Investors and buyers looking at German property often ask the same question: what is the secret of the German economy, and what makes it so strong compared with other countries? Here is a short look at why.
The answer is not really a mystery, but Germany’s history and development took a different path from many other countries. Until around 1820–1830, Germany was still mainly an agricultural country. Skilled trades, with their own strict rules and guilds, existed mainly in towns and larger villages, and the guilds decided who could train in a trade and go on to become a master craftsman. That mattered, because a recognized master craftsman could earn a good living and rise in social standing — but guild recognition was not easy to obtain, and many people first had to work as an ordinary laborer or in lower-paid work. Moving to a new place to live was not easy either, because “Germany” as a single country did not yet exist: the German-speaking lands were a patchwork of separate principalities, and each ruler wanted to keep workers from leaving their territory.
From Trades to Industrial Power
Even so, the trades laid the groundwork for Germany’s later development. As the Industrial Revolution took hold in the 19th century, the situation changed very fast. New industries created new occupations, and the trades had to develop and open up to everyone. Competition from British-made goods pushed the young German industry to improve its quality and attention to detail. At first, “Made in Germany” was a negative label for German products; it changed quickly, and became instead a byword for high quality and durable goods. This was also the start of many new concepts and products. Germany became a unified empire in 1871, and the years before the First World War were a strong period for education, science and industrial production. Many of the achievements from that era persist today, including a widely accessible education system that let ordinary workers and young people learn a trade, detailed project standards aimed at achieving the highest quality, the creation of shared work and product standards, many new patents flowing from every scientific discovery, and new production methods that made “Made in Germany” even more popular.
Rebuilding After 1949
The two world wars did enormous damage to the German economy. West Germany had to start over from 1949 — a small, newly democratic country. That restart worked, and its brand became the concept of the “Soziale Marktwirtschaft” (social market economy): a controlled economic system in which market participants are largely free but still regulated by the state, by trade rules and by law. Everyone gained the opportunity to start a business, and the government offered substantial help through loans and other support so companies could grow. Skilled trades kept a fixed education system, including training for people who wanted to run their own business, supported by bodies such as the German Chambers of Commerce and Industry and the German Werkbund. This system of turning young people’s structured education quickly into practical application has kept evolving to this day. Germany quickly returned to being an industrial power, and as one of the EU’s member states, it operates under some of the strictest rules and standards of any of them — which in turn secures continued demand around the world for the high-quality goods this produces. German products are not cheap, but their quality and reliability are, in most cases, considerably better, which is why so many German brands enjoy a strong reputation worldwide.
Family-Owned Companies as the Backbone
History explains much of why the German economy is strong, but not all of it. Most German companies are family-owned and not listed on a stock exchange. Family firms traditionally hold a high proportion of equity, which lets owners keep capital safely in the business during good times. They are less dependent on banks and so can make long-term decisions instead of the short-term decisions many other companies are forced into. They are also very open to new ideas, which is one reason they form the backbone of the German economy — more than half of German companies are family-owned. Demand for a good part of Germany’s industrial products and services is large and stable, consistent with the ongoing pursuit of good service and high quality. Well-trained German craftspeople and their work are in demand worldwide. On top of this, Germany’s legal and bureaucratic systems are stable, secure and free of corruption.
Today, Germany is a stable country at the center of Europe and one of the EU’s strongest economies. Good infrastructure and fast transport links have helped the economy develop further. Germany is a classic exporting nation, and its well-trained workforce, producing high-quality goods, has a major effect on exports. At the same time, the domestic consumer market is also attractive, and could in part substitute for exports if needed.
A professional economist could tell you much more about what makes the German market so stable, but this short overview should give you a sense of why Germany’s economy is so strong.
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