3. Creating a social market economy 1945–89 Flashcards
Potsdam 1945
Allies agreed it was important to rebuild Germany’s economy and it was important that Germany did not start another war
- war industries (e.g munitions) were banned and war-related (e,g chemical industries) had their outputs restricted;
- Reparations were to be taken in equipment and machinery from each zone
Impact of WWII
The Reichsmark was almost worthless was damaging the economy: the black market thrived and it was hard to get workers when their wages hardly brought anything
Many germans left and others choose to not to return e.g. 160,000 german prisoners of war stayed there after war
The allies also had to deal with the influx of ten million germans who came as refugees
West Germany - Economic aid
$1.4 million were given to western zones under the Marshall Plan of 1948 which set off the creation of the Deutschmark (DM) to administer the aid
The new currency helped to stabilise the economy and break up the black market however it led to the soviet zone setting its own currency and made separation more likely (divided to GDR and FRG in 1949)
Erhard and reform
Erhad was appointed director of the economic administration in March 1948 and believed in the idea of a social market economy which he worked to create under the allies as the economics minister of Germany from 1949 to 1962
Social market economy
This a free market economy with elements of social support for the poorest built in - a ‘socially responsible’ free market economy
Erhard’s policies
In June 1948, he announced that the RM would be replaced by the DM
Wages stayed fixed until November 1948 to allow businesses to establish themselves
1952 the Bundestag passed the Equalisation of Burdens Act: tax on assets -the money raised and redistributed helped support who had lost everything because of war
Impact of the new currency - DM
People stopped hoarding goods and started to stop with a more careful concern for the price and quality rather than buying anything that become available because they felt more confident that supplies would last
Unemployment levels
Unemployment levels rose from rose from 442,000 in 1948 to 1,800,000 in 1950 - many businesses failed because they could not afford to pay wages
Then began to fall in 1955 it was 1,000,000 and continued to fall
Worker’s rights
All businesses had workers’ councils and in 1951 there was a policy of co-determination (the right of workers to take part in the management of the businesses they work for)
The economic miracle 1955-66: The korean war 1950-53
War sparked a need for war supplies
S: FRG was banned from producing industrial goods, chemical, steel and electrical goods but in 1955, the FRG joined NATO and was now allowed to rearm and start producing war materials as a result of the war
The economic miracle 1955-66: New investment
Many businesses had recovered significantly by the mid-1950s to be able to invest in new more efficient equipment which allowed the production of high-quality goods and lowe prices
S: reputation of German goods grew - as exports grew, businesses could employ more people
L: In the early 1960s - once the everyone had brought their consumer goods for the first time, demand fell through to a lower level as people replaced these goods at different times
The economic miracle 1955-66: Guest Workers
Refugee crisis after wwii - influx of ‘guest workers who worked for low wages
S: allowed businesses to make larger profits for cheaper labour
L: Guest workers required training - not time efficient
The economic miracle 1955-66: Workers from GDR
During the 1950s, about 3.6 million workers came from the GDR - many of them being young skilled workers (e.g. doctors and engineers)
S: “brain drain” - significantly helped economy as the government saved money that would have been spent on education costs/training people in the FRG and use it elsewhere e.g on funding housing construction
L: The berlin wall put up in 1961 stopped workers crossing from the GDR into the FDR and reduced the ‘free’ professionals that had helped the expanding economy
Economic challenges in the years 1966-89
Economic growth moved at a lower rate after 1966
Rising levels of government spending: in 1965 the government spent DM46.7 million on social welfare and DM115.9 million by 1970 despite various cuts to benefits
The recession of 1966-77
Trade (domestic and international) reduced and unemployment increased
Many guest workers were on one-year renewable contracts - there was 1.3 million workers in 1966 and 991,000 by 1967 so productivity began to fail
Productivity began to fall due to social welfare policies - public spending was spiralling out of control due to welfare
Government response to the recession 1966-77
The economics minister Karl Schiller increased government planning, intervention and control e.g. subsidies for agriculture and the coal industry
In 1968 a provision was added to the Basic Law that the federal government could move money around the Lander using money from the wealthy ones to provide in the the struggling ones
The oil crisis of 1973 and 1978
The FRG came to rely on oil rather than coal as fuel - In 1972 the FRG spent DM10.8 billion on 140 million tonnes of oil
In 1973 the Fourth Arab-Israeli war broke out and OPEC put up prices in 1973 and 1978
The FRG got 40% of its fuel needs through OPEC - the price of 150 million tonnes of oil cost DM32.8 billion in 1973 and DM49 billion in 1978
Unemployment rose made worse by the FRG’s baby boomers hitting the employment market
Government response to the oil crisis of 1973 and 1978
Oil consumption dropped because of government measures such as encouraging ‘car-free sundays’’ and introducing speed limits on the autobahns in order to save fuel
Government propaganda pushed energy saving tactics in homes/industry and the government began to invest in atomic power to reduce dependence on oil
The government did no subsidise oil prices but let them rise with their actual costs which made it expensive and encouraged cutbacks
Foreign workers found their contracts were not renewed and a ban was placed on recruiting guest workers - this helped to prevent the crisis becoming worse
Challenges of the 1980s
Gap between the richest and poorest widened which created hostility towards guest workers
Unemployment hit 1.7 million in 1981 (the highest since 1950) which drove up the amount of spending on unemployment benefits and assistance for the long-term unemployed
Government response to the challenges of the 1980s
1981 government cut public spending including benefits and housing allowance
1982 government - Chancellor Helmut Kohl felt productivity levels were failing due to dependency and slack of the ‘baby boomers’ so brought further cuts to social welfare spending including mate
Social inequality
Deepened with the top percent of all households owning majority of the wealth e.g in 1960 1% of all households owned 35% of the wealth and in in 1988 they owned 45%
Housing Crisis
1/5 of all housing had been bombed flat and about 1/3 of that still standing was damaged + refugee influx led to more pressure on housing
Government response to the housing crisis
A ministry of housing was set ip to oversee rebuilding
Rents were frozen and the building industry was given tax concessions to build
Housing associations were set up to build home - some state run for social housing and for workers in state-run industries such as volkswagen
Spending patterns
As the economy strengthened the standard of living rose and people began to spend money on consumer goods
All though the period real wages kept ahead of prices although the extent to which varied
