Germany's spectacular rise after the ruin of Second World War has lessons for everyone.
Germany’s rise to a great economic stature
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- From laggard to dominant : Today, Germany looks like the most successful economy in the developed world, which can be a surprise for those who know the early days. The country was plagued with slow growth from the 1980s through the 1990s, for which German economist coined the term “Eurosclerosis”. Even in the late 2000s when the US economy boomed, Germany’s unemployment rate was above 10%.
- A strong show : Almost a decade after the global financial crisis of 2007, Germany has found its legs. Unemployment rate is down, labour force participation has risen, wages have gone up, and the economy is looking healthy in recent years, though Germany faces the same challenges as other developed countries.
- Demographic Adversity : A serious challenge remains. Germany’s fertility rate is low at just 1.38 children per woman, even less than Japan’s, and its population is slowly shrinking. [Replacement Fertility Rate is 2.1 for a society] Thus the smaller base of German workers has to support a growing number of retirees, which can be a challenge for any society. Germany is struggling to produce more from the same amount of resources.
- A contrarian success : If robots are a big threat to jobs and wages, German workers should be suffering, instead, their wages have been steadily growing, and employment has risen. What is the secret of German success?
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- The open secret recipe : The country has a very large state sector, generous welfare spending and a trade unionization rate almost twice that of the US. There has been no major wave of deregulatory mania. Germany also did not escape the 2007-8 financial crisis. The financial instability in the European Union was a drag on the country. Researchers propose a theory for the German revival, saying it’s all about exports and unions. Germany’s exports have grown steadily, and although it accounts for less than 5% of global output, it has about 9% of world exports, which account for almost 50% of Germany’s GDP. [a startling fact!]
- Export Powerhouse : Reasons why Germany became an export powerhouse: (1) Wage competitiveness – wages in Germany are set by collective bargaining at industry and regional level, and not at company level. (2) Unions’ willingness to hold down wages to lower production costs, which allows for more export. (3) Limiting wage gains ultimately lead to faster wage growth.
- From Hitler to a Hit : Germans hate discussing anything Nazi. It is to their credit that despite the maddening Cold War and a deep division in their nation, they rebuilt everything meticulously and with high standards of quality. The rest of the world can surely learn its lessons from this Lutheran Christian nation, that believes in saving for the future, and investing in its skills.
- Do check out exams-focussed Confidence and Vocabulary Booster series of learning resources, here!
- Download Resources : PDFs on world economy and politics available on Bodhi Resources page here. And, here are some facts and images to help the case better.
Germany - the giant amongst equals
Ludwig Erhard - a visionary
The world in a nutshell!
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