Germany What surprises you about the economic development of your country?

What factors do you believe were most important to its successful economic development? How has it done more recently? Which factors from its history do you believe are most salient today in explaining its economy? What surprises you or strikes you as distinctive about German capitalism? Why? (one or two points) My impression of Germany was of an authoritarian state that places quality and discipline above everything else. All of my impression proved true except the first part: Germany is not at all an authoritarian state. What surprises me the most about Germany is that it has been through almost every kind of leadership, ranging from the totalitarianism of Hitler to the Democracy under the Weimar Republic, and yet has managed to recover through sheer discipline and determination. The most important factor in Germanys situation, which distinguishes it from the other capitalist nations, is the stolid push for overall welfare. Germany may allow for businesses to set up and be run, but not without strong controls and organisations to ensure certain standards of labour treatment, quality and ethics. Germany, despite being a large democracy, constitutes a welfare state, where private interests can be pursued but only insofar as they benefit the economy as a whole. The formation of cartels, apart from under the Hitler regime, has always been allowed to create some control over pricing and form togetherness amongst companies, not out of affection, but out of a need for support. These cartels are different and more beneficial than a trust (as is allowed in the American economy) because all member companies retain their individual identities and therefore remain heterogeneous, making the decision-making also diverse and fair.

The scattered policies of the many monarchies, regions and republics that formed Germany in 1871 did not deter the country from economic progress in the form of the Zollverein customs union. A free incorporation law was passed in 1870, at a time of economic boom. The craft tradition preserved the Mittlestand of the country and thus, manufacturing continued to be extremely strong. Furthermore, Germany already had the theory of compulsory education for children (6-13 years) in place by the end of the 18th century while Britain only caught on in the 19th. It made such a massive emphasis on skills and education, especially in Physics, Chemistry and Math, that, in 1872, it had more undergraduate research chemists from the University of Munich alone than the whole of the UK. Education, according to me, is a longterm investment that only visionaries understand, because they know it yields gloriously high returns in the future. Finally, there was a formation of associations regarding Labour, Commerce, Cartels and many others much before they formed or were even considered necessary in most other countries. Every one of these developments reveal one thing: Germany was far ahead of its time, knowingly or unknowingly. I believe the most striking aspect of German capitalism is that it has made itself worthy of mention. After losing the 2 most widespread wars of history, the Third Reich Regime and being a part of the EU during the 2008 Financial Crisis, Germany has emerged as one of the leading nations in the world. I dont think any other nation could have emerged even half as successful.

1797 1806 1815 1834 1844 1850 1861 1866 1870 1872 1876 1887 1891 1895 1897

Free trade fails in Prussia

Conquest of central Europe by Napolean

Napoleon's defeat at Waterloo, Congress of Vienna

Zollverein, a free-trade area, founded and led by Prussia

Tariffs used to protect domestic manufacturers of iron and steel

National Network of railroads instituted

Unified commerical code ratified by Zollverein

Prussia war with Austria, Prussia wins Bismarck causes Prussia war with France, Prussia wins Deutsche Bank formed Free incorporation law University of Munich alone has more graduate research chemists than all of the UK Prussian Bank transformed into Reichsbank, Germany's Central Bank Reichsmark becomes offical currency of the empire Werner Siemens founds the Federal Institue of Physics and Technology

Worker Protection Laws inserted into trade regulations

Wurttemberg shows explosive growth in industrial employment

Legality of cartels upheld by Imperial Court Daimler starts building aircraft engines Founding of the Max Planck Society 75% of Prussian revenue is drawn from entrepreneurial tax Germany assumes its place as one of the leading exporters Germany manufactured just over 17000 vehicles, US manufactures 460000 Germany has the largest organised socialist party in the world

1911
1913 1914

1916 1918 1919 1920 1921 1922 1923 1925 1926 1928 1932-33 1936 1938 1941 1942 1945 1947

