Demographic Doom: Competitive Advantage and Age Cohorts

The German Mittelstand and the Japanese Keiretsu were once lauded in the Economist and evangelized by management consultants as the powerhouses of international capitalism. These were held up as international paragons of economic virtue. The gurus proclaimed that the secret of economic success was not the slave to Anglo Saxon individualism and the sterile building blocks of economic theory. Here were genuine indigenous recipes for success that were not out of the bland cookbooks of neoclassical economics.

Yet time proved a cruel critic. Japan went into its long night's journey, the nerve rendering recession of the 1990s. Germany's Wunderkind economy suffered indigestion from absorbing the formerly communist East, then ate its way into Eurosclerosis.

Economic journalists are bitter when their stories prove false. Keiretsus and the Mittelstand have now become examples of what countries should avoid on the path to economic triumph. No kind word is now written of these discredited economic pariahs.

Not having invested any journalistic prestige into these two national economic phenomena, I find that both the German Mittelstand and the Japanese keiretsu were worthy institutions that were efficient and effective for their respective economies. Both had elements which could be properly emulated elsewhere. Both were victims of a common disease: demography.

Both economic phenomena were post World War II responses to the structure of their countries' capital markets when they faced the daunting task of rebuilding economies leveled by the wrath of Mars. Both had a common time bomb ticking from their creation. As the rebuilding generation aged, its vitality was sapped and it was not adequately replaced.