Magazine article Newsweek

Germany 1.0

Magazine article Newsweek

Germany 1.0

Article excerpt

Byline: Stephen Roach (Roach is the chief economist at Morgan Stanley.)

The whispers of a new German miracle are growing stronger. In my recent rounds of meetings with a wide range of German business managers, the verdict was nearly unanimous--a powerful restructuring is now bearing fruit. Productivity--the ultimate arbiter of the success for corporate restructuring--is now on the mend, rising at a 1.7 percent average annual rate over the five quarters ending in mid-2006. That's still modest by U.S. standards, but represents a rapid acceleration for Germany, more than a doubling from the anemic 0.7 percent trend from 1998 to 2004.

Three major forces appear to be driving this awakening in the world's third largest economy: greater efficiency in the labor market (as unions weaken and corporations hire more temp and part-time workers) in corporate organization and in the use of capital (plants and equipment). Of these three forces, the newest, most important and least well recognized is the capital revolution. German production has always been seen as a model of efficiency, obscuring the fact that it lagged behind in adopting new information technologies--the elixir of the Anglo-Saxon productivity revival of the late 1990s.

That is now changing. Germany's IT share of business capital-spending budgets is on the rise and, according to statistics from the Organization for Economic Cooperation and Development, now exceeds that in France, the United Kingdom and even Japan. For years, business road warriors couldn't connect their computers while traveling in Germany. …

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