In 2008 in the Telegraph, Margaret Thatcher’s former foreign affairs adviser, (now Lord) Charles Powell, recounted how German Chancellor Helmut Kohl sought to win the friendship of the Iron Lady in the 1980s when the two were in power.
This included Kohl taking Thatcher to his home town in the Rhineland to sample his favourite dish - pig's stomach.
Despite Kohl's best efforts, Powell tells how, when she boarded the plane home, Thatcher kicked off her shoes and said: "God, that man is so German." She was not famed for her affection for the Germans - pig's stomach was perhaps not the best way to woo her - but many have looked on in wonder at what Germany has achieved since Powell wrote his piece.
Both the UK and Germany were hit hard by the 2008/09 global downturn but the story of our countries since has been markedly different. Our economy contracted by 4.9pc in 2009, returning to growth of 1.4pc in 2010 thanks to the Labour government's stimulus -- it has since flatlined near the 0pc mark as a consequence of the Conservative-led government's economic policies, which have choked off growth. Conversely, the German economy contracted by 4.7pc in 2009 but quickly bounced back with strong GDP growth of 3.6pc in 2010 and 3pc growth in 2011 despite trouble in the eurozone. And according to figures released last week, GDP in Germany is now 0.5pc above its pre-crisis peak, while here in the UK we are still 3.8pc below it.
The stock explanation offered for all this is that the Germans do far more real, rather than financial, engineering so were less exposed when the crash hit. They also have a competitive currency, export more and have benefited from labour market reforms pushed through by Kohl's successor Gerhard Schroeder. But, while it would be wrong to suggest that we can simply transplant German policies and approaches into the UK, there are deeper cultural and institutional lessons from the German experience which we should draw on as we seek to build a New Economy fit for the future.
Firstly, there are the German Mittlestand - the family-owned businesses which make up the backbone of their economy. They look to pass on their businesses to the next generation, rather than to sell them on as is so often the case in the UK - in so doing, this institutionalises a business culture that looks to long-term value creation rather than the quick buck. Also, the "family" is seen as being so much more than the owners -- the employees are seen as stakeholders as well, part of the wider family. This model has clearly served Germany well. We sought to bring about a culture change in the UK by, for example, pledging to maintain £100K tax allowances for companies investing for the long term in their businesses (allowances which have since been cut by the current Chancellor).
Secondly, there is Germany's dual system of post secondary education. Technical and vocational education is afforded the same status and value in society as academia. Their centres of technical and vocational training and research -- principally the 60-odd Fraunhofer institutes across Germany -- are better aligned to the needs of their industry than many of our universities. This helps feed German industry with the job-ready, skilled people they need. As a result, Germany does not suffer from the British problem of too many people wanting to go into media, medicine, law or banking, and a dearth of people looking to go into engineering, science, and technology (incidentally, the Fraunhofer inspired Labour in government to establish the Technology and Innovation Centres being set up now).
Thirdly, the German banks better serve their small and medium-sized businesses unlike their UK equivalents. While their regional Landesbanken have a chequered record that we would not want to replicate, their local network of 426 German savings banks -- Sparkassen -- see it as their job to support and get credit to their local businesses. These savings banks restrict their activities to good, old-fashioned "boring" banking and don't dabble in financial wizardry -- consequently they didn't run into the problems that our over-concentrated banking system got into.
Finally, where there is market failure they have a set of public institutions in Germany that are prepared to step in, fill the gap and adopt an active government approach. For example, in the 1940s the Germans established a state-backed investment bank - KfW - to finance reconstruction after the Second World War. KfW has since evolved and is now used to support enterprise during an economic downturn, fulfil financing needs where there is market failure, and to finance public infrastructure projects among other things. So in 2009, working though the Sparkassen, KfW stepped in immediately to help SMEs when credit conditions were tight -- its loan financing to SMEs almost doubled as a result that year. We did not have an equivalent institution here that could move with the same speed, which is why are now exploring plans to establish a British investment bank.
The current occupants of Downing Street do not buy into this kind of active government approach because they, like Thatcher before them, are ideologically predisposed to leave it solely to the market, preferring to talk of "active enterprise". This puts them at odds with leaders of British industry - like the chairman of Babcock, the engineering group, who has publicly called on the government to adopt an "industrial strategy" -- and with our counterparts abroad, too. The Germans are not alone: that bastion of free enterprise, the US, has an incredibly active Small Business Administration for its small businesses and Singapore has a similar agency called SPRING to help their enterprises grow, too.
We started an important journey towards this active government approach for business and industry in office under Peter Mandelson's leadership of the Department of Business, Innovation and Skills. We are 100pc committed to continuing this work in 2012 and beyond.