Industrial plans for Germany

The Level of Industry plans for Germany were the effected Allied plans to lower and control German industrial potential after World War II.

Background

At the Potsdam conference, with the U.S. operating under influence of the Morgenthau plan, the victorious Allies decided to abolish the German armed forces as well as all munitions factories and civilian industries that could support them. This included the destruction of all ship and aircraft manufacturing capability. Further, it was decided that civilian industries which might have a military potential, which in the modern era of "total war" included virtually all, were to be severely restricted. The restriction of the latter was set to Germany's "approved peacetime needs", which were defined to be set on the average European standard. In order to achieve this, each type of industry was subsequently reviewed to see how many factories Germany required under these minimum level of industry requirements.

Level of Industry plans

The first "level of industry" plan, signed by the Allies in March 29, 1946, stated that German heavy industry was to be lowered to 50% of its 1938 levels by the destruction of 1,500 listed manufacturing plants. In January 1946 the Allied Control Council set the foundation of the future German economy by putting a cap on German steel production capacity: the maximum allowed was set at about 5,800,000 tons of steel a year, equivalent to 25% of the prewar production level. The UK, in whose occupation zone most of the steel production was located, had argued for a more limited reduction by placing the production ceiling at 12 million tons of steel per year, but had to submit to the will of the U.S., France and the Soviet Union (which had argued for a 3 million ton limit). Steel plants thus made redundant were to be dismantled. Germany was to be reduced to the standard of life it had known at the height of the Great depression (1932). Car production was set to 10% of prewar levels, etc.

On February 2, 1946, a dispatch from Berlin reported:

Some progress has been made in converting Germany to an agricultural and light industry economy, said Brigadier General William Henry Draper Jr., chief of the American Economics Division, who emphasized that there was general agreement on that plan.

He explained that Germany’s future industrial and economic pattern was being drawn for a population of 66,500,000. On that basis, he said, the nation will need large imports of food and raw materials to maintain a minimum standard of living.

General agreement, he continued, had been reached on the types of German exports — coal, coke, electrical equipment, leather goods, beer, wines, spirits, toys, musical instruments, textiles and apparel — to take the place of the heavy industrial products which formed most of Germany's pre-war exports.

Timber exports from the U.S. occupation zone were particularly heavy. Sources in the U.S. government admitted that the purpose of this was the "ultimate destruction of the war potential of German forests." Extensive deforestation due to clear-felling resulted in a situation which could "be replaced only by long forestry development over perhaps a century.".

The first plan was subsequently followed by a number of new ones, the last signed in 1949. By 1950, after the virtual completion of the by-then much watered-down "level of industry" plans, equipment had been removed from 706 manufacturing plants in the west and steel production capacity had been reduced by 6,700,000 tons.

Moderation of policy

Beginning in mid-1946 American and British policy towards the German economy began to change, illustrated by Byrnes's September speech restatement of policy on Germany (also known as the "Stuttgart speech" or "Speech of hope"). According to Dennis L. Bark and David R. Gress in A history of West Germany Morgenthau's and Eisenhower's policies came to be seen as inflicting undue hardship, and so the approach was shifted, over time, to one encouraging German economic expansion. As part of this, the allowed levels of industrial capacity were raised.

According to Vladimir Petrov in Money and conquest: allied occupation currencies in World War II the reason for the change in U.S. occupation policy was almost exclusively based on economic considerations. Although a large part of the occupation costs were placed on the German economy, the U.S. and the U.K were increasingly forced to supply food imports to prevent mass starvation. According to some historians the U.S. government abandoned the Morgenthau plan as policy in September 1946 with Secretary of State James F. Byrnes' speech Restatement of Policy on Germany. Others have argued that credit should be given to former U.S. President Herbert Hoover who in one of his reports from Germany in 1947 argued for a change in occupation policy, amongst other things stating:

"There is the illusion that the New Germany left after the annexations can be reduced to a 'pastoral state'. It cannot be done unless we exterminate or move 25,000,000 people out of it.

