Germany and Globalization: Promoting global integration is imperative to Germany’s economic success. Here’s what it can do on the national, the European and the international level.

What is Globalization?

Globalization is considered the worldwide increasing economic, political, social and cultural interdependence of countries and people. Economic globalization affects the international division of labor and cross-border trade in goods, services, capital, labor, technologies and knowledge.

Germany and Globalization

Like all other developed economies, Germany benefits strongly from a comprehensive integration into the global economy. This core thesis was reviewed in detail by the “Global Economic Dynamics” project in the last years, and comprehensive evidence was found to confirm it. Further integration of economies at the global or regional level will remain an important goal for economic growth policies in Germany and other OECD countries.

The decisive question here cannot be whether globalization should happen, but must focus on how globalization works. Previous remarks show that there are indeed great challenges to shaping globalization in a positive way. These include, above all

  • increasing protectionism
  • imbalances in trade balances
  • the reform of the world trade system
  • the distribution of globalization gains;
  • and greater attention to long-term trends or expected world change processes such as digitization and demographic change.

Some of these challenges can be addressed at least in part at the national level, but many require extensive and often lengthy cooperation at the international level. Unfortunately, the chances for this are not very good – neither at the moment, nor in the foreseeable future. Populist forces, often advocating antiglobalization fundamentalism, often direct the national debate exclusively towards dramatizing risks or distorting opportunities.

In this climate, protectionist forces can easily thrive and trigger a spiral of isolation – especially when the economic situation deteriorates. At the international level, the shift in the balance of power away from the actors who have traditionally advocated an ever more open world economic system is causing great uncertainty with regard to the further development of the multilateral institutional structure and alternative ideas for order, which is reflected in greater institutional fragmentation and regionalization.

In order to promote global integration in the future against these difficult circumstances, Germany could take action on three levels: the national, EU and international level.

1    What to do on the national level

Germany can use its current economic strength to better prepare itself for the coming challenges. This includes not only the continuous and unprejudiced handling of the many “known unknowns” of globalization but also, and most of all, the development of constructive suggestions for further development of the social economy. The key question here is:

  • How can the social market economy continue to offer the best possible framework conditions for the competitiveness of German companies and employees in the international division of labor in the future, while at the same time providing an adequate safety net against the risks of globalization? Or in short: How do we ensure as many globalization winners, and as few losers, as possible?

2    What to do on the EU level

At the European level, Germany can continue its efforts to stabilize the Eurozone and prevent European integration from being cut back as a result of a broad exit. Important decisions will be taken here in 2019: In the European elections in May, the nationalist forces were again strengthened; the political centre was further thinned out. Against this background, the establishment of a new European Commission, but also the appointment of a new President of the European Central Bank, is likely to prove a difficult challenge.

Despite all the wrangling for the right proportion between the nations, the development of a viable strategy for a strong Europe should not be neglected here. The Franco-German Manifesto for a Common European Industrial Policy, presented by Germany and France in February 2019 (German Ministry of the Economy 2019), is a first starting point for how the EU will position itself over the long term in its external relations, in view of the changed landscape. However, the discussion has only just begun.

3    What to do on the international level

On the international level, The EU and Germany could give most weight to constructive proposals for the further development of the world economic order. An important foundation for this is the EU speaking with one voice and acting together. This is particularly true in times when the USA is no longer a reliable partner, and China is increasingly becoming a serious competitor that does not always play by the same rules.

In this context, new pragmatic coalitions with partners who share the values and interests of the EU and Germany, as much as possible, are important. Particular attention must be paid to those countries whose importance in the international world economy will (further) increase in the future (especially Southeast Asian or African economies). They are under-represented in the current formal institutional system and are therefore most likely to have an incentive to revise it at best or to look for alternatives at worst. Particularly in view of the growing debate on the reform of the World Trade Organization, this  represents a real opportunity.