3. Creating a social market economy 1945–89

Question 1

Potsdam 1945

Answer 1

Allies agreed it was important to rebuild Germany’s economy and it was important that Germany did not start another war

1. war industries (e.g munitions) were banned and war-related (e,g chemical industries) had their outputs restricted;
2. Reparations were to be taken in equipment and machinery from each zone

Question 2

Impact of WWII

Answer 2

The Reichsmark was almost worthless was damaging the economy: the black market thrived and it was hard to get workers when their wages hardly brought anything

Many germans left and others choose to not to return e.g. 160,000 german prisoners of war stayed there after war

The allies also had to deal with the influx of ten million germans who came as refugees

Question 3

West Germany - Economic aid

Answer 3

$1.4 million were given to western zones under the Marshall Plan of 1948 which set off the creation of the Deutschmark (DM) to administer the aid

The new currency helped to stabilise the economy and break up the black market however it led to the soviet zone setting its own currency and made separation more likely (divided to GDR and FRG in 1949)

Question 4

Erhard and reform

Answer 4

Erhad was appointed director of the economic administration in March 1948 and believed in the idea of a social market economy which he worked to create under the allies as the economics minister of Germany from 1949 to 1962

Question 5

Social market economy

Answer 5

This a free market economy with elements of social support for the poorest built in - a ‘socially responsible’ free market economy

Question 6

Erhard’s policies

Answer 6

In June 1948, he announced that the RM would be replaced by the DM

Wages stayed fixed until November 1948 to allow businesses to establish themselves

1952 the Bundestag passed the Equalisation of Burdens Act: tax on assets -the money raised and redistributed helped support who had lost everything because of war

Question 7

Impact of the new currency - DM

Answer 7

People stopped hoarding goods and started to stop with a more careful concern for the price and quality rather than buying anything that become available because they felt more confident that supplies would last

Question 8

Unemployment levels

Answer 8

Unemployment levels rose from rose from 442,000 in 1948 to 1,800,000 in 1950 - many businesses failed because they could not afford to pay wages

Then began to fall in 1955 it was 1,000,000 and continued to fall

Question 9

Worker’s rights

Answer 9

All businesses had workers’ councils and in 1951 there was a policy of co-determination (the right of workers to take part in the management of the businesses they work for)

Question 10

The economic miracle 1955-66: The korean war 1950-53

Answer 10

War sparked a need for war supplies
S: FRG was banned from producing industrial goods, chemical, steel and electrical goods but in 1955, the FRG joined NATO and was now allowed to rearm and start producing war materials as a result of the war

Question 11

The economic miracle 1955-66: New investment

Answer 11

Many businesses had recovered significantly by the mid-1950s to be able to invest in new more efficient equipment which allowed the production of high-quality goods and lowe prices

S: reputation of German goods grew - as exports grew, businesses could employ more people

L: In the early 1960s - once the everyone had brought their consumer goods for the first time, demand fell through to a lower level as people replaced these goods at different times

Question 12

The economic miracle 1955-66: Guest Workers

Answer 12

Refugee crisis after wwii - influx of ‘guest workers who worked for low wages

S: allowed businesses to make larger profits for cheaper labour

L: Guest workers required training - not time efficient

Question 13

The economic miracle 1955-66: Workers from GDR

Answer 13

During the 1950s, about 3.6 million workers came from the GDR - many of them being young skilled workers (e.g. doctors and engineers)

S: “brain drain” - significantly helped economy as the government saved money that would have been spent on education costs/training people in the FRG and use it elsewhere e.g on funding housing construction

L: The berlin wall put up in 1961 stopped workers crossing from the GDR into the FDR and reduced the ‘free’ professionals that had helped the expanding economy

Question 14

Economic challenges in the years 1966-89

Answer 14

Economic growth moved at a lower rate after 1966

Rising levels of government spending: in 1965 the government spent DM46.7 million on social welfare and DM115.9 million by 1970 despite various cuts to benefits

Question 15

The recession of 1966-77

Answer 15

Trade (domestic and international) reduced and unemployment increased

Many guest workers were on one-year renewable contracts - there was 1.3 million workers in 1966 and 991,000 by 1967 so productivity began to fail

Productivity began to fall due to social welfare policies - public spending was spiralling out of control due to welfare

Question 16

Government response to the recession 1966-77

Answer 16

The economics minister Karl Schiller increased government planning, intervention and control e.g. subsidies for agriculture and the coal industry

In 1968 a provision was added to the Basic Law that the federal government could move money around the Lander using money from the wealthy ones to provide in the the struggling ones

Question 17

The oil crisis of 1973 and 1978

Answer 17

The FRG came to rely on oil rather than coal as fuel - In 1972 the FRG spent DM10.8 billion on 140 million tonnes of oil

In 1973 the Fourth Arab-Israeli war broke out and OPEC put up prices in 1973 and 1978

The FRG got 40% of its fuel needs through OPEC - the price of 150 million tonnes of oil cost DM32.8 billion in 1973 and DM49 billion in 1978

Unemployment rose made worse by the FRG’s baby boomers hitting the employment market

Question 18

Government response to the oil crisis of 1973 and 1978

Answer 18

Oil consumption dropped because of government measures such as encouraging ‘car-free sundays’’ and introducing speed limits on the autobahns in order to save fuel

Government propaganda pushed energy saving tactics in homes/industry and the government began to invest in atomic power to reduce dependence on oil

The government did no subsidise oil prices but let them rise with their actual costs which made it expensive and encouraged cutbacks

Foreign workers found their contracts were not renewed and a ban was placed on recruiting guest workers - this helped to prevent the crisis becoming worse

Question 19

Challenges of the 1980s

Answer 19

Gap between the richest and poorest widened which created hostility towards guest workers

Unemployment hit 1.7 million in 1981 (the highest since 1950) which drove up the amount of spending on unemployment benefits and assistance for the long-term unemployed

Question 20

Government response to the challenges of the 1980s

Answer 20

1981 government cut public spending including benefits and housing allowance

1982 government - Chancellor Helmut Kohl felt productivity levels were failing due to dependency and slack of the ‘baby boomers’ so brought further cuts to social welfare spending including mate

Question 21

Social inequality

Answer 21

Deepened with the top percent of all households owning majority of the wealth e.g in 1960 1% of all households owned 35% of the wealth and in in 1988 they owned 45%

Question 22

Housing Crisis

Answer 22

1/5 of all housing had been bombed flat and about 1/3 of that still standing was damaged + refugee influx led to more pressure on housing

Question 23

Government response to the housing crisis

Answer 23

A ministry of housing was set ip to oversee rebuilding

Rents were frozen and the building industry was given tax concessions to build

Housing associations were set up to build home - some state run for social housing and for workers in state-run industries such as volkswagen

Question 24

Spending patterns

Answer 24

As the economy strengthened the standard of living rose and people began to spend money on consumer goods

All though the period real wages kept ahead of prices although the extent to which varied

Question 25

Benefits + dependency on the state

Answer 25

By the 1980s about 90% of people were covered by benefits

Pension reforms in the 1980s meant most people received a state pension