Introduction

The German economy is the fourth-largest by nominal GDP in the world, and fifth by GDP, in 2017, according to the IMF, Germany accounted for 28% of the economy of the euro area.

It is also one of the largest exporters globally, and in 2017 it recorded the highest trade surplus in the world with $296.6 billion, and the third in the world as export volume, with $1401 billion worth of goods and services exported.

The service sector is the most relevant, in fact, it contributes to around 70% of the total GDP, while the industrial sector, which is the largest in Europe, accounts for 29.1%, and the agricultural sector for 0.9%.

In addition, is important to note the relevance of foreign markets for the commercialization of German products, with exports that account for 41% of national output.

The top 10 most exported products are vehicles, machinery, chemical goods, electronic products, electrical equipment, pharmaceuticals, transport equipment, food products, and rubber and plastic.

Fossil fuels are the main source of energy in Germany, followed in order by wind, nuclear power, gas, solar, biomass and hydro. However, it is the first major industrialized nation that decided to commit to the renewable energy transition (Energiewende), which should lead the country to a transition toward a new system that will rely heavily on renewable energy, increasing energy efficiency, and focusing on energy demand management.


The social market economy

The economic system that characterizes Germany is that of the social market economy (SOME), also called Rhine capitalism or social capitalism, a socioeconomic model that has a unique feature, it has been able to successfully combine factors that usually tend to be considered impossible to conciliate.

In detail, with the social market economy, we see the presence of a complex and comprehensive system of social policies into a free market capitalist economic system, therefore ensuring both fair competition within the market and a developed welfare state that enhances the living standard of the population.

Initially, it has been promoted in 1949 by the Christian Democratic Union (CDU) in West Germany, with an initial conceptual architecture of the social market economy that was highly influenced by certain key events and situations that have influenced German history from a socio-political point of view.

In detail, Germany’s preoccupation with the social question since the late 19th century, the criticism of liberal capitalism triggered by the world economic crisis of the early 1930s and a pronounced anti-totalitarianism as well as anti-collectivism formed by the experiences of the Third Reich.

These factors have led to the development of the social market economy in the form of a viable alternative to laissez-faire capitalism and the collectivist planned economy, by creating a combination of some characteristics of these two very different approaches.

The social market economy refrains from attempts to plan and guide production, the workforce, or sales, but it does support planned efforts to influence the economy through the organic means of a comprehensive economic policy coupled with flexible adaptation to market studies.


The social part

Even though in its name we see the word “social”, it should not be intended as a model that is strictly related to socialism, in fact, this model basically rejects key socialist ideas like the abolition of private property.

The true meaning of the “social” element that we find in its name has to be found in the support for the provision of equal opportunity and protection of those unable to enter the free market labor force because of different disadvantageous situations, like old-age or disability.

This is done by a combination of private enterprise with regulation and state intervention, in order to establish fair competition, maintaining a balance between a high rate of economic growth, low inflation, low levels of unemployment, good working conditions, social welfare, and public services.


In relation to the market

Social market economies view private markets as the most effective allocation mechanism, but they think that they can optimize its output through the conduction sound state macroeconomic management of the economy.

They suggest that, by decreasing poverty and broadening prosperity to a large middle class, capital market participation can be enlarged. Moreover, they also posit that government regulation and even sponsorship of markets can lead to superior economic outcomes.


Criticism

There are many criticisms to this model that come from different (and opposed) size, that are mainly related to the fact that the social market economy is not completely socialist, and neither completely on the capitalist side.

In fact, many socialists believe that trying to “humanize” capitalism creates an entirely new system full of contradictions, and the social market economy does too little to cure the excesses that they see in capitalism, like market fluctuations, worker exploitation, wage gaps, etc.

Many conservatives, on the other hand, criticize the social market economy for the complete opposite reason, in fact, they believe that the regulative measures put forth by proponents of Rhine Capitalism strangle economic growth. They mainly target regulations that limit investment opportunities.

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