Economy: Creating a social market economy Flashcards
Who served as economics minister when the FRG was established under Adenauer? - FRG
Ludwig Erhard
What type of economy did Erhard favour as opposed to command economy? - FRG
Social market economy: lowering taxes and increasing deregulation
What was the economic priority from 1945-49? - FRG
Recovery from the war
How did the social market economy help recover Germany from war? - FRG
- Wages stayed fixed to help businesses recover/establish themselves
- Rationing on all but the most essential items (e.g bread and milk powder)
Why was economic recovery slow? - FRG
Due to the extent of damage inflicted from WW2
Why was there difficulties following the creation of a new currency? - FRG
The Reichsmark was dropped for the Deutschmark and there was a limited supply of DM in circulation.
This was to avoid inflation.
How much did unemployment increase from 1948 to 1950? Why did it increase? - FRG
1948: 442,000
1950: 1.8 million
The lack of monetary supply meant that paying wages was difficult for many small/medium sized businesses.
What was the Marshall Plan and what role did it play in Germany’s post-war economic recovery? - FRG
A US sponsored program that funded improvements to infrastructure and industrial development.
How significant an impact on economic recovery did the fact that most of Germany’s infrastructure remained largely intact have? - FRG
Germany had the wealthiest European economy in the Nazi period and many industrial plants had been unaffected by wartime destruction.
What state was Germany in economically in the immediate post-war period? How did this affect the distribution of Marshall Aid in Europe? - FRG
- German currency was largely worthless and a barter economy operated.
- Food was rationed and most people were surviving on less than 1,500 calories per day.
To what extent did the economy of the Western zones improve from 1948 onwards? Which factors contributed to this? - FRG
The index of industrial production in the US and British zones (Bizonia) rose from 51% of 1936 levels in January 1948 to 75% by December 1948.
Factors:
- Currency
- Tax reform
- Introduction of free market forces than Marshall Aid
What was the new currency introduced in the Western zones of Germany? Why was it introduced? - FRG
Deutschmark introduced on the 20th June 1948.
- It was introduced in far less quantities.
Why? The Reichsmark wasn’t valuable, practically worthless.
How and why was the Rentenmark exchanged for the Deutschmark at different rates for different assets? What was the purpose of this? - FRG
How - Private citizens could initially exchange RM60 to DM40 and wages were converted at a rate of DM1 to RM1, other assets were changed at far less generous rates.
- Savings: converted at RM100 to DM6.5
- Debts to the value of RM400 billion were wiped out.
Purpose - This reform was designed to facilitate spending and get the economy moving.
Why was giving large deposits of Deutschmarks to banks to loan to businesses to develop production such a shrewd economic move? - FRG
Entrepreneurs had been reluctant to invest in the light of post-war uncertainties.
After the currency reform, however, industrial output increased by 50%, largely as a result of this willingness to invest and produce goods.
What did Erhard abolish/announce on the 20th June 1948? - FRG
He abolished price controls and announced the relaxation of rationing.
Why did Erhard abolish price controls and rationing? - FRG
He believed that if prices found their own levels, producers would have more incentive to produce and farmers to send their food to markets.
Therefore, goods would return to markets.
How successful was Erhard’s ending of price controls? - FRG
Most people could afford goods which re-emerged in the shops because they have been hoarding the worthless currency which couldn’t buy much and could convert it into Deutschmark.
What economic impact did Erhard’s ending of price controls have? - FRG
Prices rose, but they could buy goods with their new Deutschmarks.
The black market disappeared.
From 1950 onwards, by what percentage was tax for those on average income? - FRG
18% when in 1948 it had been as high as 85%.
What was the highest rate of tax for those with incomes of more than DM 250,000? - FRG
95%
What was the purpose of Erhard’s tax reforms? - FRG
To allow businesses to retain enough profit to reinvest in their operations whilst individuals had more disposable income.
It was also part of broader efforts to rebuild public confidence in the economy and government post-war.
