Economy

• During the first 35 years, the GNP more than quadrupled.
• The GDP:

  • 1950s - 8.2%
  • 1960s - 4.6%
  • 1970s - 2.8%
  • 1980s - began as 0.7% to 2.6% from 1984.
• Factors for the 1950s economic boom in Germany

  • Inherited the industrially strong Rhineland
  • Destruction of some German factories was a blessing as new, more complex ones could be built
  • Period of allied occupation: Marshall funds, wage controls removed, income tax reduced, credit schemes for small business
  • Millions of refugees fled from Soviet zones and Poland
  • No longer needed to retain colonies
  • Demand for consumables was so high
  • Adenauer was determined to integrate into Europe particularly for trade
  • Became a founding member of the European Coal and Steel Community and from 1957 a founding member of the EEC
• The Social Market Economy

  Erhard believed that markets could bring about an economic transformation. This was a compromise between a completely free economy and a state-supervised economy. Some key premises were:

  • Private business were free to set their own prices and wages
  • The state would intervene to make sure that workers were not susceptible to exploitation and had good working conditions
  • Investment Aid Law (1951) - introduced subsidies to help heavy manufacturing industry which was not doing as well as consumer goods.
• Social Market Economy (cont.)

  • Co-determination Law (1952) - permitted workers in iron and steel industry in management discussions.
  • Laws preventing the establishment of monopolies to increase competition
  • Associations for manufacturers and employees. More than 1000 employers were a part of the Confederation of German Employers' associations and the DGB was an umbrella organisation for unions to keep strike action down.
• The 1950s boom:

  • Unemployment fell to 0.5%
  • By the 1960s, they had the third largest economy in the world
  • Old firms like Krupp and Thyssen in steel manufacturing thrived and the industries that grew the most were the ones expanding during the war years
  • The car industry boomed, particularly the Volkswagen Beatle which cost under DM 2000.
• In the 1960s, the economy was stretched to full capacity and workers became more of a problem, but this was solved by foreign guest workers, Gastarbeiter. Government schemes helped encouraged them over. Numbers rose form 150,000 in 1959 to 1.2 million in 1966.
• From c1965, there was a European economic slump. Inflation was running at 4% in 1966, and the SPD leader Schmidt accused him of over-spending on railways, military equipment from the USA and over-subsidising agriculture. He reduced spending plans by 10%, but it only plunged them into further recession.
• Kiesinger's chancellorship:

  More of a government role in economics such as:

  • 1967 Stabilisation Law - increased power of the federal government to increase taxes and alter loans
  • special funds to improve infrastructure
  • public spending cuts of nearly 2,000 million marks
• Kiesinger's policies greatly helped, industrial growth was up to 6% again and in 1969, inflation fell back to 1.5%
• In 1950, the French suggested merging the Western European coal and steel industries into a single supranational control. Adenauer believed this would reduce rivalry with the other countries. Schumacher believed this was selling-out to the western allies.
• 1951 - The treaty of Paris was signed, eliminating tariffs and created a free labour market. The ECSC began to function from 1952.
• The 1957, they were behind negotiations of the Treaty of Rome which set up the EEC. This established common policies for agriculture, transport, capital and labour.
• Between 1958 and 1968, trade among the EEC members quadrupled in value.