Germany

Brief History Germani consisting of many tribes Strong enough to block the Roman expansion in 1 st c. Defeating the Roman empire in 5 th c. Holy Roman Empire 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:

Brief History Continued Weimar Republic in 1918 Hyper-inflation due to reparation payments Hitler in power in 1933 and command capitalism WW II: 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

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

German Unification What’s 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

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

German Unification Continued 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

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 craftmen’s guilds in the Middle age  Accounts for 2/3 of total employment  Contribute to vocational education

German Economy Continued 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

German Economy Continued 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

German Economy Continued Kombinate (Former East Germany) Vertically and horizontally related firms Total 126 kombinates Carried out technological intensification Info on Germany ( info.org) info.org

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

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