TOTAL QUALITY MANAGMENT

Total Quality Managment

Total Quality Management

Question 1:

“The consensus view is that Germany is firing on all cylinders, making its economic model something worthy of emulation for large economies. Sweden is often touted as a similar example for small open economies. The reality, however, is that for every exporter, there must be an importer; so, to the degree that German economic success is built on exports, it is also built on global imbalances.

First, let us focus in on the positives. For the overall economy, Germany saw its highest rate of economic growth in two decades, with an annual 3.6% GDP growth in 2010. In the private sector, German households have the second lowest debt levels in the G7. In addition, in the public realm, German fiscal deficits are the lowest in the G7 and are now poised to drop under the Maastricht 3% hurdle. Business confidence is at a record post-unification high as a result, with the IFO Institute's Business Climate Index now at 110.3. This has translated into employment gains, bringing the German unemployment rate to 7.4%, its lowest level since reunification.

The bottom line: the fundamentals of the German economy are relatively good and support continued long-term growth.

Second, domestic demand remains weak in Germany. While German retail sales increased 1.2% in 2010, German retail sales were down for the fourth month in five in December, the latest month for which figures are available. That this weak 1.2% increase in 2010 is the highest reading since 2005 and cause for optimism tells you that domestic demand growth is a sticky wicket for the German economy. Demographic factors almost certainly come into play here. Claus says Germany is too old but this is because fertility rates in Germany are one of the lowest in Europe. And without immigration, retail sales growth will be slower. Is this a bad thing? If all we cared about was per capita income or per capita growth, the answer is no. However, Claus' post on an aging Germany points to an increasing burden from Germany's social programs for pensioners. And German national debt of over 77% of GDP reflects this burden.

These headwinds point to moderating growth. And if the European periphery spirals down, it will drag Germany down with it via trade and financial linkages. Germany needs to develop internal demand, especially if it is going to pay for its social programs. Nearly 5 million people in Spain are out of work. Unemployment is low in Germany, which could offer hope for the Spanish jobless. Germany has the lure of high wages and Spanish workers have the benefit of being highly education and skilled. Outmigration from Spain to Germany could be a win-win for both nations and a reinforcement of the advantages of European integration.

Overall, we should credit Germany for building a recovery based not just on exports, but on capital investment and saving. One reason that Germany is a manufacturing and export powerhouse is because it has invested in those ...