American Economy Is a Model That Other Nations Envy, Fear

BERLIN -- When Germany enacted a tax-reform law last year, its largest newspaper, Bild, asked: "Are we catching up with the Americans now?"

But after the traumatic U.S. presidential election and the bursting of the Internet stock bubble, a cartoon in the French daily Le Monde captured the Schadenfreude overseas. It showed an agitated man bursting into the Oval Office shouting, "Nasdaq: -3%, Dow: -17%, Dollar: -5%." The empty chair behind the president's desk replies, "Recount!"

Which is it? Does the rest of the world want to emulate the U.S. and its remarkable economic success, or doesn't it? The unequivocal answer from abroad: Yes.

No one any longer talks of copying the German or Japanese model, let alone the Communist model. Even as the U.S. stock market surrenders some of the past decade's euphoric gains and talk of recession spreads, nearly every country still wants a stock market and a New Economy with rising wages, widespread embrace of the Internet and an explosion of start-ups in high- and low-tech.

"In the current political debate, there is no other model," says Annelie Buntenbach, a left-leaning member of the Green Party contingent in Germany's parliament, as if the question of alternative models hardly warrants serious consideration.

But envy of the U.S. is mixed with doubt and animosity. Whether the American advantage in question is economic, military, cultural or technological, the upside comes with too much downside for some. Germany and other nations "are slipping into American conditions without taking a critical look at them," she worries.

Germany offers a good case study in the global ambivalence. Its Rhineland model -- marked by business-labor cooperation and a generous Vater Staat, or "Nanny State" -- took it from devastation to industrial powerhouse. Although unemployment is still above 8%, many unemployed Germans live better than many employed, low-wage Americans. Like Japan, Germany was hailed not so long ago as a model for the U.S. to follow.

Germany today isn't all Old Economy machine tools and Mercedes: It has 56 of the top 150 Internet companies in Europe, according to PricewaterhouseCoopers. Half are profitable, twice the proportion in Britain. More than 330 companies have gone public on Frankfurt's Neuer Markt -- Germany's answer to Nasdaq -- since it opened in 1997, far more than any of Europe's other new markets. Even the post office has done an initial public offering. Nearly one in five German adults owns stock or mutual-fund shares, more than double the 1997 level. And the government, embracing the market enthusiastically, this year auctioned licenses for next-generation mobile-phone services instead of trying to pick winners itself.

Moreover, many postwar Germans -- uneasy about their parents' and grandparents' Nazi generation, and mindful of America's help in rebuilding their country -- see America as a benevolent stepfather. Yet they also value their own strain of capitalism, which has deep roots. Big government isn't a boogeyman in Germany. By law, every company's supervisory board must have an equal number of worker and shareholder representatives. The German Constitution states: "Ownership entails obligations. Its use should also serve the public interest."

"Fifty percent of Germans want to have the situation in the U.S. The other 50% want to change nothing because they are afraid that we will become like the U.S.," says Lothar Spaeth, chief executive of Jenoptik GmbH, one of few high-tech stars in the old East Germany.

It's not just national pride. Europeans and Asians want the good of America's New Economy without what they see as the bad: the slums and poverty, the shop-around-the-clock mentality, the chaos of the unfettered market, the huge gap between CEO pay and workers' wages -- and so much immigration.

As French Prime Minister Lionel Jospin often puts it: "We want a market economy. Not a market society."

The big question is: What aspects of the current American economy are essential to its current successes, and what parts are coincidental, as irrelevant as driving on the left is to the economic success of Singapore?

Is it critical that professors at elite universities be free to start companies and get rich? Are stock options essential? Are huge gaps between rich and poor unavoidable? Are weakened unions a precondition for New Economy flexibility?

And will the end of the bull market spell the end of America's economic miracle? "Even though an end to the period of irrational stock-market exuberance … will not -- or need not -- greatly disturb the fundamentals of American production and employment, it will bring an end to the eagerness of foreign politicians and executives in other countries to learn from America," predicts Brad DeLong, an economic historian at University of California at Berkeley.

