Germany

THE ECONOMY OF contemporary Germany, Eu-rope's most populous nation at around 83 million inhabitants, is the largest in Europe and ranks fifth largest in the world. In the early modern period, from around 1500 to 1800, Germany was a relatively backward country when compared to the other developed nations of the Western world. But as a result of economic modernization and unification in the latter half of the 19th century, Germany leapfrogged into third place as an industrial giant, ranking just behind the United States and Great Britain by the start of World War I. The devastation caused by the two world wars set Germany back.

Its eastern half, under Soviet control, languished with the rest of the communist command economies from 1949 to 1989. West Germany rose from the ashes of war to be a leading economic, though not military, power from the late 1950s onward. West Germany [Page 426]adapted competitive capitalism with government-tar-geted support to key industries. The government created large social programs that provided an economic safety net for most of its citizens.

The two Germanys were united in 1990. The new federal republic has had to invest billions of dollars per year to modernize the outdated infrastructure of the east, create jobs and protect its citizens from social dislocation (the average annual transfer is currently about 70 billion euros). As a result, the 1990s were turbulent times in the economic life of Germany, with persistent high unemployment and low growth. The government has had to cut back on some of the generous welfare benefits that were common under the old federal republic.

As a result, the number of people who have fallen below the poverty line has risen. When speaking about poverty in a rich, advanced nation, however, one must frame the issue in comparative, not static, terms. Germany is still a very wealthy country, but one that is struggling with problems left over from unification and because of birth pains related to the new, enlarged European Economic Union.

Poverty should always be defined in relative terms. In so-called underdeveloped countries (for example in Asia and sub-Saharan Africa), poverty might mean lacking in livestock or farm equipment to grow food, adequate housing, access to medical care, or having to make children work, or even selling them to make ends meet. Poverty in this context can translate into conditions of chronic poor health, disease, and even death. By this definition, virtually nobody in Germany could be considered poor.

In a rich nation, by contrast, economists try to define a poverty line, which means an annual income below which a family has a lower standard of living relative to the majority in the society. This means worse food, housing, medical care, and enjoyment of life than others, but does not mean poverty in the life-threaten-ing sense that citizens of underdeveloped nations may experience.

Even inside advanced economies, absolute and relative poverty must be distinguished. Economists refer to absolute measures of poverty as a comparison between household income and the cost of a basket of specific goods and services, while relative poverty measures compare the spending patterns of households or individuals with the spending patterns of the general population.

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