The situation is especially dangerous because no one knows whether these jobs can be replaced. Some argue jobs can be created in the services sector, but even there jobs are being outsourced. Lufthansa recently moved much of its accounting services to Krakow, Poland. Deutsche Bank processes part of its electronic payments in Bangalore. And a good deal of the bookkeeping work of German chipmaker Infineon has been moved to Portugal, to name just a few examples.
So what will happen if Germany loses its industrial base? And how much industry does a country need? These are questions that are keeping economists, labor officials and entrepreneurs alike from sleeping at night. It's an especially tough question in a country where industry is so intrinsically attached to the national identity. Even before World War I, Germany was Europe's biggest industrial power. It was a time in which many well-known German companies bloomed and became leading international firms with names like Krupp, Thyssen, Bosch, Siemens and Daimler-Benz. Unfortunately, there haven't been many new industrial giants since then, and the digital revolution passed Germany by. With the exception of SAP, Germany has no pure IT companies of global significance.
The downside of globalization
The exodus of jobs in Germany has unleashed a major debate among economists on the question of whether free trade and globalization is advantageous for all participants. The old argument in favor of globalization was that countries should focus on their strengths, but nowadays the differences between countries in terms of production are getting smaller and smaller.
So what exactly is it that Germany can do better than other countries? That's not an easy question to answer. Even Nobel Prize-winning economist Paul Samuelson said it's "fundamentally wrong" to believe that relocating production to low-wage countries will bring any advantages to industrialized nations.
Hans-Werner Sinn, who heads the Munich-based IFO economic institute, went a step further, saying cheap imports from abroad are already harming Germany's industrial base. The idea of a "Made in Germany" label, he said, is deceptive because most products are already produced abroad. "In reality, mostly final assembly is done in Germany, and in some cases nothing more is done here than affixing the company label," Sinn said.
Others aren't so sure. Gustav Adolf Horn of the Institute for Economic Research in Berlin says some German companies have actually created jobs at home by opening factories abroad. DaimlerChrysler for example.
Outsourcing success stories
"At DaimlerChrysler, our experience has been that for every three jobs created abroad, a full position has then been created in Germany," said CEO Juergen Schremp. Since Mercedes-Benz opened an SUV plant in Tuscaloosa, Alabama, its German factories have profited in two ways: they deliver motors, axels and other components to the US, and, the company is able to buffer itself from fluctuations in currency markets by having an American factory.
Nevertheless, many of the jobs being lost at other companies in Germany are not being replaced. And there is great skepticism that service industry jobs can fill the gap, especially since many are directly tied to industry. "If industry leaves, services will also be lost," said Peter Kalmbach, a Bremen structural researcher, who recently studied the relationship between industry and the services sector for the Federal Economics Ministry.
Ironically, Germany is not only losing jobs to Eastern Europe, but it is also, as the largest net payer into European Union coffers, subsidizing the region's efforts to lure yet more jobs away. New EU members have special economic zones with no or extremely low corporate taxes -- money that is compensated by the plus €10 billion difference between their EU payments made and EU assistance received.
German Chancellor Gerhard Schroeder and French Finance Minister Nicolas Sarkozy are demanding that the new EU members increase their corporate taxes to western levels in order to level the playing field. But few believe they will succeed in their demands.
New solutions for the future
The situation isn't totally bleak, however. There are other ways Germany can combat the erosion of industry. There is still considerable potential for German companies in the fields of health, energy technology, biotechnology and materials. Even some industries one would consider "old," like electrical engineering or chemicals, have great upside possibilities. Take for example BASF, where 5,500 working at the company's Ludwigshafen facilities register an average of five new patents everyday. And it's not just BASF: More new patents are registered every year in Germany than in any other European nation.
Additionally, niche market industries are well represented in Germany, and more investment in such markets could pay off big in the future.
Germany is filled with so-called "hidden champions" -- medium-sized industry players who are the international leaders in their niche fields. They're not always the sexiest companies, but in their highly untraditional fields -- like drink-filling technologies, printing machines, prosthetics, floor sanding machines or tunnel drilling systems -- they stand far above the competition.
There are already success stories, like Kontron, a company based near Munich that produces so-called embedded systems -- mini-computers that are the brains of everything from gaming machines to AIDS-testing equipment. Kontron employs around 1,800 employees worldwide -- mostly engineers. Of them, 720 are employed in Germany -- 100 more than it had 18 months ago.
"We're growing in Germany," said CEO Hannes Niederhauser. "Job migration is not an issue here."
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