Rhetoric isn't always a guide to reality. With old-style socialist fervor -- and predictable finger-wagging from fans of U.S. capitalism -- the French government a couple of years back cut the standard workweek by 10% to 35 hours. At the same time, it slashed payroll taxes for employers of low-wage workers, allowed construction companies and other seasonal industries to demand as much as 48 hours a week in some months and fewer hours in other months, and effectively forced workers and bosses in individual workplaces to increase productivity. So was it a move toward or away from U.S.-style labor markets?

Michael Otto, CEO of GmbH, a family-owned German mail-order retailer with interests in such American retailers as Eddie Bauer and Crate & Barrel Holdings Inc., is attracted and repelled by the U.S. The German government is too generous with benefits, he says, but America is too stingy. American marketing is masterful, but stock-market pressure on U.S. executives leads them to follow fads instead of long-term strategy. "I'm not so happy that Germany is on the way to that," he says. "At the moment, mergers are very sexy even if they don't make sense. In 10 years they will be demerging, and talking about the virtues of small, more-flexible units."

But look closely at his $19 billion-a-year Otto Versand operation. More than half its German employees work part time. Using the not-so-subtle threat of moving work to eastern Germany, the company persuaded unions to permit 40% of its blue-collar workers to accept a guarantee of an average of three weeks' work a month -- with six-day weeks common during the Christmas rush and three-day weeks in the summer, like it or not.

"Part-time work is a double-edged sword," says Eckhard Heidtke, a member of the workers' council at Otto Versand's Hamburg facility. "It makes it easier to combine work and family. But it makes it harder to move up into management positions. And, in some areas, people work part time only because they can't get anything else."

Clearly, much of Europe and much of Asia long for some non-American route to prosperity -- with more consensus and more government than in the U.S., less harshness and less risk of failure. After all, Germany has its autobahn and high-speed trains, equal to or better than America's, but it also has its downtown bicycle paths. Europe's bloody 20th-century history proves that maintaining "social cohesion" or "solidarity" -- even at the expense of faster economic growth -- is imperative, some Europeans argue; disaffected Europeans are more easily drawn to dangerous extremes than their American counterparts.

"Europeans want a kinder and gentler revolution," says John Kornblum, a longtime Europe watcher who stepped down earlier this month as U.S. ambassador to Germany. "As if any revolution were kinder and gentler."

It isn't a ridiculous goal. Surely, Americans would prefer a New Economy in which everyone had health insurance, and successful corporate managers had time to know their children.

After Jimmy Carter's deregulation, Ronald Reagan's busting of the air-traffic controllers' union and Bill Clinton's welfare reform, many Americans find it hard to imagine any alternative to today's U.S. model. The flood of foreign money to the U.S. economy reinforces the case that, in the Internet age, American-style capitalism is the only way to go.

That doesn't prove the case, though. "The claim that the U.S. has found the best form of capitalism for the modern world rests on the notion that there is a single peak capitalist economic model," argues Richard Freeman, a Harvard University economist. "But there is a case for diversified capitalism."

Maybe, he suggests, Germany can operate a "social partners" strain of capitalism -- relying on time-consuming consensus among business, labor and government -- better than the U.S. And maybe the U.S. does better with its every-worker-for-himself system than Germany would. If so, he reasons, then "Germany will do better with its system than to mimic the U.S. system and conversely."

Perhaps. Not all Germans, particularly business executives, are persuaded that they should save their system. And, no matter what their political persuasion or social status, Germans watch the U.S. closely, and are certain they understand it. Two million of them visited last year, equal to the combined populations of Munich and Frankfurt. To Americans, Miami may seem an extension of Cuba, but sun-starved Germans talk as if they are buying South Florida, one condo at a time.

