Why is German Manufacturing So Good?
For years, Audi advertisements have used the slogan “Vorsprung durch Technik.” Only a fraction of the millions who have read or heard the words know what they mean (“Progress through technology,” is the answer). The ad campaign works because people associate German design and manufacturing with quality, precision, and technical brilliance. Whether it’s Carl Zeiss lenses, BMW motorcycles, Bosch dishwashers, or Lamy pens, people buy German with the expectation of excellence.
How did Germany come to be so good at manufacturing? Why is it often so much better than neighbouring countries such as France and Italy? The story starts in the 1700s, when Germany wasn’t even a unified state—it was a patchwork of many different kingdoms. However, developments were taking place in one of these states, Prussia, that would help create the Germany we know today.
It started with a religious revival. In the Prussian city of Halle, people frustrated with the spiritual sluggishness of the Lutheran church formed a new group known as the Pietists. They were earnest in their faith, and took seriously Jesus’ command to care for orphans. Before long, they were looking after hundreds. The Pietists wanted these children to know God through the Bible and to be useful to society. So they set up schools and technical colleges, which with their rigid timetables became the basis for the educational systems we know today. The Pietists also founded a publishing house, a brewery, and a pharmaceutical company that supplied all of central and eastern Europe. The result was that Prussia became one of the most educated and entrepreneurial places in Europe—vital foundations for Germany’s later industrial success.
The German Enlightenment gave education a further boost a century later. Prussia became one of the first states to make education compulsory for all children. Science became more popular as people read the exploits of Prussian explorer Alexander von Humboldt. Humboldt’s brother, Wilhelm, opened a new university in Berlin. Meanwhile, the Prussian king passed a series of reforms that made the state bureaucracy one of the most efficient in Europe.
All this meant that Prussia was ideally placed to become the world’s second great industrial power. Great Britain got there first, but Prussia was close behind. Indeed, it helped that Prussia started after Britain. They could see what the British had done and then do it better. For example, Prussian mines used more machinery and were more productive than British ones. And while Britain’s manufacturers rested on their laurels, their Prussian counterparts were establishing new industries. British scientists made many of the key early discoveries in chemicals and engineering, but it was German firms such as BASF, Bayer, Siemens, Bosh, and AEG that did most to develop and profit from these new technologies. Germans also pioneered new industries: for example, the world’s first car was built by Daimler and Benz. By the late 1800’s, German engineering was rapidly gaining the reputation it enjoys today.
In 1871, Prussia united with the other German states to form Germany. More people, more coal, and more iron helped to make the new country the world’s industrial leader. By 1914, Germany was producing twice as much coal and steel as Britain. Its second biggest coalfield produced more coal than all of France.
This German manufacturing miracle in the 1800s was followed by a second one in the 1900s. Manufacturing dwindled in former industrial powerhouses such as Britain and the United States, but Germany retained its factories and its technical skill. 19% of jobs in Germany are still in manufacturing, twice the percentage in Britain and the US. And most people would rather drive a BMW than a Buick.
Losing two wars is part of the explanation for this second miracle. After the First World War, the victors prohibited Germany from having an air force. All the aeronautical firms and engineers had to move to different industries: BMW stopped making aircraft engines and started on motorcycles and cars. After British and American bombers had destroyed hundreds of factories during the Second World War, Germany built new and better ones. Britain and America also took billions of dollars’ worth of intellectual property, which spurred innovation among German manufacturers. By contrast, victorious powers such as Britain were prone to be complacent.
Defeat in the war helps explain another characteristic of modern Germany that has proved decisive for its industry, namely the willingness of its workers to accept modest wages. In France and Britain, striking for higher pay was the norm, and as earnings rose business decided to move production elsewhere. By contrast, factory workers in Germany accepted lower wages, which they saw as necessary for keeping their jobs. Why Germans were more moderate in their demands is not clear—some have pointed to a national culture that honours responsibility over entitlement and risk. But it’s likely that the humiliation of losing the two world wars has helped entrench that way of seeing the world.
Low wage bills have meant more money to invest in research and development, which has helped German firms keep their technological edge. This is true both in large firms such as Volkswagen and Bayer and the smaller family firms, or Mittelstand, that make everything from music stands to medical devices.
Germany also benefits from its history as a collection of smaller states. There is no German equivalent of London, with its oversized place in Britain’s economy. Many German cities have enormous local pride. Most people go to the university closest to their home. The result is a country where education and skill, and therefore successful industries, are spread widely.
And centuries after the Pietists in Halle, Germany continues to excel in education. There are schools for those who wish to study science and the humanities, but there are also excellent institutions that provide technical training. Germany has a culture of apprenticeship that results in a highly skilled workforce. The government invests in people—while US companies laid off workers after the financial crash of 2008, many German companies were able to send them on government funded training schemes. They then brought their employees back when the economy recovered.
However, while many enjoy the goods Germany makes, Germans are growing frustrated by how little money they make. Most rent their houses in a country which is one of the most unequal in the world. There is evidence that the golden age of German manufacturing is coming to an end—already, only three of Mercedes’s thirteen plants are in Germany. At least we can hope that Germany continues to excel in the design and engineering that have given us so many beautiful and functional products.