Worries about the sluggish recovery of the European economy (which before the war was driven by the German industrial base) and growing Soviet influence amongst a German population subject to food shortages and economic misery, caused the Joint Chiefs of Staff, and Generals Clay and Marshall to start lobbying the Truman administration for a change of policy. General Clay stated

"There is no choice between being a communist on 1,500 calories a day and a believer in democracy on a thousand".

In July 1947, President Harry S. Truman rescinded on "national security grounds the punitive occupation directive JCS 1067, which had directed the U.S. forces of occupation in Germany to "take no steps looking toward the economic rehabilitation of Germany [or] designed to maintain or strengthen the German economy." It was replaced by JCS 1779, which instead noted that "[a]n orderly, prosperous Europe requires the economic contributions of a stable and productive Germany. Nevertheless, General Clay needed over two months to overcome continued resistance among his staff to the new directive, but on July 10, 1947, it was finally approved at a meeting of the SWNCC. The final version of the document "was purged of the most important elements of the Morgenthau plan.

The restrictions placed on German heavy industry production were thus partly ameliorated, as permitted steel production levels were raised from 25% of pre-war capacity to a new limit placed at 50% of pre-war capacity.

Economic consequences

The reduction in steel production that resulted from the first and second levels of industrial planning meant that the steel bottleneck forced other parts of the German industry to fall below their own permitted levels. The West/East bi-zonal economy finally hit rock bottom early in 1948 as a consequence of this.

Compounding the problems in the steel industry and their effects on the German economy as a whole was the prohibition against importing high-grade Swedish iron ore. Until that was lifted in 1948, German steel plants had to rely on low quality local ore which required almost twice the amount of coal to process. Moreover, the Germans were also forced to sell their steel at wartime prices until April 1, 1948, which meant large losses for the industry. Additionally, attempts to "decartelize" the German steel industry also contributed to the low output.

The Allied Control Council set the price for German coal at half what it cost to produce it. From May 1945 until September 1947 the U.S., U.K., and France exported German coal for $10.50/tonne, while the world price hovered closer to $25-$30 per tonne. During this period the Allies thus took roughly $200,000,000 out of the German economy from this source alone. In September 1947 the export price was raised but remained set at $5-$7 below world-market prices.

In Germany the shortage of food was an acute problem. According to the UNRRA in 1946–47 the average kilocalorie intake per day was estimated to be 1,800, which according to Alan S. Milward was an amount insufficient for long-term health. Other sources state that the kilocalorie intake in those years varied between as low as 1,000 and 1,500. William L. Clayton reported to Washington that "millions of people are slowly starving.

Germany received many offers from Western European nations to trade food for desperately needed coal and steel. Neither the Italians nor the Dutch could sell the vegetables that they had previously sold in Germany, with the consequence that the Dutch had to destroy considerable proportions of their crop. Denmark offered 150 tons of lard a month; Turkey offered hazelnuts; Norway offered fish and fish oil; Sweden offered considerable amounts of fats. However, the Allies disallowed the Germans to trade.

The UNRRA charter allowed it to operate in Germany to assist non-ethnic German displaced persons, but did not permit it to assist ethnic Germans. In 1948, after three years of occupation, the combined U.S. and U.K. expenditure on relief food in Germany through GARIOA and other means stood at a total of close to $1.5 billion (that were charged to the Germans). Still, according to Nicholas Balabkins, German food rations were deficient in composition and remained far below recommended minimum nutrition levels. Officials in authority admitted that the distributed rations "represented a fairly rapid starvation level".

Reparations and exploitation

Contrary to common myth the U.S. did in fact take "reparations", parts of it by John Gimbel called "plunder and exploitation", directly from Germany. The U.S. for instance took a 8.9% share of dismantled Western German industry The Allies also confiscated large amounts of German intellectual property. Beginning immediately after the German surrender and continuing for the next two years the U.S. pursued a vigorous program to harvest all technological and scientific know-how as well as all patents in Germany. John Gimbel comes to the conclusion, in his book "Science Technology and Reparations: Exploitation and Plunder in Postwar Germany", that the "intellectual reparations" taken by the U.S. (and the UK) amounted to close to $10 billion. The U.S. competitors of German firms were encouraged by the occupation authorities to access all records and facilities. In 1947 the director of The U.S. Commerce Department's Office of Technical Services stated before congress: "The fundamental justification of this activity is that we won the war and the Germans did not. If the Germans had won the war, they would be over here in Schenectady and Chicago and Detroit and Pittsburgh, doing the same things. A German report from May 1, 1949 stated that many entrepreneurs preferred not to do research under the current regulations (Allied Control Council Law No. 25) for fear of the research directly profiting their competitors. The law required detailed reporting to the Allies of all research results. The British took commercial secrets too, by abducting German scientists and technicians, or simply by interning German businessmen if they refused to reveal trade secrets..

