Since 2008, the year of the global financial crisis, German capitalism has been showing clear signs of the contradictions that have been running through it for decades, revealing the instability of a seemingly solid system. Beneath the surface of efficiency, productivity, and stability lie historical tensions, regional divisions, and social and economic imbalances that are rooted in the structure of the German nation-state and the way its capitalism has developed since the second half of the 19th century.

The stages of this trajectory begin with the unification of 1871, pass through the East-West division after 1945, and arrive at the current phase of German capitalism in its effort to expand, adapt, and resist crises.

Until unification, which formally took place in 1871 following Prussia’s victory in the war against France, fragmentation into multiple political regimes (constitutional monarchies, principalities, free cities) had hindered the development of a national capitalist economy. The Customs Union (Zollverein) and the expansion of the railway network were the first steps, but it was only after unification that the German industrial revolution could be said to have begun.

In just a few decades, Germany made an exceptional leap forward: industry came to account for almost 48% of GDP, compared with 30% in 1871; per capita GDP doubled between 1871 and 1913; steel production reached 17.6 million tons, second only to the United States, and far exceeded France (4.6) and the United Kingdom (7.7); in chemicals (dyes, fertilizers, drugs, explosives), Germany dominated the global market with companies such as BASF, Bayer, and Hoechst. The railway sector, heavy engineering, and machine tool production were pillars of the national economy. Siemens and AEG led innovation in electrical and industrial engineering.

In this rapid development, the German industrial bourgeoisie strengthened its economic power, but remained politically subordinate to the conservative landed aristocracy.

The urban proletariat grew in numbers and organization, but remained heavily exploited. The industrial cities saw the birth of the first socialist and trade union movements, while the countryside continued to be dominated by backward social relations. The development of German capitalism was therefore based from its origins on a tension between economic acceleration and political stagnation, between productive modernity and institutional conservatism.

By 1913, imperial Germany had already established itself as the industrial heart of continental Europe. This dynamism was the basis for competition with the European colonial powers.

During the First World War, the entire industrial apparatus was converted to the war effort. Civilian production collapsed while public spending soared.

In the years that followed, amid rampant inflation and political instability, the Weimar Republic began reconstruction with American support (the Dawes Plan), but the crisis of 1929 brought the economy to its knees. With over 6 million unemployed in 1932, discontent spread and industrialists increasingly supported the Nazi party.

The Third Reich revived industry through rearmament: military spending rose from RM 1.9 billion in 1933 to RM 15.5 billion in 1938; employment was boosted (with unemployment at 2% in 1939).

After its defeat in the war, Germany was one of the victims of the new division of the world into blocs. In 1949, the partition of Europe between the victorious powers led to the creation of two German states: the Federal Republic, subservient to the US and openly capitalist, with its capital in Bonn, and the Democratic Republic, subservient to Russia, falsely socialist, with its capital in East Berlin.

The reconstruction process was very different in the two countries. West Germany was able to count on enormous support from the Marshall Plan: it received around $1.4 billion between 1948 and 1952, mainly for industry and infrastructure modernization. Thanks to this initial boost and the still partially intact productive structure (especially in the south and west), the so-called Wirtschaftswunder, or “economic miracle,” began.

During the 1950s and 1960s, the FRG experienced extraordinary growth rates, with GDP growing by an average of 7-8% per year until 1966, while unemployment fell from 11% to 1.2% in the decade 1950-60, with nearly 7 million war dead.

German industry became heavily export-oriented. Cars (Volkswagen, Mercedes-Benz, BMW), machine tools, chemicals, and pharmaceuticals placed the FRG at the forefront of global manufacturing. This development was accompanied by a strengthening of the regime’s trade unions and a system of co-management (Mitbestimmung) whereby workers were led to believe that they could influence certain company decisions.

East Germany followed a very different path. The GDR adopted a supposedly planned economy, inspired by Russian state capitalism. The main industries were nationalized between 1946 and 1948, giving rise to the so-called Volkseigener Betrieb (VEB), the “people’s enterprise.” Production was mainly oriented toward intermediate goods and heavy industry, while the availability of consumer goods was limited. Economic growth was stable but more modest than in the West and often hampered by structural inefficiencies.

One of the main problems for the GDR was the flight of skilled workers to West Germany: between 1949 and 1961, around 2.5 million East Germans emigrated in search of higher wages and better living conditions. The construction of the Berlin Wall in 1961 was a drastic response to this exodus.

Although the GDR had achieved remarkable levels in basic mechanics and electronics during the 1970s, it lagged behind technologically and was heavily dependent on trade with the USSR. The comparison with the FRG was uneven: in 1989, on the eve of the fall of the Wall, the GNP per capita of the GDR was less than half that of the West, and productivity was stuck at 65% of the Western level.

The fall of the Berlin Wall took place on November 8, 1989. Economic, legal, and institutional reunification took the form of an annexation of the GDR by the FRG. The East German mark was converted at a rate of 1:1 for wages and pensions (and 2:1 for savings), which was disadvantageous for East German companies. Within a few years, much of the industrial fabric of the former East Germany was dismantled or sold off to Western investors. The Treuhandanstalt, the privatization agency, managed over 14,000 companies, more than 70% of which were assigned to Western entities. Many were closed. In the eastern states, around 2.5 million jobs were lost in the 1990s alone.

The economic gap between East and West has not narrowed: per capita GDP in the East remains around 75-80% of the Western average; wages are 15-20% lower, in some cases even 25%; and young people have continued to migrate to Berlin, Hamburg, and Munich.

Since the 2000s, some areas, such as Saxony and Brandenburg, have attracted new technological investment, particularly in the electronics, renewable energy, and automotive sectors (e.g., Tesla in Grünheide). However, most of the eastern Länder are still characterized by greater dependence on the public sector, low private investment, and rural depopulation, giving rise to feelings of exclusion and post-reunification disillusionment.

After an initial slowdown in the 1990s, caused by the costs of reunification, the German economy experienced a second wave of expansion in the 2000s, driven by Chinese demand (especially in the automotive and mechanical engineering sectors), lower labor costs (Hartz reforms), and the single European currency, which favored exports.

The 2008 crisis was very deep, with industrial production falling by 25% in one year, although Germany was among the first countries to recover thanks to exports.

In 2017, manufacturing GDP reached an all-time high, but a structural slowdown began in 2018, which was then exacerbated by the pandemic and rising energy costs following the war in Ukraine.

The automotive sector is now in serious difficulty: production fell by more than 20% between 2018 and 2023; Chinese manufacturers (BYD, NIO, XPeng) are eroding market share; in 2023, the government withdrew incentives for the purchase of electric vehicles.

High energy prices have had a heavy impact on industrial costs, which are now 30-40% higher than the European average, prompting many companies to relocate. At the same time, the shortage of skilled labor and stagnant public investment are undermining future competitiveness.

Confidence in the German model is being eroded at its very foundations: labor, industry, and stability.

End of Report of May General Meeting in the Next Issue