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Berlin has established a high-profile reputation as a host city of international sporting events.Dell Inspiron 6400 Battery

Berlin hosted the 1936 Olympics and was the host city for the 2006 FIFA World Cup Final. The IAAF World Championships in Athletics were held in the Olympiastadion in August 2009. The annual Berlin Marathon and the annual ÅF Golden League event ISTAF for athletics are also held here.HP Compaq Business NC6220 Battery

The FIVB World Tour has chosen an inner-city site near Alexanderplatz to present a beach volleyball Grand Slam every year.

Open Air gatherings of several hundred thousands spectators have become popular during international football competitions, like the World Cup or the UEFA European Football Championship.Sony VGP-BPS9 Battery

Many fans and viewers are coming together to watch the matches on huge video screens. The event is known as the Fan Mile and takes place at the Brandenburg Gate every two years.

The economy of Berlin has been affected through the years by the city's changing political fortunes. Berlin was once a major manufacturing center and the economic and financial hub of Germany. Sony VGP-BPS13 Battery

The city suffered economically during the Cold War, when West Berlin was isolated geographically and East Berlin suffered from poor economic decisions made by East Germany’s socialist central planners. Since reunification, the city has relied increasingly on economic activity in the service sectors,HP Compaq nx7300 Adapter

but nevertheless still has one of the lowest per capita income of all metropolitan regions in Germany and a record accumulated state debt.

Berlin was founded at a point where trade routes crossed the River Spree and quickly became a commercial center. HP Compaq 2510p Adapter

During the early modern period, the city prospered from its role as Prussian capital by manufacturing luxury goods for the Prussian court and supplies for the Prussian military.

During the mid-19th century, the Industrial Revolution transformed the city’s economy. Dell Studio PP39L Battery

Berlin became Germany’s main rail hub and a center of locomotivemanufacturing. The city became a leader in the manufacture of other kinds of machinery as well, and developed an important chemical industry sector. Toward the end of the 19th century, Berlin became a world leader in the then cutting-edge sector of electrical equipment manufacturing.Nikon COOLPIX 5700  Battery

As the de facto center of the German Zollverein, or Customs Union, and later the seat of the Reichsbank, Berlin became Germany’s banking and financial center as well.

Berlin suffered from both the German hyperinflation of the 1920s and the Great Depression of the 1930s. Dell Studio XPS 16 Battery

The city’s economy revived as a center of weapons production under the Nazis, but it lost a pool of entrepreneurial talent when the Nazis forced Jewish businessmen to sell their holdings and ultimately massacred most who did not flee Germany. World War II severely damaged Berlin’s industrial infrastructure,HP Compaq nx7400 Adapter

and Soviet expropriation of machinery and other capital equipment as “war reparations” further damaged Berlin’s industrial base. Soviet restrictions on transport impeded communication with West Germany and ended hopes that Berlin would resume a role as Germany’s financial center; most banks established headquarters in Frankfurt.HP Pavilion DV6500 Adapter

In East Berlin, socialist central planners rebuilt a manufacturing sector, but one that was not competitive internationally or responsive to market demand. West Berlin’s economy grew increasingly dependent on state subsidies and on its role as an educational and research center.Dell T117C Battery

Berlin’s and Germany’s unification brought the collapse of many of East Berlin’s producers, which could not compete with market-disciplined Western competitors. Massive unemployment was only partly compensated by the growth of jobs in the construction and infrastructural sectors involved in rebuilding and upgrading East Berlin’s infrastructure. Acer PA-1650-02 Adapter

The arrival of the federal government in 1999 brought some economic stimulus to Berlin. Berlin’sservice sectors have also benefited from improved transportation and communications links to the surrounding region. While some manufacturing remains in the city (Siemens and Schering have headquarters in Berlin, for instance), the service sectors have become the city’s economic mainstay.Acer Aspire 5920G Adapter

Recently, research and development have gained significance, and Berlin now ranks among the top three innovative regions in the EU (after Baden-Württemberg and the Île-de-France region). However, growth in the research and development sector has not been sufficient to offset job losses, and unemployment remains high, at 16.5% as of October 2006.Asus S1 Adapter

Berlin has been called the "Capital of poverty", because in no other State of Germany so many people are living on welfare benefits (in percentage, not in absolute numbers). In 2005 an estimated 15,2% of the population received welfare (ALGII or Sozialgeld).HP Pavilion dv6000 Battery

In 2006 36,1% percent of all Berlin children aged 15 and younger received Sozialgeld, which is given to children, who live with an able bodied person, who qualifies for welfare. According to the Bertelsmann Stiftung the high rate of families headed by a very young single caretaker is to blame for this.Ibm Thinkpad T30 Battery

Fast-growing sectors are communications, life sciences, mobility and services with information and communication technologies, media and music, advertising and design, biotechnology and environmental services, transportation and medical engineering.Dell Studio PP39L Battery

