deindustrialization or business model change? – DW – 21-09-2022

Published by
Peter Kavinsky

Against the background of an acute energy crisis with exorbitant prices for electricity, and especially for gas, a discussion is flaring up in Germany about the possible de-industrialization of the German economy. Entrepreneurs, trade union leaders, economists and the media talked about the danger of mass closures of industrial enterprises and the transfer of production capacity abroad (although until recently there was much talk, on the contrary, about new major industrial projects in Germany).

Germany’s Long Reliance on Two Autocracies

The internet portal of the weekly magazine Focus describes the essence of the problem as follows: “Using natural gas, much needed by Germany’s powerful industry, as a weapon, the Russian president is shaking the world’s fourth largest national economy and world’s third largest exporter of goods to its foundations.”

Germany’s main export and import port is located in HamburgPhoto: Rupert Oberhäuser/photo alliance

The situation is exacerbated by the fact that Germany’s main trading partner – China is experiencing a “serious crisis”the publication continues, concluding that the German economy faces a serious test, as its business model has so far been based largely on “cheap energy from one autocracy and high demand from another”.

In any case, it is clear, according to the weekly Der Spiegel, that “if the pandemic mainly affected culture and the hospitality industry, this time the giants of the German economy, huge companies with complex processes, were attacked. It is relatively easy to close and open restaurants, but no chemical plant.”

Macroeconomists tend not to exaggerate the threat

Der Spiegel wonders how great the danger is now that “worries are about to leave the country”, citing in particular the answer of one of the most respected German economists – the chairman of the ifo Institute in Munich, professor Clemens Fuest: “The threat of deindustrialization exists, but it is too early to announce it.”

Ifo Institute chairman Prof. dr. Clemens FuestPhoto: Frank Hoermann/SvenSimon/photo alliance

Indeed, some particularly energy-intensive industries will have to be relocated to other countries, Holger Schmieding, chief economist at the Hamburg bank Berenberg, admits in the Frankfurter Allgemeine Zeitung. However, he believes that the German economy “can handle this quite well”, as according to his estimates we are talking about only 2-3 percent of industrial companies.

Professor Stefan Kooths, vice president of the Institute for World Economics in Kiel (IfW), also sees “no drama” in the fact that, for example, energy-intensive products such as fertilizers continue to be imported from the United States. States. In addition, he believes that “companies will not close their factories from day to day, but simply stop investing in them.” So according to him, the process of gradual structural changes will continue. Or, in other words, there will be a change in the business model.

Industry lobbyists must sound the alarm

Such reserved assessments and forecasts by macroeconomists are in stark contrast to the extremely alarming statements made by representatives of individual industries. “If we don’t quickly find a solution to the energy crisis, there will be no aluminum smelter in Germany soon,” Hinrich Mählmann, head of lobbying organization Aluminum Deutschland, said in August.

“The reduction in production will only be the first step. If some processes have to be stopped completely, they may never be resumed,” Christian Kullmann, head of the German Chemical Industry Association (VCI), admitted in mid-September. . And he said manufacturing production (excluding pharmaceuticals, which is doing well) will fall 8.5% this year.

New acetylene plant at chemical giant BASF’s factory in LudwigshafenPhoto: Andreas Pohlmann/BASF

But as the largest industrial gas consumer in Germany, namely the chemical industry (which, however, mainly uses blue fuel in factory power stations, but also for the production of steam, and much less as a raw material for hydrocarbons), a decrease of 8.5% suggests that industry, although in crisis, is still a long way from deindustrialisation.

Because of this crisis – and incomprehensible prospects for the coming year – trade associations are now sounding the alarm and drawing attention to the concerns of the companies whose interests they are defending. At the same time, of course, lobbyists are more likely to exaggerate and describe the situation in more gloomy colors, as they are faced with the task of obtaining preferences, benefits, financial support from the government and parliament – or, say, the abolition of decisions that are unprofitable. are for business.