How did Erhard’s tax reforms kickstart the economy from 1950 onwards? - FRG
Absenteeism from work was radically reduced from an average of 9.5 hours per week to less than 2 hours.
- Ensured more productivity and the index of industrial production rose significantly.
- This was partly due to the fact people were no longer queuing, bartering for food.
In 1950 alone, what was the growth rate of industrial production? - FRG
25%
By what % did wages rise from 1949-55 as a result of Erhard’s reforms? - FRG
80%
What was the ‘social market economy’? - FRG
An economic system which combines a free market (market based on supply and demand) with some government control and financial help for people who are ill, unemployed, etc.
It was a middle ground between capitalism and socialism.
What was the rationale behind a ‘social market economy’? - FRG
An end to monopolies or cartels, where a few large companies controlled the market, and a fairer tax system.
What were businesses allowed to do as a result of the ‘social market economy’? - FRG
- Develop independently
- Set their own prices and wages
What was the state responsible for in a ‘social market economy’? - FRG
- Monitor the economy
- Ensure fair competition
- Intervene to protect the most vulnerable members of society through effective measures of social welfare
What was the unemployment rate in 1960? - FRG
1.3 million
- As opposed to 11.6 million in 1950.
By 1960, what % of income did private savings take up as opposed to its % in 1950? - FRG
1960 - 9%
1950 - 3.2%
What did growing consumer confidence result in for the economy? - FRG
Further demands for goods
How did the government combat the initial problem of unemployment in 1950? - FRG
Work creation schemes
What did the Investment Aid Law (1952) entail? - FRG
A government subsidy of DM 3.2 billion in order to facilitate industrial investment, particularly to prevent bottlenecks in production and supply.
How did the government deal with the destruction that occurred during WW2? - FRG
Rapid rebuilding programmes
What was reduced through the emergence of the ECSC and the EEC? - FRG
Germany’s protective tariffs
What 1957 law protected the development of economic monopolies? - FRG
Anti-Trust Law.
- It was designed to prevent and dismantle cartels.
What economic controls ensured a strong currency? - FRG
Banking controls
In 1957, what was the central bank given the power to do? - FRG
Raise interest rates or control the circulation of money within the economy, helping control inflation
Why did the growing world economy enhance the FRG’s economic growth? - FRG
It saw a growing demand for exports from the FRG.
Why was the FRG’s lack of involvement in the Cold War beneficial for the FRG’s economic growth? - FRG
They weren’t hampered by excessive spending on rearmament during the Cold War period which meant more finances were available for investment within the economy.
What economic foundations benefitted Germany’s economic growth? - FRG
- Good sea ports
- Abundance of raw materials eg, coal
- An educated, skilled workforce.
On a global scale, how large was the FRG’s economy by 1960? - FRG
It was the 3rd largest in the world
What type of industrial goods within Germany had a good reputation for quality and value?
Machinery, vehicles and electrical equipment
In the 1950s, what did manufacturers primarily produce for? - FRG
Export
What did the FRG’s trade deficit do throughout the decade? - FRG
Maintain a favourable balance
What was the national income in 1960 as opposed to 1950? - FRG
1960 - DM 1633 billion
1950 - DM 845 billion
By what % did the FRG’s share of world trade grow from 1965-1975? - FRG
1.3%
By the 1960s, what had the FRG achieved in regards to employment? - FRG
Full employment.
Not only for Germany’s initial population but also for a considerable influx from elsewhere like the 2 million East Germans who had fled from the GDR.
What % of coal and iron production did the FRG own/control by the 1960s? - FRG
40%
What economic issue did the FRG face at the beginning of the 1960s?
Economic growth began to slow, leading to a recession in 1965.
The recession was considered minor compared to the Great Depression.
What was the unemployment rate in the FRG in 1966?
3.2% of the workforce.
This rate fell to 0.8% in 1967.
What psychological impact did the Great Depression have on FRG citizens?
It deeply damaged the prosperous image of the Republic.