Gayle Tufts, a self-styled entertainerin from Brockton, Mass., makes a good living performing in "Dinglish," a mix of German and English, and mocking both societies before both big-city and small-town audiences in Germany. Her shtick relies on German familiarity with America. Starbucks has yet to arrive in the land of kaffee und kuchen, but German audiences roar knowingly at her parody of the complexity of ordering there and at her mockery of her new and old homelands:

Oh, I'm really sorry Germany
For every single thing that we have given you.
For Burger King and crack and plastic surgery
For Britney Spears und auch fuer Scientology
For Rocky, Rambo and Ronald Reagan, too
Fuer Barbie aus Malibu. …
But wait a minute, hey!
Take another look.…
'Cause now I'm thinking of things that Germans love
Miami, Vegas, Disneyland
Implant for your breast, Urlaub [vacation] in Key West
Snoop Doggy Dogg und Denver-Clan ["Dynasty"]. …

Ms. Tufts says she is peppered with questions from Germans, many of which reflect German uneasiness about becoming too much like the U.S. "They all ask: 'Why did you come here when you could have stayed there.' I tell them: 'Health insurance.' " It isn't just a one-liner. Before she came to Germany in 1991, she was working days as a kindergarten teacher to get benefits and nights as an actress.

"People want to know how you can live without six weeks of vacation, and how come everybody wants to have a gun," she says. "And they ask a lot about universities: How do they work? You have to pay for it?"

Much of German business is impatient with the affection of politicians and the public for what is seen as traditionally German capitalism. Big companies are voting with their marks, investing far more in the U.S. than U.S. companies are investing in Germany. Daimler-Benz AG bought Chrysler Corp. AG bought Bankers Trust Co. AG is buying Voicestream Wireless Corp.

The title of a session at a congress of European chambers of commerce here last October -- "Europe: Economic Giant or Economic Dinosaur?" -- recalls Americans' self-flagellation when Japan seemed economically invincible.

"The economic success of America is due not simply to new technology, but to their systematic market-driven approach that has driven their economic dynamism," Nikolaus Schues, the white-haired CEO of a 40-vessel shipping company in Hamburg, tells his peers.

"We need more market in our labor market," he says, spouting more sound bites than a politician. "Fear of failure is very great in Germany. In the U.S., filing for Chapter 11 is seen as a valuable lesson in building a career."

Is there nothing about America he wouldn't import? Deliberately avoiding the rhetoric about poverty, inequality and crime, he mentions only one thing: schooling. Germany's system of apprenticeships and job training is a plus. "In America, it is learning by doing. That is a disadvantage," he says. For Mr. Schues, who worked for years in the U.S. as a shipping broker, the goal appears to be American-style capitalism with German vocational education.

If nothing else, others argue, younger Germans already are pulling the country in the U.S. direction. Mr. Spaeth, the Jenoptik executive and former governor of the wealthy state of Baden-Wuerttemberg, compares Europe to a zoo to make the point. Most of the animals have been born in captivity, and expect the keeper to bring food daily. A few old lions, born in the wild, tell others how hard it was to find food. But the young animals are bored, and want to bust out. It's dangerous out there, the keeper tells them. There are the cowboys from America, the tigers from East Asia, the dragons from China. It's much better that we make a higher fence.

Eventually, the young ones break out anyhow. "It's really only a matter of time, and it's independent of what the government does," says Mr. Spaeth, who is much more confident about Germany's future than he was five years ago. The spurt of start-up companies founded by young Germans is particularly heartening, he says.

Some German businessmen predict that the country gradually will embrace the American approach to business, work and shopping, even if it insists that it isn't doing so. "Following the U.S. model is not popular," says Herbert Henzler, head of McKinsey & Co.'s consulting practice in Germany. "We may end up with it here, but we will say there are these shades of gray and differentiation."

He says his corporate clients are torn between pressure from financial markets to pursue shareholder value as the primary goal and their deeply held belief that Germany has benefited from stakeholder capitalism -- which puts the needs of workers, unions, banks and communities alongside those of shareholders.

The continuing saga over store hours shows both the pressure for change and the strength of the resistance. Because Germany protects workers' rights over consumer convenience, store hours are rigidly controlled. Most stores must close by 8 p.m. on weekdays and 4 p.m. on Saturdays. Stores are shut on Sundays, except for those in airports and railway stations.

