The Institute for Prosperity's latest report - What can the UK learn from Germany - compares the UK and German economies, principally looking at their respective manufacturing industries.
Germany certainly seems to be doing some things right. In particular, year after year, the country has a trade surplus and the Government has a positive fiscal outturn. According to the World Bank, living standards are a little higher than those in the UK – $46,259 in Germany against $42,300 in the UK in 2019 on a straight financial comparison and $56,278 versus $48,698 on a PPP basis. Germany has a much stronger manufacturing base than the UK, with about 19% of GDP coming from this source, powering the export surplus which Germany earns every year, compared with barely 10% of GDP coming from manufacturing in the UK, leading to a large balance of payments deficits year after year. But some things are – or have been – not so good. Germany has had relatively high levels of unemployment in the past compared to the UK, particularly in the 2000s when the German average was 8.8% compared to 5.5% in the UK, but the unemployment percentage by 2019 was slightly lower in Germany at 3.0% than the UK’s.
The growth rate of the German economy, despite its apparent strength, has been marginally lower than that of the UK – 1.4% cumulatively per annum between 2000 and 2017 compared to 1.7% in the UK – and Germany looks like being slower than the UK to recover from the coronavirus pandemic. Although Germany is very strong on manufacturing, the UK has a much more impressive record on exporting services, with a surplus recently running at about 5% of GDP compared to a roughly 1% deficit in Germany, with the UK particularly strong on financial services.
So, what might the UK be able to learn from German history and experience?
The report draws several conclusions on how Germany supports its manufacturing base and proposes the UK adopts some of them itself.
Key arguments in the pamphlet:
- The UK should follow the German model of providing support in the form of supply-side economic measures.
- Britain needs more investment in education and training. Around 50 percent of all school leavers in Germany undertake vocational training, compared to about 25 percent in the UK.
- Germany has one of the world’s highest expenditures on R&D at $118.8bn per year to the UK’s $44.8bn – Britain is being left behind.
- The German banking sector is also much more orientated to providing long-term finance for industry in comparison to Britain.
- Germany has an edge over the UK on infrastructure, having historically invested much more in this area.
- The Institute supports a competitive exchange rate policy to make the price of British goods more appealing globally.