Occupation costs

The costs of the occupation were charged to the German people, about $2.4 billion per year. One estimate for the year 1948 placed this cost to the German economy, through requisitions of goods, materials and direct payments, to be 46 percent of local tax receipts. The Germans were charged for such costs as "one ton of water bugs to feed a U.S. general’s pet fish, a bedspread of Korean goatskin, thirty thousand bras".

Marshall plan

With the Western Allies eventually becoming concerned about the deteriorating economic situation in their "Trizone"; the U.S. Marshall Plan of economic aid to Europe was extended also to Western Germany in 1948 and a currency reform, which had been prohibited under the occupation directive JCS 1067, introduced the Deutsche Mark and halted rampant inflation. Though the Marshall Plan is regarded as playing a key role in the German recovery, it's role was more of a psychological than economic nature. Libertarians, particularly, stress the role of Erhard's economic policies, and point out to the detraction of the monetary significance of the Marshall plan that besides simultaneously demanding large reparations payments "the Allies charged the Germans DM7.2 billion annually ($2.4 billion) for their costs of occupying Germany".

Germany received roughly $1.4 billion in total from the Marshall plan over the years, as loans. However, in 1953 it was decided that Germany was to repay only $1.1 billion of the aid it had received (through Marshall and the previous GARIOA). The last repayment was made in June 1971.

The Ruhr

The Ruhr Agreement was imposed on the Germans as a condition for permitting them to establish the Federal Republic of Germany. By controlling the production and distribution of coal and steel (i.e. how much coal and steel the Germans themselves would get), the International Authority for the Ruhr in effect controlled the entire West German economy, much to the dismay of the Germans. They were however permitted to send their delegations to the authority after the Petersberg agreement. With the West German agreement to join the European Coal and Steel Community in order to lift the restrictions imposed by the IAR, thus also ensuring French security by perpetuating French access to Ruhr coal, the role of the IAR was taken over by the ECSC.

End of dismantling

The dismantling of German industry continued, and in 1949 Konrad Adenauer wrote to the Allies requesting that it end, citing the inherent contradiction between encouraging industrial growth and removing factories and also the unpopularity of the policy. (See also Adenauers original letter to Schuman, Ernest Bevins letter to Robert Schuman urging a reconsideration of the dismantling policy) Support for dismantling was by this time coming predominantly from the French, and the Petersberg Agreement of November 1949 reduced the levels vastly, though dismantling of minor factories continued until 1951.

In 1951 West Germany agreed to join the European Coal and Steel Community (ECSC) the following year. This meant that some of the economic restrictions on production capacity and on actual production that were imposed by the International Authority for the Ruhr were lifted, and that its role was taken over by the ECSC.

The final limitations on German industrial levels were lifted after the European Coal and Steel Community entered into force in 1952, though arms manufacture remained prohibited. The Allied efforts to "de-concentrate and reorganize" the German coal, iron and steel industry were also continued.

Although dismantling of West German industry ended in 1951, "industrial disarmament" lingered in restrictions on actual German Steel production, and production capacity, as well as on restriction on key industries. All remaining restrictions were finally rescinded in May 5, 1955. According to Frederick H. Gareau, noting that although U.S. policy had changed well before that; "the last act of the Morgenthau drama occurred on that date (May 5, 1955) or when the Saar was returned to Germany (January 1, 1957).

Vladimir Petrov concludes that the Allies "delayed by several years the economic reconstruction of the wartorn continent, a reconstruction which subsequently cost the United States billions of dollars. (see Marshall plan)

See also

• Monnet plan
• Wirtschaftswunder
• Operation Paperclip (Part of the effort to aqcuire German intellectual property)

External links

Notes