Capitalism in Germany: rotten to the root

German industry has been in crisis since 2018. Since then, the policies pursued during the pandemic, the energy crisis brought about by western governments’ support for the Ukraine war, and global trade wars have turned this crisis into a rapid decline of German capitalism.

[Originally published in German at derkommunist.de]

Of the G20, Germany is one of the countries with the worst forecasts for economic growth this year and next – stagnation is the best case scenario. But this alone does not show the true depth of the process of decay.

Cars, machinery and chemicals are the backbone of the German economy. Industry generates one fifth of Germany's gross value added (GVA) and employs around 16 percent of the labour force. If services used by industry, such as trade or logistics, are included, they account for almost a third of GVA.

However, industrial production has collapsed. Compared to the peak in 2017/18, production in energy-intensive industries has fallen by more than 15 percent, in energy generation it has fallen by more than 20 percent, and in the manufacturing sector as a whole it is down by around 15 percent. Incoming orders, both from Germany and abroad, have also fallen by the same amount.

Fewer cars, chemicals and machines

Over 46 percent fewer cars were produced in Germany in 2021 compared to 2016. The number of cars produced in 2023 was lower even than in the 1990s. In Europe, between three and five million fewer cars were sold each year between 2020 and 2023 than in previous years. Globally, 16 million fewer cars were sold in 2020 than in 2017 and 7 million fewer in 2023.

Costs along the entire production chain – from energy to microchips – have exploded. This has caused a slump in production, and it has also caused a slump in projected profits. Workers are expected to foot the bill, with Volkswagen announcing wage cuts, plant closures and layoffs. Other car manufacturers will follow suit.

Import prices for energy already rose massively in 2021 and are still 50 percent higher than they were in January 2021. This major energy crisis was triggered by the actions of the USA – and slavishly supported by the German capitalist class – when they plunged Ukraine into an imperialist war with Russia at the beginning of 2022, in order to weaken their rival at the cost of Ukraine.

German steel and chemical companies are no longer keeping pace with international competition on the global markets / Image: Gerd W. Zinke, Wikimedia Commons

In mid-2022, around the time that Germany's ‘allies’ blew up the Nord Stream pipeline, the price of gas shot up to almost four times its January 2021 level. Gas prices are still 15 percent higher, while the price of oil is 50 percent higher than it was in January 2021.

This has had extreme consequences for energy-intensive industries, where production has slumped by 15 percent compared to 2017. Steel production is at its lowest level since the global economic crisis of 2008. Chemical production is also being hit hard, as it requires fossil fuels both as an energy source and as raw material.

German steel and chemical companies are no longer keeping pace with international competition on the global markets, while demand has fallen with car and machine production. This has plunged German companies such as Thyssenkrupp, BASF, BayWa etc. into crisis, leading to plant closures and the laying off of thousands of workers.

Rising costs for energy and raw materials are making the production of all components of industrial goods more expensive. In addition, the massive long-term drop in production figures for cars and other finished goods is having a disastrous impact on suppliers, whose production is also collapsing. This has resulted in plant closures and redundancies at ZF, Continental, Bosch, etc.

Finally, this cascade of crises has hit mechanical engineering companies, where costs are also rising. As other industrial companies are producing significantly less, they are not buying new machines and equipment. This has led to a rise in redundancies and insolvencies among mechanical engineering companies such as Franken Guss, Illig Maschinenbau, Deubis Group, etc.

The working class pays the price

This spiralling crisis in industry has consequences for society as a whole. It poses the question: who pays? The class struggle is back on the agenda. The bosses are presenting the working class with the bill and at the same time as they are blaming them for economic stagnation. Workers are told wages are too high, that they work too little, that they are ill too often, and that they don’t consume enough because they lack ‘confidence’ and save too much.

The media continuously churns out the lie that wages have risen substantially. In reality, however, capital has eroded wages in recent years through poor wage settlements and inflation. Wages have, in reality, fallen for the majority of workers.

The price of bread, rice, flour, beef, pork, fish, milk, eggs, jam, chocolate and mineral water are now 30-40 percent higher than in 2021. Poultry, cheese, butter, frozen vegetables, spices and juices are 40-50 percent more expensive. Olive oil, margarine, sunflower oil, rapeseed oil, crisps and sugar are anywhere from 50 to 200 percent more expensive. Furniture and appliances are 17 percent more expensive; leisure, entertainment and culture are 19 percent more expensive; package holidays are 50 percent more expensive; restaurant prices are 30 percent more expensive.

When well-paid industrial jobs disappear and wages fall across the board, the market shrinks / Image: Thomas Wolf, Wikimedia Commons

This comes on top of 30 years of austerity policies, casualisation and the destruction of collective bargaining agreements. In 2019, the poorest 50 percent of the working class already had less in their wallets than at the beginning of the 2000s. And yet workers are being squeezed ever tighter as companies simultaneously make huge profits in the midst of the crisis, paying out enormous dividends to shareholders while cost-cutting, laying off workers and closing plants.

