An economic dwarf. So what?
#371
Friend of Democracy,
Do you think that Germany is a strong economic power?
If so, then you probably think like many Germans.
There isn't a single speech by the Chancellor to business representatives that doesn't emphasise this (here is the latest).
I wonder why.
Perhaps many people need such conviction.
And if it's not military strength (for which there were good reasons in Germany for a long time), then at least economic strength.
People just like to be powerful.
But what does this strength actually look like?
At first glance, it appears great. After the USA and China, Germany is the country with the largest economic output.
But this impression is deceptive.
The USA has a gross domestic product (GDP) share of 27 per cent of global GDP, and China has a 17 per cent share. Germany's share is only 4.3 per cent and is hardly different from that of the countries that follow. France, for example, in seventh place, has a share of 2.9 per cent.
This impression is put into perspective even more when economic performance is not standardised to a single currency, usually the US dollar, but instead compared to purchasing power parities.
Purchasing Power Parities are exchange rates that equalise the purchasing power of different currencies by eliminating the differences in price levels between countries.
Sounds complicated. Is a bit complicated.
In a nutshell:
The main objective of purchasing power parities is to convert macroeconomic variables (e.g. gross domestic product) into a single currency. How do you do this? Regarding the gross domestic product, economists look at the cost of a single “basket” of goods and services in each country. The same basket for every country. The prices of this basket are then used as the basis for calculating the exchange rate.
What is important here is the advantage of this method. It compares the quantity of goods and services actually produced in a country.
Lower-income countries tend to offer higher purchasing power due to low domestic prices. Consequently, an analysis based on purchasing power parities reduces the differences between richer and poorer economies.
From this perspective, China is the largest economy, accounting for 19 per cent of global GDP, surpassing the USA. Germany is no longer in third place but only in sixth, and its share of the global economy has fallen from 4.3 per cent to 3.2 per cent. In terms of purchasing power, India is much larger than Germany, but Russia and Japan are also slightly ahead.
Conclusion: Germany is a dwarf on the global economic stage. A shrinking dwarf. Because by 2045, its share is forecast to fall below 2 per cent.
Why this development?
Because the world population has been growing fast. It quadrupled since the First World War (while in Germany, at the same time, it rose from 66 to just 84 million people). And because just over 100 years ago, Germany was already one of the most economically developed countries in the world, much like it is today. However, back then, only a small part of the world was anywhere near as modern as Germany. That has changed. Luckily. Today, many countries, especially those in East Asia, have caught up completely, and they have grown stronger than Germany. Because they came from a low base.
The overall effect has been that Germany's share of the global economy has decreased, despite its economic success.
Why am I mentioning all this here?
Because this development is barely noticed in Germany, I assume. And where it is noticed, it is exploited by populists and extremists.
First of all, why does this misperception exist? Why do Germans believe their country is a relevant economic power?
Perhaps because things used to be different.
Before the First World War, Germany was a rapidly and strongly emerging economy with modern infrastructure, relatively good education, and excellent research. The country had reached its peak of global economic importance with the founding of the German Empire in 1871. Before the First World War, Germany's share of the global economy, calculated in purchasing power, was 8.7 per cent. Compared to current figures of just over 3 per cent, Germany was about three times larger at its peak of economic importance.
As I said, that was a long time ago.
Whenever this topic arises today, there is a certain disappointment about the country's declining global economic significance. Populists try to score points with this. They can then tell their narrative that Germany has been going downhill in recent years.
This is false on several levels.
First, this development is not, as I have described, new. Second, it is of little relevance because states do not need to have a large share of the global economy to be a prosperous country (think of Switzerland). Third, and most importantly, where size matters, such as in the enforcement of trade policy rules, Germany, as part of the European Union, has the opportunity to contribute and assert its interests. Different what populists and extremists often demand, this does not require a return to the nation-state.
On the contrary. It needs democratic states to join forces to represent common interests.
See you in Democracy,
Johannes Eber
sources:
http://databank.worldbank.org/source/world-development-indicators