By the 1970s, the German economy was still a global leader, but at some point, it began to run more on its inherited momentum than on its entrepreneurial initiative.
Germany remained an international powerhouse well into the twenty-first century, when Angela Merkel was able to explain to Barack Obama that economies were about producing products and selling them. She was right, but historian Wolfgang Münchau suggests that already by that point in time, the German economy was really good at manufacturing the products that the previous generation wanted.
Even as military officers are sometimes guilty of preparing to fight the last war rather than the next one, macroeconomic leaders can sometimes be really good at producing and selling the products which were in high demand a decade ago, rather than the products which will be demanded a decade into the future.
The German economy seemed strong, and was strong, right up to the point at which it lost its grasp on global market trends. From the 1970s to the early 2000s, Germany was a manufacturing powerhouse. Münchau recalls his childhood in the city of Mülheim in those days:
The town in which I grew up in Germany was not very large, but it had large companies. Mülheim is situated at the western edge of the Ruhr basin, and today has a population of 170,000. On my daily tram journey to my high school in the center of town, I passed two factories located next to each other. They were surrounded by large gray apartment buildings, characteristic of industrial towns in Germany and other parts of central Europe at the time. The first of the factories made pipelines. The second one made nuclear power reactors. The parents of several of my friends used to work in those factories — some as engineers or managers, and one as a nuclear physicist. Pipelines and nuclear reactors were the gears that powered the German economy. They were the life force of Germany’s industrial model.
A bit gritty, but successful: the German economy allowed middle-class families to own cars and take vacations. Other western European nations envied the German standard of living, and eastern European nations — the Warsaw Pact — saw West Germany as the gold standard which the Soviet Union and the Cold War kept ever at bay.
Even though West Germany — unification would happen in 1990 — was technically an occupied territory, given the presence of American, French, and British troops, the United States was eager to pay for products imported from West Germany. In American retail businesses, “made in West Germany” was a selling point: high quality at a low price.
But the transition from a manufacturing economy to a service economy to an information economy to a cyber economy was underway, even if only in its embryonic stages. The strength of the German macroeconomy was being slowly undermined, and its business leaders and political leaders were perhaps not quite aware of the transition.
This was in the 1970s. Back then, Germany was the world’s leading producer of nuclear plants, and opted for nuclear power for its future energy needs. Pipelines, too, played an important role in German energy policy, especially after the first oil crisis in 1973. It was these pipelines that would later give Germany access to Norwegian oil and Russian gas.
The importance of energy had still not hit home to economists in Germany and in many other countries. When coal was readily available and steel mills seemed to be the primary driver of a nation’s economy, few foresaw that the price of oil or electricity would steer the future.
By the time that Merkel left office and Olaf Scholz became Chancellor, it was clear that a new economic model — based on information, data, and the service sectors — was much more influential than many business leaders in Germany expected it to be.
The woes and travails of the German macroeconomy over the last decade have been this: how to sustain its role as a global leader in manufacturing, and yet additionally assume a role as a leader in software, cybertechnology, and venture capitalism.This, according to Wolfgang Münchau, is the challenge for Germany in the second quarter of the twenty-first century.
