Economic Miracle

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The concept of an "economic miracle" in a strict sense has come to be associated with the development of the West German Federal Republic after 1945 and especially during the 1950s. These, as is reflected in the title of Hanna Schissler's anthology, were The Miracle Years of postwar reconstruction. However, the term has also been used with reference to the rapid growth of other European economies in this period.


What happened in West Germany in the two decades after World War II did indeed have, to many contemporaries, the appearance of something miraculous. While an estimated 50 million people died in that war, and the suffering of other societies, especially of Eastern Europe, must not be forgotten or minimized, German human losses were also enormous. Some 7 million Germans had been killed or were presumed dead, around 3.2 million being civilians. To these figures must be added some 1.3 million Wehrmacht soldiers missing in action, the fate of many of whom the Red Cross was still trying to trace as late as 1962. There were at least 1 million disabled, and civilian health had deteriorated dramatically.

Material destruction was widespread. After several years of Allied carpet bombing, many cities had been reduced to rubble. Some 3.4 million apartments out of 17.1 million had been completely flattened. Another 30 percent were badly damaged. The housing shortage was exacerbated by the influx of some 11 million refugees and expellees from Eastern Europe. As late as August 1945 an estimated 25,000 to 30,000 of them were passing through Berlin day after day. In addition to mothers and their children who had been evacuated to the countryside to escape the bombings of the cities and demobilized soldiers on their way home, there were also some 1.5 million Russian DPs (displaced persons), 1.2 million Frenchmen, 600,000 Poles, 400,000 Dutch and Belgians, 350,000 Italians, 100,000 Yugoslavs, and scores of other nationals who had been recruited, most of them by force, as foreign laborers to work in German factories or on farms. In 1945 they, too, were wandering about or being accommodated in makeshift camps.

Industrial production was at a virtual standstill. Food was extremely scarce. By July 1945 the daily intake had fallen to 950–1,150 calories, well short of the 1,500 minimum that the British military government had laid down for its zone of occupation. The initial approach of the victorious Allies to the country that had surrendered unconditionally in May 1945 was severely punitive. Although not many decision makers supported the radical plans of a partial deindustrialization of Germany that the American treasury secretary Henry Morgenthau had proposed in 1944, most people expected the Germans to enjoy for many years to come no more than a minimum living standard after extensive dismantling of industrial machinery and installations and the denazification and punishment of the adult population for their involvement in the Hitler regime. Under the denazification laws that the Allies introduced, defendants could be imprisoned, have their property confiscated, have their pension and other entitlements cancelled, and be barred from future employment.


However, soon the "reconstructionists" won the day over the "Morgenthauians." Learning from the experience after 1918, they held that keeping the Germans down and not reintegrating them into the community of nations might merely produce a repetition of history—another rise of a radical revisionist movement, such as National Socialism, leading to yet another war. The reconstructionists were helped in their strategy by the onset of the Cold War between East and West, which divided Germany in the middle along the Iron Curtain into what was eventually to become the two semisovereign states of the West German Federal Republic and the East German Democratic Republic. This division reinforced the determination of the United States but also its Western European allies to make the West Germans partners in the emergent defense community against the Soviet bloc and in the concomitant program of building a Western European economic community. The promulgation of the European Recovery Program (ERP or Marshall Plan) for economic reconstruction and of the North Atlantic Treaty Organization (NATO) for military defense laid the foundations for the economic miracle in West Germany.

Other key factors were the currency reform of June 1948 and the completion of the decartelization and deconcentration programs that pushed West German industry, which had developed in a highly anticompetitive and monopolistic direction under Nazism, into an oligopolistic liberal-capitalist system based on the principle of market competition. There was also a keen desire on the part of the West German population to revive the economy and to reduce the massive unemployment. On closer inspection, industry's production capacity turned out to be much less heavily damaged than had been assumed at the end of the war at the sight of the bombed-out cities. A skilled workforce wanted to get the machines running again for civilian production to provide jobs and to hold out the prospect of renewed prosperity. This prosperity came in the 1950s during the "miracle years."

Here are a few statistics to demonstrate this recovery. The index of industrial production, which had been below 100 points in 1935 but had then seen a rapid rise as a result of Adolf Hitler's massive rearmament program before 1939 and after the start of the war had been given a further boost by Albert Speer's total war mobilization, stood, notwithstanding the bombings, at 146 points as late as 1944, a slight decline from its peak in 1943 by a mere 3 points. In 1945–1946 the index had dropped well below the 100 mark, which it reached again in 1950. By 1960 it had grown two-and-a-half-fold to 248, reaching 327 points in 1965 and 435 in 1970.

