Economy of the FRG (3) Flashcards
What did the Allies agree upon after the world war in the Postdam Conference?
Important to rebuild the economy and ensure Germany didn’t start another war.
How did the Allies prevent Germany from starting another war and their impact on the economic recovery?
- Banned any ‘war industries’ (e.g munitions), and restricted outputs of war-related industries (chemicals).
- Western areas took their reparations via equipment + machinery.
- But the French and Soviets dismantled any remaining factories for reparations = undermined any chance of an economic recovery.
The issue of the Reichsmark after the war
- The Reichsmark was worthless - damaged the economy.
- The black market thrived (1kg of sugar in 1947 had its prices fixed at RM 1, but could only be obtained on the black market costing RM 120-180).
The issue of transport and communications links post-war
- Links crossed the zones, hampering economic recovery.
- At first, the Allied Control Council worked together to overcome these difficulties, but each zone was run differently by a military high command (USSR especially).
The issue of people arriving/leaving in large numbers
- Due to the economic and physical devastation, people either chose to leave or not return (i.e 160,000 German POWs remained in France after the war).
- 10 million German refugees, ahead of the Soviet Army, or expelled from East Europe under the reallocation of land and people (Postdam Conference).
- Allies had to deal with the refugees and homeless Germans + introduced rationing.
West Germany after 1949
Marshall Plan
- Provided economic aid (worth $1.4 million) to Western zones in 1948 .
- 21 June: Erhard replaced the RM with the DM to administer aid.
- Considered a factor of the rapidly deteriorating relations of USSR + West (did to stop the spread of communism) and the Cold War developed.
The Deutschmark (DM)
- New currency helped stabilise the economy and break up the black market (backed by Western powers).
- Led to the Soviet Zone setting up its own currency (prev not included). Made separation more likely.
What was the two ‘sections’ of Germany by 1949
Federal Republic of Germany (FRG)
German Democratic Republic (GDR)
Ludwig Erhard
- Director of the economic administration under the Allies in March 1948 - aimed to create a social market economy.
- Became the economics minister of Germany (1949-63).
- 24 June: The Economic Council gave Erhard the power to abolish all but the most essential rationing and price controls.
- Fixed wages until Nov 1948 - enabled businesses to establish themselves.
Positive impact of Erhard’s policies
- The combination of the new currency + measures allowed more food and non-food items (stoves).
- People shopped more carefully for price and quality - increased confidence in the economy.
- Rise in car and steel production in 1959 underlined Germany’s new focus on consumer goods.
The Equalisation of Burdens Act 1952
- Govt wanted a tax on all assets to use the money to compensate those who lost everything.
- Complicated but it eventually passed - raised the money and redistributed to help people start again.
Did Erhard’s policies bring economic recovery?
Not immediately: issues were too large.
- Factories and businesses could start producing + trade, but had to replace machinery and train workers.
- Some businesses failed after the currency reform because they couldn’t afford their wages.
- Some did succeed but had to lay off their workers.
Issue of unemployment in 1948-1955
442,000 (June 1948)
937,000 (Jan 1949)
1,800,000 (1950).
Fell to 1,000,000 in 1955.
Opposition and Support - Erhard’s policies
- Opposition from the Economic Council/Bundenstag for his policy to convert from a Command Economy to a social market economy.
- Britain supported the concerned labour union leaders - they feared it would lead to worker exploitation by business leaders.
- Socialists disliked the change to not price fix in favour of competition between industries and breaking up the cartels = wanted nationalised industries and state control, not allowing a capitalist market to set its own levels.
How Erhard managed to gain Bundenstag support to continue his policies
- Combination of a capitalist market + responsible govt that provides a social safety net for the poorest.
- Allowed business tax concessions + removing wage restrictions, whilst encouraging trade unions (ensure representation in wage negotiations).
- All businesses had worker’s councils + policy of co-determination.
Co-determination policy
The right of workers to participate in the management of the business they work for.
Factors for the ‘Economic Miracle’ (1955-66)
Korean War (1950)
- Outbreak of war sparked a need for war supplies.
- Despite being banned from producing these, FRG’s industrial goods were in greater demand as other countries (USA) shifted to war production.
- Upon Joining NATO in 1955 - able to re-arm and produce war materials, mainly because of the war.
Factors for the ‘Economic Miracle’ (1955-66)
New investment
- Various businesses recovered sufficiently by the mid-1950s = could invest in efficient equipment and factories.
- Concentrated on producing high-quality goods and kept their prices as low as possible to compete.
- As German goods’ reputation improved, exports increased - allowed businesses to invest + employ more.
- Manufacturers of consumer goods could buy more raw materials.
Factors for the ‘Economic Miracle’ (1955-66)
Workers
- Influx of refugees immediately post-war = large pool of ‘guest workers’ for businesses to use and provided an efficient workforce (despite requiring training).
- During the 1950s, 3.6 million workers arrived from the GDR - many young, skilled and highly educated who sought work and to be part of West G consumer culture.
- Employed often on short-term fixed contracts - Govt saved money to fund projects (housing construction) instead of education and training costs.
Possible problems arising post 1966
Growth rate was bound to decline (unable to maintain the rapid rate of the 1950s and early 1960s).
- Demand for new consumer goods fell as people replaced it at different times.
- The Berlin Wall (August 1961 by GDR) stopped workers crossing over from the GDR to the FRG, reducing the ‘free’ professionals that supported the economy.
How did the government attempt to reduce the impact of various economic issues in the 1960s?
- Advised by the economics minister, Karl Schiller, the govt had to intervene in the economy.
- The Bundesbank helped manage the money supply and a new system of federal + regional budgeting.
