Unit 7: From an agrarian to an industrialized country

(Alfred Pletsch)

Despite an early industrialization start, Europe was as a whole, until some 250 years ago, predominantly an agrarian society. Until the late Middle Ages this economy was even almost exclusively self subsisting. Only with the raise of the cities, surplus food was needed to feed the urban population. Very quickly agriculture became dependent on selling their products commercially. According to W. Abel, a well known economist, the drastic drop in food demand, a consequence of the Black Death, ruined thousands of peasants in Central Europe and was one of the main reasons of land abandonment in the 14th and 15th century.

But setbacks of this kind did not stop the development of commercial agriculture. More intensive land rotation systems replaced gradually the old two crop system. At the same time, the production of hand manufactured goods increased under the auspices of the gilds. Trade also became more interregional and even 'international', once the Hanseatic League (Hanse-Bund) had begun to make the Baltic Sea one of the crossroads of trade in the North, and once the Fuggers in Augsburg had established intensive trade relationships with southern European centres such as Genoa and Venice. Trade fairs developed in Frankfurt-am-Main, Leipzig and Cologne. In the 17th century a new philosophy of mercantilism emerged in Europe. It stressed trade as a way of improving well-being. At the end of the century manufacturing replaced many of the traditional cottage or household industries, such as weavers, millers and others. These cottage industries had always played an important role in Germany, where the farms had been very small and had not been able to provide a living for a family. As sideline income to agriculture, many of the peasants and their families practised these crafts to assure their survival.

Everything changed with the beginning of the Industrial Revolution, which started in England around 1730. The replacement of human hands by machines (the invention of the steam engine by James Watt started it) was the decisive setback for many traditional crafts. At the same time the industrial revolution allowed access to new resources such as coal and ore bodies, which became the fundamental basis for a totally new economy. But one has to remember that, up to the turn of the 19th century, almost 80% of the European labour force was still active in the primary sector, essentially agriculture. With the ongoing industrialization, however, the sectoral division of employment changed rapidly, as described by the French economist J. Fourastie. The percentage of active population in the primary sector declined sharply in Germany during the second half of the 19th century, going from 80% in 1850 to 43% in 1885. By 1939, only 25% were left in this sector, 1970 it was down to 8%. During the same time period, the portion employed in the secondary sector climbed from 13% in 1850 to 34% in 1884, to 41% in 1939 and reached 49 % by 1970. The tertiary sector started as low as 7% around 1850, but was up to 43% 120 years later.

Today's figures are considerably different from those in 1970. According to the Federal Statistical Office the breakdown of employment [1] for 1997 compared to 1991 was as follows:

There is, however, a substantial difference between "East" and "West" Germany in manufacturing employment. East German manufacturing has been devastated since unification. Comparisons to other industrialized countries of the western world reveal that Germany has followed the general change in employment trend. Agriculture [3] plays a minor role in its present economy, with less than three percent of the employed population working directly in agriculture. It should be mentioned, however, that about 10 % of the GDP is generated directly and indirectly by this sector. It also implies high productivity in agricultural production [4].

But German agriculture has many handicaps. A major problem is the relatively small farms [5]. The average size was only 23.6 hectares in 1997. Too small to make a good living from. Here again, the past created a heavy burden. Especially the inheritance laws, in use for hundreds of years, atomized in some regions the farm holdings to extremely little units, many of which had less than 5 hectares of land. The principle of these laws was to subdivide a farm according to the number of children a family had. To give all of them an equal share, the land was frequently subdivided accordingly. Almost 30% of all farm holdings in German today are 'less than 5 hectares' in size. Land consolidation was implemented to restructure the rural scattered land pattern into bigger farming units, and thereby eliminating too small non viable units. Farms with more than 100 hectares are still the exception, at least in the western Laender [6] (only 2.8%). In the eastern Laender, the percentage in this size class is almost 10 times as high [7] (26.4% in 1997). The reason is the socialist land reform heritage during GDR times which had created large communal farm operations.

The share of employment in the secondary sector in Germany is still relatively high in comparison to other industrialized countries. Manufacturing has been seen as the stronghold of the economy for the last 200 years. The 'made in Germany' label has become a strong trademark, and is especially valued by politicians. In recent years, Germany has tried to protect its industry through heavy subsidisations. Despite this, unemployment [8] rates in this sector have increased substantially since the steel and oil crisis in the early 1970s. Very serious unemployment problems have arisen with reunification, especially in the new Laender. Even though one of the most viable economies in socialist times, East Germany's industry has proven to be unable to compete in the highly developed western market economy. Productivity is much lower than in the West, in large part due to poor infrastructure and dated equipment. A good indicator of low productivity is the average GDP [9] which was, in 1997, 48,300 marks in the old and only 27,400 in the new Laender.

The traditional strength of Germany's industry have been heavy industry and manufacturing. One of its shortcomings, however, is the limited mineral resources base. Many raw materials have to be imported, such as iron ore, oil and natural gas. The extraction of the formerly rich coal deposits in the Ruhr region has also declined because of high costs of production. Ruhrkohle AG [10], the leading coal mining company of the Ruhr region in the past, has become a highly modernized mining company in order to meet new economic competitive challenges. The region, once considered as the powerhouse of Europe, has undergone major changes [11] during the last decades and is now recovering. The strongest industrial sector is Germany's automobile industry. Firms like Mercedes [12], BMW [13], Volkswagen [14] and others have excellent worldwide reputations. In fact, Germany is the third largest car producer after the United States and Japan. Recent mergers (VW and Rolls Royce, Mercedes and Chrysler) demonstrate the movement into the international dimension of this sector. Other significant sectors are the chemical [15] and the electronical [16] industries. New high tech industries have developed especially in growing southern urban areas, such as Stuttgart and Munich.

The broad range of services provided by the German economy can only be shortly mentioned. A long standing tradition of a high level of domestic [17] and international trade [18] is very important to Germany's strong specialized economy and its centralized location within Europe. Its modern means of transportation and communication structures help in these endeavors. Tourism [19] is another important sector, especially in southern Germany. Here the very scenic landscapes like the Alps and the Black Forest [20] and many famous castles, such as the Disneyland like Neuschwanstein [21] near Fuessen, are some of the most frequently visited sites in all of Germany.