Coal and steel production—so vital for industrial reconstruction—had slumped to 18.7 and 14.6 points respectively in 1945–1946. It rose to 58.3 and 69.1 points respectively by 1950 and to 68.8 and 121.4 points respectively by 1955. The rekindling of heavy industrial production triggered a revival of manufacturing, quite dramatically reflected in the index of automobile production. Starting from a base level of 100 in 1913 and having seen a complete collapse in 1945, the index climbed back to 936 points in 1950, 2,656 in 1955 and 4,266 in 1959. The chemical industry saw a less rapid but still impressive rise from 240 points in 1950 to 439.8 in 1955 and 630.9 in 1959. This expansion enabled West Germany, following the years of the Nazi quest for autarky and the inevitable wartime isolation, once again to join the multilateral world trading system that the United States had re-created after 1945 outside the Soviet bloc, buttressed by a number of new institutions and agreements, such as the International Monetary Fund, the World Bank, and the General Agreement on Tariffs and Trade (GATT).

Within this framework, the Federal Republic, by then well integrated into the Atlantic community both politically and commercially, once again became one of the major trading nations of the world that it had been before 1914. In 1950 exports had reached a value of 8.3 billion marks in current prices and imports 11.4 billion; by 1955 the respective figures were 25.7 billion and 24.5 billion and by 1960, 47 billion and 42.7 billion marks, showing by this time a healthy trade surplus. All this meant that the annual real growth of the West German economy reached no less than 10.4 percent as early as 1951, subsequently hovering around the 8 percent mark. It peaked at 12 percent in 1955 and, after two more meager years in 1957 and 1958, stood at 9 percent in 1960. Of course, by the standards of later years even the 5.7 percent for 1957 and the 3.7 percent for 1958 were impressive. Accordingly, the return on capital in joint-stock companies in industry and commerce was also high. The profit rate, which had reached 9 percent in 1950, fluctuated around 12 percent throughout the 1950s. Share prices calculated in relation to 100 points in 1965 rose steadily from 16 points in 1951 to 39 in 1955, 134 in 1960, and revolved around a 110-point average in the years thereafter.


Moving on to the impact of this growth on the population at large, it is clear that families who either owned companies or had invested in them did very well during the economic miracle, as did their managers. The upper and middle classes, whose assets had been destroyed or severely damaged during the war and whose savings were eaten up by inflation and the currency reform, did particularly well if they held (and had held on to) industrial or landed property or stocks on the western side of the Iron Curtain. These assets rapidly gained in value during the 1950s. Those millions who came as refugees or expellees from the East, however, had lost everything. In order to provide at least some compensation for the sake of creating social stability and integrating the newcomers, the first federal government under chancellor Konrad Adenauer insisted that a partial burden-sharing be instituted. This took the form of the Equalization of Burdens Law (LAG) of 1952. The underlying idea was to collect a contribution, amounting to half of the estimated asset values in 1950, from the "haves" who owned property above a current unit value of five thousand marks. This contribution was to be paid in installments over thirty years and to be allocated to refugees from the East but also to those who had been bombed out in the West.

Furthermore, the funds accumulated in this way were distributed in proportion to the size of the losses suffered. Small lump sums were paid for losses of household goods. Those who had lost more and could document their losses participated in the Hauptentschädigung. For example, persons who had lost documented assets of 2 million marks would get 8 percent of their former assets. A person with 50,000 marks would be given 19,000 marks in compensation; someone who had lost 5,000 marks would be given the full amount. The effect of the LAG was not only economic but also psychological. All West Germans had a sense that the material costs of the war were being shared, even if not equally. For those who had to make a contribution, it was reassuring that they were participating in a show of societal solidarity. Meanwhile, as the economic miracle unfolded and their assets grew rapidly well beyond the assessment date of 1950, their sacrifice appeared smaller and smaller and more and more bearable. Those who took part in the Hauptentschädigung obtained a windfall that enabled many of them to participate in the boom as founders of new companies or investors. Those who merely received a token at least had the feeling that they were restarting their lives on roughly the same level as those West Germans who, while not having lost anything, remained below the threshold at which a contribution to the LAG fund became due. This, of course, was the overwhelming majority of the population that benefited from the economic miracle not by seeing their assets grow but by getting jobs and subsequently achieving raises of their pay and benefits.