Hindenberg Program and Auxiliary Service Law passed Battle of Materiel German business system begins to act under a command economy Shocking military defeat, monarchy collapses First fully democratic parliament in Germany elected - the Weimar Republic Treaty of Versailles smacks German Economy Factory Council law allows workers to sit in supervisory board meetings 'Trusts' begin to appear, eg. IG Farben Traingular system of debt payment Finance Minister Mathias Erzberg killed for failing to stabilise finances Hyperinflation of Reichsmark begins Foreign Minister Walter Rathenau killed for complying with reparation demands Hitler attempts Putsch on Munich, fails and is jailed, where he began to write Mein Kampf Rentenmark introduced, ended hyperinflation overnight War reparations must be paid and sovereignty lost till now Adam Opel introduces American-style manufacturing in cars Most important international cartel is in steel industry between GFBelLuxCze German GDP finally passes 1913 level Exports begin to slow Unemployment rises to 33% Hitler appointed Chancellor- Jan 30, 1933 Summer, 1933- Germany becomes a one-party state Four-Year Plan of militarisation under Hermann Goring begins Discrimination has been made legal, Aryanisation laws 'Jewish' companies ineligible for government contracts Jews completely excluded from economic life Crystal Night Krupp says no consistent business was possible under Nazi, followed orders Albert Speer appointed as Minister of Armaments, Nazi Germany even more murderous Not one VW car delivered although many people had made payments over many years Allied troops triumph, liberate camps Marshall Plan announced

1950 1955 1957 196667 1971 1976 1986 1989

Even before this, German companies had less middle management, flatter hierarchies and less bureaucracy than American compnies BDI and BDA created

West Germany joins NATO, permitted to rearm

Deutsche Bundesbank becomes fully autonomous central bank Universal Banks fully reestablished Act against Restraints on Competition, Federal Cartel Office Economic downturn quickly overcome Magna Carta of managed growth, the Law for Promoting Growth and Stability in the Economy is passed

Germany Becomes a centralised state.

Codetermination Act passed

Federal Environment Ministry created, blue angel seal becomes commonplace

Fall of the Berlin Wall

Wedgwood What do you think, of all his accomplishments, was Wedgwoods most significant, and why? What is particularly remarkable about Josiah Wedgwoods business achievement? What are the contexts in which Wedgwoods business was developed? Englands state of development? Public policy toward business? State of the markets? Ideologies of economics/business/trade? Other? In the time he was attempting to do business, the way in which he made pricing skimming earn him up to an outstanding 5691 in profit is, even by modern standards, brilliant. 18th century England was, by far, not an excessively affluent era, in which there were many people having the real income to spend and consume ostentatiously. As stated in the book, in 1688, the wealthiest 10% of society received 44% of the income. The bottom 40% of people received only 10-11% of the national generated income. Furthermore, the people of the time were just brushing off the remnants of the previous era, when spending on goods that constituted more than ones subsistence was considered a sin. Therefore, based on the bare facts of the 18th century, one could never imagine that highpricing a product, to symbolise high quality and to attract frivolous customers, and consequentially lowering the price to increase market share, could ever work. Indeed, maybe without Wedgwoods other measures, this pricing strategy would have crashed and burned. But Wedgwood was a visionary and moreover, he considered the psychological aspects of customers. He considered the image a customer formed of a product and how this affected their consumption and spending patterns. And all this before psychology even emerged as a separate discipline in the late 1800s. He integrated celebrity endorsement and branding into his creations to justify the high prices and thus, he managed to sell his wares and maintain his

popularity in the pottery industry despite selling at prices that were always above the industry average. That being said, Josiah Wedgwoods overall achievements in the pottery industry and in business in general are outstanding, particularly due to the context he operated in. Today, if a factory-owner implements a strict policy of cleanliness and hygiene, along with a clocking-in system to ensure worker discipline; he is simply following the multitude of laws enforced by the government. Wedgwood implemented these policies not because of laws, but because he realised a motivated workforce, one which worked in better conditions and were appreciated for maintaining discipline, but at the same time, were kept under strict conditions and supervision, would directly increase the output levels and quality of production. The workers may not have appreciated it at the time (probably because no one really appreciates rules and regulation until they are reminded of what living under anarchy is like) but it is now an accepted and, in fact, sought for condition of a workplace. Britain was the land that pioneered the first industrial movement, but it often fell into slumps of domestic sluggishness, which threatened to become prolonged until some innovation got it moving again. Most companies would succumb to the economic pressures and adopt standard procedures to wait out the stagnation. What was revolutionary about Wedgwood was that he did not allow this external influence to hinder him from his goal of prosperity. Instead, if the domestic market became stagnant, as it did in 1771, he took matters into his own hands and began inertia selling. He was a real entrepreneur, in the true sense of the word, because he took calculated risks and reaped the rewards. In the context he worked in, marketing was a word that no one had yet coined or paid attention to. Goods were sold and bought depending on the demand. This demand was influenced by the weather, fashion, the whims and fancies of the nobility and/or the external