Many citizens remembered the hardships of the Great Depression.
What trend in wages occurred after 1958 in the FRG?
Wages began to rise faster than productivity.
This created a risk of inflation and threatened price stability.
By how much did prices rise by 1966 in the FRG?
4%.
This was coupled with increased government spending on social welfare and rearmament.
What criticism did Erhard face regarding government spending?
He was criticized for spending too much on modernizing railways and U.S. military support.
This was during the context of Cold War tensions.
What policy did Erhard suggest to address economic issues?
German workers might have to work an extra hour a week.
This was rejected by German trade unions demanding higher wages and shorter working weeks.
What did Erhard do in response to the recession?
He raised interest rates.
This did not have the desired immediate effect.
What was the status of exports in 1966 despite a global downturn?
Exports remained buoyant but faced difficulties due to the global downturn.
What significant change occurred in the guest worker population by September 1967?
It decreased from 1.3 million to 991,000.
What was the disagreement between FDP and CDU/CSU regarding the recession?
FDP wanted further spending cuts, while CDU wanted to raise taxes.
No agreement was reached, leading to FDP’s withdrawal from the coalition.
Who succeeded Erhard as Chancellor in November 1966?
Kurt Kiesinger.
What was the main priority of the Grand Coalition formed in 1966?
Dealing with the difficulties of the recession.
What was Karl Schiller’s belief regarding government intervention?
Further government intervention was necessary in the free social market.
What significant law was introduced in June 1967?
The Stabilisation Law, which formalized cooperation between employers, employees, and the government during economic difficulties.
What change was made to Article 109 of the Basic Law?
It was edited to allow increased government control of tax and spending policies in different regions of the FRG.
What was the outcome of the Grand Coalition’s economic policies by 1968?
Unemployment fell, industrial growth reached 6% per year, and inflation fell to 1.5% in 1969.
What happened to the Deutsche Mark (DM) after Willy Brandt became Chancellor in 1969?
The DM was revalued by around 9.3%, rising to DM3.66 to $1.
True or False: The FRG’s exports became more expensive after the DM grew in value.
True.
Fill in the blank: The 1967 Economic Stabilisation Law allowed for government intervention in times of _______.
Economic crisis.
What was the main purpose of the Oil Crisis of 1973?
To penalize western countries supporting Israel during the Arab-Israeli war
The crisis was led by the Organization of Arab Petroleum Exporting Countries (OAPEC) under King Faisal of Saudi Arabia.
Which war prompted the Oil Crisis of 1973?
The Yom Kippur/Ramadan War
This war involved Egypt and Syria attempting to regain land taken during the Six-Day War.
What was the outcome of the Yom Kippur War for Egypt and Syria?
Egypt partially regained Sinai; Syria failed to retake Golan
Israel maintained control of the Golan Heights.
How much did the price of oil increase in October 1973?
70 percent
This increase was accompanied by a 5 percent reduction in oil output.
What was the impact of the oil crisis on Germany’s economy?
Forced to pay DM17 billion more for imports and a $692 million deficit
The balance of payments shifted from surplus to deficit.
What happened to Germany’s GNP from 1973 to 1974?
Decreased from 5.3% to 0.4%
This significant decline reflected the economic impact of the oil crisis.
What was the unemployment rate change in Germany from 1973 to 1975?
Increased from 1.2% to 4.7%
This rise in unemployment led to increased public spending and welfare support.
What measures were taken in response to the oil crisis for car drivers?
Fuel sales restricted, driving on Sundays banned, many petrol stations closed
These restrictions were aimed at conserving fuel during the crisis.
How did the FRG economy respond to the oil crisis compared to the rest of the Western world?
Handled the situation better due to high export levels
This resilience was attributed to decisive government actions.
What shift in energy policy did the FRG government encourage during the oil crisis?
Shift away from fossil fuels in favor of nuclear energy
This strategy aimed to reduce dependence on foreign oil.
