Global Perspectives, Economic Development of U.S. Versus Germany

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HW Assignment #1 Global Perspectives Justin Kim 1/24/2012 What do you find notable about the comparative economic development of the U.S. and Germany? Compared to that of the U.S., German economic development suffered negatively due to a political system that underwent many more bouts of disruptive, radical change. Moreover, a prolonged period of war and its resulting consequences worked to undermine total productive output and delayed the establishment of a true market based economy. Prior to World War I, the German economy had primarily been driven by its export orientation and its focus on heavy industry. These capital-intensive industries were primarily financed by large “universal banks” who wielded significant influence over these large firms, with large long-term investments in key firms. Its emphasis on goods such as machinery was bolstered by its craft tradition and its scientific and engineering prowess. This craft tradition was evident in the significance of the Mittlestand in the economy. These small and medium-sized businesses, with extreme attention to quality and craftsmanship, were an expression of the German craft ethos. However, the Mittlestand would become continually pressured by the cartels and larger trade associations. The cartels played a large role in managing Germany’s economic expansion, especially in the development of heavy industry. By limiting competition within key industries, cartels helped protect producers and financiers from losses by limiting competitive activity. This protection obviously came at the detriment to consumers and small businesses, who generally ended up paying higher prices for goods. The advent of WWI, (and later, WWII) increased even further political and government involvement in the economy. In the run-up to both wars, the economic output of the country was redirected to the war effort by the

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