Economic Miracle of West Germany Economy
The miraculous transformation of West Germany economy is a matter that has appalled the entire world. The revival of its economy took a short period despite the presence of both physical and economic barriers. The World War II majorly contributed to the backwardness of its economy. During this period, there was a heavy destruction of steel and coal industries, high inflation, reduced capital stock leading to low capital investments, heavy taxation, and inadequate human labor. In revamping the economy, many initiatives were undertaken to hasten the process. Such strategies include reforms in currency, the Marshall Plan, setting up of public authorities, rebuilding capital stock, and massive cuts in taxation. The mentioned measures led to the economic miracle. The paper seeks to illustrate the transformation of the West Germany economy from backward state to a competitive economy.
As mentioned in the introduction, the destruction of steel and coal industries by the allied forces drained the economy of West Germany. The dismantling of these industries deprived the country of vital equipment that could be used in the manufacturing plants. This led to reduced production capacity and low unemployment rates. Pulling out of United Kingdom, United States, and France from West Germany in 1950 was instrumental in the restoration of the country’s heavy industries.[1] Notably, the country embarked on the mass production of steel and coal which led to the increased employment opportunities for its citizens.
In improving the economy of West Germany, the country opted for currency reforms in 1948. Initially, the country was using the Reichsmark currency that was unstable leading to rampant inflation. To iron out this problem, the country adopted a new currency, Deutsche Mark. The said move solved the problem of inflation which was a significant step towards economic stability. In addition to this, the acceptability of the new currency made it easier for West Germany to engage in international trade.
Ludwig Erhard, who was minister of economy, came up with a policy on tax cuts to resolve the problem of heavy taxation. This move led to a significant drop in the marginal tax rate which was a relief to citizens. A point to note is that this strategy empowered the populace by boosting their purchasing power.[2] Besides, industries capitalized on the increased purchasing power by increasing production since the market was readily available. Moreover, the standards of living of West Germany improved dramatically.
Rebuilding of capital stock led to rapid increase in economic output. Previously, the capital stock of the West Germany was depleted which hindered the economic growth and development. Therefore, there was a need to uplift the situation that led to increased capital investments. As a result of this, the country experienced increase in employment levels coupled with improvement of living standards.[3] Besides, the purchasing power of wages to employees increased. Consequently, the economy of the discussed country drastically transformed from backward to a competitive state.
Marshall Plan also played a role in the recovery of the West German economy. The financial assistance received from this program enabled the country to jump-start a number of economic plans. Notably, the establishment of public authorities such as the railway stations, schools, hospitals, parks, and museums generated revenue to the government.
From the discussion, it is clear that the economy of West Germany had undergone a miraculous economic transition. The implementation of workable strategies propelled the economy to a competitive state. The moves such as currency reforms, capital stock rebuilding, reduction of the tax burden, and Marshal Plan immensely contributed to the West Germany’s new economy.
Bibliography
Rose, Richard. Understanding Post-Communist Transformation: A Bottom Up Approach. London: Routledge, 2009.
Spicka, Mark E. Selling the economic miracle: reconstruction and politics in West Germany, 1949-1957. New York: Berghahn Books, 2007.
[1] Rose, Richard. Understanding Post-Communist Transformation: A Bottom Up Approach (London: Routledge, 2009), 205.
[2] Spicka, Mark E. Selling the economic miracle: reconstruction and politics in West Germany, 1949-1957 (New York: Berghahn Books, 2007), 233.
[3] Rose, Richard. Understanding Post-Communist Transformation: A Bottom Up Approach (London: Routledge, 2009), 66.
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