This Is the German Economic Miracle That Merkel Hopes Will Give Her a Fourth Term

Angela Merkel, who’s vying for a fourth term as German chancellor, has been consistently leading in opinion polls ahead of the Sept. 24 vote. Aiding her is Germany’s economy, the strongest in Western Europe. The biggest reason for that: Germany’s success on the global economic stage. That allows Merkel to run on the view that globalization benefits everyone, even as President Donald Trump and others disagree.

Economy = Voters

Merkel’s political longevity is linked inextricably with her economic credentials: Unemployment is down by half since she first took office in 2005. Growth reached an average of 2 percent in her second term while the rest of Europe limped along at a fraction of that. Though slower since then, it’s stayed ahead of most of the rest of the continent.

Voters are responding. From 2005 to 2013, when Merkel carried her Christian Democratic Union party and its Christian Social Union partners to their best result since 1990, the CDU/CSU went from a 5-point deficit among hourly wage workers and a staggering 29-point gap with union members to an 8-point advantage and mere 2-point lag, respectively. All the while, the rival Social Democratic Party cratered among salaried workers.

Many of those workers are enjoying the fruits of Germany’s export boom – up by more than $350 billion under Merkel. German voters are unlikely to forget the years of prosperity she’s helped deliver, despite a sluggish recovery since 2014 and a dip in exports.

A Free Trade Winner

Amid a global surge of economic and political nationalism, Merkel has become one of the principal cheerleaders for free trade. That’s because Germany punches far above its weight in that arena. Its $280 billion trade surplus in goods last year was surpassed only by $479 billion for much-larger China, according to United Nations data. Its exports in recent years represented around 46 percent of Germany’s gross domestic product, per the World Bank; the comparable figure for the U.S. is about 13 percent.

There’s a downside: Germany is vulnerable to anything that cuts into free trade, such as a British exit from the tariff-free European Union, higher U.S. tariffs under Trump or China’s transition from low-tech to high-tech manufacturing.

The Geography of a Global Germany

Merkel’s domestic power base generally mirrors Germany’s trade economy. Of the eight states where her CDU/CSU alliance won a roughly 40 percent-or-greater plurality of the vote in 2013, four are responsible for over half the country’s exports: Baden-Wuerttemberg, its most populous state; Bavaria; North Rhine-Westphalia, home of the country’s historic Ruhr industrial base; and Lower Saxony.

Between 27 percent and 35 percent of those states’ respective labor forces worked in manufacturing in 2015 and exports represented at least one-quarter of their regional GDP in 2016. They are also home to all 10 of Germany’s largest manufacturing companies, by revenue, from carmakers Daimler AG and BMW AG to chemicals company BASF SE and elevator expert ThyssenKrupp AG. In contrast, the six states that made up what was once East Germany, which include three of the CDU/CSU’s weakest showings, produced just 8.4 percent of the country’s exports.

While two-thirds of Germany’s exports currently go to the rest of Europe, it maintains its truly global trade footprint through a network of 130 international chambers of commerce in 90-odd countries, including some 35 in Asia and over 20 in Latin America.

A Manufacturing Powerhouse

Driving Germany’s trade juggernaut is its dominance in several competitive industries, including industrial and other machines (representing nearly 17 percent of exports), cars and their parts (more than 15 percent), and pharmaceuticals (6 percent). Most closely associated with this success story are Germany’s well-known global brands, such as Volkswagen AG, one of the world’s largest automobile manufacturers, industrial conglomerate Siemens AG and drugmaker Bayer AG. Equally important are lesser-known companies, mostly earning less than 1 billion euros, that provide the bulk of the country’s exports.

The Mythic Mittelstand

The backbone of Germany’s economy is the so-called Mittelstand, 3 million small-and medium-sized enterprises, most of them family-owned. They employ about 61 percent of workers, represent around half of GDP and exported 206 billion euros ($246 billion) worth of goods and services in 2015.

This broader Mittelstand represents no fewer than 1,465 of the 1,650 German world market leaders identified by Bernd Venohr, a former professor turned management consultant. With a team of researchers, he’s spent 15 years creating and maintaining a database of companies that hold a top-3 position in their respective niche fields.

These world market leaders, heavily concentrated in Germany’s export hub in the south and along the Rhine River, brought in a combined 2.2 trillion euros in revenue last year and employed 8.6 million people worldwide.

A Labor Force Like No Other

For years, Germany’s factories have been kept humming by a steady stream of skilled labor produced, in part, by the country’s vaunted vocational training system. Most well-known is the national apprentice program run by the country’s 79 Chambers of Commerce and Industry. They place recent high school graduates at companies across the country, including BMW (1,200 new entrants in 2016), ThyssenKrupp (971), and BASF (837). There were 1.3 million trainees last year, 59 percent of whom were in industry and trade.

While fewer young Germans are opting for this particular path–a survey last year by the Association of German Chambers of Commerce and Industry found that 31 percent of businesses were unable to fill their available apprenticeships–many are instead enrolling in so-called Fachhochschule, or specialized universities of applied sciences, which serve a similar function.

Germany’s Demographic Nightmare

Unfortunately, to keep Germany’s economy revving at top speed, these universities and vocational programs need lots of new talent, and right now Germany doesn’t seem up to the task on its own. A 2015 projection from the German statistics agency says the population will decline from more than 80 million to 67.6 million in 2060 if net migration is low, with the number of working-age Germans falling by as many as 15 million over the same period. In recent years, net migration has surged, driven first by young jobseekers from southern Europe during the continent’s debt crisis, and more recently by Syrian refugees. That has the potential to stave off a difficult reckoning for the country in the short term. That is, during Merkel’s fourth term, should she win one.

Bloomberg