affairs, i.e. factors that were beyond the control of any business. Wedgwood, however, devised a way of fulfilling hidden demand. By understanding that the middling class always sought to better themselves, he began to offer a way in which they supposedly could: by buying pottery that was endorsed by celebrities and nobility. His display in 1774 of the 952piece 50-person dinner set, commissioned by Catherine of Great Russia, was a prime example of this. He publicised these endorsements, while other potters could not see the advantages of this until much later on. Nowadays, using Kelly Clarkson to advertise a product, such as ProActiv, is a common strategy employed by companies, because everyone knows her large fan base will blindly buy anything she endorses, thus a company can immediately grab customers through her support. This method is a documented theory that has proven its worth throughout business history. What was visionary about Wedgwood was that he had this realisation on his own and pioneered this revolutionary marketing technique. And it still works. Finally, it appears that common economics terminology was yet to be initiated into business activities. While companies in 18th century England faced the effects of variable and fixed costs every day, the ways to manipulate these costs (i.e. reduce fixed costs by maximising production etc.) were not commonly known and not acknowledged. Wedgwood proved once again to go against the grain by understanding that there were costs he incurred no matter what level of production he undertook. By comprehending this, he was able to ensure the minimum fixed cost by maximising production. He also understood the ill effects of producing over-capacity, particularly in late 1769, when Wedgwood &Bentley faced a huge surge in demand for vases. Instead of accepting his observations as things beyond his control, Wedgwood ensured he understood what was happening and how he could control it the next time.

What Josiah Wedgwood envisioned in his time was beyond his years and, apparently, beyond his century. He managed to make premium pottery a new craze and managed to create one of the few pioneering capitalist companies in the world, without really understanding how significant he actually was

IBM Why do you think IBM declined from its position of dominance in the computer industry? (Why do you think it lost its competitive position in the personal computer industry?) How did the US government help and hurt IBMs development and do you believe it was a sound business decision to move forward with its 360 program? I was highly impressed by IBMs initial size and decisions. Capturing 62% of Americas 92% share of the world market is an accomplishment to be reckoned with. Furthermore, the decisions taken by Thomas J. Watson Senior (TJ) towards employee welfare were revolutionary. But the initiatives of IBM, according to me, were a series of right-time-rightplace scenarios. Obviously, IBM and its executives were partly responsible for achieving their success and even contributed towards being in that perfect place at the perfect time, but I think, if the circumstances were different, they would not have reached their astronomical heights. IBM was a first-mover in many things: firstly, in taking care of employee welfare, even in tumultuous times such as the Great Depression, in including customer service and all-round services within the price of their products and finally, in developing and spending huge amounts on technological research. These were great developments but they occurred in slow-moving times. IBM was rising in decades of technological deficiency, where data was being stored in paper files, computers were things from sci-fi movies and machines were used only in industry or by the government. Unlike the innovation required in recent times, IBM had air to breathe and space to move around in. Harnessing this potential market was a matter of seeing the opportunity. For that, obviously, IBM should be applauded because they grabbed a ready and potentially prosperous opportunity. However, IBM reminds me of Kodak, Motorola, Sony Watches, DuMont televisions, Ford and those other previously

