Economic Developments: 1949 - 1989
west german economic miracle
during the first 35 years, germany re-established itself as a world leading industrial nation, with GNP more than quadrupling across this time
first decade of 50's gave 8.2% GDP annual growth rate, slowing to 4.6% in the 60's and 2.8% in the 70's, and 0.7% in the early 80's , rising to 2.6% in 1984
west germany inherited industrially strong rhineland providing a strong economic base
loss of germanys old factories allowed for brand new complexes to be built with all the updated technology incorporated
wage controls removed, income tax reduced, major industries decentralised, credit schemes for small industries set up
currency reform and marshall plan funds helped FRG buy essential equipment and expand heavy industry
west germany had plentiful labour resources, with millions of refugees from poland and escapees from the soviet zone
huge demand, domestically and internationally, for consumer goods
outbreak of korean war in 1950 brought sharp rise in demand for german exports, with under-utilised capacity to satisfy demand
no colonies to sustain, and did not have to lay aside large amounts of money for post-war rearmament
adenauer sought to integrate FRG into europe, became a founder of european steel and coal community, from 1957 becoming founder of EEC
social market economy
new ideas of west german economists were championed by ludwig erhard who became minister of economics and was a strong supporter of free trade
measures included:
his idea was a social market economy in which there was a mix of a free/ unregulated market and state-controlled socialist economy
private businesses free to set prices and wages and develop in response to FM forces of demand and supply
state regulate to ensure fair competition and fair labour relations - such as ensuring workers' voice was heard and protected from exploitation
social market economy put into effect in 1950's involving a number of measures
investment aid law 1951 - government subsidies to heavy manufacturing industry
co-determination law of 1951 - workers in iron and steel had some say in management decisions, extended in works council in 1952 for joint discussions between employees and workers
series of trade agreements and halving of west german tariffs in the 1950's - one half of growth between 50 and 54 was from demand abroad
1957 anti-trust (decartelisation) law - prevent monopolies to increase competition
banking controls to ensure maintenance of a strong currency
german confederation of trade unions acted as an umbrella for german unions, allowing for a social partnership and 'co-determination' which helped keep wage demands low alongside strikes down
erhard resorted to government funded 'work creation schemes' to keep unemployment low, agriculture was heavily subsidised, and big conglomerates flourished despite anti-monopoly legislation
1950's boom
unemployment fell to 0.5% despite increasing immigration
exports were strong, real incomes rose between 1952/3 leading to increased consumer demand
investment increased by the state funds and private reinvestment of profits from 19% in 1950 to 24% in 1960
by the 1960's germany had the third largest economy in the world after the USA and USSR
erhard applied the slogan 'wohlstand fur alle' - wealth for all
old firms like krupps, thyssen and bayer thrived
allied regulations prevented germany exporting tanks, planes or submarines in 50's, but trade boomed in supply of mechanical equipment for rearmament of allied countries
the boom of the german car industry was a sign of an economic miracle
aftermath of the boom/ 1960's
1960's - economy was stretched to full capacity and finding workers was hard, so gastarbeiter were encouraged by govt. programmes to enter FRG
gastarbeiter rose from 150,000 in 1959 to 1.2m in 1966 and by 1970's accounted for 10% of workforce
unemployment kept below 1% but from 1965 there was a sudden and unexpected slump with GDP falling to 2.9% and industrial growth to 1.2%
inflation ran at 4% in 1966, and erhard tried to reduce spending by 10%, but only plunged germany further into recession, and was forced to resign in 1966
finance minister under kiesinger, franz josef strauss, encouraged a more active government role
stabilisation law 1967 - increased federal govt. power to raise loans, alter taxes and build funds for economic investment
government priorities of full employment, price stability, and balanced CA
allocation of special funds to improve infrastructure
policy to give central govt. greater control over fiscal policy of lander
increase in direct and indirect taxation and public spending cuts of 2000m marks
konzertierte aktion - constant exchange of views with all participants of industry
agriculture subsidies maintained, restructuring of ruhr heavy industry carried out with govt. assistance
1967 - budget balance, 1968 - unemployment down, and industrial growth back to 6%, 1969 - inflation fell back to 1.5%
EEC
1951 treaty of paris - merge of coal, iron and steel industry of west germany, france, italy, belgium, netherlands and luxembourg with a free labour market and elimination of tariffs
became known as ECSC and functionable 1952
1952 - FRG joined IMF, with adenauer behind 1957 treaty of rome establishing EEC - ECSC merged into EEC with EURATOM
membership of EEC meant by 1968 all internal tariffs removed, with quadrupling of trade between 1958 and 1968
SEA of 1987 removed restrictive practices and improved democracy
1991 maastricht treaty renamed EEC into EU
economic developments in 70's and 80's
post-war growth came to an end in the 70's, with a first recession in 1974 - 1971 to 73 saw rising inflation worsened by spending of brandt
cost of imports steadily rose with non-oil commodity prices rising 70% globally and food rising 100% globally
73 oil crisis:
OPEC doubled price of crude oil due to limited supply by arab oil exporting countries due to yom kippur war - oil embargo against US and 70% rise in price of petroleum
FRG faced with paying 17bn DM for imports, unemployment soared and temp. ban on sunday driving introduced to conserve petrol
the 1973 BoP surplus of $9.5m fell in a year to a deficit of $692m
unions continued to demand large wage increases, with an 11% increase forced in 1974 by strikes of union for public employees
helmut schmidt implemented: expenditure cuts and rise in VAT, creation of EMS to fix ER in europe
79-80 oil crisis:
1979 shah of iran overthrown causing panic among oil exporting countries leading to 150% increase in oil prices between dec 1979 and may 1980
further economic recession and unemployment rose to over 2m, lasting until 1982
kept inflation down to 4.7% between 1973 and 1979 with growth rates still greater than between 1913 and 1950
1980's economy
export-led growth strategy backed by skilful managerial and marketing techniques helped boost productivity
kept annual budget increases to max of 3%, allowing for tax cuts phased over 7 years
subsidies for farming, coal, steel and aerospace continued, alongside a reasonably high level of welfare benefits
oil prices fell in 1985, west german exports recovered and inflation fell from 6.2% in 1981 to 0.6% in 1986
unemployment was still over 2.2m in 1987 despite early retirement schemes and retraining packages