Berlin is among the top five congress cities in the world and is home to Europe's biggest convention center in the form of the Internationales Congress Centrum (ICC). It contributes to the rapidly increasing tourism sector encompassing 592 hotels with 90,700 beds and numbered 17.3 million overnight stays and 7.5 million hotel guests in 2007. HP Pavilion dv5 Adapter

Berlin has established itself as the third most visited city destination in the European Union. The figures indicate the first surplus in the history of the city state. Due to increasing growth rates and tax revenues, the Senate of Berlin forecasted budget surpluses in 2008 and 2009.HP Compaq Business NC6400 Battery

Germany before 1800 was heavily rural, with some urban trade centers. In the 19th century it began a stage of rapid economic growth and modernization, led by heavy industry. By 1900 it had the largest economy in Europe, a factor that played a major role in its ==WWI== and ==WWII==. HP Compaq 490306-001 Battery

Devastated by World War II, West Germany became an "economic miracle" in the 1950s and 1960s with the help of the ==Marshall Plan==. Currently it is the largest individual economy in the EU with GDP of roughly 3 trillion USD.

Middle Ages

Medieval Germany, lying on the open Northern European Plain, Compaq Presario CQ35-100 Battery

was divided into hundreds of contending kingdoms, principalities, dukedoms, bishoprics, and free cities. Economic survival in that environment, like political or even physical survival, did not mean expanding across unlimited terrain, as in the United States. HP Compaq HSTNN-LB51 Battery

It meant a constant struggle that required collaboration with some, competition with others, and an intimate understanding among government, commerce, and production. A desire to save was also born in the German experience of political, military, and economic uncertainty.HP Pavilion ZE4500 Battery

Towns and cities

The German lands had a population of about 5 or 6 million. The great majority were farmers, typically in a state ofserfdom under the control of nobles and monasteries. A few towns were starting to emerge. From 1100, new towns were founded around imperial strongholds, castles, bishops' palaces and monasteries. HP G62-100EB Battery

The towns began to establish municipal rights and liberties (see German town law). Several cities such as Cologne became Imperial Free Cities, which did not depend on princes or bishops, but were immediately subject to the Emperor. The towns were ruled by patricians (merchants carrying on long-distance trade). HP Pavilion DV6-1211AX Battery

The craftsmen formed guilds, governed by strict rules, which sought to obtain control of the towns; a few were open to women. Society was divided into sharply demarcated classes: the clergy, physicians, merchants, various guilds of artisans; full citizenship was not available to paupers. HP Pavilion DV6-1220SO Battery

Political tensions arose from issues of taxation, public spending, regulation of business, and market supervision, as well as the limits of corporate autonomy. Cologne's central location on the Rhine river placed it at the intersection of the major trade routes between east and west and was the basis of Cologne's growth.HP EliteBook 6930P Battery

The economic structures of medieval and early modern Cologne were characterized by the city's status as a major harbor and transport hub upon the Rhine. It was governed by its burghers.

Hanseatic League

Long-distance trade in the Baltic intensified, as the major trading towns came together in the Hanseatic League, under the leadership of Lübeck.HP Pavilion DV6-1210SA Battery

It was a business alliance of trading cities and their guilds that dominated trade along the coast of Northern Europe and flourished from the 1200 to 1500, and continued with lesser importance after that. The chief cities were Cologne on the Rhine River, Hamburg and Bremen on the North Sea, and Lübeck on the Baltic. Compaq Presario CQ71 Battery

The Hanseatic cities each had its own legal system and a degree of political autonomy.


Even under these difficult conditions, Germany had already developed a strong economy during the Middle Ages. It was based on guild and craft production, but with elements of merchant capitalism and mercantilism. HP Pavilion DV7-1290EO Battery

The trade conducted by its cities ranged far and wide throughout Europe in all directions, and Germany as a whole often had trade surpluses with neighboring states. One reason for these exports was the sheer necessity for the small states to sell abroad in order to buy the many things they could not produce at home.HP G6000 Battery

The German guilds of the Middle Ages established the German tradition of creating products known for quality and durability. A craftsman was not permitted to pursue a trade until he could demonstrate the ability to make high-quality products. HP HDX X18-1005EA Battery

Out of that same tradition came an equally strong passion for education and vocational training, for no craftsman was recognized until he had thoroughly learned a trade, passed a test, and been certified (often via an apprenticeship training). On the other hand, as Ogilvie (2004) argues, the guilds negatively affected quality, skills, and innovation. HP Pavilion DV6-3013SL Battery

They were control mechanism --or what economists now call "rent-seeking" and imposed deadweight losses on the economy. Ogilvie says they generated no demonstrable positive externalities and notes that industry began to flourish only after the guilds faded away. Guilds persisted over the centuries because they redistributed resources to politically powerful merchants. HP Compaq HSTNN-IB62 Battery

On the other hand, Ogilvie agrees, guilds created "social capital" of shared norms, common information, mutual sanctions, and collective political action. This social capital benefited guild members, even as they hurt outsiders.

