Martindale Retrospectives 5 June 2025 Retrospective on Garrett Carpenter, “The Effect of Germany’s Social Market Economy on Competitiveness” from A Unified Germany in Federal Europe Perspectives on Business and Economics, Volume 14, 1996 Garrett Carpenter ‘96 is the Managing Director, Global Head Leveraged Finance & Capital Markets at Nomura. This article discusses the structure of Germany’s “social market” economy and its implications for the country's international competitiveness. Carpenter highlights that Germany must adapt to the quickly changing international landscape to maintain its competitive edge. Has Germany found success in keeping up with technological changes? Carpenter states that the German economy will need to become more flexible to adapt to competitive markets in the Information Age. Germany has long been known for its success in manufacturing and engineering. The country has been a trailblazer in the manufacturing sector, particularly in automobiles. However, the country has been slow in adapting to technological change. For example, “Germany is nowhere when it comes to exploiting the possibilities of AI. The US and the UK have 5.22 AI startups for each 100,000 inhabitants; Germany has 1.9.” (Elliot, 2024). If Germany wants to preserve its international position as a successful economy , it must keep up with developments in AI and technology. Some German corporations have been fragmented in their integration of new AI and technologies, particularly in the manufacturing sector. The OCED’s Artificial Intelligence Review of Germany attributes this slow adoption to “various factors that range from industry-specific challenges to broader economic and policy environments. Like many countries, Germany faces an AI skills bottleneck” (OECD, 2024), which can also be attributed to a lack of skilled human capital. Relative to the rest of Europe, however, Germany seems to be ahead of the curve. In 2018, the country became one of the first countries to adopt a national AI strategy and has since dedicated more than one billion euros towards AI and technology development. Does Germany have a good competitive advantage in the international market? Yes. As of 2024, Germany is the third largest economy in the world, with approximately $4.59 trillion in GDP. Today, the German economy focuses largely on its engineering, automotive, chemical, and pharmaceutical industries. The country enjoys a competitive advantage from its skilled labor force and commitment to fostering innovation. The “social market” economy employs a considerable amount of government regulation and social welfare programs. This economic strategy contributes to stability and low levels of unemployment in Germany. At the time of the Perspectives article in 1996, Carpenter cited the unemployment rate as 11%. As of July 2024, the adjusted unemployment rate in Germany was 3.4% (Statistische…, 2024), which is a desirable rate for a successful economy. Carpenter also cited high taxes (44%) as a disadvantage in the international market. Today, Germany continues to follow a progressive tax system, ranging from 0-45% based on income. These high taxes correlate with the social market economy, which focuses on social programs funded by taxpayers. References Elliot, L. (2024, September 1). The German problem? It’s an analogue country in a digital world. The Guardian. OECD (2024), OECD Artificial Intelligence Review of Germany, OECD Publishing. https:// doi.org/10.1787/609808d6-en Statistische Bundesamt. (2024, 30 August). Employment Down Slightly in August 2024. Retrospective by Randi Conroy ‘25 Finance, with mass communication minor
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