What was one of the first steps taken towards a European monetary system?
Tying together the currencies of EEC member states
This initiative aimed to stabilize the economies of member states.
What was the increase in government spending on social welfare as a percentage of GDP during Brandt’s period of office?
From 25% to 33%
This increase was due to a range of social measures introduced by Brandt’s government.
By what percentage did expenditure on education and scientific research increase during Brandt’s administration?
300%
This significant increase reflects Brandt’s focus on improving education and research.
How much were pensions for those wounded in the war raised during Brandt’s reforms?
By 5%
This was part of Brandt’s broader social reform agenda.
Which groups had healthcare insurance extended to them under Brandt’s reforms?
Self-employed, agricultural workers, and dependents
Previously, these groups were not covered by healthcare insurance.
What was the percentage increase in the social housing budget during Brandt’s reforms?
36%
This increase aimed to improve housing conditions.
What was the purpose of the Educational Support Law introduced by Brandt?
To make more grants available to poorer students wanting to attend university
This law aimed to enhance educational opportunities for disadvantaged groups.
By what percentage were pensions for widows of German soldiers increased?
By 16%
This increase was part of the social reforms aimed at supporting families of veterans.
What type of grants were introduced to assist parents during Brandt’s reforms?
Grants to help parents caring for sick children
This initiative recognized the challenges faced by families with ill children.
What was the raised school leaving age during Brandt’s reforms?
16
This change aimed to improve educational attainment among youth.
What new retirement policy was introduced during Brandt’s administration?
Flexible retirement age
State pensions could be accessed after age 63.
What preventive healthcare measures were introduced for children under 5?
Preventive medical examinations
This aimed to improve early childhood health.
What was introduced for early cancer detection among certain age groups?
Carly cancer detection in women over 30 and men over 45
This initiative aimed to enhance early diagnosis and treatment.
What benefit was provided to full-time carers who were not paid in employment?
State pensions
This reform recognized the contributions of unpaid caregivers.
Who took on the role of minister of finance and economics after Karl Schiller’s resignation?
Helmut Schmidt
Schmidt’s appointment came amid economic challenges and debates over government expenditure.
What was the outcome of the November 1972 elections for Brandt and the SPD?
They did well and Brandt continued as Chancellor
Despite ongoing economic difficulties, the coalition maintained support.
What led to Brandt’s resignation in 1974?
The Günter Guillame affair
This scandal ultimately forced Brandt to step down from his position.
What was a significant economic issue faced by the FRG in the 1980s?
The widening gap between the rich and poor
This created friction between classes and hostility towards guest workers.
How did the FRG manage to cope with the economic problems of the 1970s?
Through large amounts of exports
Even while the rest of the world was in recession, Germany managed to keep the number of exports up.
What was the unemployment rate in the FRG by 1981?
1.7 million people
This was the highest it had been since 1950.
What action did the government take in 1981 in response to rising unemployment?
Cut public spending, particularly on benefits and housing
This was deeply unpopular.
What was the approach of Helmut Kohl’s government starting in 1982?
To cut spending more fiercely
Similar to other countries experiencing recession.
What argument did Helmut Kohl make regarding welfare support?
It was creating a dependent society
By reducing this aid, he believed productivity would go up.
What were the average growth rates in the FRG during the 1980s?
3.6%
This was a result of supporting the principle of the social market economy.
What was the unemployment rate in the FRG by 1989?
7.6%
This was below that of neighbouring Western countries.
What significant event occurred in 1989 that affected the FRG’s economy?
The fall of the Berlin Wall
The FRG’s economy had to brace itself for reunification.
What was the inflation rate in the FRG by 1986?
Less than 1%
This was a significant achievement of Kohl’s government.
What was the increase in car ownership in the FRG from 1960 to 1985?
From 4.5 million to 26 million
This reflects changing living standards.
What percentage of Germans had at least one luxury good by the start of the 1980s?
95%
Luxury goods included washing machines, refrigerators, televisions, and telephones.
