The Effect of a "Social Market" economy in Germany between 1945-1989
The Allies felt as if it were important to ensure Germany would not start another war after their defeat in 1945, therefore war industries were banned alongside equipment and machinery being taken from each zone of Germany as war reparations. The Reichsmark also eventually became worthless, resulting in the thrive and growth of the black market, and worker's wages soon not being able to buy a lot.
Soon rationing was introduced within Germany in 1947 due to the Refugee problem. This problem being caused by the reallocation both both land and people agreed at the Potsdam meeting. Now the allies had to deal with both refugees and homeless Germans.
After 1949, a new currency was introduced known as the Deutschmark (DM), helping stabilising the economy and break up the black market. However soon the Soviet zone of Germany soon introduced a new currency because it was not included with DM. By the end of the year, Germany had divided into the FRG and GDR. Ludwig Erhard was appointed director of the economic administration in March 1948 and believed in the concept of a Social Market Economy.
Until November 1948, wages had stayed fixed, but this change meant that businesses could now establish themselves, also resulting in confectioneries being sold in shops, meaning rationing wasn't as intense. Soon unemployment rose as due to the new currency, revived factories had to lay off some employees and reached a high of 1,800,000 in 1950. Yet it began to fall in 1955 with 1,000,000.
Due to the change from a Command Economy to a Social Market Economy, Erhard faced opposition from the Economic Council, The Bundestag and Britain. However, due to its experience with the New Deal, the USA showed support. People wanted the return of price fixing whilst Erhard saw opportunity for competition between industries. Erhard also saw to the removal of wage fixing and encouraged the creation of Trade unions.
From 1955 Germany's economy grew so fast it was seen as a miracle. Caused by things such as production of industrial goods such as steel and electrical good was in high demand during the Korean War. After joining NATO, Germany was soon able to produce arms again as a result of the war. Due to this and more efficient factories and equipment, exports rose as did the reputation of German goods and also the factories themselves. Furthermore the influx of refugees meant that a large pool of workers kept wages low. Educated workers (3.6 mil) from the GDR also meant that money was saved on training whilst still having young, skilled workers.
Problems: Eventhough this truely was a miracle, Erhard disliked the phrase: 'Economic miracle'. He beleived it wasn't a miracle but the result of good economic planning, hard work, and the actions of German businesses, such as investing profits back into business. Growth also wasn't as rapid as in the early 50's and 60's, as everyone now had consumer goods and replaced them at different times. Also the Berlin Wall didn't help, as it stopped some workers from travelling to the west.
Between 1966-89 there were many economic challenges faced by the FRG. In 1966 Schiller, the new economics minister, decided to intervene in the economy. The Bundesbank had a new system of regional and federal budgeting. The government also introduced more cuts to benefits, although they spent more on social welfare DM46.7 million in 1965, but DM115.9 million by 1970.
The recession of 1966-67: At the start of 1966 there were 1.3 million guest workers, on one year renewable contracts, but by 1967 there were only 1.3 million. Productivity began to fall, as well as public spending was spiralling out of control. Schiller reorganised the governments approach to the economy and reinstated control. The 1967 Economic stabilisation law allowed for government intervention in times of economic crisis to limit regional spending. In 1968, a provision was added to the Basic law that allowed the government to move money from one lander to another depending on indivual circumstances.
The oil crisis of 1973 and 1978: In 1972 the FRG spent DM10.8 bn on 140 million tonnes of oil. But in 1973 the fourth Arab-Israeli war broke out and OPEC put up oil prices sharply. Thus, unemployment rose sharply, made worse by the fact that the FRG's Baby Boomers were starting work. Guest workers contracts were not renewed - a ban was introduced on recruiting guest workers. However, The FRG was helped by its export income, the economy recovered rapidly. Oil consumption was reduced also as the government encouraged 'car free Sundays' and intoroduced speed limits on Autobahns to save fuel. Also oil prices rose in line with actual costs. The government also brought in public spending cuts and higher income tax in 1975.
Challenges in the 1980's: The gap between the rich and poor widened, creating hostility towards guest workers. Unemployment hit 1.7 million in 1981, the highest since 1950. The 1981 government cut public spending, including benefits which made it deeply unpopular. The government in 1982 was determined to turn the economy around by cutting spending even more fiercely. Helmut Kohl said people needed to be more independent. He also cut public holidays and reduced the retierment age to 58. In 1989 unemployment was at its lowest. Now the economy had to brace itself for reunification with the east.
Intergration into the European economy, 1949-89: Adenauer was concerned to establish closer ties with Europe. He saw that political and economic intergration with the rest of Europe as vital for Germany's economic and political success. He was more interested in this and establishing trade with France than unification with the GDR.
Changing living standards, 1945-89: War damage meant that families were torn apart, people were starving and many were homeless. One fith of all housing was bombed flat by the Allies. A ministry of housing was set up to oversee rebuilding. Housing associations were set up to build homes. This included social housing.
Spending patterns: As the economy strengthend, so did the standard of living, and people started to spend their money more and on different things - mainly consumer goods. Real wages kept ahead of prices by 1980. By the 1980's about 90% of all people were covered by benefits and healthcare, most people recieved a state pension. But social inequality had deepend.