A NEW DIRECTION:From the ashes of the second World War, the self-assured German state achieved decades of sustainable economic growth. It's not too late for Ireland to follow in its footsteps.
IT'S NINE YEARS since Mary Harney remarked that Ireland, though physically closer to Berlin, was spiritually closer to Boston.
What a difference a decade makes. Harney is still hanging on but her political home is gone, the neo-liberal policies of the Progressive Democrats undermined by the financial crisis.
Ireland, after putting its eggs in twin baskets of property speculation and financial services, is now a financial basket case, its eggs thoroughly scrambled.
With the benefit of hindsight, it's clear neither the Boston nor Berlin models - free market liberalism or social market economy - were ever going to be a comfortable fit for Ireland.
Now Ireland is in desperate need of new ideas and a new direction. Why not forget Boston, forget Berlin and concentrate on Bavaria?
The parallels with Germany's largest federal state are striking. Here is another people fiercely proud of their history and heritage, a state with a long Catholic tradition and a post-war political scene dominated by one all-encompassing conservative party.
We share a love of beer and conversation, show a common respect for the family and the land. Their characters, too, have been forged over centuries through a love-hate relationship with a dominant neighbour: for us, it was the English; for the Bavarians, the Prussians to the north.
Six decades ago, Ireland and Bavaria were largely agrarian states that, after missing out on the industrial revolution, were painfully aware that farming was not the future.
With few alternatives, both made daring and successful leaps onto the moving train of commerce, attracting big companies to greenfield sites with tax breaks and the promise of a workforce that was young, well-trained and cheap.
Soon Ireland and Bavaria were travelling parallel tracks to prosperity.
Today, the Bavarian locomotive is powering on, a self-sustaining, high-tech economy larger than Sweden or Belgium, with Germany's lowest rate of unemployment, highest salaries and best education system.
The Irish locomotive, fuelled by foreign direct investment, is now sputtering.
Before Ireland loses its momentum entirely, it may be time to switch to the Bavarian track. What put Bavaria where it is today?
Responsible political continuity
THE TRANSFORMATION of post-war Bavaria is inextricably linked with one political party, the Christian Social Union (CSU). It has ruled post-war Bavaria for all but three of the last 60 years.
With its culture of personality cults and clientelism, the CSU bears a striking resemblance to our own Fianna Fáil.
Like the Soldiers of Destiny, the CSU – Bavarian sister party of Angela Merkel's CDU – is a catch-all conservative party with policies that run the gamut from unashamed etatism to neo-liberalism.
"Despite its unshakeable belief in the social market economy, the CSU has never shied away from doing the exact opposite if it felt like it," said leading Bavarian political scientist Prof Heinrich Oberreuter. "It has always used state funds to intervene wherever it served the modern development of the state."
Yet the CSU could teach Fianna Fáil a trick or two about political survival. With support that rarely dips under 50 per cent, the party has planted itself so deeply in daily life that it is considered as much a part of Bavarian identity as the Catholic church and the Oktoberfest.
By co-opting the Bavarian character as CSU political capital, Strauss's party secured a seeming monopoly on power that has spawned corruption and complacency.
But there is also a culture of continuity and long-term planning, steered by the CSU's unique strength: turning apparent policy contradictions into political capital.
"Conservative means marching at the forefront of progress," was the rallying cry of the pugnacious Franz-Josef Strauss, from 1961 the chairman of the CSU and state premier in the decade before his death in 1988. A hulking figure with a fearsome intelligence and a temper to match, Strauss's achievements in modernising Bavaria easily equal those of Lemass and Haughey combined.
He realised in the 1950s that only drastic changes could sustain Bavaria and made sure voters in every village understood why the changes were needed and why they were in keeping with Bavarian tradition of independence.
The CSU didn't assume the rising tide would lift all boats – it made sure everyone had a boat. "They spotted opportunities early on and, by communicating to voters why Bavaria had to change, managed to bring people with them," said Prof Oberreuter.
Spotting unique opportunities
FOR THE first decades of the 20th century, Munich paled in comparison to the industrial giant of Berlin. But the game changed forever in May 1945 when the industrial giant Siemens shifted its headquarters to Munich from the ruins of Third Reich capital, one step ahead of the Red Army.
Other leading industrial companies followed, manning their new factories with millions of highly-qualified refugees displaced from Germany's lost eastern territories who now flooded into Bavaria.
With the disappearance behind the Iron Curtain of important industrial and economic cities like Berlin, Leizpig and Dresden, Bavaria's moment had come.
