The article deals about the economic success of Germany after
World War II until today and tries to find out what were the
mechanisms that made it so successful.
Let us first go back to 19th century (1800-1900). It
was the time when Industrialization spread throughout Europe. Iron
industries, transport, chemicals had already begun to expand to
commercialize. Germany, with its location in the heart of Europe was
moving away from agriculture to industries. There were already many
industries operating before the beginning of 20th century
(1901-2000). First of all, it is important to review the political
structure of that time in the year 1900. There was an emperor, the
Kaiser, Kaiser Wilhelm II. In the state level, there were still
kingdoms, like the Kingdom of Bavaria, Prussia, Saxony and
Württemberg. There were grand duches, duchies which does not exist
today. Moreover, there were Colonian Governers. Yes, Germany too had
Colonies. Cameroon, Togoland ( today only Togo ), German East Africa
( today Burundi, Ruanda and some part of Tanzania ), German New
Guinea ( Part of today's Papua New Guinea ), German Samoa and German
South West Africa ( today Namibia ). These Colonies were lost to
allied powers after German defeat in World War I.
Along with the loss in World War I, Germany also lost a
substantial part of its economy. Especially the heavy war losses it
bear and the compensation it had to pay to the victors made it
poor. John Maynard Keynes wrote a book in 1921 with the title '
Economic Consequences of the Peace ' blaming the Treaty of
Versaillies for imposing unfair war compensation on Germany. He wrote
that, this might radicalize Germany and might cause another World
War. This was proved to be true. World War II indeed happen. The post
World War I saw dramatic changes. Germany lost all its colonies,
Hitler came to power, democracy was abolished and finally the big
destruction took place. During the war, all major cities had gone
astray. Additionally, there were heavy losses of industries,
infra-structure and the inflow of refugees brought a tragic scenario
in whole Europe. Destruction was also heavy in neighbouring UK and
France.
World War II gave rise of the US as a Super Power. The US saw
Western Europe as an ally and the economic stability of Europe was a
strategic interest of the US. The secretary general came up with an
idea of a plan to rebuild Europe. This was later called Marshall
Plan, named on his own name George Marshall and the destroyed states
got financial injection to rebuild. In the case of Germany, that
money was intelligently used. The ashes were cleared off, bridges and
buildings were built and a room to kick-start economic growth was
made. For this reason, the US always remained as a good partner of
Germany in times of need. But after that, all of the tasks were done
by Germany itself.
In 1946, the GDP of Germany was the same as in the year 1897
according to Maddison data. From 1946 to 1948, the ashes of the war
was cleared off and path to growth was made. As a result, Germany
grew at an average of 6.5% from 1949 to 1973. A golden rule of
Economics/Accounting says that, if you grow with 7% per year, in 10
years the income will double. So, from the year 1949 to 1973, the
German wealth almost tripled. Also after that period, it continually
grew. From 1974 to 1990, it grew with an average of 2.3%. The period
of growth was termed as 'Wirtschaftswunder' ( Economic Miracle ) So,
the question arises, what caused this growth ? How was it possible.
First thing to honor is the economic policy of then Finance Minister,
Ludwig Erhard who later became the Chancellor.
His economic policy focused on Capital Accumulation. There was a
huge investment on forming capital that was used to increase
production. When production grows, labors tend to migrate from
agriculture to industry. Agriculture that time had lower
productivity. So, when people started to work in large scale
production, their productivity grew which gave a huge boost in gross
domestic product. A rising productivity increases competitive
advantage which in turn will increase trade and export. Worker
produvtivity increased by an average of 5% from 1950 to 1970. As
productivity increases, wages increases and purchasing power
increases. As purchasing power increased, domestic demand increased
and the economy grew even further. Soon after, as the economy grew,
the German population was unable to supply the labors required.
Hence, the Guest Worker Schemes was introduced that brought millions
of workers from Italy, Spain Greece, Turkey and Yugoslavia. Apart
from that, the finance minister had reformed the currency from Reich
Mark to German Mark. The new currency was devalued in the initial
stage that helped to achieve competitive advantage. But as the
economy and purchasing power grew and the Germans started to demand
normal as well as luxury goods, it gave birth to 'Life-style Economy'
and the growth of service sector. Automobile, Machinery, Electric
Goods, Chemicals grew rapidly and they were the drivers of German
export. Already in 1953, Germany had a trade surplus of 1 billion.