Thirty Years War, 1618-1648

The Thirty Years' War (1618–1648) was ruinous to the twenty million civilians and set back the economy for generations,HP Pavilion DV6100 Battery

as marauding armies burned and destroyed what they could not seize. The fighting often was out of control, with marauding bands of hundreds or thousands of starving soldiers spreading plague, plunder, and murder. The armies that were under control moved back and forth across the countryside year after year, levying heavy taxes on cities, HP EliteBook 2730P Battery

and seizing the animals and food stocks of the peasants without payment. The enormous social disruption over three decades caused a dramatic decline in population because of killings, disease, crop failures, declining birth rates and random destruction, and the out-migration of terrified people. HP Pavilion DV9000 Battery

One estimate shows a 38% drop from 16 million people in 1618 to 10 million by 1650, while another shows "only" a 20% drop from 20 million to 16 million. The Altmark and Württemberg regions especially hard hit. It took generations for Germany to fully recover.HP Pavilion DV7 Battery

Peasants and rural life

Peasants continued to center their lives in the village, where they were members of a corporate body and help manage the community resources and monitor the community life. Across Germany and especially in the east, they were serfs who were bound prominently to parcels of land.HP Pavilion DV7-1290EO Battery

In most of Germany, farming was handled by tenant farmers who paid rents and obligatory services to the landlord, who was typically a nobleman. Peasant leaders supervised the fields and ditches and grazing rights, maintained public order and morals, and supported a village court which handled minor offenses. HP Compaq Business 6735S Battery

Inside the family the patriarch made all the decisions, and tried to arrange advantageous marriages for his children. Much of the villages' communal life centered around church services and holy days. In Prussia, the peasants drew lots to choose conscripts required by the army. HP 540 Battery

The noblemen handled external relationships and politics for the villages under their control, and were not typically involved in daily activities or decisions.

The emancipation of the serfs came in 1770-1830, beginning with Schleswig in 1780. HP Compaq Business NW9440 Battery

Prussia abolished serfdom with the "October Edict" of 1807, which upgraded the personal legal status of the peasantry and gave them the chance to purchase for cash part of the lands they were working. They could also sell the land they already owned. The edict applied to all peasants whose holdings were above a certain size, and included both Crown lands and noble estates.HP Compaq Business  TC4400 Battery

The peasants were freed from the obligation of personal services to the lord and annual dues. A bank was set up so that landowner could borrow government money to buy land from peasants (the peasants were not allowed to use it to borrow money to buy land until 1850). HP Compaq 491278-001 Battery

The result was that the large landowners obtained larger estates, and many peasant became landless tenants, or moved to the cities or to America. The other German states imitated Prussia after 1815. In sharp contrast to the violence that characterized land reform in the French Revolution, Germany handled it peacefully.HP HSTNN-LB31 Battery

In Schleswig the peasants, who had been influenced by the Enlightenment, played an active role; elsewhere they were largely passive. Indeed, for most peasants, customs and traditions continued largely unchanged, including the old habits of deference to the nobles whose legal authority remains quite strong over the villagers.HP Pavilion DV5-1211EM  Battery

Although the peasants were no longer tied to the same land like serfs had been, the old paternalistic relationship in East Prussia lasted into the 20th century.

The land reforms in northwestern Germany were driven by progressive governments and local elites.HP Pavilion DV3-4000  Battery

They abolished feudal obligations and divided collectively owned common land into private parcels and thus created a more efficient market-oriented rural economy. It produced increased productivity and population growth. It strengthened the traditional social order because wealthy peasants obtained most of the former common land,HP Pavilion TX1000 Battery

while the rural proletariat was left without land; many left for the cities or America. Meanwhile the division of the common land served as a buffer preserving social peace between nobles and peasants. East of the Elbe River, the Junker class maintained large estates and monopolized political power.HP Pavilion DV6-1210SA  Battery

Industrial revolution

Before 1850 Germany lagged far behind the leaders in industrial development, Britain, France and Belgium. By midcentury, however, the German states were catching up, and by 1900 Germany was a world leader in industrialization, along with Britain and the United States.HP 448007-001 Battery

In 1800, Germany's social structure was poorly suited to entrepreneurship or economic development. Domination by France during the era of the French Revolution (1790s to 1815), produced important institutional reforms, including the abolition of feudal restrictions on the sale of large landed estates, HP Compaq Business  6530B  Battery

the reduction of the power of the guilds in the cities, and the introduction of a new, more efficient commercial law. Nevertheless, traditionalism remained strong in most of Germany. Until midcentury, the guilds, the landed aristocracy, the churches, and the government bureaucracies had so many rules and restrictions that entrepreneurship was held in low esteem, HP Pavilion DV5-1211EM  Battery

and given little little opportunity to develop. From the 1830s and 1840s, Prussia, Saxony, and other states reorganized agriculture, introducing sugar beets, turnips, and potatoes, yielding a higher level of food production that enabled a surplus rural population to move to industrial areas. HP Pavilion DV5-1015EA  Battery