"Bavaria had no bombed-out industrial ballast like the Rhineland or occupied Berlin," said Gernot Nerb, chief economist at Munich's Ifo Economic Institute. "Bavaria was just one big greenfield site waiting for investment in new industries."
Like Ireland's EU structural funds boost in the 1970s, the impoverished Bavaria benefitted from cash infusions in the 1950s and 1960s from richer federal states further north.
The CSU invested the money in far-sighted infrastructural plans, building autobahns and research atomic reactors.
The party realised that, rather than play catch up with the industrial Rhineland, Bavaria could benefit from the shift of fortunes in post-war West Germany by going straight to the future: aerospace and IT.
Independence and sustainability through state-funded research
IN THE LATE 19th century, Bavaria was known as a centre of scientific excellence thanks to research giants like Röntgen, Ohm and Planck.
But it was Bavaria's post-war provision for generous, consistent investment in research and education that would help the state pull ahead of the rest of the country. Bavaria is one of the few places in the EU to have already met the so-called Lisbon criteria of three per cent gross domestic product on RD.
As well as pouring money into Munich's two universities, Ludwig Maximilian University and the Technical University, the local government established a strong network of regional universities and technical colleges.
But what sets Bavaria apart is its concentration of non-teaching research facilities.
The Fraunhofer Society – a collection of 58 applied science research institutes – was founded in Munich in 1949. By the mid-1950s it was joined by the heaquarters of the Max Planck Society, an association of nearly 80 non-teaching primary research scientific institutes.
Fraunhofer and Max Planck employ 25,000 people between them, and have annual budgets of €1.2 billion (40 per cent state funded) and €1.4 billion (84 per cent state funded) respectively.
The generous state funding is the backbone of the Bavarian model, creating an independent research structure in which local industrial giants like Siemens and BMW are happy to participate – but as silent partners.
"The politicians made an incredibly far-sighted decision in the post-war years by making huge amounts of guaranteed funding available to scientists for them to spend as they wished," said Dr Ulrich Marsch, spokesman for Munich's Technical University (TUM).
With 12 faculties and 22,000 students, the TUM is a model technical facility, with a total annual budget of €769 million, half of which is state-funded.
Marsch wrote his doctoral thesis on university funding and found no examples of companies using funding to exert influence. "There's never a question of companies 'buying' their way into a university here," he says. "Companies have realised that they need training of the highest, broadest standard: people who can solve problems. So when we accept industry funding it is on our terms."
Facilitating perpetual evolution
FOR A PARTY in power for six decades, the CSU has shown a remarkable capacity for self-renewal. After luring to Bavaria everything from engineering to aerospace in the 1950s and 1960s, the CSU might have been expected to sit back and enjoy the resulting prosperity.
Instead it kept at work, diversifying the economy into the services sector. Later, after studying the Silicon Valley model, Bavaria moved into microelectronics, broadening the state's economic base and spreading the risk in a slowdown.
In the late 1990s, state premier Edmund Stoiber (pictured) created a €4 billion fund from the proceeds of privatisation to encourage the creation of high-tech "clusters" around Munich, a policy known as "active location management".
It was a shift from traditional direct state investment and intervention to an approach that created an environment of research-industry co-operation and knowledge transfer. The result can be seen in the region of Martinsried, just south of Munich.
White asparagus are harvested from the fields here as they poke through the sandy soil. But just beyond the fields, the asparagus give way to sleek steel and glass buildings that have shot up to form one of Europe's largest biotechnology clusters.
Companies settled here with the promise of grants, tax breaks and, crucially, close interaction with the local teaching clinic, the Max Planck Biochemistry Institute and several faculties of the Technical University. Within a decade, over 280 biotech companies set up shop in Martinsried, employing over 20,000 people.
Tradition and values
A YEAR before Mary Harney's notorious Boston-Berlin remark, the then German president Roman Herzog summed up the secret of the Bavarian model as the "successful symbiosis of laptops and lederhosen".
His argument was that Bavaria had secured its future by embracing the modern, but without letting go of its past. Allowing modernity and tradition to co-exist is a keystone of Bavarian prosperity.
For outsiders, these Bavarian traditions are a perplexing business. It's easy to laugh at lederhosen and Dirndls and dismiss the Oktoberfest as a money-making machine with as much sincerity as St Patrick's Day.
But from Munich's massive Oktoberfest to local village festivals, Bavarian life still beats with a heart of tradition. Far from a contradiction to modern life, Bavarians say this tradition gives them confidence and grounding.
After all, what is a greater expression of self confidence: keeping local traditions alive in a pair of Lederhosen or donning international brands and hoping to fit in with the jetset?
