Home > Uncategorized > Industrial production in Europe, 1992-2011 (5 graphs)

Industrial production in Europe, 1992-2011 (5 graphs)

from Merijn Knibbe
It’s often stated that Germany outcompeted quite some other European countries, especially in the realm of industrial production, which is one reason why Germany is doing really well while these others aren’t. Is there some truth to this story? Did German industrial production outcompete the others? That’s, when you think about it, quite a difficult question. But we can look if German industrial production did better than production in other EU countries. To do this, the first graph shows German industrial production after 1992 (manufacturing, mining, energy). The other graphs show industrial production in the other countries of the EU (with more than 1 million inhabitants) relative to Germany, if possible since 1992. All data: Eurostat. If these indices increase, industrial production rises faster than in Germany and vice versa. Mind that production can rise faster or slower due to increased or decreased competitiveness but also because of changes in demand or a fortuitous discovery of, for instance, oil.

The main findings:

1. Up to about 2003, all other countries did at least as well or (in most cases) better than Germany. After 2003, quite some countries did worse. After 2009, almost all countries did worse or, in the case of some low wage countries like Poland and Turkey, about as well as Germany. This really was a German heyday – but production is not yet as high as in 2008 and starts to falter.
2. The UK and France did, in the long run, not do better than for instance Greece or Italy and show a very profound relative decline. As the UK and France do not have the same troubles as Spain and Greece and Ireland this shows that competitiveness is only on side of the story.
3. Housing bubbles and busts seem to have crowded out industrial production in quite some countries (Denmark, the Netherlands, the Baltic States, Ireland, Spain), first by diverting money and resources to construction and afterwards when debt deflation dampened demand.

If we analyse these data together with information on current accounts and retail sales – the rather boring outcome is that we need balanced development: no debt fuelled real estate booms, no debt fuelled current account booms, no retail sale booms…

Graph 1. Germany. It seems that Germany was the ‘victim’ of unification, which led to the ill-fated decision of the ‘einz zu einz’ change of DDR money into West-German money, which was a revaluation of about 400% for a country in tatters which led to decades of internal devaluation. Mind that it was only in 2011 (!) that unemployment in the former DDR became down to about 10% (my guesstimate of the Harmonized Eurostat rate, the ‘German’ rate is in fact about 12%). The former DDR still is Germany’s ‘inner Greece’! Mind also that any increase of production must have been caused by exports, as the German population declined a bit while retail sales were flat, between 1992 and 2012 (!). Or am I wrong about this?

Graph 2. ‘Periphery’ countries. The ‘elephant in the room’ is of course that the UK and, to an only slightly lesser extent, France, do as bad as Greece and Italy. Mind that this is relative production, as production in Germany increased with about 30% after 2003 the fall between 2003 and 2008 does not mean that absolute production also declined. Remarkably, retail sales in the UK and France did increase during this entire period, therewith enabling German exports and production increases.

Graph 3. ‘Greater Germany’. Germany in fact followed the Dutch example of the fifties and eighties of the twentieth century when it pursued a centrally negotiated ‘wage moderation’ policy, not only consisting of low wage increases but also of rent control and the like. But the Netherlands were only a relatively small country. And once Germany started, the other countries could only follow suit. Despite this, and despite a devaluation in Sweden, all of them lost ground after 2009, even despite extremely succesful high-tech firms like ASML in the Netherlands. Can anybody explain the Belgian success? I mean – this country did not have a government for 18 months or so (seems that Austrians might have a possible chance of having somewhat of a point).

Graph 4. ‘Neo-liberal’ countries. Product and labor as well as capital markets in these countries are quit flexible, it however seems that ‘flexible’, deregulated capital markets trump all other markets as hefty inflows of capital caused large real estate booms which crowded out industry and which led to large distortions of the price system. After 2005, industry did about as well as in Germany – but worse than in countries which did not have such inflows of capital. See also Popov.

Graph 5. Emerging Europe. These countries are supposed to have less ‘efficient’ rules and laws than the preceding ones (or than Denmark, which fully embraced the neo-liberal agenda), but this sort of saved them as it disabled unbridled inflows of capital. Countries like Poland devaluated to (very) good avail. Mind that countries like Poland and Turkey have large populations (together: about 115 millions).

(Yes, I know that Slovakia adopted the Euro on January 1, 2009).

  1. March 22, 2012 at 8:34 pm

    The graphs didn’t show up on my computer (iMac)

    • March 22, 2012 at 8:35 pm

      Oops, there they are. They must have noticed my complaint.

  2. Ignacio
    March 22, 2012 at 9:07 pm

    You wrote:
    “3. Housing bubbles and busts seem to have crowded out industrial production in quite some countries (Denmark, the Netherlands, the Baltic States, Ireland, Spain), first by diverting money and resources to construction and afterwards when debt deflation dampened demand.”

    Besides construction a lot of manufacturing activity accompanied the housing bubble up and down. From elevators to doors, appliances chairs or tables, those industries fell along with the housing market. This may be an additional explanation to your crowding out theory.

  3. March 22, 2012 at 9:30 pm

    It has been shown that productivity in Europe is inversely proportional to distance from Frankfurt.

    The significance of Frankfurt is that it is the centroid of Europe’s population. Closeness to Frankfurt gives locational advantages mostly related to transportation costs.

  4. robert r locke
    March 23, 2012 at 1:01 pm

    These questions of comparative economic and industrial performance vary from sets of years to sets of years, although people have almost no historical recollection. About 2000 the German industry was considered by Anglo-Saxon economists to be in terminal decline because, unlike the US & UK Germany clung to a manufactturing economy and had not sufficiently shiftted to a service one. This was the heyday of investor capitalism. And the German form of firm governance Mitbesttimung was also blamed for the sad German situation. Now the argument has almost reversed itself. By clinging to a first class manufactturing base, the Germans have avoided the disasters of investor capitalism. Nothing much is said about co-determination now (Mitbestimmung) since all these thrriving Gerrman firms are govered by co-determination — except by me. I never shut up about it.

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