World Colleges Information

Germany is a classic example of how socio-political changes strongly shape the economy of a country. While technological and scientific advancements with good infrastructure are the backbone of the country's economic standing, Germany has had its share of both the good and the bad. Here is the story of its industrial growth, at a glance…

Until about 1870, it had been a feudalistic and predominantly agricultural country. Manufacturing and handicraft industries did coexist but at a very nominal level. With industrialization, manufacturing came to the fore. Mining, textile and clothing, ship and railway building, the chemical industry and mechanical engineering were among the major industries, though initially restricted to the bigger cities. Traditional industrial regions especially coastal towns like Hamburg were major agglomerations and even today are home to shipbuilding and other heavy industries. While the chemical industry contributed and continues to contribute significantly to the economy; but certain heavy industries have declined in the post-world War II period. This has caused structural problems in certain regions and growth has not been balanced.

The Great Depression and after
Improvements were made in transportation, and new trade routes opened up as the network grew; however, the country to a large part remained rural. Development until World War II was highly concentrated in largely jumbled clusters or mass agglomerations. The reasons for this unstructured growth maybe attributed to the socio-political changes that occurred in several parts of the world, which in turn had its impact on Germany too. The establishment of the Weimar Republic had ushered in economic policy changes, even as a period of hyperinflation occurred immediately after World War I. But the Great Depression of the late 1920s shook Germany's economy resulting in increased unemployment and reduced welfare.

With the Nazis in power by 1933, the chances of a market-oriented economy were further removed. During this time, the economy became more planned and state-directed. State-financed military and infrastructure schemes were put in place and enforced through pressure and violence against any opposition. Large-scale military production was pepped up in all sectors to provide the engine for World War II.
 

Recuperation and rebuilding
After 1949, Germany became divided and the western occupied territory became Federal Republic of Germany (FRG). The economy boomed due to rebuilding and reconstruction activities, until the late 1960s. Monetary reforms, establishment of a competition-orientated system, capital and currency aid for investments and imports with the help of the Marshall-Plan helped along the recovery. The boom was, however, firstly due to domestic investments, a growth in private demand, dismantling of monopolies and increased focus on exports. The eastern part of the country named the German Democratic Republic (GDR), continuous growth in income and employment was achieved coupled with high volume production of consumer goods. Here, industry switched to manufacture of cars, machines, electrical equipment, and furniture and forays were made into new product markets, like never before.

All was not rosy, however. The huge population loss incurred from World War II led to the lack of an adequate workforce, a problem that persisted until the 1960s. The surviving population comprised largely of the senior citizen or the child category and neither could be put to labor. Attempts were then made to attract workers from southern Europe and Turkey to fill in the gaps.

In the early 70s, the first signs of stagnation began to emerge - An oil crisis in 1973 compounded the problems in many sectors of industry. Unemployment too continued to rise. During the 1980s, development depended largely on the growth of the service sectors and technology-intensive production.

Unification and setback
With the Germanys reuniting in 1990, the overall economic situation underwent major transformation and adaptive processes. While the effort was to transform eastern Germany to a market economy, the merging of two extremely diverse systems resulted in social and economic setbacks.

Since 1945, the economy in East Germany had been a state-driven system controlled wholly by the erstwhile Soviet Union. The Soviets had simply used existing plants and other facilities without reinvestment. This made the rebuilding and growth process in East Germany more difficult and economy deteriorated. Once the strongest socialist economy, it stagnated in the 1980s, closely following the decline of markets in the eastern block.

On unification, the demand for consumer goods rose especially in the East causing a temporary boom in the West but did not fulfill the needs of a competitive economy. Many western firms opened up branches in the eastern part; but they were unable to makeup for the economic losses of unification and did not contribute to effective growth. Their major deterrent was the privatization of former state-owned firms. In effect, the weak economic base, lack of domestic investments, inadequate capital, and growing unemployment were the key factors affecting industrial advancement as well as the economy in eastern Germany.

Inequitable growth
Since the early 1990s, the unified German economy has been performing weakly; lack of domestic demand, increased competition, changing market structures, exchange rate instabilities and stagnation in investments. The trend has continued affecting production and exports. On the global front, competition from low-cost countries has forced industries to rationalize production and adopt new computerized technologies. Globalization of markets, strategies and geographies, along with a growing presence of multinational firms, has accelerated.