Guten Tag.
Germany… the country known for luxurious cars, enchanting castles, zestful festivals,
frothy beer, scrumptious bread, FKK culture, love for football,
being the biggest economy in Europe, AND the 4th largest economy in the world by GDP.
The country.... takes pride in building up itself from square one.
No matter how much they are pushed back, they will march forward! And despite its fair share of highs
and lows over time, the economy of Germany is NO JOKE! Because in Germany there are no jokes,
if you have any, we would love to hear them in the comment section below.
The Industrial Revolution began about a century late in Germany than it did in Great Britain
because Germany did not exist as one political unit until 1871. This development was done at a
remarkable pace and the country excelled. That progress was carried to the next century until
they decided to use this advantage to go on in a war, and not just an ordinary war, but a World
War, only to see a loss, but not just an ordinary loss, but a big one, that brought its economy to
shambles! The victorious Allies decided to punish Germany with massive war reparations. Germany
was already demolished, and penalties made the situation even worse. They tried to pay it off by
printing money, and the country had to face one of the worst hyperinflation between 1921 to 1923. The
country kept on facing troubles, and it eventually gave rise to this Austrian-born German mustache
guy, who decided to steer the country’s economy towards massive military spendings, and decided to
go on in yet another war because for some reasons looting other’s wealth seemed like a great idea,
and again, not just an ordinary war, but, a big one, the world war II. and again, it was lost!
During World War II, The Nazis inflicted a system of economic controls on production,
prices, and wages. On top of that, they printed money to cover a part of the costs of war,
which resulted in inflation, along with tons of other factors that brought the
country to a social and economic collapse by the time they surrendered in 1945.
The Allies that bombed Germany in World War II decided the fate of the country yet again
and ended up dividing it into two parts, West Germany under the control of the United States,
Great Britain, and France, while East Germany under the control of Soviet Union. From here,
East and West Germany went on to pursue different journeys.
Western forces decided that it wasn’t a good idea to put the nation through the same cycle of
reparations just like they did earlier. Instead, they should be helped, sort of like "keep your
friends close and your enemies closer". So a plan was implemented which is referred to as the
"Marshal Plan", to rebuild the country aided by the western powers. The purpose of this plan was
to ensure that Germans won’t fall for any other nationalistic leader like the mustache guy or
get inclined towards any communist ideologies. Marshal Plan’s effectiveness in the uplift of
the country is a common viewpoint but not the only reason behind Germany’s economic success.
A small group of German free-market advocates who survived the war had maintained a connection
with each other in hopes of sharing ideas. One of the prime figures was Walter Eucken,
who was a professor at the University of Freiberg. One of Eucken’s disciples
named Ludwig Erhard was later appointed as economics minister in the American zone in 1946.
Erhard brought major reforms and advocated for a free market economy and emphasized frequently
that Germans have to accept their tough conditions and only hard work and self-responsibility could
make them prosper and attain a new place among the civilized nations of the world.
American and British zones were combined into one in 1948 and Erhard was appointed as the
director of the economy. A new currency was brought in and the money supply was controlled
by allowing the West-Germany’s citizens to exchange ten old Marks for one new Mark.
Erhard went on to end the price and production controls. On a Sunday, when all the Allied
authorities were out of their offices, Erhard announced on the radio that the next day nearly
all price-control policies would end. A commander of the American authorities called Erhard into his
office and said, “Herr Erhard, my advisers tell me you’re making a terrible mistake.”
Erhard replied, “Don’t listen to them, General. My advisers tell me the same thing.”
The recovery began! The hoarded goods came out of hidings as they could be sold at competitive
market prices. Industrial production increased substantially in the next couple of years.
There was a spike in the prices after the price-control policies were abolished but the
cost of living was reduced once the agricultural and industrial output was increased. The economic
success guided its way into the 1960s and the productivity showed West Germany to over-shine
other nations in western Europe including the victors of war such as Great Britain.
But, West Germany never transformed into a total free-market economy.
The architects of the reforms including Ludwig Erhard remained advocates of the ‘middle way’
somewhere in between the free-market and socialist planning, called the ‘social market economy’ also
known as Rhine Capitalism. The “social” part of the social market economy is often confused with
socialism and democratic socialism etc., Sure, it has similarities but it has many differences too,
for example, it is not pumped by oil like in some Scandinavian countries.
On the other side, the eastern bloc, or as known as, East Germany was a different story,
inclined towards a classic socialist economy. While West Germany was progressing and termed
as an economic miracle, East Germany went through terrible financial times
under the planned economy of the Soviet Union. Factories that were not destroyed during wartime,
were dismantled into pieces and shipped to the Soviet Union who had implemented a communist
political structure headed by Stalin. Various other aspects made East Germany lag behind,
although the Soviets were keen on showcasing it as a paradise, which it wasn’t by any standards.
The city of Berlin, split between the eastern and western forces, was a strange place as
it was making the contrast between east and west’s economic conditions look more evident.
Soviets didn’t want German citizens of their side to see the obvious growth on the western bloc,
nor they wanted people to start shifting to the other side.
They started injecting money to their side of the city and when that did not work,
they decided to erect a long wall in between, also known as the Berlin Wall.
The Wall-of-Shame remained standing for almost three decades until it was demolished a couple
of years before the fall of the Soviet Union. With the fall of the wall, East and West Germany
were unified. Germany’s reunification was not an easy task from an economic point of view.
Merging one part of the country that was seeing an economic boom with another part that came out
of a communist regime was not easy. But as always, Germany was able to fix the situation eventually.
But what is it about the economy of Germany that makes sure it keeps on
emerging back against the constant challenges?
