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Strucuture Of The Economy
Manufacturing and related services are still at the heart of the German economy,
although the share of overall industrial output in GDP has declined from 34.5% in 1993 to 29.6% in 2002. The main manufacturing industries are the automotive and chemical industries, while telecommunications has also become a sector of great importance. The steel-making sector in the Ruhr region has declined sharply, and agriculture has become a sector of only marginal importance for the economy as a whole.
Since 1988, however, the share of manufacturing in GDP has stabilised at around 30%, whereas that of agriculture, forestry and fishing has continued to fall, reaching a low of 1.2% in 2002, according to World Bank statistics.
German economy is divided by its performance in the two regions East Germany and West Germany. The economy in the east remains particularly weak. Unemployment is double and economic output per head not much more than half of that in the west.
Role Of Market Vs Government
After losing in the WW-II, Germany started to rebuild its economy and indeed enjoyed remarkable economic success, and this "economic miracle" made it the third-largest economy in the world after the US and Japan. The government adopted prudent fiscal and monetary policy. Also external support in the form of Marshall Plan aid, good relations between social partners, and the focus on reconstruction contributed to its rejuvenation after the devastation of the Second World War.
Germany followed an economic policy with the idea of making a social market economy. This concept demanded that market forces govern the economy, with the state retaining a role in improving the fate of the underprivileged and correcting market imperfections. |
The social market economy concept contributed to harmonious labour relations. Additionally focus was laid on bank financing, which allowed companies to concentrate on long-term objectives and insulated them from short-term fluctuations in share prices, although it additionally insulated managers from effective control.
However, there were certain drawbacks also,
as extensive social protection and a high tax block on labour income reduced the incentive to work. High non-wage labour costs, rigid employment protection and persistently weak domestic demand depressed the demand for labour. These problems, which had already weakened Germany's growth performance during the 1980s, severely impaired the ability of the country to deal with the huge economic problems created by the process of reunification. As a result, Germany had the weakest GDP growth in the EU in 1994-2003. Widespread awareness of the poor performance intensified during the 2001-03 downturn, raising pressure on the government to react.
In response to the poor performance, German
chancellor, Gerhard Schroder, announced in March 2003 his reform initiative, the Agenda 2010, to improve structural conditions for economic growth. It had measures to tighten conditions for entitlement to unemployment benefits and to reduce non-wage labour costs, reforms of the social welfare system, in particular public health insurance, and a liberalisation of the crafts sector.
Because of the integration of European financial markets and the greater risk consciousness of banks, German companies have provoked a shift away from reliance on long-term bank financing towards direct financing on capital markets, which has also required companies placing more emphasis on shareholder value.
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