If you believe that a ‘real’, honest-to-goodness economy is all about ‘making things’ — then I’ve got some bad news: in almost every country in the world, services are bigger than industry. Even in China, the greatest industrial power in human history, industry accounts for about 40% of GDP — well behind the service sector.
In richer economies, industry’s share (itself composed of manufacturing, construction and resource extraction) is much smaller — approximately 20% in America, Britain and France. In Germany, though, it’s significantly bigger at around 30%. This is unusual for a major western economy — especially one without a vast hinterland full of natural resources (like Canada or Australia).
When you consider that Germany’s export-led economy also lacks the ‘advantage’ of low labour costs, you have to wonder how they do it. The country’s high tech, high skill, high wage manufacturing sector is a wonder of the global economy, the engine room of Europe and a force for stability in German politics. Which is why its sudden downturn has caused widespread concern. Is this a sign of impending recession – not just in the Bundesrepublik, but across the EU and beyond?’
Writing for Bloomberg, Chris Bryant argues that in some ways it might be worse than that:
“So far the problems aren’t nearly as acute as in 2009; industrial production fell by a comparatively modest 4.2% in July. The worry, though, is that demand is being sapped by a mix of both cyclical and longer-lasting structural factors…”
What structural factors?
The biggest one is technological. The future of the automotive industry is electric, whereas the dominance of the all-important German car industry is based on its mastery of the internal combustion engine. The great shift to electric vehicles is the most disruptive change to the industry since the advent of the production line.
Vorsprung durch Technik? Absolutely, but if you change the Technik you restart the race — and that gives manufacturers in other countries a chance to steal a march. It doesn’t help that it’s not long since German industry took a huge bet on diesel engine technology. Thanks to Germany’s clout in the EU, plus blatant falsification of emissions tests, most of Europe was drawn down the diesel route. It was a disaster for air quality and thus human health, but it’s also proving to be a slow-burn commercial catastrophe. Political and consumer opinion has turned against diesel, which now looks like a dinosaur technology, its extinction in sight.
Join the discussion
Join like minded readers that support our journalism by becoming a paid subscriber
To join the discussion in the comments, become a paid subscriber.
Join like minded readers that support our journalism, read unlimited articles and enjoy other subscriber-only benefits.
Subscribe