The German Economic Miracle: How Germany Became A World Economic Giant

The Secret Behind Economic Success in Germany

The ascension of Germany to power to become a world economic giant is commonly referred as the German economic miracle. The economic miracle began at the end of World war II after most parts of the nation were in ruined due to war. The allied forces had attacked much of the infrastructure and left it in ruins. Most of the German cities had been destroyed and their population dropped. The country was a crumbling nation that faced a miserable future. However, by 1990, after the fall of the Berlin war, Germany was once again reunited. The country one of the largest economy in the world, after Japan and USA in terms of GDP.

After world war 11, the tally told a tale of a nation that was in disorder. Industrialized productivity was down. The nation’s standard lessened by 20%, while food manufacture was half that equal prior to the onset of the war. Many of the country’s people who could do the weighty lifting to reconstruct Germany had already been killed or crippled in war (Awan, 2015). During the war, Hitler had already founded food distributions, and therefore the civilian population was limited to at most 2,000 calories in a day. After the battle, food rationing went on to limit the populace to between 1,000 to 1,500 calories per day. The charge protocols on other commodities and services led to deficiencies and this led to the emergence of a massive black market. The German currency during this time became worthless and required the intervention of people to barter for goods and services (Bloom, 2017).

Eucken got a lot of support at his school, which later developed to be one of the locations in Germany that were against Hitler and that could voice out their opinions (Brown, 2020). It is also the school where economic theories were developed and became famous, later to be known as the social free market. Eucken’s thoughts were rooted in the free market capitalism while at the same time giving a role for the government to be involved to make sure that this system was functional for as many persons as possible (Dragone, & Ziebarth, 2017). For example, strong policies would be enacted to stop the lobbies or monopolies from being put up, and a huge social welfare system would be put across to serve as a safety net for the persons who would still be struggling (Deeming, 2017). Eucken also supported the idea of having a strong central bank that would be liberated of the government, and one which concentrated on the utilization of monetary policies that could keep prices steady. These ideas were mirrored in Milton Friedman’s theory (Fuchs, 2018).

Mixed Economy in Germany

The Nazis thought that war was the basic driver of human development and claimed that the basic aim of a nation’s economy was to make it possible for the nation to fight and triumph battles of expansion. When they came to power, Nazis boarded on a vast database of martial arming, and this reduced on noncombatant venture (Gibbings, 2020). During 1930, the Nazis increased the expenditure on their military faster than any other nation in the world. The military became visible in most of the economic endeavors of Germany in the 1940s. The latter was financed by deficit financing before the war and the Nazis expected to repay the debts after plundering a lot of wealth from the conjured nations during and after the war. The plunders occurred but did not meet the Nazi’s expectations (Herrero, 2021). Overall, the Nazi war economy was a mixed one that was made up of a free market merged with central planning. Overy labels this economy as being in between the command of the Soviet Union and the capitalist structure of the USA.

Nazi Germany entered into partnerships with the leading business interests, who braced the aims of the regime and its war, and in return be awarded deals, grants, and conquest of the trade unions. The cartels and monopolies were highly encouraged by the government at the expense of the SMEs.

The Nazi regime maintained a steady flow of forced labor, which was made up of prisoners from the concentration camps and the slaves. The latter was greatly expanded after world war 2. The great depression that swept the entire world hit Germany hard. Inflation tumbled-down the country’s economy and led to the emergence of Adolf Hitler (Kiess, 2019). Many persons felt that communism was the economic model that would affect the universe. After the war, the western part of Germany ordered American and associated militaries and made decisions on which economic path to take.

There came a heavy discussion on the new policies put in place by the state, concerning the fiscal policies. Nearly sudden, West Germany revived. markets instantaneously were supplied with commodities and individuals recognized that the new coinage had great value. Barter trade came to an end and the black market stopped. As commercialization took off, people once more had the enticement to work, and West Germany became industrialized once more (Nölke, 2021).

In 1948, the Germans wasted around 9 work hours in a week, a period that was spent mostly in search for food and other commodities. In October the same year, the number of missed hours of work went down to 4 work hours per week, the nation’s industrial production also rose.

The Marshall Plan

The Marshall plan added to the German’s rebirth. This plan saw the united states give more than $ 17 billion to the European nations that had been affected by World War II, and a huge amount of this money went to Germany (Shaidurov, 2017).

During this period, Germany found itself at the center of cold war within itself. West Germany was aligned to America and was capitalist, and was given a large role by the government, to keep checking on the free market. On the other hand, East Germany was allied with the Soviet Union and was a communist (Shaidurov, 2017). These two countries provided a faultless way to relate two main economic systems around the globe.

While West Germany bloomed, the East wadded. Due to economic struggles and lack of enough capital and political freedom, the residents in East Germany protested and despite the travel restrictions put across, the residents traveled using droves. Finally, east Germany permitted its netizens to travel to West Germany without restrictions. This led to a near-instant downfall of East Germany and the two nations unified once more (Wegner, 2015).

Capitalism and the free market are two categories of economic systems and are at times used in the same contexts, especially in non-formal phraseology. However, the two words are not fairly the same. Capitalism and the free market in Germany sprung from the same commercial soil. However, the liberal models of capitalism were more engrossed on the establishment of wealth and possession of money and factors of production (Wegner, 2015). On the other hand, the free market system was more concentrated on the exchange of wealth or the exchange of goods and services.