The beginnings of the industrial revolution in Germany came in the textile industry, and was facilitated by eliminating tariff barriers through the Zollverein, starting in 1834. The takeoff stage of economic development came with the railroad revolution in the 1840s, which opened up new markets for local products, created a pool of middle manager,HP Pavilion DV6-1230SB Battery

increased the demand for engineers, architects and skilled machinists and stimulated investments in coal and iron.The political decisions about the economy of Prussia (and after 1871 all Germany) were largely controlled by a coalition of "rye and iron", that is the Junker landowners of the east and the heavy industry of the west.HP Pavilion ZD8181EA  Battery


The north German states were for the most part richer in natural resources than the southern states. They had vast agricultural tracts from Schleswig-Holstein in the west through Prussia in the east. They also had coal and iron in the Ruhr Valley. HP Pavilion DV9500  Battery

Through the practice of primogeniture, widely followed in northern Germany, large estates and fortunes grew. So did close relations between their owners and local as well as national governments.HP Pavilion DV4-1125BR  Battery

The south German states were relatively poor in natural resources and those Germans therefore engaged more often in small economic enterprises. They also had no primogeniture rule but subdivided the land among several offspring, leading those offspring to remain in their native towns but not fully able to support themselves from their small parcels of land. HP Pavilion DV5-1111EA Battery

The south German states, therefore, fostered cottage industries, crafts, and a more independent and self-reliant spirit less closely linked to the government.

Banks and cartels

German banks played central roles in financing German industry. HP Pavilion DV6-1234TX Battery

They also shaped industrywide producer cooperatives, known as cartels (Konzerne). Different banks formed cartels in different industries. Cartel contracts were accepted as legal and binding by German courts although they were held to be illegal in Britain and the United States.HP Pavilion DV3-2008TX  Battery

The first German cartel was a salt cartel, the Neckar Salt Union of 1828, formed in Württemberg and Baden. The process of cartelization began slowly, but the cartel movement took hold after 1873 in the economic depression that followed the postunification speculative bubble. HP Pavilion DV8  Battery

It began in heavy industry and spread throughout other industries. By 1900 there were 275 cartels in operation; by 1908, over 500. By some estimates, different cartel arrangements may have numbered in the thousands at different times, but many German companies stayed outside the cartels because they did not welcome the restrictions that membership imposed.HP Pavilion DV6-1215SA  Battery

The government played a powerful role in the industrialization of the German Empire founded by Otto von Bismarck in 1871 during a period known as the Second Industrial Revolution. It supported not only heavy industry but also crafts and trades because it wanted to maintain prosperity in all parts of the empire.HP Compaq 490306-001  Battery

Even where the national government did not act, the highly autonomous regional and local governments supported their own industries. Each state tried to be as self-sufficient as possible.

Despite the several ups and downs of prosperity and depression that marked the first decades of the German Empire, the ultimate wealth of the empire proved immense. Compaq Presario CQ50  Battery

German aristocrats, landowners, bankers, and producers created what might be termed the first German economic miracle, the turn-of-the-century surge in German industry and commerce during which bankers, industrialists, mercantilists, the military, and the monarchy joined forces.HP Pavilion DV6-1223EO  Battery

Class and the welfare state

Germany's middle-class, based in the cities, grew exponentially, although it never gained the political power it had in France, Britain or the United States. The Association of German Women's Organizations (BDF) was established in 1894 to encompass the proliferating women's organizations that had sprung up since the 1860s.HP Compaq 490306-001  Battery

From the beginning the BDF was a bourgeois organization, its members working toward equality with men in such areas as education, financial opportunities, and political life. Working-class women were not welcome; they were organized by the Socialists.

Bismark built on a tradition of welfare programs in Prussia and Saxony that began as early as in the 1840s. Compaq Presario CQ35-100 Battery

In the 1880s he introduced old age pensions, accident insurance, medical care and unemployment insurance that formed the basis of the modern European welfare state. His paternalistic programs won the support of German industry because its goals were to win the support of the working classes for the Empire and reduce the outflow of immigrants to America, HP Compaq HSTNN-LB51  Battery

where wages were higher but welfare did not exist. Bismarck further won the support of both industry and skilled workers by his high tariff policies, which protected profits and wages from American competition, although they alienated the liberal intellectuals who wanted free trade.HP Pavilion ZE4500  Battery


Political disunity of three dozen states and a pervasive conservatism made it difficult to build railways in the 1830s. However, by the 1840s, trunk lines did link the major cities; each German state was responsible for the lines within its own borders.HP G62-100EB  Battery

Economist Friedrich List summed up the advantages to be derived from the development of the railway system in 1841:

1) as a means of national defence, it facilitates the concentration, distribution and direction of the army.2) It is a means to the improvement of the culture of the nation…. It brings talent, knowledge and skill of every kind readily to market.HP Pavilion DV6-1211AX  Battery


3) It secures the community against dearth and famine, and against excessive fluctuation in the prices of the necessaries of life.

