Germany Economic Structure

 

Germany today is the 4^th largest economy in the world after the US, China and Japan.  However, immediately after World War II, the German economy was in ruins and the society had to be rebuilt from scratch.

 

 

Germany today is the 4^th largest economy in the world after the US, China and Japan.  However, immediately after World War II, the German economy was in ruins and the society had to be rebuilt from scratch.

Despite the fact that much of its capital stock and infrastructure were destroyed during or after the war, what Germany had in its favour was a skilled workforce and a high technological level. Beginning with the replacement of the Reichsmark with the Deutsche Mark as legal tender in 1948, the German economy soon embarked on a lasting period of low inflation and rapid industrial growth known as “Wirtschaftswunder” or economic miracle in German.

An enduring element of the economic miracle has been its “social market economy” system or “soziale Marktwirtschaft”. Introduced by then Minister of Economics Ludwig Erhard, who went down in history as the “father of the German economic miracle,” soziale Marktwirstschaft rested on three main principles:

– Individual freedom rested on the liberal ideal of individuality.

– Solidarity meaning that an individual is part of a larger society consisting of mutual dependencies

– Subsidiary being a role of the state to shape the relation between individuality and solidarity. It should give the highest priority to individual rights and ensure that what can be done on the part of the individual should be done by it and not by the state.

Under sozial Marktwirtschaft, the state provided subsidies and controls few segments of the economy, with “free enterprise” and the “rule of the market” promoted as a part of governmental policy.

They stressed the importance of the term “market” because after the Nazi experience they wanted an economy free of state intervention and domination. The only state role in the German economy was to protect the competitive environment from monopolistic or oligopolistic tendencies—including its own.

The term “social” is stressed as well because West Germans wanted an economy that would not only help the wealthy but also care for the workers and others who might not prove able to cope with the strenuous competitive demands of a market economy. The term “social” was chosen rather than “socialist” to distinguish their system from those in which the state claimed the right to direct the economy or to intervene in it.

Beyond these principles of the social market economy, but linked to it, comes a more traditional German concept, that of Ordnung, which can be directly translated to mean order but which really means an economy, society, and policy that are structured but not dictatorial. The founders of the social market economy insisted that Denken in Ordnungen – to think in terms of systems of order – was  essential. They also spoke of Ordo-Liberalismus because the essence of the concept is that this must be a freely chosen order, not a command order.

By the 1960s however, economic growth was beginning to slow down. It was only in the late 1980s that the then-West Germany’s economy finally began to grow more rapidly again.

From 1990 the positive and negative distortions generated by German reunification set in, and the West German economy began to reorient itself toward economic and political union with what had been East Germany. The economy turned gradually and massively from its primarily West European and global orientation toward an increasingly intense concentration on the requirements and the opportunities of unification.

Economic Geography

Over the last 20 years, Germany has invested over $2 trillion to the rehabilitation of the former East Germany – helping it to transition to a market economy, and cleaning up the environmental degradation. However, an East-West economic split remains. Although the divide is not as pronounced as it was during the early days of reunification, Western Germany retains significant advantages to their eastern counterpart.

According to a census published in June, the rate of unemployment in eastern Germany today is nearly twice as high as in the west. A report by Der Spiegel also showed that the per capita economic output in the east is only at 71 percent of the western level, with a disproportionately high share of economic output attributable to the public sector.

Additionally, the economic output generated by the private economy in the east is only at 66 percent of the western level. Furthermore, the proportion of household income derived from welfare payments is 20 percent higher in the east than in the west.

To close the gap, the eastern German economy would have to grow more rapidly than in western Germany, but precisely the opposite is the case. Germany’s leading economic research institutes found the economy in eastern Germany grew by 1.1 percent in 2010, compared with 1.5 percent in the west.

Since the fall of the Berlin Wall, the population of eastern Germany has declined by almost 2 million people, as former East Germans migrate into western Germany for work; and of Germany’s 100 largest industrial companies and 100 largest service providers, not one has its headquarters in eastern Germany.

Population & Labour Force

Germany has a population of 81.75 million people, and a labour force of 44.01 million people. In 2012, the country’s unemployment rate was 5.46 percent.

Like most developed economies, Germany faces significant demographic challenges for long-term growth. Germany’s population shrank in 2012 by 0.19 percent, while the number of Germans aged 65 or over reached 20.9 percent of the total populace. Its aging population as such has placed increasing pressure on its welfare system – particularly during the 1990s, which eventually saw the government adopt a wide-ranging programme of belt-tightening reforms, called Agenda 2010, including the labour market reforms known as Hartz I – IV.

On January 1 2005, a new immigration law also came into effect altering the legal method of immigration to Germany. This eased the immigration of skilled employees and academics into Germany, though the labour market remains closed for unskilled workers. According to the United Nations Population Fund, Germany is now host to the third-highest number of international migrants worldwide. More than 16 million people in Germany now are of foreign/immigrant descent (first and second generation, including mixed heritage and ethnic German repatriates and their descendants).

Recently, a new Europe-wide law has also been passed, allowing high-skilled non-EU citizens easier access to work and live in Germany, after meeting certain requirements. The net migration rate in Germany is now 0.89 migrants/1,000 population.

Industry Sectors

Germany is Europe’s most industrialised nation, boasting major players in industries like automobile manufacturing, machinery, precision equipments, heavy automotive, technology and softwares. Industry in Germany accounts for 28.1 percent of the country’s total GDP, and employs 24.6 percent of the workforce.

Services in Germany makes up a large portion of Germany’s economy, contributing 71.1 percent of the country’s GDP and employing 73.8 percent of the workforce. Germany is renowned for its highly skilled labour force and this ranks Germany third in the provision of services among exporting nations worldwide. It is also ranked first in skill-intensive services like technical services, IT-sevices and financial services.

Comparative to its industry and services sectors, German agriculture is fairly insignificant, contributing only 0.8 percent of the nation’s GDP in 2012. Yet, Germany is still ranked third in agricultural production behind France and Italy in the European Union; and the nation is able to provide 90 percent of the population’s nutritional needs with its domestic production.

Update: Germany updates betting website (wettanbeieter) laws.

In order to combat money laundering and raise money from taxation, Germany has fully legalised regulated online betting. It will issue state licenses to betting sites, known as wettanbeieters, who complete a successful application process and abide by federal regulations. Gold Media expects that the German gambling market will grow to 3.3 € billion by 2024 due to the new legislation. For more information on regulated German betting sites, check out wette.de wettanbieter list.

Read more about Germany’s economy, including industry information, featured analysis and trade statistics below.