Open Markets as a Source of Prosperity – Evidence of the Federal State of Baden‐Wuerttemberg
| Author | Stefanie Hinz |
| Published date | 01 September 2019 |
| DOI | http://doi.org/10.1111/1758-5899.12724 |
| Date | 01 September 2019 |
Open Markets as a Source of Prosperity –
Evidence of the Federal State of Baden-
Wuerttemberg
Stefanie Hinz
Ministry of Economic Affairs, Employment and Housing of Baden-Wuerttemberg
Abstract
Baden-Wuerttemberg’s economy is characterized by a close combination of highly specialized R&D-intensive industry and busi-
ness related services, with the manufacturing sector generating a significantly higher share of value added than the average
of the federal states (L€
ander). Over the long-term trend, these structural framework conditions have generated above-average
GDP growth rates and also per capita income. Another peculiarity ist that economic output is generated relatively even within
the regions of the federal state (Land). This economic model requires low transaction costs in the broadest sense to serve a
large relevant market. For this reason unhindered access to international markets is a necessary prerequisite for prosperity.
However, there must be a certain competitive and innovation advantage. Maintaining the competitiveness and innovation
capacity of the location is a permanent task for economic policy.
Paul Samuelson, Nobel Laureate in economics in 1970, was
once challenged to name one proposition in all of the social
sciences which is both true and non-trivial. Obviously, his
counterpart did not hold social sciences in high esteem. It
was several years later that Samuelson thought of the cor-
rect response and came to the conclusion that the basic
principle of trade economics meets these two conditions: it
is the doctrine of comparative advantage.
Samuelson’s both subtle and slightly taunting reasoning
was: “That it is logically true need not be argued (...); that
it is not trivial is attested by the thousands of important
and intelligent men who have never been able to grasp the
doctrine for themselves or to believe it after it was
explained to them”(Samuelson, 1969, p. 9). It might be con-
founding at first sight that specialisation in the production
of goods that a country can produce cheaper, not just abso-
lutely but relatively, augments the wealth of all partners
involved. In simple words, comparative advantage means: do
what you do best –even if someone else does it better!
(Ricardo, 1817).
Is it for the reason of the non-triviality of the comparative
advantage-concept, this strong rationale for free trade, that
international value chains and exchange of goods and ser-
vices are not undisputed nowadays? Of course, the interac-
tion of present-day globalised economies is more intricate
than it used to be two centuries ago, and it refers to far
more issues than first-year undergraduate textbooks sug-
gest. After all, the evidence of Baden-Wuerttemberg shows
the validity of these fundamental findings. In hardly any
other German federal state of comparable size will one find
a so-called ‘rural area’which contributes so strongly to the
economic performance as in Baden-Wuerttemberg (Arbeit-
skreis VGR der L€
ander, 2018). What is more, the long-term
GDP growth of Baden-Wuerttemberg is well above the Ger-
man average.
Free trade across borders as a source of
economic prosperity –the case of Baden-
Wuerttemberg
Interesting enough, the way to today’s economic perfor-
mance was not predetermined. In the Baden region, where
we are, industrialisation began earlier, but historic records
about the situation in the Kingdom of Wuerttemberg in the
middle of the 19th century tell us: ‘The good that were sent
to distant foreign countries was very insignificant in value.’
The author’s reasoning is quite instructive: ‘The higher
developed industry of the foreign country pressed hard on
that Wuerttemberg, which was neither quantitatively nor
qualitatively of the kind that it could have raised itself to
considerable export.’What is more: the mode of production
was rather that of a workshop than that of an industry (Vis-
cher, 1875, pp. 349, 351). It is quite obvious that this work-
shop-like production is limited to serving a small geographic
market. It has been a long way to today’s mode of produc-
tion with enterprises heavily involved in international value
chains.
Baden-Wuerttemberg’s economic structure is based on
customised and diversified production of capital goods with
the accompanying services. The fact that these goods are in
demand on world markets makes Baden-Wuerttemberg a
prosperous federal state. This wealth is not founded on
Global Policy (2019) 10:3 doi: 10.1111/1758-5899.12724 ©2019 University of Durham and John Wiley & Sons, Ltd.
Global Policy Volume 10 . Issue 3 . September 2019 405
Special Section Article
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