4) It promotes the spirit of the nation, as it has a tendency to destroy the Philistine spirit arising from isolation and provincial prejudice and vanity.HP EliteBook 6930P Battery

It binds nations by ligaments, and promotes an interchange of food and of commodities, thus making it feel to be a unit. The iron rails become a nerve system, which, on the one hand, strengthens public opinion, and, on the other hand, strengthens the power of the state for police and governmental purposes.HP Pavilion DV9500  Battery

Lacking a technological base at first, the Germans imported their engineering and hardware from Britain, but quickly learned the skills needed to operate and expand the railways. In many cities, the new railway shops were the centres of technological awareness and training, so that by 1850, Compaq Evo N610C  Battery

Germany was self sufficient in meeting the demands of railroad construction, and the railways were a major impetus for the growth of the new steel industry. Observers found that even as late as 1890, their engineering was inferior to Britain’s. However, German unification in 1870 stimulated consolidation, HP Pavilion DM3-1050EO Battery

nationalisation into state-owned companies, and further rapid growth. Unlike the situation in France, the goal was support of industrialisation, and so heavy lines crisscrossed the Ruhr and other industrial districts, and provided good connections to the major ports of Hamburg and Bremen. Compaq Presario 1245  Battery

By 1880, Germany had 9,400 locomotives pulling 43,000 passengers and 30,000 tons of freight, and forged ahead of France.


Perkins (1981) argues that more important than Bismarck's new tariff on imported grain was the introduction of the sugar beet as a main crop. HP G6000  Battery

Famers quickly abandoned traditional, inefficient practices for modern new methods, including use of new fertilizers and new tools. The knowledge and tools gained from the intensive farming of sugar and other root crops made Germany the most efficient agricultural producer in Europe by 1914.HP Compaq 451086-661  Battery

Even so farms were small in size, and women did much of the field work. An unintended consequence was the increased dependence on migratory, especially foreign, labor.


The economy continued to industrialize and urbanize, with heavy industry (coal and steel especially) becoming important in the Ruhr, HP Pavilion DV2166EA  Battery

and manufacturing growing in the cities, the Ruhr, and Silesia. Based on its leadership in chemical research in the universities and industrial laboratories, Germany became dominant in the world's chemical industry in the late 19th century. At first the production of dyes was critical.HP Compaq 464119-143  Battery

20th century

From the prosperity of the empire during the Wilhelmine era (1890-1914), Germany plunged into World War I, a war it was to lose and one that spawned many of the economic crises that would destroy the successor Weimar Republic. Compaq Presario CQ71  Battery

British economist John Maynard Keynes denounced the 1919 Treaty of Versailles as ruinous to German and global prosperity. The war and the treaty were followed by the Great Inflation of the early 1920s that wreaked havoc on Germany's social structure and political stability. HP Pavilion DV9565EA  Battery

During that inflation, the value of the nation's currency, the Papiermark, collapsed from 8.9 per US$1 in 1918 to 4.2 trillion per US$1 by November 1923. Then, after a brief period of prosperity during the mid-1920s, came the Great Depression, which fostered the social insurrection that fascistcandidate Adolf Hitler capitalized on in order to win the 1933 election for German Chancellor.HP Pavilion DV6203TX Battery

Nazi economy

During the Hitler era (1933-45), the economy developed a hothouse prosperity, supported with high government subsidies to those sectors that tended to give Germany military power and economic autarky, that is, economic independence from the global economy.HP Pavilion DV7-1290EO  Battery

During the war itself the German economy was sustained by the exploitation of conquered territories and peoples. With the loss of the war, the country entered into the period known as Stunde Null ("Zero Hour"), when Germany lay in ruins and the society had to be rebuilt from scratch.HP HSTNN-OB51  Battery 

Post-World War II

The first several years after World War II were years of bitter penury for the Germans. Seven million forced laborers left for their own land, but about 14 million Germans came in from the East, living for years in dismal camps. It took neatly a decade for all the German POWs to return.HP Pavilion DV7-2185DX  Battery

In the West, farm production fell, food supplies were cut off from eastern Germany (controlled by the Soviets) and food shipments extorted from conquered lands ended. The standard of living fell to levels not seen in a century, and food was always in short supply.HP Compaq Business  6830S  Battery

High inflation made savings (and debts) lost 99% of their value, while the black market distorted the economy. In the East, the Soviets crushed dissent and imposed another police state, often employing ex-Nazis in the dreaded Stasi. The Soviets extracted about 23% of the East German GNP for reparations, while in the West reparations were a minor factor.HP PP2200 Battery

The man who took full advantage of Germany's postwar opportunity was Ludwig Erhard, who was determined to shape a new and different kind of German economy. He was given his chance by United States officials, who found him working in Nuremberg and who saw that many of his ideas coincided with their own. Compaq CQ50 Battery

A PhD in economics, he was influenced by the Austrian School.

