LGermany is the typical example of everything that is wrong with the European economy. GDP is on track to fall for the second year in a row. Chemistry and metallurgy are on the brink of collapse. Volkswagen and ThyssenKrupp have announced unprecedented factory closures. What needs to be understood is that these problems are the setback to Germany’s previous success. The institutional foundations which enabled it in the 20th centurye century are now generating this economic malaise.
In the aftermath of World War II, West Germany developed a set of economic and political institutions ideally suited to the conditions of the time. With a focus on manufacturing and exporting quality products, policymakers introduced vocational training and apprenticeship programs and German industry doubled production of vehicles and capital goods.
To finance this industry, a financial system based on banks was put in place. To guarantee social harmony in companies, a system of co-management has been developed. To chase away the political evils of the past (extremism, parliamentary fragmentation, etc.), a proportional ballot was put in place.
Investing in higher education
The result was happy: it was the Economic miraclethe miracle of growth of the third quarter of the 20th centurye century. Unfortunately, these same institutions have proven extremely difficult to change when circumstances have changed. As quality manufacturing has faced new competitors, particularly from China, companies have continued to invest heavily in this strategy. Attempts to change workplace organization and close unprofitable factories were blocked by co-determination.
Encrusted banks, accustomed to dealing with long-established clients, proved ill-equipped to finance start-ups in new sectors. Proportionality produced unstable political coalitions as voters moved toward the extremes.
You have 48.67% of this article left to read. The rest is reserved for subscribers.
Business
