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What Germany’s soccer dominance does—and doesn’t—teach us about its economic prowess

German soccer hit its nadir in 2000 when the national team bowed out early in the European Championships, but a period of reinvestment allowed the country to rise to a dominant position once again, fielding an elite national team and seeing its clubs rise to the top of international competition. At the same time, Germany’s program of labor market reform helped transform it from “the sick man of Europe” to the continent’s economic engine. A New York Times story on the Bundesliga uses the comparison as a fulcrum:

In a little more than a decade, Germany has invested nearly $1 billion in its youth programs, with academies run by professional teams and training centers overseen by the national soccer association, the Deutscher Fussball Bund, or D.F.B. The programs testify to the long-term strategic thinking and to the considerable resources that have driven Germany’s rise to renewed prominence in—and at the expense of—a struggling continent.

“Once the Germans have decided to transform, to reform, they do it,” Emmanuel Hembert, an expert in the business of soccer at the consultancy A. T. Kearney, said. “It has been the case for the labor rules; it’s the case for football where they changed their model; and it’s had a very positive impact.”

But though there are superficial similarities between Germany’s soccer success and its economic program—both involved a comprehensive reform initiative intended to address a national problem—they have some big differences. The soccer revival was built directly on the reinvestment after 2000, but Germany’s ability to withstand the 2008 crisis had less to do with the labor market reforms in the preceding years than with the country’s pre-crisis pessimism, advantageous trade position and history of past reform.

Still, imperfect though the comparison is, German soccer and economic reform contain several lessons (pdf). And as Germany’s chancellor, Angela Merkel, is fond of urging countries to “do your homework“, here are some notes from the country’s assignment book:

Invest in human capital. The key to Germany’s soccer success has been its investment in youth academies to train the stars of the future, producing home-grown winners like Bayern Munich’s midfielder Thomas Müller and goalie Manuel Neuer, both stalwarts on the national team. Similarly, Germany’s companies are known for working with technical schools and unions to craft top-flight apprenticeship programs, which have allowed the country to maintain an advantage in high-tech manufacturing. Other developed countries, including the United States, are now trying to adopt German-style training programs.

Invest in infrastructure. Germany spent $1.84 billion building and renovating new stadiums before it hosted the 2006 World Cup; this expanded seating allows for larger attendance and more ticket sales. While building new athletic facilities isn’t a guaranteed boon to every country—witness the Olympics—investments in necessary infrastructure are a key to economic revival. Germany is known for its trains and famous Autobahnen, and boasts a national infrastructure bank with plan for €100 billion in green investment, but some see room for more improvement.

Redistribution. Like many professional sports leagues, larger German soccer clubs share revenue with those in smaller markets. In a particularly German stroke, as the Times article quoted above explains, they call it a solidarity fund and it pays for training. This is the most explicit parallel with Germany’s labor market reforms: one of its most admired features is a work-sharing program that replaces lay-offs with reduced hours during recessions, with social benefits making up the difference in wages. This allows the public and private sector to share the costs of an economic downturn while avoiding the consequences of true unemployment, like skills atrophy. Relatedly, German law incorporates “automatic stabilizers,” policy tools that increase spending and decrease taxes during a crisis.

High wages? German soccer can afford to pay high wages thanks to high demand for its product (ticket sales and TV deals). This is key to both keeping homegrown talent from being snatched up by free-spending teams in other countries, and also attracting elite foreign players. But workers in Germany’s non-soccer sectors are getting the short end of the stick: wages have stagnated since 2001.

Be in the right place at the right time. Perhaps the most important economic maxim? German soccer has benefited from broad consumer demand, which wouldn’t exist if the country were in worse economic shape: Leagues in more troubled countries like Spain and Italy have struggled with debt as fans cut back on luxuries. Germany, as a country, has done the same. One important reason that its unemployment rate didn’t increase during the crisis was that skeptical firms hired far less than expected during the boom that came before. That contributed to far fewer firings when the downturn hit.

Remember, soccer’s not economics. While global sports is increasingly driven by economics, the business side still isn’t the final decider on the field (thank goodness). Financially woeful Italy knocked Germany out of the European Championship this year, and debt-ridden Spain boasts the best soccer team in the world, having won the the last World Cup and the previous two European Championships. You might assume that Germany would rather have low unemployment than a sports championship, and that Spain would happily trade in its string of victories for a brighter economic future—but this is Europe, so you never know.

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