The effects of the 'social market economy' on the FDR *Politician to remember*: Ludwig Erhard
- Second chancellor of Federal Republic of Germany [1963 -1966].
- Appointed Minister of the Economy in March 1948.
- worked to create the social market economy with the Allies in post-WWII Germany and then as economic minister of Germany from 1948 - 1963.
- Erhard disliked the phrase 'economic miracle' for the economic miracle period of 1955-66 as he preferred to think that it was a result of planning and hard work by the German people.
economic miracle 1955-1966
- The Korean War: sparked a need for war supplies, although at this time Germany was not allowed to manufacture them, in 1955 it was eventually allowed to join NATO and allowed to re-arm and start producing war materials.
- New investments: many businesses recovered enough by the mid-1950s to be able to invest in newer equipment and factories producing higher quality goods and thus earning an international reputation. Exports grew so businesses could invest more and employ more workers.
- Immigrant workers: An influx of young, skilled and highly educated refugees from the GDR [3.6 million workers came to the FRG from the GDR] meant that there was a large efficient workforce to keep the wages low. They also actively participated in the new consumer culture sweeping the western zones.
Economic Challenges 1966-1989
- In 1966 the government urged by the new economics minister Karl Schiller began to accept that it had to intervene in the economy, with the Bundesbank managing the money supply and a new system of federal and regional budgeting.
- There were rising levels of government spending especially on social welfare [by 1970 it was 115.9 million] despite budget cuts to benefits.
The recession of 1966-67
- Domestic and international trade decreased and unemployment and public spending increased. Guest workers were on one-year renewable contract without benefits, which meant that many left although they had been vital to the economy.
- Karl Schiller reorganised the government approach by increasing planning, intervention and control and subsidising areas such as agriculture and the coal industry.
- He re-introduces cartels to stop prices rising.
- The 1967 Economic Stabalisation Law allowed government intervention in times of economic crisis, it also introduced a Five Year Plan for all government spending.
- In 1968 a provision was added to the Basic Law that said the federal government could move money around the Lander, giving money from the richer to the poorer to provide more social welfare etc.
The oil crises of 1973 and 1978
- The FRG came to rely on oil rather than coal as a fuel and car ownership pushed up fuel consumption.
- In October 1973, the fourth Arab-Israeli war broke out and OPEC raised their prices and again in 1978. This hit the FRG a little hard as they got 40% of their fuel needs through OPEC.
- The crisis hit the FRG between 1974-75; unemployment rose made worse by the fact that the baby boomers hit the employment market during this period. Recruiting guest workers was banned which helped the unemployment levels.
- The government introduced measures such as 'car-free sundays' and speed limits to save fuel which helped oil consumption levels to drop.
- The government used propaganda to encourage energy saving tactics and invested in atomic power to reduce dependency on oil. It also did this by not subsidising oil prices which made it more expensive and thus less attractive for those looking to save money. German industries started converting to new fuel rapidly.
- The government also brought in public spending cuts and higher income tax in 1975.
challenges of the 80's
- The gap between the rich and the poor continued to widen.
- Unemployment hit 1.7m in 1981, its highest since the 50's.
- Productivity levels were falling because of increased spending on unemployment benefits which created a slacker culture for the baby boomers.
- The government of 1981 looked to change this by cutting public spending including benefits and housing.
- The government of 1982 cut spending even more including maternity benefits as well as cutting public holidays and reducing the retirement age to 58. It also partly privatised state-run institutions by selling of shares in them.