A German solution to an American jobs problem?

Michael Spence, a Nobel laureate in economics and a professor at NYU, thinks he's found a breakthrough idea on creating jobs.


FORTUNE -- One common refrain heard at this year's World Economic Forum in Davos: "we need to create more jobs." That's hardly a controversial stance -- after all no one is really against creating jobs. The sense here is that if we can just figure out a way to create more employment the Occupiers would disappear and business could return to the good old days. The rub is that with high consumer and government debt levels in much of the developed world, no one seems to have any idea how to achieve this goal. One exception is Michael Spence, a Nobel laureate in economics and a professor at NYU, who thinks he has a breakthrough idea on the topic.

According to Spence, recent surveys show that today's generation of young working-age Americans simply don't believe that they will have the same employment opportunities that their parents enjoyed. (For a measure of this, just ask any parent who still has a college grad living at home.) There are good jobs out there but they are mostly, argues Spence, in businesses that are trade-related, that are linked to the global economy. These jobs tend to be in fast-growing businesses that provide high-value added products. Think Apple (AAPL) and the iPhone. Trouble is, about 70% of the value of an iPhone -- design, software, etc. -- is created in the U.S. but most of the jobs, especially the manufacturing ones, are in Asia. Only about 2% of all American jobs are trade related.

So where will we find more high-paying jobs? Spence points to Germany as a model where manufacturing makes up about 30% of its GDP compared to only 16% for the U.S. Germany focuses on high-end products that have appeal in global markets. But the Germans didn't get there by accident. Spence says that Germany's business leaders, working with government and labor, provided high-end manufacturing training for workers. The three factions were also able to cut a deal years back to reduce labor rigidity in exchange for employment security. Germany has also formed industry clusters, sophisticated supply chains that help reduce costs and speed up design and manufacturing. A recent New York Times article explained that the major reason Apple does not make iPhones in America is that we simply don't have the sophisticated supply chains found in Asia.

Can America replicate the German model? Spence thinks so. He says the solutions are easy. They include training, more government spending in the short term, and more fiscal discipline in the long term, an energy policy that makes sense, and reforming our "silly tax system."
The current gridlock in Congress makes it unlikely that Washington would adopt such a long-term outlook and pragmatic approach to boosting jobs. Spence, however, remains undeterred. All we need to do, he says, is "act and learn rather than debate and wait."

By: Brian Dumaine
CNN