Were You Born on the Wrong Continent? Why You'd Probably Be Healthier and Wealthier in Germany
Continued from previous page
People at the libertarian Cato Institute love to scoff: "Oh, our poor in America are so well off in GDP per capita." Go ahead. Argue. I'll let you win. But I dare the Cato types, when the argument is over, to go outside and walk around some Chicago neighborhoods.
In other words, the further ahead we get, the more our standard of living drops. Let's say, as a European, I work 1,500 hours a year. Now, let's put me at 1,800 or even 2,300 hours, like many Americans. While I've moved to higher GDP per capita, I don't have:
• Six weeks off.
• A perfect cup of coffee to sip at some place other than the office.
• A city to inhale like a bank of violets.
In 2005, the real hourly wage for production workers in America was approximately 8 percent lower than it was in 1973, while our national output (productivity) per hour is 55 percent higher. So it's dubious whether most Americans have gained even a penny in purchasing power since 1989. And even skewed by all this U.S-type inequality, we understate what Europeans at the "middling" level are able to get for free, i.e., publicly provided goods like education, healthcare, cities like banks of violets. Even apart from the grotesque U.S. social inequality, the net purchasing power disparity after we toss in the public goods is not so great.
Or maybe I mean this: Europe has a kind of invisible GDP, which we don't know how to count. The ambitious European who might want to work 2,300 hours may be the luckiest to escape his or her fate under the U.S. model. When that person has 700 more hours a year, to learn an extra language, to go to Sri Lanka, or just to read, it's that high achiever who may be best off under the European model.
It's no accident that the social democracies -- Sweden, France and Germany, who kept on paying high wages -- now have more industry than the United States or the UK. During the '70s, '80s and '90s, the Anglo-Americans, the neoliberals, The Economist crowd, and the press generally, would taunt the social democrats in Europe: "You'd better break the unions." That's the way to save your industry.
Indeed, that's what the United States and the UK did: They smashed the unions, in the belief that they had to compete on cost. The result? They quickly ended up wrecking their industrial base. But Germany, Sweden and France ignored the advice of the Anglo-Americans, the Financial Times elite, the banking industry: Contrary to what they were told to do, they did not wreck their unions.
And it was the high labor cost that pushed those countries into making higher "value-added" things. Where is Germany competitive? It's in high-end, precision machinery, made by people with the highest skills. It's in engineering services. People look at Germany and say, "What about the German unemployment?" But no one in the United States ever says, "What about the German labor shortages?"
Even in 2008, precisely because of "globalization," Germany had a serious shortage of people able to fill high-skill, high-paying jobs, especially engineers. In the United States, engineers complain they can't find work; many of them just end up in sales. In the union-free, lower-cost United States, we don't create the kind of jobs engineers can do. Germany's problem? It has too many such jobs. It's our whole globalization thesis turned upside down.
That leads to a seeming paradox: Higher labor costs can make a country more, not less, competitive. In many ways, the United States and the UK got out of manufacturing because their labor costs were too low. I have spent my life watching plants close in Milwaukee and Waukegan, where skilled labor was paid $26 an hour, only to reopen in Georgia and North Carolina, where it was paid $8 an hour. While still fighting over severance two years later, we get the news: The company is bankrupt. The products it makes so cheaply are now crap.