In liberal models of capitalism, the key features that are evident include rivalry between corporations and owners, private possession and the inspiration behind all this is the zeal to generate profits. In the models of capitalism, the production and pricing of commodities and services as determined by the supply and demand free market. However, some régime rules and oversights occur and the capitalist transactions are highly taxed.

Additionally, the market is at times free only in name, in that, a private owner in a capitalist system can possess a monopoly in a given field or locale, and this prevents the progress of the fair competition (Nölke, 2021).  On the other hand, the social free market system is totally governed by the forces of demand and supply and there is almost no government intervention. In this market system, the purchaser and the seller carry out transactions freely and only when they agree on the price of goods and or services (Shaidurov, 2017).

The Bottom Line of the Economic Success

Any economy is capitalist if, at any chance, the private entities curb the factors of production. A purely capitalist economy is also a free market economy, as the laws of demand and supply, regulate the production, labor, and the marketplace, which should have instead been controlled by the federal government. Firms sell commodities and services at the highest price the clients are prepared to pay while the laborers earn the highest wages the firms are able to pay for the services offered (Shaidurov, 2017). The proceed motives drive all commerce and force the firms to operate with high efficiency to avoid losing the market share to the competitors in the market. A free market can exist in absence capitalism, under socialism, as long as there are no involuntary transactions or conditions given on the transaction or in any other form of mutualistic societies.

In the traditions of Bismarck, the backing of social security was muscularly tied to the pay bill. The German model, pre-purposes a high portion of active workers. The organized system in Germany underwent a concentrated test in the 1990s after an increase in internalization generates competitive pressure on the German enterprises (Shaidurov, 2017). The latter started to affect the very successful niche manufacturers. With the snowballing general joblessness since the mid-1970s.

These problems were caused by the histrionic impacts of German reunification. West Germany merged with an economy that had a non-competitive industrial base. From the 1990s, the up-surged fiscal burden for re-unification was added problem for the public and private budgets. As a result of this, Economic growth was stunted in the country, and the creation of job rates also turned out to reduce (Shaidurov, 2017). The depend structural crisis in East Germany led to an increased rate of joblessness. There was little flexibility in management and labor market institutions and hence, they could not cope with the large burden of modification after the historic reunification occurred. The post-socialist equipment in the east Germany economy was made up of poor set-up and outdated equipment from day to the other in the world market without having to devalue the currency and regain its competitiveness (Dragone, & Ziebarth, 2017).

 In the late 1990s, Germany felt more negative impacts after the institution of the Euro. Cash flows were channeled to the previously high-interest countries operating in the Eurozone, and this was devastating to home investment. After opening borders to the East, Germany profited in the first years but later run into problems. The country appeared to be more sclerotic and not able to adapt to the challenges of the structural adjustments that were necessitated by the new period of globalization. As a result of this, the German economy entered into a very crucial phase in 1999 (Dragone, & Ziebarth, 2017).

Differences Between the Social Free Market and ‘Liberal’ Models of Capitalism

According to some scholars, the structure of the economy was at the center of unfavorable joblessness records. Germany did not manage to create jobs in branches that were concentrated with labor, especially in the food industry care facilities and retail trade. The differences in the rates of unemployment stem from large proportions of these low-wage services (Fuchs, 2018).

The growth of the manufacturing sector was a vital element of the German model as a disadvantage. Germany became a bazaar economy and lost its industrial prowess. The German labor cannot compete with the equally skilled and less affluent workers from the east (Fuchs, 2018).

 The labor market reforms that took place in Germany were a painful but untimely effective cure. Strong labor impacts were already visible, which were supported by positive labor market effects. The German economy experienced a boom, as it received support from the external economic environment. The reforms could be assessed by measuring the disastrous trend in the systemic unemployment was reversed and the rate of unemployment started going down. The reforms could also be noted to have the marked increase in the efficiency measure in the matching functioning of the labor market as a result of behavioral and institutional impacts as well as improved performance of labor services (Shaidurov, 2017).

The reforms could also be assessed through the increase in the wages that were observed as the aftermath of the reforms. Workers were more likely to accept unfavorable jobs and job conditions.

Conclusion

The social market economy, generally known as the Rhine capitalism, is a socio-economic framework that combined a free market capitalist system together with the social guidelines and regulations to come up with fair rivalry within the market and the state welfare. The social market economy was originally promoted in West Germany. The socialist market economy was made to be a third way between capitalism and socialist economics. The social market tries not to plan and guide production in the workforce, but it supports the efforts that are aimed to influence the economy via the organic means of the comprehensive economic policy with the supple adaptation to the market studies. This economic strategy purposes to create an economy that meets the wants of the whole population. The second world war crippled the economic progress in Germany, and depopulation because many people dies in war and Adolf Hitler had also introduced a food rationing policy. The latter made Germany’s currency worthless and people had to intervene to do barter trade for goods and services. The Nazis in Germany played a vital role in wars because they believed that war is the basic aim of a nation’s economy. Several challenges led to the that led to the fall of their economy, but their reunification was highly admired by other nations. Reforms that happened thereafter have been a great deal to Germany’s economy and it stands to be one of the strongest up to date. The labor market reforms were very painful but were highly effective. There were strong labor impacts that were followed by positive labor market effects. The boom in the German economy was witnessed due to the boost received from the external economies. 

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