Davos Newbies

For those who smugly accept notions of “old Europe” the Financial Times’ analysis of Germany’s export success will probably be a shock:

In spite of Germany’s unexceptional macro­economic data, no other industrial nation has so successfully harnessed the opportunities offered by an interconnected global economy.

This mid-sized country of 80m, often painted as angst-ridden, risk-averse and allergic to change, has been the world’s largest exporter of goods every year since it overtook the US in 2003.

In 2004, the most recent year for which the Organisation for Economic Co-operation and Development provides comparable data, German companies exported just under $1,000bn (£530bn, €780bn) worth of products, nearly as much as the UK, France and the Netherlands combined. Its trade surplus was six times that of China.

To Germany’s cost, however, it hasn’t yet found a way to translate that success into growth and jobs domestically. Its export-oriented companies are thriving, but too many of its people are moribund.

Peter Marsh has written a fascinating three-part series in the Financial Times on India’s response to China’s extraordinary success in manufacturing. It conveys effectively the crucial point that one of the key stories in the coming decades is the outpouring of innovation from India and China, not just their growth as low-cost manufacturing or outsourcing bases.

One caveat I have on all the China/India comparisons (and a mea culpa as well, when I look back on some of my writing). Both countries are vast, varied, continental nations. To discuss them in sweeping generalizations is to display considerable ignorance. What Marsh describes happening in Maharashtra or Karnataka is a world away from Bihar or Uttar Pradesh. A recent IMF working paper discusses how some Indian states are being left behind (discussed on New Economist). The same observation could be made in China, in comparing the high-growth, relatively prosperous coastal provinces with the interior provinces.

Understanding the differences within these two countries is part of what we will need to understand our world.