Germany

1
Germany
2
Brief History

• Germani consisting of many tribes
• Strong enough to block the Roman expansion in 1st
  c.
• Defeating the Roman empire in 5th c.
• Holy Roman Empire 800-1871
• Frank ? division into East Frank and West Frank
• Conflict between Protestanism and Catholicism
• Deutsche Reich by Bismarck in 1871
• Late industrialization, but fastest economic
  growth
• Fertilizer in the 1840s and auto (Benz) in the
  1880s
• WW I 1914-1918

3
Brief HistoryContinued

• Weimar Republic in 1918
• Hyper-inflation due to reparation payments
• Hitler in power in 1933 and command capitalism
• WW II 1939-1945
• Partition of Germany into four zones in 1945
• West and East Germany in 1949
• West Federal Republic of Germany
• East German Democratic Republic
• Unification of Germany in 1990

4
Two Economies compared

• Per capita income
• Before WWII almost the same
• In 1990, West German income was more than three
  times of East German income
• Living standard
• Productivity
• Income distribution
• Industrial structure

5
German Unification

• Whats done?
• Monetary union (common currency)
• West German mark became the legal tender
• 1 to 1 exchange of East German mark with West
  German mark even though the actual ratio is 20 to
  1.
• Privatization of properties
• Rebuilding infrastructure and cleaning up
  environment
• One trillion marks spent
• Caused the budget deficit
• Relocation of the capital from Bonn to Berlin in
  1999

6
German Unification Continued

• Costs of unification
• Overvaluation of East German mark ? higher wages
  while productivity is low ? higher production
  cost ? less competitive ? output decline (by 50
  in 1990) ? high unemployment (especially among
  women) and retirement
• Slow privatization process causing dissension
• Higher tax burden on West Germans

7
German UnificationContinued

• Benefits of unification
• Larger economy
• Improved living standard for East Germans
• Modern infrastructure and facilities
• Potential to lead European integration
• References
• History and process of German unification
• Recent evaluation of German unification

8
German Economy

• Social market economic policy carried out by
  Ordo-liberals (Freiburg Univ.)
• Wirtschaftswunder (economic miracle) during the
  1950s.
• Fastest economic growth in Europe during the 50s
  and 60s.
• Mittelstand (middle estate)
• Originated from the craftmens guilds in the
  Middle age
• Accounts for 2/3 of total employment
• Contribute to vocational education

9
German EconomyContinued

• Mitbestimmung (codetermination)
• Codetermination of business policy by management
  and labor
• Workers are represented in supervisory boards
  (1/3 1/2 representation)
• Long-term business and investment decision
• The works council at the factory level
• consider working conditions and dismissals

10
German EconomyContinued

• Strong Banking system
• Deutsch Bundesbank (central bank)
• Stable monetary policy and stable price
• Importance of banking
• Major source of capital
• Major owners of company stocks
• Good social safety net
• National health insurance since 1911
• Social security system

11
German EconomyContinued

• Kombinate (Former East Germany)
• Vertically and horizontally related 20-40 firms
• Total 126 kombinates
• Carried out technological intensification
• Info on Germany (www.germany-info.org)

12
Strengths of the German Economy

• high quality of education and solid vocational
  education
• High score in international student achievement
  tests
• About one half of teenagers receive vocational
  training
• Competitive advantage in auto, chemical, and
  machinery
• stable monetary policy ? stable currency

13
Weaknesses of the German Economy

• High costs of unification including unemployment,
  budget deficit and high tax burden
• Inflow of labor from neighboring countries
• Aging society and shrinking labor force