AILSA CHANG, HOST:
Germany's economy is strong. Its manufacturing sector is really strong. But that's not so in the U.S. where manufacturing jobs have crept back up only slightly after a steady decline over the past quarter century. So how does Germany pull this off? NPR's John Ydstie visited the country recently and joined us for the first of a series of reports on this issue. Hey, John.
JOHN YDSTIE, BYLINE: Hi, Ailsa.
CHANG: So how much better is German manufacturing doing than American manufacturing?
YDSTIE: Well, here's a data point. Manufacturing is nearly a quarter of the German economy. That's twice the share in the U.S.
CHANG: Twice? That's huge.
CHANG: Why is there such a big difference?
YDSTIE: Well, one big difference is the strength of the small and mid-sized German companies called the Mittelstand. The U.S. has lost a lot of these kinds of companies in past decades as firms have moved overseas looking for cheap labor. When I was in Germany, I visited several of these Mittelstand firms to find out what makes them so successful. And Schmittenberg Metal Works was one of them. I got a tour of their factory in Wuppertal where their machines stamp out millions of small metal parts mostly for the auto industry.
CHRISTIAN RIEDER: On the left side, you get the coil in. And step by step, it runs through the tool and the good part on the other side.
YDSTIE: That's Christian Reider, head of sales for Schmittenberg. And here's Yvonne Schmittenberg, the boss.
YVONNE SCHMITTENBERG: They put it into a machine that softens a bit the edges.
YDSTIE: Schmittenberg is the third generation of her family to run this company.
SCHMITTENBERG: My grandfather was an engineer and toolmaker, and he had the technologic know-how, and my grandmother supplied the money. So, I mean, this was, yeah, a dream team, yeah (laughter).
YDSTIE: Schmittenberg was founded in 1932. It survived the Second World War and right afterward began supplying parts for Germany's recovering auto industry.
SCHMITTENBERG: Starting with Volkswagen, the Beetle - the first Beetle - was supplied by Schmittenberg company with the first weld nuts.
YDSTIE: Weld nuts are small but critical auto parts. They're still Schmittenberg's specialty. Yvonne Schmittenberg is a petite woman with long, blond hair - an unusual CEO in the male-dominated industry. She was working in France in the 1990s when her grandmother, who was running the family business then, called and said it would be sold if Yvonne didn't come back home and take over.
SCHMITTENBERG: I was working as an investment banker, which I liked a lot. However, blood is thicker than water, and after all, I was very much tempted by the entrepreneurial challenge, yes.
YDSTIE: This is one of the strengths of German Mittelstand companies. They're often family-owned and focus on long-term success and not maximizing short-term profits. The part Schmittenberg makes are used by most of the world's automakers. Your car likely has some. Most are about the size of a silver dollar. They're welded to a car's body and used to bolt on things like seats and seat belts, says Christian Rieder.
RIEDER: So they need to be resistant to really high-strength impacts, like a crash, for example.
YDSTIE: The parts look simple, like the kind of thing you could make more cheaply in some low-wage country, but actually, they're very highly engineered. In fact, these weld nuts, or threaded plates, no bigger than the palm of your hand, are incredibly strong, says Rieder.
RIEDER: On this threaded plate, you can hang four Mercedes S-Classes on.
YDSTIE: Think about that. You could weld this small, threaded plate to a steel girder, then hang four large cars on it - the equivalent of eight tons - and the threads would not strip, the part would not fail. That attention to engineering and quality is a hallmark of German manufacturing, and it's what makes Schmittenberg and companies like it competitive.
SCHMITTENBERG: Obviously, we are under pressure, and we have to fight for market shares every day, but we would never, ever shift to anywhere when the quality is in slightest question.
YDSTIE: So what's the takeaway for U.S. companies? Focus on quality and take a long-term view. And Yvonne Schmittenberg has one more piece of advice - pay attention to your workforce. Don't presume every kid should go to college. Get them interested in making things.
SCHMITTENBERG: I think this is so important to keep the youngsters interested in manufacturing, and this starts at the schools, to have the kids running around with open eyes, being interested in technical issues, see how things get done and really get them motivated to want to do that.
YDSTIE: Now, the U.S. has struggled to make this kind of vocational training widely available, Ailsa.
YDSTIE: We'll hear more about how the Germans do it tomorrow.
CHANG: All right. So lots of examples here about what makes German manufacturing so strong, but can the U.S. embrace these same qualities and boost manufacturing here?
YDSTIE: Well, I asked that question to Martin Baily, who studied this. He's an economist at the Brookings Institution and a former White House economic adviser. Baily says he thinks it would be a good thing if the U.S. had more manufacturing jobs and could provide work for people who aren't highly educated, but he thinks it would be very difficult to achieve.
MARTIN BAILY: I would not advise U.S. companies or U.S. policymakers to try to replicate what's happened in Germany. In fact, I would look at Germany and say, you're going to have a tough time going forward. In fact, you, to some extent, already are having a tough time as some of the production shifts to Eastern Europe.
CHANG: So he's saying even Germany won't be able to hang onto these manufacturing jobs.
YDSTIE: Right. And Baily says a big reason is technology. It's advancing so fast that it will continue to replace even highly skilled manufacturing workers. And some Germans are also worried about this. Jeromin Zettelmeyer, a former economic official in the German government, now at the Peterson Institute for International Economics, says Germany may soon find that it's too reliant on manufacturing.
JEROMIN ZETTELMEYER: There is a very serious worry that we might lose our manufacturing edge over the next 10, 20 years and then be much in the same position that the U.S. is now except without having grown a new growth engine like the IT sector in the meantime.
YDSTIE: So it's sort of grass looks greener situation. Even if Germany is really good at manufacturing, maybe it needs to try to emulate the U.S. and start looking beyond manufacturing to find post-industrial jobs to drive its economy. Still, this begs the question for the U.S. - how are we going to provide decent jobs for workers who once have been employed in manufacturing?
CHANG: A question that's very hard to answer. That's NPR's John Ydstie. Thank you very much.
YDSTIE: You're welcome, Ailsa.
(SOUNDBITE OF THE AMERICAN DOLLAR'S "WUDAO")
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