All of this is legitimate, but when assessing the real state of the economy, it should be borne in mind that the terrifying word “deindustrialization” could very well be used by stakeholders as a rhetorical tool.

Some companies reduce industrial production, others expand

Admittedly, the reduction in production in two steel plants of the metallurgical concern Arcelormittal in Bremen and Hamburg due to the excessive costs of gas and electricity or the bankruptcy of the toilet paper manufacturer Hakle in Düsseldorf for the same reason is no longer rhetoric, but concrete facts. Many media outlets cite them as the latest evidence of a possible trend towards the loss of Germany’s industrial potential. However, let’s not forget that the fall in production and bankruptcy are inevitable features of almost every crisis. It is important that they do not become a massive and ubiquitous phenomenon.

Headquarters and headquarters of the chemical company Henkel in DüsseldorfPhoto: Jahr Henkel AG & Co. KGaA

But this, at least so far, is not observed in Germany. On the contrary: many industrial companies are quite satisfied with the way things are going in their company. For example, the chemical giant Henkel from the same Düsseldorf raised its forecast for sales growth for this year for the second time in a few weeks, primarily pointing to the success of its main division, which produces industrial adhesives. Daimler Truck, the world’s largest manufacturer of trucks and buses, with five car plants in Germany, says it has not yet felt a decline in demand for its products. By the way, these are two companies out of those that: being curtailed or restricting business in Russia.

The German Federal Statistical Office (Destatis) reported on September 19 that German manufacturing order books continued to grow, reaching record volumes in July.

A host of industry giants with record profits

And the economic newspaper Handelsblatt even decided to compile a list of the largest companies in the country that were not affected by the energy crisis. To do this, she analyzed the financial statements for the first two quarters of 40 public companies included in the main German stock index DAX.

“Perhaps no other industrialized country has suffered as much from the effects of the war in Ukraine, from high energy prices, gas shortages and interrupted supply chains as Germany,” begins a detailed article on the publication’s website. However, it goes on to say that many companies have so far weathered the crisis well and even excellently.

Production of a new-generation Mercedes C-Class at the Mercedes-Benz plant in Bremen Photo: photo alliance/dpa/Mercedes-Benz Ag – Global Commun

“Billions in profit despite all crises: 2022 will be a record year for 15 DAX companies,” the article headlines. There are many industrial companies on the list of companies counting on the highest net profit in their history this year. These are car manufacturers BMW, Daimler Truck and Mercedes-Benz, chemical and pharmaceutical companies Beiersdorf, Brenntag, Merck, Symrise, medical device manufacturers Sartorius and Siemens Healthineers, technology group Linde specializing in industrial gases, one of the world leaders in the production of Infineon- microchips.

All these concerns, Handelsblatt points out, are focused on global exports of high-tech and science-intensive products, they are all now benefiting from the low euro exchange rate and, most importantly, they all have crisis-proof business models.

Editor-in-chief of Handelsblatt: we have to bet on the European Union

The word deindustrialization does not appear in the article about these successful industrial enterprises. However, this problem, especially – in the field of medium-sized companies, the newspaper addresses in other publications. Including in a detailed commentary by his editor-in-chief Sebastian Matthes (Sebastian Matthes). He also warns that “a dangerous development threatens – a creeping deindustrialization of the country.”

However, such a development can be prevented, because there are solutions to the problem, although they are not simple. According to him, “the industry must change itself”: to betting on green energy and about the digitization of their factories – and about the export of related technologies. But first and foremost, Handelsblatt’s editor-in-chief is convinced that it is necessary to refocus from Asia to Europe, to the European Union, and finally complete the project to create a truly common market, the second largest in the world, to take full advantage of its benefits. In short, he argues for a very radical adjustment to the current German business model.

To see also:

Will Germany’s chemical industry be able to do without gas from the Russian Federation?

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Peter Kavinsky

Peter Kavinsky is the Executive Editor at cablefreetv.org

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