Germany’s economic development was based on an alliance of industrial business people with the Prussian aristocracy who controlled much of the land. It emphasized the production of coal and steel, machines and machine tools, chemicals, electronic equipment, ships, and, later, motor vehicles. Well-organized business, labor, and farm associations in league with the government produced a distinctive “organized capitalism,” different from the less regulated capitalism of Britain and the United States. This strong economy carried the country into two world wars and, despite Allied bombing from 1942 to 1945, survived largely intact. After World War II ended in 1945, the Western powers saw the need to build up European economies in order to resist the threatened encroachment of the Soviet Union and Communism. To this end, the U.S. government in 1947 initiated the European Recovery Program, commonly called the Marshall Plan, which offered generous investment loans to all European countries that had been devastated by the war. Under the stewardship of economics minister Ludwig Erhard, the Marshall Plan helped launch a 20-year economic expansion in West Germany that raised living standards and industrial production far above prewar levels.
West Germany's economic achievement was impressive; the gross national product (GNP) rose by 8 percent per year from 1951 to 1961, or at a per capita rate double that of Britain or the United States and nearly double that of France. At the same time exports trebled. This period of exceptional growth was undoubtedly an outstanding event in the economic history of both West Germany and Europe. Yet the postwar advance of the West German economy did not follow an unbroken line; there were occasional checks, as, for example, the one following the oil crisis of 1973–74. However, the upward trend was always resumed. At the moment of economic unification on July 1, 1990, the economy was riding high on a cycle of business expansion that had lasted since the early 1980s. West Germany's gross domestic product (GDP) had increased at current prices by more than 70 percent since 1983; it was by far the highest of all the 12 EC countries, constituting one-quarter of the community's total. The country ranked fourth in the world for GDP, following the United States, Japan, and the U.S.S.R., and it was a leader in world trade. All this was achieved while maintaining the customarily low rate of inflation. West Germany was thus well prepared to sustain the economic shocks of unification with the much weaker economy of former East Germany, even though these proved to be considerably more severe than anticipated.
Germany possesses the world's third most technologically powerful economy after the US and Japan, but structural market rigidities - including the substantial non-wage costs of hiring new workers - have made unemployment a long-term, not just a cyclical, problem. Germany's aging population, combined with high unemployment, has pushed social security outlays to a level exceeding contributions from workers. The modernization and integration of the eastern German economy remains a costly long-term problem, with annual transfers from western Germany amounting to roughly $70 billion. Growth picked up to 3% in 2000, largely due to recovering global demand; newly passed business and income tax cuts are expected to keep growth strong in 2001. Corporate restructuring and growing capital markets are transforming the German economy to meet the challenges of European economic integration and globalization in general.
