Germany is Not Volkswagen

MUNICH – The Volkswagen scandal has raised questions about the German model of production. If the success of the company’s diesel-powered vehicles was due in part to fraudulent efforts to conceal the amount of harmful pollutants they emitted, will similar revelations at other companies call into questions the country’s transformation from “the sick man of Europe” to an export-driven economic powerhouse?

Fortunately, the answer is almost certainly no. Germany’s competitive advantage has less to do with chicanery than with how its firms are structured and the culture in which they operate. Germany’s leading car company is an exception to the manufacturing rules that have driven the country’s success, not an example of them.

Indeed, Germany’s success is frequently cited as a model that other countries should emulate, and rightly so. Since the beginning of the century, the country has grown to become one of the world’s leading exporters, outstripping all other major European countries. From 2000 to 2013, Germany’s exports grew by 154%, compared to 127% for Spain, 98% for the United Kingdom, 79% for France, and 72% for Italy.

The leading explanation for Germany’s impressive recent export performance is wage restraint. But, as a comparison with Spain reveals, faster wage growth elsewhere cannot be the entire story. To be sure, from 2000 to 2008, German wages increased by 19%, compared to 48% in Spain. But after the 2009 financial crisis, the roles were reversed. From 2009 to 2013, German nominal wages increased by more than 14%, compared to 4% in Spain. And yet, despite the more rapid rise in German wages, the country’s exports rebounded faster than Spain’s – or those of any other European Union country.