Economic Development of Germany and Italy 5 years before, during and 5 years after WWII (1935-1950)

Economic Development of Germany and Italy 5 years before, during and 5 years after WWII (1935-1950)

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nIntroduction

nFrom the 1929, most European countries suffered from economic recession, which was caused by the Great Depression. Therefore, countries such as Germany and Italy experienced high rates of unemployment, huge debts, and inflation (Conradt and Langenbacher 2013). Consequently, these governments were unable to deal effectively with emerging issues in their economies. Ultimately, this facilitated change of regime in these countries (Hiden 2014). In Germany, the National Socialist Party of Germany (Nazi) led by Adolf Hitler took over power from 1933 aiming to promote economic recovery in the country (Adena et al 2015). The Nazi government introduced economic reforms with an objective of minimizing the rate of unemployment due to the Great Depression and World War I. Between 1932 and 1933; the Nazi government introduced economic policy, which encompassed management of exchange rates, expansion of financial policy and credit facilities (Stachura 2014). On the other hand, the National Fascist Party led by Mussolini Benito initiated a number of economic programs with an intention to boost the economy in Italy (Evans 2015). The leader of Conservative Party, Sir Winston Churchill, led Britain in the WWII. After the end of this war, all countries recorded a significant level of economic prosperity. West Germany, Britain and Italy adopted capitalism policies, which facilitated development. The paper will analyse the Economic Development of Germany and Italy 5 years before, during and 5 years after WWII.

nThe Economy of Germany in the First Five Years Preceding and during World War II

nPrior to election of Hitler 1933, the economy of Germany was experiencing many challenges because of the impacts of the Great Recession. During this period, the rate of unemployment in the country was over 33 per cent, which meant that close to 6 million people were jobless (Adena et al 2015). Nazi regime and Hitler promised economic transformation by providing adequate jobs for all Germans. Schacht Hjalmar was appointed as the Minister of Economics who introduced a number of economic reforms. Most importantly, the Centrally Administered Economies (CAEs) was established. The CAE played a major role in reducing the rate of unemployment since it promoted formation of huge projects in public works. Consequently, the Germans were offered jobs, irrespective of their productivity (Hiden 2014). Hitler accomplished significant economic transformation in his first five years in power. In this regard, the Germanys economy recovered tremendously. For instance, the joblessness in the country reduced from 6 million to less than half a million in 1939 (Conradt and Langenbacher 2013). During this period, other European countries were still struggling with deteriorating economies.

nIn the first five years of Nazi administration, the domestic income and productivity doubled. Research by Adena et al (2015) noted that the economic growth of the country was partly boosted by the rearmament policy that Hitler introduced. Many young people were employed in the military, although women were not offered employment. In 1935, most of the Jews lost their jobs after Hitler revoked their citizenship (Adena et al 2015). However, Nazi had initiated an economic policy, which enhanced public spending. In this regard, major projects were introduced such as super highways, and autobahns in the nation (Stephenson 2014).

nThe GDP of Germany Prior to WWII, Source (Conradt and Langenbacher 2013)

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nMoreover, social welfare programs towards the citizens such as standardized and cheap cars were provided. Specifically, the Nazi government ensured that every German was offered a Volkswagen (Stachura 2014). Moreover, Nazism controlled most robust scientific philosophy, which helped them to win many Nobel Prizes and international patents (Hiden 2014). Germany medicine and science were the most coveted across the globe at the time. There was also a notable innovation in the other disciplines such as pharmacology, engineering, physics and biology. Similarly, the chemical agents that could be used in warfare were invented and advanced. Other industries also expanded under the Nazi regime (Adena et al 2015). For instance, aeronautic engineers formulated their first international airborne missiles. The engineering department was able to produce autobahns and other electronic products.