In 1950 the Federal Republic had 1,869,000 unemployed. By 1955 this figure had declined to 1,074,000. In 1960 it was a mere 271,000. This reduction is all the more remarkable as it includes not only the refugees and expellees who had moved west in the late 1940s but also a steady stream of those who fled from East Germany before the building of the Berlin Wall sealed the East off completely. Between 1949 and 1960 over 2.5 million East Germans crossed into the Federal Republic. In the eight months of 1961 until the building of the wall another 160,000 came. They were all absorbed into the West German economy with relative ease and hence also participated in rising real incomes, the expansion of the social security system, and a reduction of work hours. In 1950 average annual wages in crafts and industry had grown to 3,046 marks. By 1955 they had increased to 4,475 and by 1960 to 6,148 marks for all workers and employees. The index of real wages, after deduction of inflation and calculated from a 1976 baseline of 100 points, had reached 31.4 points in 1950, 51.4 in 1960, and 69.0 in 1965. Meanwhile average work hours in industry fell from 48 per week in 1950 to 45.5 in 1959.

In short, all West Germans, except for some marginal groups who depended on welfare and small pensions, had more money in their pockets and more leisure time at their disposal, helping to create a gradual growth in the consumption of goods and "mass culture," with the United States, as the hegemonic power of the West, providing not only military security through NATO and the model of Fordist mass production but also the model of a modern consumer society. To be sure, spending power was still well below the American average and, above all, continued to be unevenly distributed. Between 1950 and 1963, almost 84 percent of all dependently employed households (workers, employees, civil servants, pensioners) owned 53 percent of the total national wealth. The other 47 percent was held by a mere 16 percent of the households of the self-employed and farmers.

These inequalities have led to a debate on how rapid the advent of a mass consumption society was that is usually associated with the economic miracle. It is probably safest to say that the expansion went through several phases, perhaps best reflected in the proliferation of motor vehicles. While expensive cars were quickly available for the well-to-do, the ordinary consumer was more likely to start off with a moped, scooter, or motorbike. A few years later, he would be able to afford a three-wheeled or four-wheeled "bubble car," at most a standard model Volkswagen. But by the 1960s, the full range of midsized mass-produced car models was coming within reach, as were many other consumer durables, such as refrigerators, radios, TV sets, and washing machines. Those goods became available not only because of rising wages but also because American ideas of mass production and mass marketing began to spread in the Federal Republic as well as in other West European countries. With Fordist production and management techniques, Henry Ford's idea of passing a larger portion of the gains of factory rationalization on to the consumer in the shape of lower prices also took root.


The notion of a mass production and mass consumption society, as first more fully developed in the United States, also reached West Germany's neighbors at about the same time. In Britain during the 1950s boom, Prime Minister Harold Macmillan alleged that the population had "never had it so good." Following the catastrophe of fascism and the war, Italy, too, experienced something like an economic miracle. Living standards rose and there was a new sense of participation in material wealth, democratic politics, and cultural enjoyment. However, in Italy, as in other parts of the Mediterranean, the gap between rich and poor remained more marked because poverty was more regional and systemic. While the urban-industrial centers of northern Italy prospered, the rural-agricultural parts of the south, with their small-scale farming, remained economically more backward. Only when agriculture in the Mezzogiorno witnessed an exodus of migrants to the industrial north similar to the population movements in Germany and Britain in the nineteenth century did the economic miracle begin to reach ever larger numbers of Italians.

It took even longer for it to spread to Eastern Europe. Here the communist regimes, like their Western neighbors beyond the Iron Curtain, were publicly committed to creating a mass consumer society. But while there was some improvement in living standards, especially after the end of Stalinism, the rulers and their bureaucracies kept a tight political control not only over their populations but also over industrial production. Centralized, lumbering, and under the pressure to divert scarce resources into the military and the nuclear competition in which the communist bloc was engaged with the capitalist West and its hegemon, the United States, these regimes proved incapable of unleashing to the full the potential of modern Fordist mass production for civilian purposes. It was only after the collapse of communism in 1989–1990 and the advent of a competitive liberal capitalism of the kind that had emerged in Western Europe since 1945 that the societies of Eastern Europe also experienced something like an economic miracle, though perhaps a more modest one.

See alsoGermany; Marshall Plan.


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Volker R. Berghahn

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Economic Miracle

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