Unions are fighting longer shopping hours. Ursula Engelen-Kefer, No. 2 at the Federation of German Unions, says watching television on a recent visit to Seattle was "horrifying -- sales, sales, nothing but sales."

Store hours were extended in 1996, the first change in decades. But the rules are cracking. To have a midnight party when the new Harry Potter book came out in German last October, a Berlin bookstore issued written invitations to turn the event into a private party, making the later closing time legal. The same store last year set up beach umbrellas, wading pools and rubber ducks among the bookshelves, because beach resorts and tourist destinations are exempt from Sunday closing.

Despite pressure from state governments to extend store hours, Chancellor Gerhard Schroeder, horse-trading to get labor support for other issues, promised not to raise the issue for at least two years. "Germany's ability to change is greater than the store-hour deadlock suggests," says Hubertus Pellengahr, spokesman for the German retail association. "But the store hours are a symbol, and the politicians still lack the courage to attack it."

Even when it decides to emulate America, Germany often trips over itself. Partly because German universities have been slow to adapt their curricula to the information age, Germany is short of computer professionals. In a surprise, Chancellor Schroeder said last year that the government would offer special work permits to foreign computer specialists. They're dubbed "green cards," after the U.S. analog, but allow foreigners to stay only five years, not indefinitely as in the U.S.

Although Germany has been recruiting Turkish manual labor for years and, more recently, Polish laborers, the green-card proposal renewed an often-ugly debate over immigration. "Kinder Statt Inder," or "Children Not Indians," shouted one conservative politician, explaining that he meant that Germans should educate their own talent and not import it. But the anti-immigrant overtones were clear to all.

With so many restrictions on the permits, and so much public debate over the wisdom of recruiting immigrants, many Indian computer specialists prefer the California high-tech enclave of Mountain View to Munich. So far, only 4,441 of the 20,000 green cards on offer have been issued.

Model Behavior

The current American economic model began to take shape in the early 1970s and acquired its present contours gradually. Here are some milestones in its evolution:

October 1978: Airline Deregulation Act passed.

July 1979: Amid an energy crisis, President Carter finds a "crisis of confidence" in America and notes that "for the first time in the history of our country, a majority of our people believe that the next five years will be worse than the past five years."

January 1981: From President Reagan's inaugural address: "We suffer from the longest and one of the worst sustained inflations in our national history. It distorts our economic decisions, penalizes thrift, and crushes the struggling young and the fixed-income elderly alike."

June 1981: The Federal Funds rate peaks at 21.71%.

August 1981: President Reagan breaks the air-traffic controllers' strike.

December 1982: Unemployment hits postwar peak of 10.8%.

March 1986: Microsoft's stock-market debut, at $21 a share; its peak will be $119.10, Dec. 27, 1999.

December 1992: The federal-funds rate hits 2.73%, its lowest level since 1964.

1993: 39.3 million Americans live below the poverty level, the most in 32 years.

January 1994: Nafta goes into effect.

January 1996: In his State of the Union speech, President Clinton declares, "The era of big government is over."

August 1996: President Clinton signs a law overhauling the welfare system. It sets a work requirement and a five-year limit to benefits, and assigns responsibility for welfare to individual states.

June 1998: Federal Reserve Chairman Alan Greenspan says, "The current economic performance, with its combination of strong growth and low inflation, is as impressive as any I have witnessed in my near-half-century of daily observation of the American economy."

March 1999: Dow Jones Industrial Average surpasses 10000 mark, closing at 10006.78.

1999: 32.3 million Americans live below the poverty level, the lowest number since 1989 and the lowest as a percentage of the total population since 1979.

June 2000: Unemployment dips to 4.0%, its lowest level since January 1970.

Sources: "The Commanding Heights," by Daniel Yergin and Joseph Stanislaw; Wall Street Journal research

American Economy Is a ModelThat Other Nations Envy, Fear

Model Behavior

American Economy Is a Model
That Other Nations Envy, Fear