nHowever, the industrial expansion also led to a surge in the currency supply in the country, which was likely to increase inflation. Therefore, the Nazi administration responded by freezing of prices in 1935. Due to this action, the government had taken up the role of the market in controlling the economy (Köster 2013). The Nazi administration did not nationalize the private assets, but it could determine how these resources were used.

nHitler also strengthened the social welfare programs in the country, which contributed to economic prosperity before the World War II. Initially, the social welfare was provided via the decentralized system (Conradt and Langenbacher 2013). Therefore, the federal government could not administer these programs. However, the Nazi government developed a national-wide social welfare, which was managed by the federal government. Consequently, the workers benefits increased significantly (Köster 2013). For instance, in 1934, the government initiated notable chances in the social insurance systems. In this respect, the government eliminated the self-governance system in the social insurance and replaced them with government appointees who reported to the ministry. All workers were covered under the compulsory insurance irrespective of their job (Adena et al 2015). Through the Kraft durch Freude (KDF) the government also introduced the workers leisure time. However, the strikes were not allowed as the government had banned trade unions and replaced them with the German Labour Front (GLF) (Köster 2013). During the WWII, the economy of the country slowed because of destruction of industries, housing and death of skilled labour.

nThe Economy of Italy in the First Five Years Prior to and during the World War II

nAs compared to Germany, Italy was also faced with economic challenges due to the effects of World War I and Great Recession. Therefore, Mussolini introduced social and economic reforms in order to realize stability in the Italian economy (Gilmour 2011). For instance, the Fascist government introduced a Corporate State, other economic changes, social policies and the Lateran contracts (Gregor 2014). Most notably during this period, he had created a fully dictatorial state by abolishing the Italian parliament. However, unlike in Germany, the country did not record significant economic growth during this period.

nThe main reason why Fascist government introduced economic reforms was to realize Italian prosperity. Since Mussolini rose to power he continued to implement the high tariff measures in order to safeguard the domestic market from stiff competition posed by international goods. Nonetheless, the most notable economic restructuring in 1933 was the introduction of the Corporate State (Cook-Sather and Moser 2015). The government formed the Labour Charter, which provided details of the Corporate State. The charter stated how the Fascist administration would combine both the employees and employers of similar trade into a single union. In this regard, in 1934, the fascist government formed 23 corporations. Each company involved both workers and employers representatives (Davis 2014).

nSimilarly, the government had its own representatives who played a key role in the management of these corporations. Moreover, the National Council of Corporations was tasked with the responsibility of supervising all the companies under the leadership of Mussolini (Wodak and Richardson 2013). The corporations offered health, unemployment and accident insurance for employees. However, the government banned all employees strikes but they were allowed to petition the Labour Court (Bernhard 2013). In addition, employers were encouraged to improve the working conditions of their employees.

nFascist government also introduced monetary subsidies for industries. The Italian government would purchase the domestic products, even if they were costly as compared to foreign goods. The government also tackled unemployment by introducing major projects in agriculture, transport and energy sector (Goeschel 2012). For instance, it introduced improvements of hydroelectric power to facilitate growth of industries. Similarly, projects in agriculture were intended to make the country self-reliant in production of food. For instance, the Battle of Wheat was intended to improve the production of wheat in the country (Davis 2014). In the Pontine Marshes, the administration introduced a land reclamation scheme to offer adequate land for small-scale farmers.

nA study by Wodak and Richardson (2013) noted that although the fascist government attempted to implement many economic reforms, it failed to accomplish desired prosperity because the standards of living of the people did not improve. The researcher pointed out that the GDP of the country remained relatively low. More significantly, the employers benefited from the corporations at the expense of workers (Wodak and Richardson 2013). The interests of the employees were forfeited for domestic good. Employees suffered because of poor wages, since they were not allowed to strike (Cook-Sather and Moser 2015). In addition, the Corporations Labour Courts handled their appeals, which were mainly controlled by the elites and employers.

