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Germany
• Soziale Marktwirtschaft (Social
Market Economy)
• State control and private enterprise
supplement each other
• Growth and productivity are to be
balanced by social equity
• Mittelstand
• Open economy
Compared to Sweden
and Japan
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Banking
Exports
Labor management
Welfare
http://www.odci.gov/cia/
publications/factbook/ge
os/gm.html
Origins of SMW
• Freiburg school of neoliberalism: the
state could and should intervene in
the market matters and be held
responsible for social agenda
(intellectual)
• Postwar political environment of
demilitarization and direct controls
(Erhardt as an advocate of decontrol)
Germany compared
• National economic goals are
written into laws like price
stability, a stable currency,full
employment, b.o.p equilibrium,
and stable economic growth
• National social goals are social
equity, social security, and
social progress
Characteristics of SMW
• Sanctity of private property
• Market allocation unless a
serious conflict with social
objectives
• Konjunturrat and fiscal policy
• Anti-inflationary monetarism
• Enforcement of competition
German welfare
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Security of employment
Protection of employees
Insurance against risks
Improvement of income
distribution
• Other
early introduction and
comprehensiveness (1/3 of GDP)
German welfare
• Not progressive taxes but
transfers and subsidies,
insurance, and profit sharing
• Capital formation (savings
premiums, health insurance and
tax breaks)
Mitbestimmung(codeter
mination)
• Representation of of workers,
extended to all industries since
1976(compulsory for +500
employees): industrial democracy
• Workforce on both sides of collective
bargaining
• 2/3 shareholders and ½ workers and
unions representatives
• Wages, workday length, firing, layoffs
Unions as exception to
anti-cartel law
• No closed shops
• Industrial unions
• 40% unionized
Public enterprise
• Denationalization (compared to
Great Britain prior to the 1980s)
German Unification
• West Germany and the fading of
the Economic Miracle
• Capital tock destruction amd
monetary overhang
• Ordo-liberal favoring markets
but expecting the government to
enforce competition
German Unification
continued
• Eurosclerosis
• The social safety net and
nativity
• Decentralized welfare
East Germany
• National socialism
• Marxism
• 1953: the gap in income has
widened due to the Soviet
reluctance to build up defeated
country
• Warsaw Pact 1955 and CMEA
East Germany continued
• Kombinaten(1979) and
technological intensification
• East and West compared
• General production and
consumption
• Standard of living
• Environmental quality
Costs of unification
• Big bang
• 1 to 1 exchange rate (wild DD overvaluation)and unemployment
• Interest rates and macroeconomic
credibility
• Pre-existing financial and legal
infrastructure
• Women in labor force
• Collapse of domestic demand in the East
due to competition from the West
German and European
Unification
• Centrifugal forces (The
leadership role and
supranationality issue between
Germany and France)
• Centripetal forces (world trade
and challenges of NAFTA and
China)