When talking about Germany’s economic capacity, Mercedes and BMW and other
fancy car companies do get a mention, but they are not the steering wheel that drives
the economy. It’s the medium-sized companies that are the backbone and
not-so-secret recipe of the German economy, also known as Mittelstand.
Some people describe Mittelstand as small and medium-sized enterprises or SMEs, But the
definition of SMEs is comparatively restrictive and it's not directly equivalent to Mittelstand.
Mittelstand firms are mostly family-owned private businesses, often of small size to medium range,
characterized by a common set of values and operational practices. It is more like a business
culture with firms having a unique way of doing things. The firms are mostly run by the ‘owner
entrepreneurial families’ who are interested in the sustainability and longevity of the business.
They are highly focused on the idea of doing one thing well first and diversifying
internationally later. While the world keeps on praising the ‘serial entrepreneurs’,
Mittelstand companies are geared by love and commitment for a product or service. Mittelstand
companies are in it for the long run which makes it different from the typical public firms around
the world who have to face pressure quarterly or annually to meet the financial targets.
Many of the companies are engaged in producing that appears to be just
mundane building blocks, you know the nuts and bolts, but they specialize in it,
and they keep their dominance in the international marketplace.
There are many traits associated with this model that includes family ownership,
generational continuity, long-term focus, emotional attachment with the product or services,
investment into the workforce, social responsibility,
linkage to the local community, lean hierarchies, and customer focus, etc.
To grow wealth, one of the vital finance rules is to not spend beyond your means.
Germany seems to follow this rule in the best possible way. That's true both for its people and
the government. While this seems to be an old way of doing things but it works great for Germany.
While discussing the student loan debt in an earlier video on the channel,
we discussed that debts are generally not for everyone. Few thrive with it and others
struggle with it. Germany seems to understand it very well. People and the government both
are less inclined towards borrowing money unless it's really important.
Lower corruption rate in the government sector has also helped the country
to increase its wealth and hold a good reputation and public trust.
Have you ever heard of countries lowering the value of their currency to boost their exports?
Germany did it too but not the way the US did it with Japan through The Plaza Accord.
They did it differently, that is by adopting the Euro.
While Euro is a powerful currency now, if Germany didn’t adopt it back in its time,
Deutsche Mark would have been a highly expensive currency to convert to. Adopting
Euro made the country sell and export their products at lower prices to many countries.
Germany is the third biggest exporter in the world after the United States and China.
The country’s exports exceed the cost of its imports,
that makes it one of the countries with the highest Balance-of-Payments surplus.
While you may think that China is the biggest production house in the world,
Germany is no short of being termed as the world’s ultimate factory.
Sure, China makes tv screens to mobile phones to almost everything we buy, But, the machines
and equipment used to make these products come from Germany. In short, Germany makes things
that China utilizes to make other things. The more China sells, a part of it goes to Germany.
Germany is successful because Germans are successful. Its people are its biggest asset.
The country’s strength is fueled by its education system, though it has received its fair share
of criticism too. If you are a high school student and don’t want to pursue academia,
the vocational training system is great in Germany and less stigmatized,
unlike other countries. Hand-on work and manual skills are not underestimated in the country.
Educational institutes work closely with industries to innovate.
Many apprentices receive more on-the-job training hours in the workplace than they spend in school.
That makes them fully ready for the job. That's beneficial both to the students and the companies.
These training programs also give students a salary that means you are completing the
program with money in your pocket. This setup is also great to keep the unemployment low and
it's also one of the reasons Germans usually do not leave the country for education or jobs.
The industry contributes to around 30 percent of the GDP,
which keeps one-fourth of the German workforce employed. Germany outshines in the production
and export of the automobile industry and with big names like Audi, BMW, Mercedes,
Porsche, Volkswagen, etc., it enjoys a dominant position in the car industry with around 90
percent of the world market’s share in what's described as a premium segment.
Although the country was criticized for not jumping on the bandwagon of dot-com
and internet boom back in the 90s, the country kept its focus on manufacturing and industry,
and it seemed to have worked great for the country. The business seems to linger in
incorporating modern tech but it has been able to live up to the changing times. It appears
that Germans, unlike US companies, like to test waters before sailing.
The country has been allegedly criticized for exporting
arms to the countries that are involved in the conflict regions and human rights violations.
Germany is in the top five biggest arms exporter in the world.
Despite being one of the biggest industrial countries,
Germany has almost one-third of its area covered by forest. The forestry industry
covers around two-third of domestic wood and wooden products' demand.
Although Agriculture contributes less than 0.9% of the country’s GDP,
it covers around 90% of its nutritional demand. Domestic production can fulfill the needs of
the locals, which means less reliance on the outside world for basic needs.
Germans prefer their own products. It's really hard to convince Germans that another product
is better than theirs. Try telling them how French automobiles are better than German cars,
or Czech republic’s beer has a better taste and see how that goes!
Protectionism is another topic but it is very debatable and hard to prove.
Germany has one of the biggest tourism industries and is in the top ten list of the most visited
countries in the world by international tourist arrivals. The tourism industry contributes to
almost 5 percent of the country’s GDP employing almost 5 percent of the total workforce.
Germany is known for punctuality, except for its trains which is a whole different story!
From World War 1, war reparations to Hyperinflation, from building themselves
up again to the Great Depression and World War II, from rebuilding the country after the war to
the reunification of the country and embracing the less economically stable half, from the
eurozone crisis to the global financial crisis and Brexit, Germany has seen its fair share of
troubles. BUT, it always marches forward… German efficiency is real, and its economy is no joke!
Thank you for watching. We will try to reply to everyone in the comment
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