This in turn pushes all other sectors of the economy into a downward spiral. When well-paid industrial jobs disappear and wages fall across the board, the market shrinks. Fewer goods can be sold, intensifying the competition between companies for buyers. As a result, insolvencies, layoffs and closures spread throughout the economy, from fashion companies such as Esprit to the bakery round the corner.

The dead end of capitalism

This is not only happening in the national market, but on the global market. The spiralling crisis of German industry is the result of massive overproduction on a global scale. As Marx and Engels explained in the Communist Manifesto:

“In these crises [of capitalism], a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity – the epidemic of overproduction. 

“Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation, had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed; and why? Because there is too much civilisation, too much means of subsistence, too much industry, too much commerce.”

Germany’s dependence on exports is the Achilles’ heel of the German economy / Image: Vanellus Foto, Wikimedia Commons

Capitalism is not a planned system. Production only serves profit, which corporations only make if they can sell on the market. Now, however, these corporations have to compete on a shrinking world market – wages have fallen globally, loans have become much more expensive due to higher interest rates, and production costs have risen due to tariffs and the protectionist policies of the USA, EU and China. As a result, companies have to sell all the more cheaply on the global market in order to undercut their competitors. They overcome their own overproduction by ruining the competition. In this race, German industry is falling behind China and the USA.

Germany’s dependence on exports – which are responsible for 25 percent of jobs and 47 percent of economic output – is the Achilles’ heel of the German economy. The competitiveness of German industry has collapsed.

On the one hand, German capital cannot keep pace with the USA and China in the imperialist race for trade restrictions and subsidies. The battle for markets, technology and resources is becoming increasingly brutal and requires enormous amounts of money. Globalisation is over; and in its place, the world market is fragmenting.

On the other hand, the capitalist class and its governments have created this problem themselves over the last few decades. They have barely invested in new machinery, equipment and infrastructure, having instead subsisted on the infrastructure of the past. Over the last three decades, labour productivity per worker has only increased by an annual average of one percent. This is now taking its toll.

Germany’s falling share of the global market – which has shrunk from 3.45 percent in 2019 to 3.06 percent in 2024 – is turning the crisis in German industry into a political nightmare for the ruling class. The capitalist class will try to overcome the crisis by squeezing even harder: more exploitation, more austerity, more unemployment, more psychological pressure. The working class will be forced to resist. We are entering a period of bitter and rising class struggle.

Crying for state intervention

The hysteria in corporate headquarters, bosses’ associations and the Ministry of Economics is palpable. First they ‘let the market take care of everything’. Now they are calling for state investment in infrastructure, subsidies for companies and state purchase guarantees. The Federation of German Industries says that €1.4 trillion needs to be invested by 2030.

At the same time, capitalists are demanding that taxes and social security contributions for companies be reduced. They are appealing to trade unions and workers to put up with lower wages. The bosses are also calling for the retirement age to be raised and weekly working hours to be ‘flexibilised’ – i.e. increased.

The coalition government is afraid of an explosion of the class struggle / Image: OSCE Parliamentary Assembly Flickr

In order to finance such subsidies and the massive rearmament of the German military, spending on social welfare, education, health and culture is to be cut, and debt increased. The working class is to pay for the capitalist crisis now and for generations to come. This will not save the economy, it will only exacerbate the political and social crisis.

The coalition government – social democrats, liberals, greens – is afraid of an explosion of the class struggle. Society is already hugely polarised and trust in capitalism’s institutions has been deeply shaken. The government, while trying to avoid the budget cuts that are necessary from the point of view of capital, is completely politically paralysed and may break apart before next year’s general election. But the opposition parties do not enjoy much confidence either.

The ruling class has no answer to this organic crisis of capitalism. It is a product of the anarchy of the capitalist market. It is the result of the global economy being fragmented and squeezed by the shackles of private property and the nation state. Today, global competition for profit has set the entire capitalist system on a downward spiral.

Fight for communism!

Given the absolute weakness and lack of perspective of the German capitalist class and the government, the working class must go on the offensive. The class struggle is the only way to ensure that the capitalists pay for the crisis of their system, rather than forcing the costs on the working class. Our battle cry must be: we will not pay for your crisis! We will overthrow your system!

The Revolutionary Communist Party calls for the labour movement to go on the offensive. We must take up the revolutionary struggle for the transformation of society. The struggles over wages in the metals and electrical industries, at Volkswagen and in the public sector are the firmest basis for a demonstration of the strength of the entire working class.

We will only get out of this crisis if the working class replaces capitalism with a socialist planned economy, expropriating the banks and corporations, and thereby subjecting them to their own control and management. Only then can the workers align the economy with the needs of society. We have a world to win!