household names: they all had the first mover disadvantage. According to me, this is why IBM declined and why, upon Tom Jr.s death in 1993, it appeared in such a dismal condition. IBM faced all of the following circumstances: it had to constantly fight new entrants who learnt from their mistakes and rode on their success. The example of the plug-in manufacturers illustrates this: after spending over $5 billion on the System/360 research, other companies simply caught on and made their fortunes by following IBM announcements. Secondly, IBM had to innovate in a market that was quite nascent and little understood at the time. To try to make a computer for both business and household-use was a far-fetched dream, but IBM faced the risk of trying to realise this dream when no one else could. Japanese companies, however, entered this industry much after these crawling initial stages and came when the industry was already running full steam ahead. They simply had to introduce the latest models of an existing technology for a ready bulk of consumers. IBM had to create this base of consumers. Thirdly, IBM was a strong company with an even stronger corporate culture. Despite the reorganisation (or rather, organisation) of Tom Jr, IBM still held a trademark corporate culture. For a long time, TJ refused to give up the punch-card manufacturing and in fact, he refused to even enter into the computer industry. He refused to partner with Xerox when offered and thus, despite being an excellent harnesser of opportunities before, could no longer see such obvious jackpots through the cloud of IBM success. The last reason for the IBM decline is one which is common but, in the end, the most obvious and potent: the failure to innovate towards customer needs. IBM was the leader in investments in R&D in the 1970s and continues to invest large amounts in this research. The only factor which stops it from sustaining its previous success is that, while IBM remained incumbent in their almost-monopolised industry, its competitors worked towards creating products that could replace the IBM standards. The giant was then bombarded with new and

brilliant products from companies that were young, with executives who knew the customers of the 21st century. IBM continued to innovate, introducing a variety of products, but none satisfied the customers for long. One can, thus, compare IBM to a grandfather, who is wise but sometimes may not understand his grandkids due to the generation gap. The Japanese and other companies that overtook IBM are the same grandkids teenage friends. That being said, I think that given the amount of resistance IBM had to face during its rise to power, it has set an example for crisis management. The US government, despite giving business to IBM during times of crisis, also created many crises for IBM. While IBM rose to power through mostly legitimate means and sheer supremacy in computer manufacture, the US government punished it for achieving its success, through numerous antitrust lawsuits. It has been claimed that the government won 90% of the antitrust cases. This must have cost IBM heavily. One could argue that it is a governments duty to protect consumers from dangerous monopolies, that may reduce variety and increase prices, but it was never the customers that complained. It was the small businesses which couldnt make a dent in IBMs armour. Thus, IBM was faced with lawsuits alleging it of eliminating competition purposely, climaxing in the 1969 lawsuit that cost IBM millions in negotiation and defence. I believe the US government was indiscriminately trying to hamper big businesses even though, most of the time; they were big only because customers and employees respected the company. However, despite all these deterrents, IBM emerged successful, even after going through both World Wars and the Great Depression, primarily because of the US government. IBMs business was such that their services were needed by the government and military even more when the country was floundering. Information and data storage was needed by the Census Bureau and Military Headquarters irrespective of the political and economic conditions of the US. Thus, the government provided one of the most stable and largest sources of income for IBM.

Amongst all of this turmoil vs. stability in IBM, the System/360 research began in 1960 at three times their revenue at the time. In hindsight, I can say that I would too invest in the research. But, if I consider doing the same thing right now, i.e. invest such a huge amount that the result can only be all-or-nothing, Id probably not be bold enough to go ahead. Records of business failures and bad decisions would deter any business from putting all their eggs in one basket. Thus, I believe for any business to want to be profitable and remain for a long time, System/360 was not a sound decision. IBM was simply lucky and intuitive to have reaped the benefits of the massive amount of research. If they had taken the same decision in 2000, they would have fallen flat and filed for bankruptcy. That being said, however, IBM was a visionary company at the time. Its aim was not to remain better than its competitors but to set an entirely different standard. It aimed for supremacy. To reach supremacy, taking high-risk and seemingly foolhardy decisions is the only way of doing something unique. It must have seemed like itd be better to die than come in second. With this mind-set, System/360 was the only way to go. In conclusion, IBM has had great ups and a few downs. IBM failed in the personal computer market but it did not allow this to affect its other sectors. By cutting off this gangrenous limb, IBM has flourished particularly in software and international partnerships. The IT world knows IBM as a force to be reckoned with and a company that would be an honour to work with. IBM, according to me, is a humble company that may not be the superpower it once was but, with a net income of $29.3 billion in 2012, more than a hundred years later, it is still standing strong.