Now Stalled, Germany Turns to U.S.
The economy’s good news is no fluke. Unemployment is down, consumer confidence is high. A growing economy is creating jobs, despite occasional strikes and the effects of winter weather--and they are good jobs, the White House said flatly in a report released a week ago.
Moreover, the economy will continue growing because its health is not a fragile phenomenon but a long-term consequence of a strength that is often taken for granted, even reviled: the fast-moving, abundant U.S. capital markets.
That’s a reference to a whole panoply of financial markets, from the $7 trillion in equity values on the New York and Nasdaq stock exchanges to the $40 billion in new stock offerings coming to market this year. It takes in the $4 billion in venture capital disbursed to roughly 3,000 fledgling companies last year and the $35 billion in venture investments from previous years that is now at work in tens of thousands of small companies.
Employment is up, in short, because the capital markets finance ideas, be they the latest wrinkle on the Internet or the newest chicken restaurant.
The changing economy is no picnic. Capital markets also finance mergers and buyouts, displacing as well as creating jobs. But it is now clear that by facilitating change, America’s fast-moving financial system increases opportunity.
“The United States has experienced faster employment growth than any of the other major countries” in the last three years, states the Council of Economic Advisers’ report on job creation. Other major countries “have experienced negligible job gains or outright declines,” the report adds.
That’s a fact, not a boast. And it’s particularly apt now because Germany’s economy is in recession and struggling to reform while German companies--and firms from other nations--increasingly are coming to U.S. markets to raise capital.
Germany’s situation is severe: Unemployment officially is at 11%, and the actual total may be as high as 15%--with joblessness highest among the young.
The economy is stalled. “Germany’s leading exports last year were of machinery to plants German companies themselves are setting up overseas,” says Stephan-Gotz Richter of Transatlantic Futures, a Washington research firm.
German companies wanting to compete in world markets are forced to go outside Germany, a country where $29.89 an hour is the average manufacturing wage but income and social security taxes come to more than 60% of the pay packet.
Germany’s government, labor unions and industries are trying to open up the economy by lowering taxes, restructuring companies and trimming bloated payrolls. But change is difficult in a country with no venture capital and a stock market of only $600 billion in total equity--roughly 8% of the breadth and depth of U.S. capital markets.
In Germany, major banks finance companies and own shares in them, an arrangement not conducive to risk taking. A Netscape would not get money in Germany.
So German companies are coming to the U.S. market to raise capital. Daimler-Benz, the maker of Mercedes, registered its stock with the Securities and Exchange Commission three years ago and is listed on the New York Stock Exchange. Veba Group, a $49-billion energy conglomerate, is planning to list.
“The SEC helps such firms adapt to U.S. law because it gives investors opportunities in the global economy along with the protection of SEC disclosure requirements,” explains Gary Apfel, an attorney with Kaye, Scholer, Fierman, Hays & Handler, a U.S. law firm that advises overseas companies on restructuring and trading on U.S. markets.
Almost 800 foreign companies have registered with the SEC and more are coming, particularly small companies which have little chance of getting capital in their own countries.
A good example is Pfeiffer Vacuum Technology, a company from Asslar, north of Frankfurt, that is the world’s leading maker of turbo-molecular vacuum pumps, which are used in the making of computer monitors and semiconductors.
With its record in technology and $6.2-million pretax profit on $152 million in sales, Pfeiffer, recently spun off from a Swiss conglomerate, could attract a premium on U.S. stock markets. But not in Germany, where investor thinking focuses on the failure rates of new companies, not the odds of success.
So Pfeiffer will soon offer 100% of its equity to U.S. investors. It will then become a paradigm of today’s world economy, a U.S.-owned company, based in Germany, operating globally.
Fear of the kind of change the world economy demands is holding back German restructuring--a prominent labor leader, Klaus Zwickel, vowed last week to stop “naked capitalism.”
He should look to the U.S. Midwest, a manufacturing-heavy region similar to Germany, where companies have been restructuring for 20 years. Assembly lines were automated long ago, and office jobs in accounting and finance have been reorganized by ever more ingenious software.
It’s a region that has embraced change and spawned such innovative companies as Omaha’s MFS Communications, the leading provider of high-speed telecommunications to business, which last week agreed to acquire Uunet Technologies, the leading provider of Internet service to business.
The result is a visibly prosperous region, “with 3.5% unemployment in most areas and work proceeding flat out to make up production lost during the General Motors strike,” says economist Diane Swonk of the First Chicago NBD bank. “The pay at the local Boston Market is $7.50 to $8 an hour,” she adds, referring to a nationwide convenience food chain launched with a public stock offering five years ago.
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In Germany they don’t open stores for the convenience of customers but tightly regulate hours of business for the benefit of employees. It’s one facet of the “social market economy,” which Germany devised in the late 1940s to rejuvenate business while guarding against the joblessness that troubled it in the 1920s.
German recovery was a great success, of course. But the social market economy’s centralized controls are out of date in the era of the Internet and global markets. That’s why Germany’s young people are unemployed and why the country now faces the kind of wrenching change the U.S. economy has gone through.
The United States, to be sure, still must work to spread education and opportunity to all its people. But it’s clear now that after years of restructuring, the economy is seeing results. That’s why the good news is no fluke.