Erhard's first step was currency reform: the abolition of the Reichsmark and the creation of a new currency, the Deutsche Mark. He carried out that reform on 21 June 1948, installing the new currency with the concurrence of the Western Allies,HP Pavilion DV8 Battery

but also taking advantage of the opportunity to abolish most Nazi and occupation rules and regulations in order to establish the genesis of a free economy. The currency reform, whose purpose was to provide a respected store of value and a widely accepted legal tender, succeeded brilliantly. Sony VGP-BPS13 Battery

It established the foundations of the West German economy and of the West German state

Productivity improves

After 1950, Germany overtook Britain in comparative productivity levels for the whole economy, primarily as a result of trends in services rather than trends in industry. HP DV9700 Battery

The Marshall Plan was eagerly adopted in Germany as a way to modernize business procedures and utilize the best practices, while these changes were resisted in Britain. Britain's historic lead in productivity of its services sector was based on external economies of scale in a highly urbanized economy with an international orientation. Compaq CQ35-100 Battery

On the other hand the low productivity in Germany was caused by the underdevelopment of services generally, especially in rural areas that comprised a much larger sector. As German farm employment declined sharply after 1950 thanks to mechanization, catching-up occurred in services. HP Pavilion DV6-1223EO Battery

This process was aided by a sharp increase in human and physical capital accumulation, a pro-growth government policy, and the effective utilization of the education sector to create a more productive work force.

The Social Market Economy

The Germans proudly label their economy a "soziale Marktwirtschaft ," or "social market economy,"Sony VGP-BPS11 Battery

to show that the system as it has developed after World War II has both a material and a social—or human—dimension. They stress the importance of the term "market" because after the Nazi experience they wanted an economy free of state intervention and domination. HP 448007-001 Battery

The only state role in the new West German economy was to protect the competitive environment from monopolistic or oligopolistic tendencies—including its own. The term "social" is stressed because West Germans wanted an economy that would not only help the wealthy but also care for the workers and others .Sony Vaio VGN-CR190E/L Battery

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.Dell Inspiron 6400 AC Adapter

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. Dell LATITUDE D800 Battery

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.Apple A1280 Battery

Over time, the term "social" in the social market economy began to take on a life of its own. It moved the West German economy toward an extensive social welfare system that has become one of the most expensive in the world. Moreover, the West German federal government and the states (Länder ; sing., Land ) Apple A1281 Battery

began to compensate for irregularities in economic cycles and for shifts in world production by beginning to shelter and support some sectors and industries. In an even greater departure from the Erhard tradition, the government became an instrument for the preservation of existing industries rather than a force for renewal(citation needed). HP Pavilion DV7-1290EO Battery

In the 1970s, the state assumed an ever more important role in the economy. During the 1980s, Chancellor Helmut Kohl tried to reduce that state role, and he succeeded in part, but German unification again compelled the German government to assume a stronger role in the economy. HP Pavilion DV6-1020ED Battery

Thus, the contradiction between the terms "social" and "market" has remained an element for debate in Germany.

Given the internal contradiction in its philosophy, the German economy is both conservative and dynamic. It is conservative in the sense that it draws on the part of the German tradition that envisages some state role in the economy and.Dell Latitude E6400 Battery Battery

a cautious attitude toward investment and risk-taking(citation needed). It is dynamic in the sense that it is directed toward growth—even if that growth may be slow and steady rather than spectacular. It tries to combine the virtues of a market system with the virtues of a social welfare system.HP Pavilion DM4 Battery

The Economic Miracle and Beyond

The economic reforms and the new West German system received powerful support from a number of sources: investment funds under the European Recovery Program, more commonly known as theMarshall Plan; Apple MB772LL/A Battery

the stimulus to German industry provided by the diversion of other Western resources for Korean War production; and the German readiness to work hard for low wages until productivity had risen. But the essential component of success was the revival of confidence brought on by Erhard's reforms and by the new currency.Dell LATITUDE D800 Battery

The West German boom that began in 1950 was truly memorable. The growth rate of industrial production was 25.0 percent in 1950 and 18.1 percent in 1951. Growth continued at a high rate for most of the 1950s, despite occasional slowdowns. By 1960 industrial production had risen to two-and-one-half times the level of 1950 and far beyond any that the,Dell Inspiron 6400 AC Adapter 

Nazis had reached during the 1930s in all of Germany. GDP rose by two-thirds during the same decade. The number of persons employed rose from 13.8 million in 1950 to 19.8 million in 1960, and the unemployment rate fell from 10.3 percent to 1.2 percent.Sony Vaio VGN-CR190E/L Battery

Labor also benefited in due course from the boom. Although wage demands and pay increases had been modest at first, wages and salaries rose over 80 percent between 1949 and 1955, catching up with growth. West German social programs were given a considerable boost in 1957, just before a national election, HP 448007-001 Battery

when the government decided to initiate a number of social programs and to expand others.