"The dirndls and lederhosen hint at a late-modernist search for identity," said Munich-based ethnologist Simone Egger in a recent paper. In the 1970s and 80s, a younger generation of Bavarians swapped lederhosen for suits and viewed tradition as a barrier to modernity. But decades of sustained, homegrown prosperity freed this tradition from perceptions of being old-fashioned, allowing it to be celebrated once more without evoking unhappy memories of recent poverty.
Today, the state is experiencing a resurgence in Bavarian dress and tradition, writes Egger, with "the notion of "heimat" or homeland playing a major role".
Irish woman Ann Dempsey set up her own business, Riverland, in Munich in 2003, offering customer relation management solutions.
Leaving Ireland at the height of the economic boom, she says she was relieved by, and attracted to, the Bavarian approach to life.
"People enjoy their beers here but they are healthy too: they have a good work-life balance with a true sense of themselves and their culture," she says. "The importance of family is very clear here and the importance of tradition is very real."
It's hard to over-emphasise the importance of tradition in the so-called Bavarian model. Tradition and values are not seen as baggage that slow Bavarians down, but a vital way of differentiating themselves from the pack in an increasingly globalised world.
"The Bavarian identity is incredibly important when we talk to companies," said Dr Robert Obermeier of the Bavarian branch of the German Chamber of Industry and Commerce (DIHK). "We're able to say to people: here are the values on which you can base your company's operation."
Keep them by helping them
ONE OF the biggest success stories is Morphosys. Founded in 1992, Morphosys is one of Germany's leading biotech companies. It has compiled a library of all human antibodies which, though a patented procedure, can be drawn on to provide antibody vaccines for a huge variety of autoimmune illnesses.
A decade after it became the first German biotech company to go public, it had an annual turnover of €62 million in 2007 and employs 350 people, the vast majority in Martinsried.
Though the company has research partnerships with international pharmaceutical companies, Morphosys is a self-made Bavarian company. Despite the relatively high cost of doing business in Bavaria, from the cost of living to salaries, a move is out of the question.
"We have no reason to turn our back on Bavaria. The cluster, with its high concentration of highly-skilled workers, is what keeps us here," says senior manager Mario Brkulj. "In a phase with a new project where we have to grow quickly, we need to be able to find the right people quickly and Martinsried offers a good mix to draw on of business people, academics and researchers."
And finally . . .
IRELAND'S ECONOMY has crashed, but its wreck provides some valuable lessons. Perhaps the most important: basing an economy on property speculation, financial services and foreign direct investment is not a good idea, because prices go down as well as up, banks can go broke and foreign investors will decamp to Poland when the price is no longer right.
Government planning left Ireland exposed to the whims of international capital, addicted to unsustainable growth and blinded by a debt-fuelled illusion of wealth – all based on the borrowed know-how of subsidised foreign companies.
Bavaria chose another path, stayed in the driver's seat and decided its own route.
First it spent billions creating world-class universities and research facilities to attract domestic and foreign companies. It kept investing in these facilities, in conjunction with the companies it attracted, quietly but firmly binding them to Bavaria.
Even though the Czech border is just 300km from Munich, companies stay in the high-cost Bavarian capital because of their dependence on the highly-trained staff and world-class facilities. The result: nearly four decades of economic growth averaging out at five per cent annually.
Bavaria transformed itself from farmland to futureland thanks to some lucky breaks, far-sighted political policy and an unshakeable belief in the necessity and integrity of state-funded research. It had a long look at itself, decided what it wanted to do, and then invested in it before looking abroad for a quick fix.
Bavaria offers two important lessons for Ireland. The first is tangible: foreign direct investment is a one-trick pony.
Irish voters must demand long-term, state-sponsored investment in education, research and development.
The second lesson: Ireland needs to redefine itself on its own terms.
With his "laptops and lederhosen" remark, Roman Herzog defined Bavaria on its own, concrete terms whereas Mary Harney's Boston-Berlin idea defined Ireland through an abstract international comparison.
A country that can only define itself in terms of the other – international brands, multinational companies or imported economic models – is on a road to nowhere.
Real success comes from designing the next iPod, not just assembling it. Real confidence comes from building BMWs, not just driving them. Ireland was never Boston and will never be Berlin. If we want to learn something from the Bavarians, then it's the confidence that made them comfortable in their own skin and masters of their destiny. As they put it with pride: "Mir san mir" – "We are who we are."
Down but not out, perhaps it's time Ireland revived the old slogan: "You'll never beat the Irish."
Bavaria The facts
Population: 12.5 million
Size: 70,500km2 (just larger than the Republic
of Ireland)
GDP (2007): €434 billion
Unemployment (2007): 5.3 per cent
