Germany: An Economic Powerhouse

Germany has always been an economic powerhouse. In fact, in the last century, the economy of Germany has been completely annihilated by the world wars that it fought. However, it has still managed to bounce back. Today Germany is the biggest economy in Europe. It is also the second largest exporter in the world and the third largest economy. This is a remarkable feat that Germany has been able to achieve within a short span of time. In this article, we will have a closer look at the German system in order to understand the reason behind its startling growth.

High Standard of Living

Germany is the second highest exporter of goods around the world. It is just marginally behind China. This statement baffles many experts. The common belief is that cheap labor is one of the essential ingredients in order to become an export-oriented economy. The German economy does not have cheap labor as such. In fact, the wages paid in Germany are one of the highest in the world when compared on a purchasing power parity basis. This is because an average worker in Berlin makes about the same salary as a worker in New York. However, the cost of living in Berlin is half that of New York. Hence, unlike China or the West, German companies do not make their money by paying their workers less money. These higher salaries later translate into market demand which completes the circular flow of the bustling German economy.

The Leader in Capital Goods

Unlike the Chinese economy, Germany does not manufacture consumer goods. This is why consumers all over the world do not see many products that are made in Germany. There are some famous German products like Audi, Volkswagen, and BMW that are known all over the world. However, Germany is home to most of the corporations that sell products to other corporations. For instance, SAP is a software giant that makes products which are used by almost all major companies. Similarly, consumers have not heard about companies like Bosch, Schneider, and Siemens. However, they are also giant multinational corporations based out of Germany. The majority of Germany’s economic prowess is because of the small and medium corporations over there. These corporations are known to be most competitive all across Europe. They are responsible for the bulk of exports which make Germany a world leader.

Stable Currency

It is often alleged that China’s economic growth has happened because of currency manipulation. However, that is not the case in Germany. The German economic miracle has happened despite its currency being valued very high. Germany became an economic powerhouse during the era of Deutsche mark. The migration to the Euro is only a recent event, and it has given even more fillip to the German economy.

Innovation

Since the German economic miracle cannot be attributed to either low labor costs or to an undervalued currency, it can only be attributed to rising innovation. Most German companies are known to be leaders in cutting-edge technologies. This is the reason that most of the products manufactured in China actually use German machines. The quality, reliability, and design of the German machines, is simply impeccable. Also, the Germans keep on continuously innovating. Hence, when the world catches up to the old technology, Germany has already moved on to the new one and is able to maintain its competitive edge.

Vocational Education System

Germany is not known for having the best educational system in the world. However, they are known for having one of the most efficient ones. There are very few name brand Ivy League universities in Germany. However, most students in Germany are able to find a decent paying job as soon as they complete their education. This makes their unemployment rate very low. Also, very few Germans have the student loan debt burden that Americans have become accustomed to. This is because of the vocational study system. Instead of students going to colleges and learning a wide variety of subjects, they go to a vocational institute where they learn from Monday to Wednesday and have to work with a corporation on Thursday and Friday. The corporations pay them a small wage for their work. This wage is enough to help them sustain through the college years with minimal debt.

A Culture of Productivity

Germans are famously known for having an 8 hour work day. If we combine the low working hours with high wages, it seems to be a recipe for disaster. Instead, it is quite the opposite. Germans have a culture of working hard for those 8 hours. They abhor any kind of social loafing at work. Unproductive personal tasks being done at work are frowned upon by co-workers themselves. The average German follows a rock solid work ethic. Employers need not reinforce any rules. The rules are reinforced by the social norms which dictate workplace behavior.

To sum it up, the German growth story is truly remarkable. The common factors that are responsible for increasing exports are not applicable to Germany. Instead, German products have become world leaders because of innovation. It is for this reason that merely copying and replicating the German economic story is not easy.

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