Economic Systems
Ohio Wesleyan University
Goran Skosples
9. Germany
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The German (Rhine) Model Germany: Europe’s largest economy
GDP per capita: $_________ (US = $_________)
Social market economy
• government owns _______________
principles of consensus, group action, and long-term consequences
• coordination and following gov’t guidance
• the German constitution (Basic Law) explicitly lays out the economic and social goals
market principles subject to social regulation __________________
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The German (Rhine) Model
roots of the welfare state ________________
• gov’t funded soc. security, health insurance, and worker compensation
______________
• many companies privately owned- no need to appease the _______________
• financing by local banks rather than capital markets- no desire for large leverage (debt) - modesty
• Oligopolistic markets
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The German (Rhine) Model Mitbestimmung (___________________)
• Large firms required by law to have equal representation on their boards for both management and labor- workers have a say in the firms’ operations
- work councils + election of workers to company supervisory boards
• ensures that workers’ rights and jobs will be protected when decisions are made about where and what to produce
• motives: peace between labor and management, reducing output lost to strikes, moderates wage demands to keep inflation in check
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The German (Rhine) Model
Labor market
• high skilled labor
• dual-system of vocational training- classroom instruction + work experience
- technical colleges vey important
• worker loyalty
• Agenda 2010 (in 2003)- structural reforms to ↑ growth + ↓ unemployment
- wage _________________
Banking system - three pillars• private, cooperative, public (Savings + Landesbanken)
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Prior to unification
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Prior to unification
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Reunification (1990)
high hopes:
1. existing institutions in FRG – political, legal, regulatory framework
2. the best performing socialist economy – highest efficiency and productivity
rapid transformation – Big Bang
currency unification
Treuhandanstalt - privatization
Mezzogiorno problem
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Consequences for the East output (9/89 – 9/90: -51%) +
unemployment (peaked at 21%)
supply (cost):• ___ nominal wage + ___ productivity• outdated capital – requiring ___ investments• excessive ____________
demand (price):• inflow of western goods (cheaper)• negative ____________________• dissolution of the Council for Mutual Economic
Assistance (CMEA)
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Evaluation of Unification
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One of the original members of the ECSC (1951)
European Union (1993)
The euro (1999/2002)
• single currency + unified monetary policy
• ECB in _______________
Large benefit from the euro (_______________)
• low ______ growth
• should show solidatity?
Reluctant to help Greece?
• German politics preference for consensus
EU and the Euro
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Germany today unemployment: ___________
standard of living higher in the west that the east
dislike for inflation
Europe’s locomotive
consumption held low (austerity) low debt/GDP
strong exports (2nd after China) CA surplus
services lagging manufacturing (financial, etc)
bubble in the property market?
“coordinated market economy”
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