We should also consider that, growth of production alone is not
enough to sustain economic growth. Other reforms are required as
well. Then comes the role of institutions. Institutions provide the
rule of the game in the society that supports growth. European
Payment Institution was established to liberalize trade in Europe. A
Central Bank, today called Bundesbank was established to maintain
currency stabilization and to oversee credit institutions. This is
extremely important. An undisciplined financial institution can ruin
the economy in massive scale. The Recession of 2007/2008 was
primarily caused by the financial sector that involved in
irresponsible lending. So, the role of Deutsche Bundesbank was
immense in stabilizing the economy. Internationally, the Bretton
Woods System and The General Aggrements on Trade and Tariffs ( GATT)
today called World Trade Organisation was established to support in
trade rules and international payment systems. Within Germany itself,
the financial institutions played important rule. Frankfurt am Main
was made financial hub, with the few large banks located there. The
system of Sparkassen ( Cooperative Banks ) is the unique character
Germany has today. Sparkassen are quasi state banks but are
autonomous in their policies. Their main goal is to support the small
and middle scale industries locally. The profit they generate are
again used for social purposes. This means that, they do not involve
in profit maximizing businesses or any kind of speculation but limit
in their goal of helping businesses and keeping the economic life
stable.
Moreover, the geography of Germany is favourable for economic
growth. It is a country that has a shared border with nine countries
in Europe, a North See and the Baltic See. The internal trade are
supported by Rhein, Elbe, Danube Rivers. There are fantastic highways
and railway lines that connect the cities. The big Hamburg Harbour
makes possible to trade directly across the Atlantic. The internal
factors like Political Stability, fair distribution of resources and
social security are not to be undermined. Apart from the East West
Conflict, the country remained stable most of the time. Fair
distribution means tax justice which was based on mutual solidarity.
The high earners paid higher taxes and low income citizens enjoyed
other rights. Social Security is another uniqueness that makes
Germany special. In the mid 19th century, Bismarck
established the social welfare system. The unemployment benefits,
benefits for students, women, handicapped etc ensured that no one in
the society feel discriminated, both socially and financially. Still
today, Germany has one of the most human social policy in the world.
Education is free for all. Also when you were born in a poor family,
you can grow up to become rich. The equality of chances helped the
country as a whole. There are other insurances which gives people the
feeling of security. This is important because when the future is
insecure, people tend to save a lot and invest little and consume
less in the present. Due to lower consumption, production will be
lower as well. When production is lower, employment creation will be
lower and unemployment grows, tax revenue will be lower and the
economy tend to go into recession. So, in the German context, it was
avoided by social security system.
When we come back to the industries, the motor of growth, there is
a unique culture of 'learning by doing'. Learning by doing is the
major factor of innovation and productivity. It creates
specialization. Specialization creates competitive advantage. Germany
has a dual education system, one that is based on Universities,
another, called Ausbildung, a Vocational Training which is quite
popular where the youths will be trained in the industries to work
there. More people go for Ausbildung than for the Universities. In
addition to this, the honesty of citizens, their work ethics and the
feeling of responsibility towards the society helps to maintain the
culture of work.
So, to conclude everything, it was not a single factor that
contributed the growth of Germany. It was mainly the specialization
of firms, their culture of learning by doing scheme, the government
support of the firms and the government take over of things that
could not be done by the industries. This include, the collection of
data, which could be used by firms and institutions. Think tanks,
bureau of statistics, financial institutions all played their role
well whose main aim was economic growth that was shared by everybody.
Moreover, it was the Marshall Plan that gave a boost, the growth of
technology, population and immigration, culture of saving, social
security system, favourable geography, human capital, healthcare
system, strong work ethics, political stability, trade openness etc
etc as well as many factors contributed to economic growth. As a
result, Germany stands today as second largest exporter in the world,
hub for technological progress and a countries that is known for its
high quality of goods in all sector, automobile, electronics,
chemicals etc. Other nations can learn from Germany. Not all traits
are possible to copy, but they can choose at least some to improve
their economy.
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