- Increased govt spending - especially on social welfare despite various cuts to benefits.
+ DM46.7 million in 1965 and DM115.9 million by 1970. - Economy remained stable.
Recession of 1966-67 (first as economic leaders)
- International + domestic trade reduced.
- Productivity decreased.
- Unemployment increased, especially among guest workers (numbers of GW fell from 1.3 million to 991,00 from 1966 to Sept 1967).
- Guest workers often on one-year renewable contracts without social benefits - didn’t receive any funding.
- Due to its social welfare policies, government public spending grew more out of control.
How did the govt attempt to recover from the recession of 1966-67?
- Schiller reorganised economic approach – increased government intervention - i.e. subsidies for agriculture + coal industry.
- The 1967 Economic Stabilisation Law - govt could intervene in times of economic crisis to limit regional spending + intro Five-Year Plan system for spending.
- 1968: Added a clause to the Basic Law = federal govt could impose redistribution of wealthy Lander to provide more social welfare in poorer ones.
- Failed = replaced by Helmut Schmidt in 1972.
The oil crises of 1973 and 1978
- Increasing reliance on oil rather than coal as fuel, and car ownership pushed petrol consumption.
- Spent DM 10.8 billion - 40% of its fuel was bought from OPEC.
- Changed in Oct 1973: the Fourth Arab-Israeli War broke and OPEC raised prices sharply in ‘73 and ‘78 - purchased for DM 32 billion and 49 billion respectively.
- Contributed to an economic crisis and hit FRG in 74-75.
- Unemployment rose sharply again - made worse by FRG’s ‘baby boomers’ hit the job market.
- Stopped foreign guest workers’s contracts - banned their recruitment = allowed more jobs for ‘True Germans’ but prevented the crisis worsening.
How did the govt attempt to recover from the oil crisis of 73/78
- Not hit as hard as other countries = helped by its export income.
- Oil consumption dropped - partly due to govt measures:
+ Propaganda pushed energy-saving tactics (e.g ‘car-free Sundays’.)
+ Investing in atomic power to reduce oil dependency.
+ Not subsidising oil prices - industries converted to new fuels (expensive + encouraged setbacks) compared to the USA govt.
+ Brought in public spending cuts and higher income tax.
Challenges of the 1980s
- Widening wealth gap = hostility to guest workers.
- Rode out the 1970s crises better because of its healthy exports = in 1978, exported more to OPEC countries than imported.
- Thriving economic recovery - but not to the height of the 1960s - any economic growth shrank as prices (controlled) rose with inflation.
- Unemployment hit 1.7 mil in 1981 (highest since 1950) - driving up expenditure on unemployment benefits.
- 1981 Govt cut public spending, including benefits and housing allowance = heavily unpopular, especially among those who desired the return of a social-market economy.
- Arguments in the Bundenstag about job creation by reducing the working week, or setting up a job-share programme.
How did the 1982 government attempt economic recovery?
- Despite the need to help the unemployed, it cut spending even more fiercely as it created a dependency culture.
- EXAMPLE = cut social welfare spending (maternity benefit), public holidays and reduced retirement age to 58.
- Kohl argued that productivity levels fell because of this dependency culture and baby boomer’s slack values (needed independence to find work).
- Sold shares in state-run institutions (Volkswagen + airline Lufthansa), partially privatising them.
The effect of the 1982 government’s economy policies
Produced a slight but growing improvement:
- In 1989, unemployment was at its lowest and increased economic growth rate.
- The fall of the Berlin Wall - braced itself for reunification.
Integration into the European Economy (1949-89)
- Allies included the Western zones of Germany into their organisations (set up to try to rebuild Europe).
- Adenauer was concerned to establish close European ties. Like Stresemen, he saw political and economic integration as essential.
- Concerned to build a close working relationship with France.
- So - concerned with trade + other agreements than achieving unification with the GDR.
Key dates in trying to join Europe
+ 16 April 1948: Western zones of Germany forms part of the Organisation for European Economic Cooperation - administered the Marshall Plan aid.
+ 18 April 1951: Joins the Council of Europe + European Coal & Steel Industry to set up preferential trade links.
+ 9 May 1955: Joins NATO (anti-communist alliance).
+ 1 July 1967: Brussels Treaty = Joins 3 different European groups to give them one Commission and one Council - first president is a West German (Hallstein).
Changing living standards (1945-89)
- Drastic living standards change.
- In 1945, war damage meant families were torn apart, starvation and homelessness (1/3 bombed and 1/3 of those standing were badly damaged).
- The refugee influx led to more pressure on housing.
+ Housing and food = most pressing issue of the late 1940s and the first few years of the 1950s.
How did the government aim to solve housing issues in 1945-89 (living standards)
- A ministry of housing was set up to oversee rebuilding.
- Froze rents and the building industry was given tax concessions to build.
- Housing associations were set up to build homes = some state run for social housing and for workers in state-run industries (Volkswagen)/or privately run.
Spending patterns in 1945-89 (living standards)
- As the economy strengthened, the standards of living rise and people spent their money.
- By 1963, 63% of homes owned a fridge, 42% owned a TV, and 36% had a washing machine. Rose to around 85% by 1935.
- Throughout, real wages kept ahead of prices.
- By the 1980s, 90% were covered by benefits and healthcare.
- 1980s pension reforms = people received a state pension and lived 12 years longer than those in 1950s.
Issues of deepening social inequality in the 1980s (living standardS)
- In the affluent 1960s (best economic state) - 1% of all households owned 35% of the wealth.
- 1973: top % of all households owned 78% of the wealth.
- 1988: owned 45% of the wealth.
