Despite Corporate Scandals and Car Trouble, Germany’s Economy Is Steaming Ahead
As recently as 2005, Germany’s economic recovery was hindered by high unemployment, sluggish domestic demand and weak business investment. But then things began to change for the better. Germany’s economy — Europe’s biggest and the world’s third largest in terms of gross domestic product — grew by 2.7% in 2006 and the unemployment rate in October 2006 dropped below 10% for the first time since 2002. In this special section, we take a look at just how sustainable the economic recovery is, the latest developments in the auto industry, why working mothers in Germany have a harder time balancing career and family than women in other industrialized countries, and the fallout from recent corporate governance scandals at some of the country’s biggest and most respected firms.
Talk about good timing. With Germany assuming the rotating presidencies of the European Union and the Group of Eight (G8) developed nations, the country is enjoying an economic resurgence. It remains a formidable exporter of goods worldwide, its unemployment rate has eased and a recent major tax increase has not dampened economic activity as much as many had feared. Still, there is some question whether the recovery is sustainable and whether Germany is up to meeting such long-term challenges as an aging population and a declining birth rate, according to faculty members at Wharton and German business schools, as well as other experts.
For the last couple of years, auto analysts and others have focused most of their attention on the troubles in Detroit, home of General Motors and Ford, two American car companies that have been struggling to regain their footing in the auto industry. But what has been going on in Wolfsburg, the headquarters of Volkswagen, a quintessential German automaker, and in Stuttgart, headquarters of DaimlerChrysler, a German-American hybrid? Quite a bit, actually. Knowledge@Wharton looks at the situation at VW, now that Porsche has upped its ownership stake in the company, and also at Chrysler, acquired by DaimlerBenz nine years ago in a partnership deal that may finally be coming to an end.
Although the German government provides its citizens with a generous family-leave policy, being a working mother in Germany is harder than in many other industrialized countries, according to faculty members at Wharton and German business schools, as well as German corporate officials. This is partly because the culture still, to some degree, frowns upon the idea of mothers not taking care of their small children at home. But changes are on the way, led by corporations, German Chancellor Angela Merkel and the women themselves.
German corporations have long prided themselves on being above-board, but scandals at some of the country’s multinational icons have seriously tarnished that reputation. The scandals allegedly involve hundreds of millions of dollars in bribes, the procurement of prostitutes and misbehavior by some of the country’s most senior executives, including officials at Siemens, Volkswagen, Deutsche Bank and other firms. The situation is so grave that it may prompt German executives to adopt Anglo-American style corporate-governance principles, according to governance and business ethics experts at Wharton and in Germany.