Talking with Adam Tooze

Yeah, pleasure to be here, Paul. Really is.

That's right. Yeah. In Heidelberg.

Teach it. Yeah.

A little tan. You're looking as though you've had some sun.

Yeah, I mean, I'm glad people are paying so much attention because I remember my shock at reading the national security strategy of the first Trump administration and realizing like, hey everyone, like, you know, focus, like this is extraordinary what's going on here, because that was the one that announced great power competition and really the dawn of a new era with China. It's all been sort of devoiced kind of in the background with Obama and bang, here it was out in the open. Whereas this one we were anticipating for months, right? Because there was all the scuttlebutt about what was going on. I mean, I think my read is that really the NSS divides the world into three zones, right? There's the Western Hemisphere over which America just incredibly presumptuously declares new Monroe Doctrine, Trump Corry. It's kind of crazy. And then as you say there are the other great powers with whom one deals kind of peer-to-peer in a way. There's a mano a mano kind of rather sycophantic kind of relationship between the US and China and Russia. And Europe I read essentially as internal in the sense that it's, you know, Europe is the woke America that MAGA hates worst. It is the secret ally and extension of coastal America, certainly the east coast. So in a sense, the culture war agenda that the Trump folks are running in the US can be run in Europe. And in some ways, the Islamophobia can even be more explicit in relation to Europe than it is at home. Right? Because you can accuse the Europeans of sacrificing their culture, great replacement theory. Essentially you can carry on, you know, you can send Vance to the Munich Security Conference and he will already announce this agenda earlier in the year. And so that's what we're seeing in a strange way. It's a Europe isn't really distinct from the American political space. It's the same political space and the conflict is therefore, you know, really uninhibited and overtly partisan. And basically they're asking for European politics to open the gate to the right. I mean, the irony as a European of course is if you're left progressive European you already think Europe. The idea that somehow it's a bunch of woke progressive liberals opening the door to Muslim migrants. Just go look in the Mediterranean. Like on a bad day there's dozens of people drowning like with Frontex blocking away. The whole thing is a MAGA fantasy, but it is projected onto Europe in a really dramatic way. That's kind of unique, I think, in the MAGA universe.

Yeah, although last I heard, although it's a kind of funny case, Turkey is a member of NATO.

Yeah, I mean, I think this is a way of talking about majority minority America, right? But talking about it in Europe instead. And I mean the drama is real, right? So the drama in Europe is very extraordinary. I grew up in West Germany in the early '70s. Mine was literally the first cohort of foreign kids to be admitted to German schools. Now in the big urban areas of Germany more than half the kids in elementary school have migrant backgrounds. So either they themselves are migrants or their parents, one of their parents was a migrant. So Germany, anyone who's been to central Europe will know that the transformation is absolutely radical. The old imperial metropolises, you know, Paris, Brussels, London have always been, the Dutch cities have always been very cosmopolitan, but Germany is radically transformed. And so there is a real thing there. There's a real change that's extraordinarily dramatic. But yeah, no MAGA scaremongering in this grotesque way.

In Germany, it's, Germany, if you take the two parts, so non-Germans, Ausländer, so-called, so non-Germans living in Germany are about, out of a population of 83 million, about 12 million. And then Germans with, German citizens who themselves weren't born there, who have one or have one parent, so that's another 13 million. So 30% roughly of the German population. And in the younger cohorts in elementary school it's higher. So it's like peak US migration experience. These are numbers comparable with pre-1914 US or the big cities in the US now. It's very diverse and it comes from a wider range of areas than it does in the US because here we have the huge flux from South America. In Europe, it's across a wider territory that the migrants come from. And yes, a larger share of them are Muslim.

Yes. No, it truly is. And I mean historically before Turkish growth really got going and urbanization got growing, I think it was the third largest city in Turkey in the late '70s. So there was, well fourth maybe, there was Istanbul, Ankara, Izmir and then Berlin. So but now it's a much wider array. It's very, very, a whole sort of melting pot of Arab, different Arab migrants.

So it's become a truly cosmopolitan place, but it's not a big city like, you know, this is three million plus, three and a half, something like that.

Yeah. I mean, so Berlin, you know, Germany has federal organization. Berlin is a state. The debt break, the notorious debt break politics in Germany, the non-discretionary fiscal rules, are in large part about constraining debt-burdened and debt-ridden local government. And Berlin will be in the crosshairs of that. Other de-industrializing cities like Bremen would be in that kind of zone. And so yeah, Berlin has issues with funding basic public services at the local level and you feel that on the street. I mean it isn't New York on a bad day, let alone other American cities on a bad day. But it is no longer a, and span, European, you know, it's not like a Zurich or somewhere like that. So yeah, you feel it. It has a rough edge. And you know, the drug market in certain parts of Berlin is extraordinarily open, much more so, and these are hard drugs, than you would see in New York. There's a kind of withdrawal of policing that alarms people. The levels of violent criminality are lower than, I mean lower than the levels in the US which themselves are easily exaggerated. So I mean it's at that level a very safe place and the basic infrastructure of public services like transport are way better than, you know, in any comparable American city. So I always say to the Germans it's like misery at a high level. You know, it's not glossy. Berlin perhaps was never really glossy. What Berlin lacks is real wealth. Right? So Germany's economic geography is interesting because once upon a time pre-45, the, you know, the new capital of Germany after 1871 attracted all of the corporate headquarters. Deutsche Bank, Siemens, everyone was there. Not the Ruhr, the big old steel money, but all of the new money was there. And then after World War II, as it became in the Cold War, all of the big money went elsewhere to Frankfurt, to Munich, to Hamburg, and it hasn't come back with reunification. So, it's a really unusual capital city because until about 5 years ago, it lowered average GDP per capita by including it. Like, you know, Paris and London are a large part of the UK and the French economy. Berlin was a net drag on German GDP.