In 1957 West Germany gained a new central bank, the Deutsche Bundesbank, generally called simply the Bundesbank, which succeeded the Bank Deutscher Länder and was given much more authority over monetary policy. Sony VGP-BPS11 Battery

That year also saw the establishment of the Bundeskartellamt (Federal Cartel Office), designed to prevent the return of German monopolies and cartels. Six years later, in 1963, the Bundestag, the lower house of Germany's parliament, at Erhard's urging established the Council of Economic Experts to provide objective evaluations on which to base German economic policy.HP Pavilion DV6-1223EO Battery

The West German economy did not grow as fast or as consistently in the 1960s as it had during the 1950s, in part because such a torrid pace could not be sustained, in part because the supply of fresh labor from East Germany was cut off by the Berlin Wall, built in 1961, Compaq CQ35-100 Battery

and in part because the Bundesbank became disturbed about potential overheating and moved several times to slow the pace of growth. Erhard, who had succeeded Konrad Adenauer as chancellor, was voted out of office in December 1966, largely—although not entirely—HP DV9700 Battery

because of the economic problems of the Federal Republic. He was replaced by the Grand Coalition consisting of the Christian Democratic Union (Christlich Demokratische Union—CDU), its sister party the Christian Social Union (Christlich-Soziale Union—CSU), and the Social Democratic Party of Germany .Sony VGP-BPS13 Battery

(Sozialdemokratische Partei Deutschlands—SPD) under Chancellor Kurt Georg Kiesinger of the CDU.

Under the pressure of the slowdown, the new West German Grand Coalition government abandoned Erhard's broad laissez-faire orientation. HP Pavilion DV8 Battery

The new minister for economics, Karl Schiller, argued strongly for legislation that would give the federal government and his ministry greater authority to guide economic policy. In 1967 the Bundestag passed the Law for Promoting Stability and Growth, known as the Magna Carta of medium-term economic management. Compaq CQ50 Battery

That law, which remains in effect although never again applied as energetically as in Schiller's time, provided for coordination of fe

deral, Land, and local budget plans in order to give fiscal policy a stronger impact. The law also set a number of optimistic targets for the four basic standards by which West German economic success was henceforth to be measured: HP DV6-1120SA Battery

currency stability, economic growth, employment levels, and trade balance. Those standards became popularly known as the magisches Viereck , the "magic rectangle" or the "magic polygon."

Schiller followed a different concept from Erhard's. HP Pavilion DV7 Battery

He was one of the rare German Keynesians, and he brought to his new tasks the unshakable conviction that government had both the obligation and the capacity to shape economic trends and to smooth out and even eliminate the business cycle. Schiller's chosen formula was Globalsteuerung, or global guidance,HP Pavilion DV6-1020ED Battery

a process by which government would not intervene in the details of the economy but would establish broad guidelines that would foster uninterrupted noninflationary growth.

Schiller's success in the Grand Coalition helped to give the SPD an electoral victory in 1969 and a chance to form a new coalition government with the Free Democratic Party (Freie Demokratische Partei—FDP) under Willy Brandt. HP NX8200 Battery

The SPD-FDP coalition expanded the West German social security system, substantially increasing the size and cost of the social budget. Social program costs grew by over 10 percent a year during much of the 1970s, introducing into the budget an unalterable obligation that reduced fiscal flexibility .HP NX7400 Battery

(although Schiller and other Keynesians believed that it would have an anticyclical effect). This came back to haunt Schiller as well as every German government since then. Schiller himself had to resign in 1972 when the West German and global economies were in a downturn and when all his ideas did not seem able to revive West German prosperity.HP NW8440 Battery

Willy Brandt himself resigned two years later.

Helmut Schmidt, Brandt's successor, was intensely interested in economics but also faced great problems, including the dramatic upsurge in oil prices of 1973-74. HP NW8200 Battery

West Germany's GDP in 1975 fell by 1.4 percent (in constant prices), the first time since the founding of the FRG that it had fallen so sharply. The West German trade balance also fell as global demand declined and as the terms of trade deteriorated because of the rise in petroleum prices.HP NC6400 Battery

By 1976 the worst was over. West German growth resumed, and the inflation rate began to decline. Although neither reached the favorable levels that had come to be taken for granted during the 1950s and early 1960s, they were accepted as tolerable after the turbulence of the previous years.HP NC6200 Battery

Schmidt began to be known as a Macher (achiever), and the government won reelection in 1976. Schmidt's success led him and his party to claim that they had built Modell Deutschland (the German model).

