Britain and Germany

 Sir Keith Starmer is not the first Labour leader to hanker after a closer relationship between Britain and Germany. Jim Callaghan snuggled up to the chancellor Helmut Schmidt in the 1970s, and ever since there  has been a sense among the social democratic left in the UK that there is much to be learned from Germany's biggest economy.

The Germans, it has been said repeatedly down the decades, have a superior model of capitalism: based on good design and skilled workmanship; stable, long-term funding arrangements between businesses and the banks; a more consensual system of industrial relations; a network of medium sized companies, many of them family owned; a top notch system of vocational and technical training that ensures a steady supply of skilled, productive workers.

Street Scene in Frankfurt, Germany
George Jones (1786-1869)
Photo Credit:Nottingham City Museums & Galleries [CC BY-NC]

There is a reason Germans work fewer hours and enjoy higher living standards than the Brits; they have rejected Anglo-Saxon capitalism in favour of something better. They run a big trade surplus, have sound public finances and keep inflation under control. What's not to like?...

The brutal truth, though, is that Germany is no longer an appropriate role model for the UK (or indeed, any other country)...

Since 2018, Germany has been the slowest-growing economy in the G7 - expanding by 0.4% a year on average... Germany is still flirting with technical recession. To be sure, there are reasons for that. Germany was particularly exposed to the higher cost of gas on the global markets triggered by Russia's invasion in 2022, not least because of its high concentration of energy-intensive industries...

Germany has come through plenty of tricky situations in the past, and in the past those who wrote it off were proved wrong. 

This time, however, the reasons for Germany's economic woes go deeper. There are structural causes, the main one being a determination to cling to the model that has brought it success but is now past its sell-by date... In a sense, Germany became the victim of its own success. It saw no reason to change the model and invested too little in physical, human and digital infrastructure...

The UK now has a larger proportion of students studying a Stem subject - science, technology, engineering and maths - than Germany. Another is that Germany is nowhere when it comes to AI. The US and the UK have 5.22 AI startups for each 100,000 inhabitants; Germany has 1.9...

The UK under invests and needs to find a way of being at the cutting edge of the fourth Industrial Revolution. But so, too does Germany, a country long overdue the creative destruction that would allow new ideas and new products to flourish.

Britain does have lessons to learn from other countries - yet not many of them will come from Germany, increasingly an analogue economy in a digital world.

(Larry Elliott, The Guardian, 2024)

A very interesting article and a little disturbing too. If AI is to become, in the economic sphere, the main architect for growth, what jobs will go and what happens to those workers? Here, once the coal miners fought and lost their battle to keep the mines open, many communities withered and died and even now have not recovered. And again, who will control AI?