creating a social market economy, 1945-89 Flashcards
LO: economic recovery, the 'economic miracle', surviving economic challenges
what was the year 1945 known for?
‘Year Zero’
what were the main economic problems after WW2?
by 1947 industrial output had reached only 33% of its 1938 level, the currency had collapsed, and most people were surviving on less than 1,500 calories per day
what were the reasons for the economic recovery?
currency and tax reforms
introduction of free market forces
Marshall Aid
what was the currency reform and how was it introduced?
the old currency RM was worthless, so on 20 June 1948 the Deutschmark was introduced in far smaller quantities → the monetary supply contracted by as much as 90%.
how successful was currency reform?
savings were converted at RM100 to DM6.5 and debts of RM400 billion were wiped out, meaning it had a negative effect on creditors and savers
BUT the authorities gave large deposits of DMs to banks to loan to businesses to develop production which was very successful as industrial output increased by 50%
how can you explain the ending of price controls?
on 20 June, the director of economics of Bizonia Ludwig Erhard annouced the abolition of price controls and relaxation of rationing
did the ending of price controls work?
yes - most people could afford goods which re-emerged in shops as they had been hoarding the worthless currency and the back market disappeared
what were the tax cuts?
in 1950, the rate for those on average incomes of DM2,400 fell to 18%
was tax cuts successful?
it stimulated the economy so that it could find its own momentum: ordinary working people had more money to spend, which stimulated demand, which stimulated supply
what is the theory of a social market economy?
a free market economy but with social welfare to provide safety net and state intervention to ensure fair competiton
did social market economy work?
yes- by 1958 industrial production had quadrupled since the first half of 1948
what were the 3 features of the sustained economic growth experienced by the FRG in the 1950s?
reduction in unemployment - fell from 11% in 1950 to 1.3% in 1960
rising exports
rising real incomes after 1952
give examples of govt intervention in the economy
work creation schemes to tackle unemployment
the Investment Aid Law of 1952
rapid rebuilding programme to deal with the destruction of WW2
what was the Investmment Aid Law of 1952?
it provided a govt subsidy of DM3.2 billion in order to facilitate industrial investment, particularly to prevent bottlenecks in production and supply
how did a growing world economy lead to economic growth in FRG?
it saw a growing demand for exports from the FRG
in what way did Germany have sound economic foundations?
Germany had good sea ports, an abundance of certain raw materials like coal, and an educated and skilled workforce
what unexpected economic benefits did the wartime destruction bring?
it means new factories could be build incorporating the most modern equipment and designs
what else increased demand for German exports?
the outbreak of the Korean War (1950-53) resulted in a rise in demand for things like industrial goods and motor vehicles, which boosted industrial production and created more jobs
how did Adenauer’s co-operation with European institutions help the economy?
he encouraged FRG participation in the ECSC (European Coal and Steel Community 1951) which became the EEC (European Economic Community) in 1957
it helped to expand the FRG’s export markets
what was the Marshall Aid?
aid of $1.5 billion from USA to Germany in the period 1948-52
how successful was the Marshall Aid?
it helped FRG to buy equipment to rebuild and modernise German industry
how did the marshall aid lead to growing confidence in the FRG’s economy?
investors assumed that the FRG’s close political and economic relationship with the USA would guarantee a stable and prosperous future for the country
what was the policy of co-determination mean?
good industrial relations
what was co-determination?
it allowed workers to elect representatives often from their trade unions, to participate in the management of the business
why was it introduce into coal and iron production?
as a result of large-scale strikes in 1951
what was the Confederation of Treade Unions (DGB)?
it represented all trades unions from across all parts of German industry and it helped develop the idea of a social partnership between industry and the trades unions
what co-determination successful?
yes- it resulted in very low levels of strikes in comparison to other Western European countries; it worked well and was accompanied (from 1951) by high levels of industrial growth
what are the evidences for the ‘economic miracle’ from 1955-65?
growth rate
share of world trade
reputation for quality goods
full employment
what was the growth rate in German economy between 1955-65?
8%
what was the FRG’s share of world trade and what was the base for the success?
it grew from 6.6.% in 1965 to 7.9% in 1975
success was based on the competitive price of its goods
why did FRG have a reputation for quality goods?
its car industry had high-quality, top of the range models such as BMW and Porsche and in the every day market where Volkswagen became a global brand
employment rate in 1955?
