Rebuilding Germany after the Second World war and through the cold war
At the end of WWII Germany stood in ruins with most of its major towns and industrial heartland bombed beyond recognition. The country was divided between the allies, with France, Britain and the US holding land in the west and Russia holding land in the East. Like orphaned twins, separated at birth they became very different adults 40 years on. With one being rich and succesful and the other, the proverbial poor relation.
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The success story in the west began very humbly, not with the economic genius of Ludwig Erhard (Economic Minister), but with the women who literally started rebuilding their towns and society, In a commemorative speech in 1985 the then president of the FRG paid them this tribute “at the end of the war it was they – the women of the rubble who first, and without any prospect of a secure future, set to work putting one stone upon another once more”. However, it soon became clear that it was impossible to subsidise an entire nation of starving people.
Something needed to be done soon to restore German prosperity and prevent the country from falling in to complete disarray. Key action was taken on the 20 June 1948 when the worthless Reichmark was abolished and each citizen received 40 of the new currency – DM. It was a risk, as prices were still high and the black market was rife. Luckily it paid off and prices soon began to fall and the black market was virtually wiped out. Rationing, which continued for several more years in Britain, ceased to be required in the FRG.
This experience of currency conversion, was to play a crucial part in the decision to abolish the Ostmark over 40 years later. The next major problem facing the government was the lack of suitable housing. But if the fragile market economy was to succeed then the rebuilding of the cities had to be done by the private, rather than the public investment. Therefore, the government decided on a series of tax incentives to encourage firms to invest in construction.
They even encouraged the Trade Unions to form their own construction company ‘Neue Heimat’ which built nearly 4m housing units in 7 years during the 50’s. Right from the very beginning this ‘new’ market economy was to have a social conscience and was influenced by the Catholic social programmes of the old Centre Party. Adenauer, especially, wanted to construct a classless society and that much of the West German miracle owes its success to this philosophy, which encouraged a ‘joint’ work ethic by the formation of amongst other things works councils to represent both employers and employee interests.
The FRG received further investment under the Marshall plan and received another boost by the forming of the European Coal and Steel Community by France in 1950 which recognised Germany as an equal trading partner and provided an internal framework for German recovery. With the formation of the Common Market, in 1958 Germany established itself as a huge exporting nation and within the first 4 years of its existence WG sales to the other 5 members had increased three fold.
This first stage of economic recovery was centered around the traditional heavy industries: mainly coal mining and steel production in the Ruhr area with the industrial giants of Krupp and Mannheim providing the bulk of employment in this region. By the end of the 60’s however this first boom was over and Germany faced a period of high unemployment. This did not last long, and soon Germany was to enter the second stage of it’s economic miracle. During this phase, traditional industries were quickly replaced by Electronics, IT, and robotics.
The south rapidly become the most prosperous Lander with the area around Stuttgart becoming known as Germany’s silicon valley. People soon began to associate the ‘made in Germany’ tag with outstanding quality engineering. When the oil crisis hit in 1973/4 Germany compensated for the rise in prices by exporting even more, broadening its market to the US, Latin America and even Eastern Europe. During the 80’s Germany was to become one of the largest exporters in the world, with a trade surplus of exports to imports.
But economic trouble finally hit at the end of Helmut Schmidts’ government and for the first time since the war Germany’s growth rate slowed dramatically and the country even experienced a fall in production levels. Although this was relatively bad for Germany, the country fared much better than neighbouring France or Britain, and still remained, economically, one of the strongest countries in Western Europe. The 3rd stage of the economic miracle, which was to provide much needed wealth to finance unification began at the end of the 80’s with Germany dominating the market for computer-controlled equipment and machine tools.
Once again its exports were on the increase and rose by 18% which contributed to a sustained GNP rise of 5% p. a. At the close of 1989 Germany’s GNP was 40% higher than Britains, and productivity levels were higher than that of Britain and France combined. Things were rather different in East Germany. Communist propaganda had managed to perpetrate the myth that the G. D. R. was as successful as F. R. G. Jorg Roesler (Inst. Economic History in Berlin) in his essay, “The rise and fall of the planned economy in the G. D. R. 1945-1989” paints a different picture. In 1949 reparation and occupation payments to USSR were 16.
9% of the national income. Entire factories were dismantled and shipped east, German goods were confiscated and sent east under armed guard. This ‘punishment’ continued until 1958 along with rationing. Whilst the West had received heavy investment and assistance under the Marshall Plan the East had to contend with Soviet raiders. Central planning in Moscow decided that East Germany should concentrate on ship building and heavy engineering. As the GDR was effectively cut off from its old source of raw materials they had no option but to comply with this ‘request’.
One piece of propaganda, however was true, the standard of living in East Germany was the highest in Eastern Europe, and was even above that of Ireland or Portugal. The East Germans did not take a positive view on this, since they compared themselves to the West as well as the East. They saw for themselves, that the West Germans had a standard of living which was rapidly advancing beyond their own. Before the wall went up, many travelled to the West and their was a steady flow of almost 250,000 emigrants each year.
Walter Ulbricht, the East German leader, tried to stem this flow with a programme designed to raise productivity levels. For a short while this achieved a level of success and there was a drop in the outflow of migrants. But it soon became clear that more drastic measures were needed to stop this cross border brain drain of increasing numbers of young, well educated people. So with the full support of its Soviet allies a physical border was erected and in 1961 East Germany was effectively sealed of from the outside world.