Economy FRG Flashcards
WW2 vs ww1
German economy again ruined
People starving
War did not end with an armistice and people believing Germany might have won - instead it ended with a March on Berlin from the east and west and occupation of the country
Initial economic plans and state
Allies had dual aims ; to rebuild Germany (possibly buffer to communism) but also prevent German militarism - industries such as munitions were banned and chemical industries had output restricted
Reparations were taken in equipment and machinery from each zone ; French and Soviets particularly dismantled many remaining factories for reparations, undermining any chance of an economic recovery
War damage differed geographically and people were treated differently in each zone
Reichsmark worthless (initial situation)?
Black market thrived ; bag of sugar was now 120/180 RM but it was fixed at 1RM in 1947
Hard to get workers when their wages bought hardly anything
Transport and communication links crossed zones, hampering economic recovery but each zone was run by a military high command and the way in which they ran it varied
Dislocation? Initial problems?
Many Germans left ;160000 German POW in France stayed there rather than returning to Germany - far exceeded by the influx of 10 million Germans who came as refugees ahead of the soviet army or were expelled from Eastern Europe under reallocation of land and people agreed at Potsdam
These refugees became biggest assets later but they originally had to deal with homelessness and introduced rationing
Short term problem with housing - many were kept at Dachau + DISPLACED PERSONS FROM CONCENTRATION CAMPS WHO HAD TO BE HOUSED AND FED 4.5 MILLION
Long term they were an asset as they kept down wages
How did economy catalyse creation of West Germany in 1949
Economic aid - 1.4 million dollars under Marshall Plan given to western zones in 1948 ; set off the creation of the new Deutschmark currency to administer the aid
This stabilised the economy and broke up the black market
Led to Soviets setting up their own currency and by end of 1949, Germany had divided into FRG and GDR
Currency reform
Every adult given DM60 and exchange their old currency for new
Wages were now worth something
People worked and could spend - allowing for higher levels of factory production too
Importance of Currency reform
Very important in helping economy but also led to polarisation between east and west
Where else did reform come from?
Ludwig Erhard was appointed director of economic administration in March 1948 ; believed in the idea of a social market economy and worked to create one under the allies and then as economic minister till 1963
On 18th June 1948 he announced the RM would be replaced by the DM ;
What is a social market economy
Free market economy with elements of social support for the poorest - “socially responsible”
What reform did Erhard do?
24th June he had to power to abolish almost all except the most essential rationing and all price controls
Wages remained fixed to allow businesses to establish themselves - short term
Combination of the new currency and these measures meant food and non-food items were in shops for sale ; people stopped hoarding and started selling
People began to shop more carefully for price and quality because they were more confident that supplies would be less erratic
Money with Erhard?
Currency reform only affected cash and monetary savings ; military government wanted a tax on all assets so the money could be used to compensate those who had lost everything
Bundestag eventually passed the Equalisation of Burdens Act in 1952 which sorted out compensation and redistribution, helping people start up again
How else were wages fixed/lowered?
Heavy immigration - more jobs, people were prepared to work for less due to high competition too
Was Erhard’s policies immediate in effect?
No
Factories and businesses had to first replace machinery and train workers etc
Unemployment rose from 442000 to 937000 in the space of 7 months and highest in 1950 with 1.5 million ; but then it began to fall
Car production increased 4.5 times greater and steel production doubled meaning Germany’s new focus was on consumer goods
Opposition to Erhard
From Bundestag and Economic council for converting from a command economy to social market economy
Britain had also opposed the idea, supporting the concerned labour union leaders who feared a social market economy would lead to exploitation of the workers by business owners ; USA had backed Erhard (due to their experience through the New Deal)
Many wanted the pre-command economy with price fixing and cartels back
Erhard favoured competition between industries and cartels broken up
Socialists opposed the change because they wanted to nationalise industries and use state control, not allowing a capitalist market
Why was Erhard’s economy perfect blend?
Social safety net + capitalist market was enough to win Erhard seats in Bundestag and continue his policies
Allowed business tax concessions and removed wage restrictions while encouraging the setting up of trade unions
All businesses had workers’ councils and in 1951 there was a policy of co-determination allowing for workers’ representative on managerial boards in industry
Reasons for the economic miracle from 1955-66
The Korean War
New investment
Workers
The Korean War
1950
Sparked a need for war supplies ; FRG was banned from producing these but its industrial goods, chemicals, steel and electrical goods were now in greater demand while other countries had shifted to war production
In 1955 FRG was able to join NATO and was then allowed to re-arm and start producing war materials as a result of the war
German factories focused on producing consumer goods meeting high demand roo
New investment
Many businesses had recovered sufficiently by 1950s mid to invest in new, more efficient equipment + new factories ; produced high quality goods and kept prices low as possible to compete
Reputation of German goods improved and exports grew ; businesses could invest more and employ more workers - manufacturers of consumer goods could also buy more raw materials
Workers
Influx of refugees meant there was a large pool of guest workers for businesses to draw on : May needed training but after this they became an efficient workforce. Large pool of workers meant wages were also low
3.6 million came to FRG from GDR and many of them were young, skilled and highly educated ; all actively seeking work and wanting to become part of the west consumer culture - thus helping the economy twice over
Government saved money as they were already trained by the GDR and this was used elsewhere for example the social safety net in the social market economy
Other reasons for the economic miracle?
FRG had advantages of areas like the Ruhr which were rich in raw materials
Marshal plan provided context for recovery BUT England was given twice as much and there was no economic miracle there
Industrial peace - co-determination established laws which led to a dramatic fall in the number of strikes and established industrial peace for 20 years
Financial stability ; compare with the Weimar Republic ; willingness or Bundesbank to control money in circulation and interest rates - emphasis on stability and avoiding inflation
Government expenditure - limited on army so more government expenditure on social spending which helped make FRG stable (unlike Weimar)
Demand was high due to confidence and incentives such as subsidised home buying programmes
Workforce unemployed
1950 - 8.1%
1960 - only 1.0%
Balance of budgets
1950 more imports than exports but by 1960 there was a considerable more amount of exported than imports 5 million DM
Possible problems with the miracle?
Demands fall off after consumer goods purchased first time round - they were so good and cheap, no need to buy them again
Berlin Wall in August 1961 also meant that many skilled professionals couldn’t wander freely between GDR and FRG so the economy couldn’t expand
Between 1966 and 1989
FRG experienced many challenges ; real economic growth also somewhat stagnated and in 1966, Schiller encouraged the government to intervene in the economy with the Bundesbank managing the money supply and a new system of federal/regional budgeting
Rising levels of government spending on social welfare etc too meant that in 1965 the gov spent 47 million DM and by 1970 this was 116 million DM
Economy was helped due to healthy exports and no international protective tariffs so world trade was booming
