1948-1960 Spontaneous Growth
The monetary, economic and institutional reforms of June 1948 were followed by about 18 months of consolidation with stable to slightly falling prices.
Industrial production increased by 24% in 1949 and 12% in the first half of 1950. Over the period the average annual growth rate was 15% per year.
The employment growth picture was mixed. Labor requirements reflect not only the level of production but also the level of labor productivity. Labor productivity was increasing dramatically in the recovery period. In 1948 there were 600,000 new jobs but a loss of 370,000 old jobs for a new gain of 230,000. But in 1949 the were only 260,000 new jobs and a loss of 410,00 old jobs for a net loss of 150,000 jobs.
On top of this mixed picture on job creation there was an influx of 9 million refugees (expellees and immigrants).
The major problem was the capital shortage. Not only was there the problem of the war destruction of capital but the reparation confiscations of capital equipment depleted the capital stock and made entrepreneurs afraid to invest because of the possibility that their investments might be confiscated in the future.
Profitability was increasing because wage rates were not increasing as fast as prices and productivity. In other words, unit labor costs were declining.
The prescription for dealing with the capital shortage problem by the Keynesian economic advisers to the government was three-fold:
1. expansionary monetary policy
2. tax incentives for saving
3. investment planning by the government
William Ropke, an economist whom Americans would call conservative but in European terminology is called liberal, recommended increasing the interest rate to encourage savings.
The Tax Law Adjustment Acts of June 1948 and April 1949 created tax breaks for capital creation. West Germany had a high, graduated income tax imposed by the Allied Occupation Force after World War II modeled upon the New Deal income tax of the U.S.
There were income tax reforms over the period 1948 to 1955 to reduce the severity of the income tax program.
The West German government was directed involved in investment planning in the "bottleneck sectors" of mining, steel and energy.
West Germany retained the rent control program created during the days of the Weimar Republic, continued by the Nazis and later by the Occupation. There was thus a chronic shortage of housing which the government tried to alleviate with construction subsidies and public housing.
German foreign trade recovered dramatically despite the loss of Eastern European markets. Foreign trade increased 84.4% per year over the two year period 1948-1950. Throughout the 1950s it increased 16% per year in real terms. Thus West Germany very quickly wiped out its trade deficit and commenced running a trade surplus. Initial exports were raw materials such as coke from coal and scrap metal but by the end of the 1950s exports were mainly manufactured goods. Also by the end of the 1950s Western Europe had become the major customer and major supplier for West Germany.
How did Japan succeed in developing its economy after World War II?
After World War II ended in 1945, Japan made a new start toward economic reconstruction as a democratic and pacifist state. Thanks to its highly educated and abundant labor force and to the concentration of capital and resources in certain key industries, such as electric power and steel, Japan succeeded in recovering from the ruins of war and achieving industrialization during the 1950s and 1960s.
