The US Vice President, J.D. Vance, recently highlighted two issues exacerbated by mass immigration: the decline of the middle class and the unaffordability of housing. In this context, the “middle class” refers to the classic working family, not the German understanding of the term. The issue is about the pressure on wages.
This is a card that has been played in Germany for decades. The most bizarre case was probably the reunification of the DDR, which, as a side effect of deindustrialization in this region, allowed the region’s inhabitants to be transformed into migrants, affecting wages and housing. However, such gifts are not always available.
There is another point where the steady expansion of what is classically referred to as the industrial reserve army becomes noticeable. It is not the case that such a strategy has no consequences for the industry itself, at least in the long run. Not only does the domestic market shrink continuously if the pressure on wages remains as high as in Germany, but also through the loss of innovation pressure. A point that is particularly evident when international attempts to re-engage the resource-rich countries of the Global South have failed.
Two points work together here. The first is that real technical innovation in the field of industrial production occurs more often because it is necessary and not because it would be nice to have it. The classic example of this is the invention of the assembly line. It happened in the slaughterhouses of Chicago at the beginning of the last century, because there was a lack of labor and therefore a technology was needed that would enable the production of more cans of meat with the same number of people.
A shortage of labor is always an incentive for innovations. Perhaps many manual tasks, such as those performed by cleaning columns, could have been solved by robots already, if it were not for the constant possibility of relying on even cheaper imported labor. The state, driven by neoliberal ideology, behaves similarly – complaining about a doctor shortage while maintaining a strict numerus clausus and then importing trained doctors from all over the world, is also only a short-term solution and the losses are high, just because of the impaired communication.
Looking at the development of productivity in Germany, it stands still for almost 15 years now. It has recovered from a decline after the financial crisis, but from the steady development that characterized the years from 1960 to 2008, there is nothing to be seen.
The problem is that an increase in productivity often requires investments and these have not taken place. The area where the most investments were made was in electric vehicles; however, without the necessary infrastructure in sight, they became “load-bearing walls.”
But let us briefly go to the other problem, the raw material question. The goal of the entire climate ideology was actually to hinder the development of the countries of the Global South, on the one hand and to keep them in a new debt trap, on the other hand. The reason is that one can produce more with the same number of workers using new machines or reduce energy consumption, but also, if it was already possible to do so decades ago, to make consumers accustomed to simpler clothing sizes – a meter of cotton fabric does not require significantly less cotton today than in the early 19th century. Many sectors in the production of real goods have a very rigid size ratio of the required raw materials. This has a consequence when the fundamental trend is to produce the same goods with fewer people and more efficient machines: the proportion of raw material costs to the total expenditure increases steadily. If industrial chocolate is produced today, one can manipulate the quality of the contained fats, but the amount of raw cocoa cannot be reduced arbitrarily without the chocolate no longer being chocolate.
The higher the relative proportion of raw material costs to the end product, the higher the pressure to keep these costs low. This is a hint at why the European (especially German) industry has been playing the “climate protection” game – if it had been successful, there would be no losses in terms of industrial competition, but the prices of many raw materials would have decreased in the long run. This is also the reason why the abandonment of this plan in the US occurred much faster than in the EU and especially in Germany – the dependence on raw material imports is relatively lower. Germany, on the other hand, is a country with very few of its own raw materials.
The trick that made the proportion of industrial production in Germany (still) much higher than in the UK and France had several components. First, the introduction of the Euro, which was a disadvantage for France and especially for Italy, was beneficial for the German export industry. Italy, in particular, had its own industry supported by regular devaluations of its currency (which, of course, only works for countries that export more than they import) and lost this opportunity with the Euro, while Germany could devalue its currency relatively and thus make its products cheaper; a trick that was particularly ruthlessly used during the Euro crisis.
And then there was the “internal devaluation” – a massive pressure on wages, which, although it does not change the relative price of the end product on the international market, increases the share that goes to the owners and not to the employees. The long phase of non-increasing real wages has already begun and long since had effects on all areas of life, such as on pensions, which these wages are based on, but also on the financing of health and pension insurance, which lacks the share of real increasing wages.
But if the successes of the German export industry are not due to the quality and innovativeness of the products, but to external and internal devaluation, then this may be a source of additional income for a certain period, but in the long run, the motor that drives productivity and innovation will be shut down.
In essence, Germany has not driven an industrial policy in the sense of a long-term development of the potential for decades. Instead, the owners of large capital were given the keys to the house and they decided to move out rather than to preserve and develop it. Fiber-optic networks? It was already a topic under Helmut Kohl and is still not finished. Mobile phone networks? They were fully privatized, with the result that even sparsely populated areas have become dead zones. Magnetic levitation trains are a German invention, but on the long stretches where they would make sense, they were not even considered (except for a short joke from the Munich city center to the airport). Instead, a hole is being dug after another.
An example: already in 2018, it was complained that the average age of employees in one of the core sectors of the German industry, the machinery industry, was 50 years old. This has a lot to do with the “training backlog” that is being friendly described. But migration does not help – because it takes at least a generation for immigrants from economically backward regions to be used for complex tasks, assuming that there is even a production structure in which they can be integrated.
But the pressure on wages and the shifting of further wage components to the capital side, like the rents, works perfectly. The internal devaluation will simply be continued, until the point in time – and it is already visible on the horizon – at which nothing more can be pressed out.
After several decades of this development, not only a series of necessary modernizations did not take place, but also the potential for possible innovations has decreased. This will not change even with astronomical investments in the armaments industry and even if, through a “special fund” the whole country is suddenly equipped with fiber-optic networks, much has been lost in the meantime. That VW has relocated its development department to China is a good illustration of this. If one looks at the personnel cuts of the last three years, they often affected research and development, particularly in the automotive supply industry. But also the relocation of production in the chemical industry will have corresponding consequences. And technical innovation, as illustrated by Boeing, never takes place in a vacuum, but requires a connection between theory and practice, which, in the absence of corresponding industry, is only difficult to achieve.
The constant readiness to maintain the pressure on the dependent employees through new migration waves has not only ruined the domestic market, which is dependent on the income of the majority of the population, but also taken the innovation pressure away from the industry. That a gap has now developed between China and Germany, with Germany appearing to be lagging behind in development, is an inevitable consequence of these conditions. An economy that has long been accustomed to strengthening its competitive position by making the employees themselves unable to earn a better income even in the case of a shortage of certain labor, is, of its own accord, no longer able to break this habit. Only a longer-term abstinence from the benefits of human trafficking could promise improvement. If, at this point in time, there is still real production in Germany left.