But the economy again turned down and, despite efforts to stimulate growth by government deficits, failed to revive quickly. HP NC6100 Battery

It was only by mid-1978 that Schmidt and the Bundesbank were able to bring the economy into balance. After that, the economy continued expanding through 1979 and much of 1980, helping Schmidt win reelection in 1980. But the upturn proved to be uneven and unrewarding, as the problems of the mid-1970s rapidly returned.HP NC6000 Battery

By early 1981, Schmidt faced the worst possible situation: growth fell and unemployment rose, but inflation did not abate.

By the fall of 1982, Schmidt's coalition government collapsed as the FDP withdrew to join a coalition led by Helmut Kohl, the leader of the CDU/CSU. He began to direct what was termed die Wende (the turning or the reversal).HP NC4400 Battery

The government proceeded to implement new policies to reduce the government role in the economy and within a year won a popular vote in support of the new course.

Within its broad policy, the new government had several main objectives: to reduce the federal deficit by cutting expenditures as well as taxes,HP 6710B Battery

to reduce government restrictions and regulations, and to improve the flexibility and performance of the labor market. The government also carried through a series of privatization measures, selling almost DM10 billion (for value of the deutsche mark—see Glossary) in shares of such diverse state-owned institutions as VEBA, HP 6530B Battery

VIAG, Volkswagen, Lufthansa, and Salzgitter. Through all these steps, the state role in the West German economy declined from 52 percent to 46 percent of GDP between 1982 and 1990, according to Bundesbank statistics.

Although the policies of die Wende changed the mood of the West German economy and reinstalled a measure of confidence, HP 6510B Battery

progress came unevenly and haltingly. During most of the 1980s, the figures on growth and inflation improved but slowly, and the figures on unemployment barely moved at all. There was little job growth until the end of the decade. When the statistics did change, however, even modestly, it was at least in the right direction.HP Pavilion DM4T-1000 Battery

Nonetheless, it also remained true that West German growth did not again reach the levels that it had attained in the early years of the Federal Republic. There had been a decline in the growth rate since the 1950s, an upturn in unemployment since the 1960s, and a gradual increase in inflation except during or after a severe downturn.HP Pavilion DM4T Battery

Global economic statistics also showed a decline in West German output and vitality. They showed that the West German share of total world production had grown from 6.6 percent in 1965 to 7.9 percent by 1975. Twelve years later, in 1987, however, it had fallen to 7.4 percent,HP Pavilion DM4-1090LA Battery

largely because of the more rapid growth of Japan and other Asian states. Even adding the estimated GDP of the former East Germany at its peak before unification would not have brought the all-German share above 8.2 percent by 1989 and would leave all of Germany with barely a greater share of world production than West Germany alone had reached fifteen years earlier.HP Pavilion DM4-1065DX Battery

It was only in the late 1980s that West Germany's economy finally began to grow more rapidly. The growth rate for West German GDP rose to 3.7 percent in 1988 and 3.6 percent in 1989, the highest levels of the decade. The unemployment rate also fell to 7.6 percent in 1989, despite an influx of workers from abroad. HP Pavilion DM4-1030EZ Battery

Thus, the results of the late 1980s appeared to vindicate the West German supply-side revolution. Tax rate reductions had led to greater vitality and revenues. Although the cumulative public-sector deficit had gone above the DM1 trillion level, the public sector was growing more slowly than before.HP Pavilion DM4-1019TX Battery

The year 1989 was the last year of the West German economy as a separate and separable institution. 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. HP Pavilion DM4-1017TX Battery

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.

German Reunification and Its Aftermath

Germany invested over $2 trillion marks in the rehabilitation of the former East Germany helping it to transition to a market economy, and cleaning up the environmental degradation. HP Pavilion DM4-1016TX Battery

By 2011 the results were mixed, with continued to slow economic development in the East, in sharp contrast to the rapid economic growth in both area and southern Germany. Unemployment was much higher in the East, often over 15%.HP Pavilion DM4-1014TX Battery

Economists Snower and Merkl (2006) suggests that the malaise was prolonged by all the social and economic help from the German government, pointing especially to bargaining by proxy, high unemployment benefits and welfare entitlements, and generous job security provisions. HP Pavilion DM4-1013TX Battery

The old industrial centers of the Rhineland and North Germany lagged as well, as the coal and steel industries faded in importance. The economic policies were heavily oriented toward the world market, and the export sector continued very strong.HP Pavilion DM4-1012TX Battery

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