long term view of the economy and both parties recognise the importance of continuously raising productivity. Both parties understand the need to share the productivity gains. This allows for an alignment of incentives between workers and employers. At a micro or firm level, there are appropriate mechanisms to resolve disputes early and in a win-win spirit. In South Africa, we need to find models that enable earlier dispute resolution in the workplace before labour disputes affect the broader economy. We also need to find ways that enable the work force to have greater knowledge of the financial affairs of the company and sector, while management needs to better appreciate the living and working conditions of their employees.

Germany has a dual training system with high quality vocational training institutions complementing on-the-job training by firms. In Germany, nearly two-thirds of the country’s workers are trained through partnerships among companies, technical schools and trade guilds. In 2011, German companies took on and trained nearly 600 000 paid apprentices. The schools provide theoretical lessons on the side, while trade unions help ensure training is standardised. German firms take in young work-seekers and provide a period of training and induction in order to prepare young workers for the rigours of work and to give new workers the skills required to raise their own productivity.

These apprenticeship schemes are based on a partnership between the state, employers and training institutions. Firms benefit by receiving support from the state to take on new work seekers. More importantly, they benefit from the high quality training provided both by public training institutions and by on-the-job training provided by the firm. The outcome for the firm is a steady supply of young workers with the knowledge and training to fit into a globally competitive economy. The outcome for society as a whole is that new entrants can gain access to work and training quickly, meaning that long term unemployment is low. Germany has amongst the lowest youth unemployment rates in the world, currently standing at 7.7 per cent, compared with the Eurozone average of 23,9 per cent.

These three helped Germany come out of the crisis quicker:

The combination of these three policies; industrial relations, training and competitiveness has allowed Germany to emerge from the global financial crisis in a much better position than almost any other advanced economy. When demand for goods and services fell in 2008 and 2009, many countries saw large-scale job-losses. In most countries, including South Africa, it is seen as normal for firms to reduce staff numbers when demand falls. During the crisis, almost one million jobs were lost in South Africa, and we are still not back at pre-crisis levels.

The unemployment rate measured 21,8 per cent in the third quarter of 2008, but deteriorated during the crisis to reach a peak of 25,7 per cent in the second quarter of 2011, and currently stands at 24,9 per cent. In Germany, both firms and workers opted to reduce working hours and hence income, rather than face retrenchments. Government supported firms by subsidising training, allowing firms to use the period of slower demand to retool and to raise the skills profile of its workforce. The result was that unemployment increased moderately from 7,1 per cent in October 2008 to a peak of 8,0 per cent in July 2009, and in February of this year measured 5,4 per cent, compared with a Eurozone average of 12,0 per cent. Low unemployment in turn meant that domestic demand held up more strongly than in other comparable countries. And despite significant pressure from new emerging market competitors, Germany has remained competitive in its key high tech, specialised manufacturing sectors.

Euro sceptics will obviously argue that much of the gains were because of Euro which was undervalued compared to what D-Mark would have been..