No. No. And so, so Germany's economic geography is, I mean it always was, and it's one of the charms of the country. And you mentioned earlier on the folk idea. I mean that's kind of projection always, like, you know, they have to imagine themselves a unified homogeneous nation whereas in fact both in terms of ethnicity, culture, migration, but and religion of course with the Catholic Protestant divide, it's a very diverse place. No, only I think one time maybe in modern political history has a party achieved 50% of the vote. Okay. The Nazis never came close. 37% in a free and fair election. Konrad Adenauer, so Christian democratic boom time West Germany with the East locked off, all the communists gone. They got to 51% I think in the early 50s election. That's the only time it's ever happened. So the society is constitutively diverse, plural and regionalized, highly regionalized. And so yeah, you don't have the one big, it's not like a London or a Paris kind of situation.

Exactly, people always forget this. Yeah.

Yeah.

And this report which is quite bleak about, you know, Europe is falling behind.

Well, I think we have to distinguish like levels, growth rates, long run trends, right? And the levels argument with Europe is I think overwhelming. Like if you're behind a veil of ignorance, you don't know which passport you're going to end up with, you just are praying, praying, praying it's the Dutch one or, you know, some high performing EU one, because the level, you know, you could also say history ended there and like it ain't broke so why fix it, like what higher material standard of living could you aspire to than, you know, a comfortable position in the Netherlands. It is on the other hand, you know, it's the size of New York and it has the GDP roughly of the same size as New York state, so it's a small part of a much bigger picture which is more diverse and more uneven. But I mean I think the levels point is very well taken. Same even for Italy which is generally seen as one of the real laggards, but it's not for nothing that people go on holiday there. It's a very, very attractive way of life and I think there's a lot of undermeasurement of quality of life aspect in those numbers. The growth rates are the thing that's been really worrying for Germany. So Germany's economy has essentially had a lost decade and we've kind of gotten used to that with UK, Italy, but for Germany to stall out the way it has, again we're not talking about any real fall, but to see no growth essentially in real terms in per capita income, in investment levels, in a unit the size of Germany which is so crucial to Europe as a whole is very unusual and sets the alarm bells ringing. And if you then look at the stuff that Draghi was looking at which was very informed by the new theories of innovation, agglomeration kind of stuff, the Nobel Prize winners that were looking at Schumpeterian logics of like are you investing in the right sectors that are going to generate the creative destruction that will generate the long run innovation. And you look at where the R&D is concentrated in Europe, what R&D does happen in the private sector which is lower than either China or the US, where it happens is in what people now call mid-tech. So 10 years ago, 15 years, 20 years ago, investment was heavily concentrated in R&D in the German automotive sector, right? And last year it was still heavily concentrated in the German automotive sector, which is now being overtaken by the Chinese EV manufacturers. And I think it's like this strange combination of a Wile E. Coyote kind of moment with regard to standard of living. It's like oh my god like we're kind of suspended in midair as everything is just fine. To the German question about where's the growth gone, to the third layer of question which is where is it going to come from in future and how do we feel about placing third in a heavy hitters battle of oligopolistic, capitalist, state capitalist kind of models that we're seeing in the US and China. And that's where I think the anxiety comes from.

Platform economies, really the platforms, they're totally out.

No, it's really extraordinary. If you look at the leading German companies, they're 100 years old and once upon a time you, 120 years old, 150 years old in some cases. You know, we would have once celebrated that, you know, and America not so long ago also did like a GE, a GM, a Ford, AT&T, like these were the bastions of the mid-20th century economy. And Germany has kind of remained stuck there really. That's the, and for a while, of course, this was reinforced by the needs of the Chinese market because Germany's strength in midsized mechanical engineering firms and the people that supply the machines that make the machines really suited the Chinese industrialization model to a T. And so Germany had 20 years in which it was actually kind of running export surpluses with China, you know, which takes some money.

Exactly. And when we say de-industrialization for Germany, we're only talking convergence to the norm of a UK, a France, an Italy, a US, right? Germany has an outsized manufacturing share. Even, you know, when everyone was industrialized, it did. It was in that Japan, Belgium league of like super high industrialized countries. And it's retained that edge. And this was one of the benefits of this 20-year period where they really benefited from globalization. And de-industrialization in their case means convergence, right? To, and they're losing, I mean they've, you know, they've lost their surplus with China. So there's a hint of Trumpy kind of logic there or China shock kind of logic, shall we say.

Yeah. Yeah. Overall, they're still running large surplus with almost everyone else.

Well, this is the Brad Setser kind of logic, right? There's stuff going on in the accounting of American, well, there's some of it is that, yeah, there's that, the leprechaun economics, one of my contributions to the, but with Ireland, but no, a lot of it's just Rotterdam. A lot of US exports to Europe are going to Rotterdam and then being transshipped into...

But it's, the thing is around 15 years ago Germany was feeling pretty good about itself. I mean more than good. They were feeling quite arrogant about their economic performance, right? I mean at the time of the European debt crisis obviously that Germany was lecturing everybody else on how that we are responsible and we know how to do things, but you see it in the numbers too, right? They're...

Boost from export surpluses that are, and the extension of the German supply chain into central Europe where the high-tech German manufacturers are building out, and all of that sustains their growth through the 2000s and they emerged just in a relatively strong position during the European crisis.

Yeah.