IU economist reveals 'Seven Secrets' for Germany's resurgence, highlights lessons for U.S.

  • Oct. 21, 2015


BLOOMINGTON, Ind. -- How did Germany, branded in the 1990s as “the sick man of Europe,” emerge as an economic powerhouse? Indiana University economist David Audretsch and Erik Lehmann of the University of Augsburg studied how Germany has balanced seemingly contradictory strategies to defy the economic odds.

“The conventional wisdom is that you can either have a high-wage knowledge economy or a low-wage manufacturing economy,” said Audretsch, the Ameritech Chair of Economic Development and director of the Institute for Development Strategies at IU’s School of Public and Environmental Affairs. "You have to choose between local commitment and global orientation, and between an environment that fosters entrepreneurship and one in which the government plays a strong role.

“What Germany proves is that combining all of these elements can create a unique and superior strategy that enhances global competitiveness while playing to a country’s particular strengths,” he said.

In their new book, "The Seven Secrets of Germany" (Oxford University Press), Audretsch and Lehmann list these seven characteristics or “secrets” of the contemporary German economy:

  • Small is beautiful. Germany’s commitment to its small to midsize companies, or Mittelstand, promotes localized economic development while enabling firms to excel internationally within well-defined niche markets.
  • Poets and thinkers. Germany’s dual education system of universities and skilled-labor apprenticeships produces competent, committed workers in manufacturing as well as knowledge-based fields.
  • Roots and wings. Pairing localized growth strategies with a newly open attitude toward foreign workers and markets enriches German states.
  • (Infra)structure. Ongoing government investment in transportation, communications and city-level amenities creates the conditions for thriving businesses that attract and retain employees.
  • Laptops and lederhosen. Germany has proved remarkably flexible in making room for innovation without sacrificing local culture.
  • Made in Germany. Despite some of the highest worker wages in the world, Germany has emerged as a leading manufacturer by investing in translational research relevant to small to midsize companies and enhancing quality and productivity through worker-friendly policies.
  • It’s good to be German. After a long period of atonement following the nightmare of the Third Reich, Germany has attained a new confidence in its ability to reinvent itself without forgetting its history.

Audretsch and Lehmann describe how Germany rebounded from double-digit unemployment rates in the post-unification era to achieve the highest trade surplus in the world and the lowest unemployment rate in the European Union.

The authors compare Germany’s trajectory to that of the United States. They say Germany’s attention to the supply side of its economy and willingness to find demand outside its borders contrasts to the U.S. emphasis on internal stimulus.

Audretsch and Lehmann conclude that while Germany’s distinctive strategies should not be taken as a blueprint for growth in the U.S. or elsewhere, they can be used to inform analogous approaches to capitalizing on country-specific strengths.

“No country should resign itself to economic stagnation,” Lehmann said. “If Germany has taught us anything, it’s that economic resilience is possible in the Age of Globalization.”

To speak with David Audretsch, contact Jim Hanchett, Indiana University School of Public and Environmental Affairs, at 812-856-5490 or jimhanch@indiana.edu.

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Jim Hanchett

  • School of Public and Environmental Affairs
  • Office 812-856-5490
  • jimhanch@indiana.edu