Fill in the blank: Living standards in the FRG allowed for _______.
disposable income
True or False: By the start of the 1980s, most citizens of the FRG considered themselves lower class.
False
Most citizens considered themselves middle class.
What collaborative effort did the governments of the FRG and France pursue during the 1980s?
Pushing for the Single European Act
This aimed to tie the European economies together, eventually leading to the Euro.
What organisation administered the Marshall Plan in Europe? - FRG
OEEC (European Economic Cooperation)
- It decided how money was to be distributed and was the 1st official union of the EU states.
- Moved towards greater European integration by facilitating economic prosperity between its member states.
When did the FRG join the OEEC? - FRG
18th April 1948
Why did Adenauer want the FRG to join the OEEC? - FRG
To show that the FRG would not revert to militarism or show aggression to other nations.
Why did the FRG join the GATT (General Agreement on Tariffs and Trade) in 1951? - FRG
To be a part of favourable trade agreements among the members.
For example, trade in coal increased by x10.l across its membership.
In what year did the FRG join the International Monetary Fund? And what was its purpose? - FRG
1952
Its purpose was to oversee the stability of world currencies.
What council did the FRG join in April 1951? - FRG
Council of Europe
Which countries did the FRG join the EEC (European Coal and Steel Community) with? - FRG
France, Italy, Belgium, the Netherlands, Luxembourg
What was the purpose of the EEC? - FRG
The supranational body was tasked with running their 5 members’ coal and steel industries.
It was meant to help Europe recover from WW2, having essential industries merge, plan and develop together, sharing ideas and trading freely.
When did the FRG join NATO (North Atlantic Treaty Organisation), and why? - FRG
1955
They joined it so that they could begin European integration but also to protect Germany under a banner of unity and integration whilst also avoiding the risk of a renewed German threat.
What treaty did the FRG sign in 1957? And what did it entail? - FRG
Treaty of Rome - allowed them to become one of the founding members of the EEC (European Economic Community).
What did the FRG want from the EEC? - FRG
They pressed for freer trade and European integration with the outside world.
Why was the consumer demand so high in the FRG between 1945-1990? - FRG
Post-war reconstruction of bombed-out buildings and shortages of every kind of commodity.
How did the FRG sustain the consumer demand? - FRG
The country became once of affluence and plenty of citizens felt secure enough to spend their earnings on goods they desired while still often having enough to save.
What was the change in car ownership from 1950-1965? - FRG
1950 - 2 million
1965 - 12.1 million
In 1964, what was the average disposable income for a 4-person household? - FRG
DM 904
Why did most families consider themselves middle class in the FRG? - FRG
Because there was more than 95% ownership items such as washing machines, fridges, TVs and telephones plus at least bi-annual foreign holidays was their lifestyle.
Why was the cost of living low in the FRG? - FRG
Low inflation and restraint in wage demands
How did the cost of living in the FRG compare to the GDR? - FRG
What might seem as a luxury item, e.g coffee beans, cost x4 as much in the GDR while even clothing cost 1/2 as much in the FRG.
The price index for FRG : GDR was 100 : 121.
Why did the cost of living continue to rise from 1945-89? - FRG
Pay rises were greater than the rate of inflation
By what % did prices rise annually in the FRG? - FRG
6%
Why did price rises not impact people in the FRG much? - FRG
Citizens were aware and trade unions put in wage demands to account for rising prices.
How did the cost of living in the FRG change from 1986 onwards? - FRG
The cost of living started to fall and inflation was never greater than 3%.
Pay claims were generally restrained yet many citizens did feel well off during the 40 years of the FRG.
What 3 stages have the FRG’s economic history been categorised into? - FRG
- Period of the social market economy from 1949-66
- Period of more state intervention from 1966-82
- Return to free market economy from 1982-89
Although, its economic history is more complex that that suggests for the state had intervened in the economy throughout the period, in terms of tax concessions, social welfare or preventing unfair practices.