1 million, or 4.2% of workforce
how was employment rates in 1960s?
full employmeent had been achieved, including the 2 million East Germans who had fled from GDR and the beginnings of the guest worker schemes
how did this full employment show the economy was remarkable?
it found jobs not only for its original population but also for a considerable influx from elsewhere
how did FRG deal with labour shortage by the early 1960s?
the guest worker schemes were extented e.g. 1961 guest worker scheme with Turkey
what were the reasons for fall in unemployment and rise in living standards?
due in large part to the success of the social market economy project, but were also faiclitated by a hard-working labour force and efficient management techniques in terms of production and employee-employer relations with comparatively little industrial unrest
what signs of economic challenges were evident in Germany between 1965-69?
the slowing growth rate was evident, with wages growing faster than productivity after 1958
by 1966, prices had risen by 4%, threatening price stability and risking inflation
what measures did Erhard take to address the economic situation during the recession?
he cut govt spending by 10%, proposed that German workers work an extra hour per week (which was rejected by trade unions) and raised interest rates.
however, these measures did not immediately resolve the recession
what was the purpose of the Stabilisation Law of 1967?
it was introduced by Kiesinger’s Grand Coalition to formalise cooperation between the federal govt, employers, and employees during economic difficulties. it aimed to stimulate production by altering taxes and raising loans
what was the outcome of the measures to address the recession by 1968?
unemployment was falling by 1968, industrial growth reached 6% per annum, and inflation dropped to 1.5%
however, the coalition collapsed in 1969 over the issue of revaluation, and fresh elections were held
what were some of the social reforms introduced by Willy Brandt?
education- the Educational Support Law provided more grants for poorer students attending uni
pensions - pensions for war veterans raised by 5%
healthcare- grants were provided to help parents care for sick children
housing - the social housing budget was increased by 36%
how did Brandt’s social welfare policies affect govt spending?
Brandt’s increased spending on social welfare raised the percentage of GDP spent on welfare from 35% to 33%, which contributed to rising inflation
how did the 1973 oil crisis affect Germany’s economy?
the oil crisis led to a rise in inflation, with the cost of imports increasing by DM17 billion
unemployment rose from 1.2% in 1973 to 4.7% in 1975
the balance of payments moved from surplus to a $692 million deficit within a year
what measures did the German govt take to combat the oil crisis?
the govt shifted towards nuclear energy, provided M7-8 billion in grants for private sector investment, and abolished laws on mergers to help larger firms create economies of scale
how did the govt’s actions help FRG recover from the oil crisis?
Germany’s economy recovered more effectively than other Western countries due to the govt’s support for private sector investment, mergers, and a shift towards nuclear energy
how did the German economy perform under Helmut Kohl in the 1980s?
the economy grew at an average rate of 3.6% per year, and by 1989, unemployment had fallen to 7.6%
West German’s exports increased and inflation dropped to less than 1% by 1986
how did West German exports impact the economy by the late 1980s?
exports rose significantly, leading to a favourable balance of payments surplus, which increased from DM3.4 billion in 1985 to DM134 billion by 1989
what was the European Coal and Steel Community (ECSC) and what was its purpose?
it was created by the Treaty of Paris in 1951 to create a free market in coal and steel
its goal was to help Europe recover economically post war and place key areas of German industry under international supervision
how successful was the ECSC?
it was successful in increasing trade in coal, fostering economic cooperation, and acting as a treaty of friendship between France and Germany
it also provided welfare for workers, including housing and occupational redeployment
what was the purpose of the European Economic Community (EEC), created by the Treaty of Rome in 1957?
it aimed to create a free trade zone with common economic policies, eventually leading to political union. the FRG, with its large economy, pushed for closer European integration and freer trade
how successful was the FRG’s involvement in the EEC?
the FRG became the leader of the EEC, contributing to greater integration
it played a crucial role in disputes, supporting smaller member countries, and was the largest contributor to the EEC budget, strengthening the institution
what did Jan Techau argue about the FRG’s role in the EEC by the 1980s?
Jen Techau argued that the FRG led the EEC through three pillars: its clear vision for integration, being an ‘honest broker’ in disputes, and supporting the interests of smaller countries, making it more trusted than Britain and France