nAnother study by Goeschel (2012) proposed that the projects in agriculture did not achieve the intended goals. For instance, the Battle of Wheat failed to improve the production of wheat. The project was uneconomical because the government could import cheap product from other countries (Goeschel 2012). Consequently, the production in agriculture in the country reduced significantly. In this regard, the study concluded that the fascist government in Italy did not offer economic prosperity in the five years prior to World War II, but instead caused a decline in key sectors (Wodak and Richardson 2013).

nAccording to Bernhard (2013), the Mussolini government also used the papacy to win the support of the Catholics in the country. The government entered into an agreement with the Pope, which is referred to as Lateran treaty. First, his government recognized the existence of papal in the Vatican City and its sovereignty (Bernhard 2013). In turn, the pope agreed to recognize the Mussolini government as the legitimate administration of the Kingdom of Italy. Consequently, many Catholics in Italy pledged their support for his authoritarian rule (Cook-Sather and Moser 2015). Therefore, the five years period preceding the commencement of World War II was characterized by economic decline in the Fascist Italy as compared to Nazi Germany, which had massive economic advancement. During the WWII, its economy also declined because the war was costly to the nation. The domestic industries were destroyed which affected the ability of the country to supply important products. In addition, infrastructures such as roads, airports and railways were significantly affected.

nThe economy of Britain in the First Five Years Prior to and during the World War II

nThe Great Recession had devastating economic impacts in European countries, including Britain. In the 1930s, the British economy was characterized by the stagnated growth. Consequently, the country suffered from high rate of poverty and loss of jobs. In addition, the rate of inflation increased leading to loss of value of the sterling pound (Crowson 2011). Similarly, social unrests increased among the citizens. In 1931, the British treasury advised the government to initiate fiscal strictness and minimize deficit in the budget. The move was considered important to create stability of the budget and reinstate the pound confidence. The budget was also helped to reduce the wages of the public sector and unemployment benefits. However, from the 1933, the economy recorded significant levels of recovery (Reynolds 2013). The government also introduced more financial policy in order to reduce the effects of the recession.

nMeasures were introduced to reduce the rate of interest in the country. Ramsay Macdonald was the leader of Labour party since 1929. Subsequently, the rate of real interest reduced in 1933 to 0.6 per cent from 9 per cent in 1930. The loss of value of Sterling Pound assisted the British exports (Knox, Agnew and McCarthy 2014). Following the exit of Britain from gold standard, its exports turn out to be more competitive on the global market as compared to those of countries that did not leave the gold standard. It also increases the local demand leading to economic growth. Consequently, this facilitated the moderate recovery of the economy (Crowson 2011). Furthermore, the financial policies played a key role in improvement of monetary supply by over 33 per cent in 1935. The reduction of the rate of interests generates an incentive to raise the consumption and investment of the public sector. For instance, from the 1935, the country witnessed an improvement in the housing sector. Reports indicate that there was an era of rising suburbia, characterized by the advancement of metro land. Real estate was developed in the countryside. Nonetheless, the growth of real estate was only evident in Southern part of the country.

nEconomic Growth in 1930s, Source, (Knox, Agnew and McCarthy 2014)

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nThe region benefited from lower rates of interests, which consequently promoted the real estate boom (Reynolds 2013). Other parts such as Wales and Northern Britain did not experience real estate growth but they remained severely affected by poor economy. The labour administration introduced a number of policies to help these areas to change the economic situation (Ravenhill 2014). In this regard, they started to construct roads and giving out steel import tariffs and shipyard loans. However, these policies marginally improved these areas.

nMoreover, the improvement of infrastructure led to growth of growth of industries. The living standards also improved in the country due to improvement of the economy. In addition, in 1936, the rate of unemployment was drastically reduced (Cairncross 2013). In 1936, the rate of unemployment was only 8 per cent as compared to that of 1932, which was 15 per cent. Nonetheless, the impacts of great downturn were only partially stopped in Britain. Some parts of the country were still experiencing these effects (Crowson 2011). For instance, the industrial areas, Northern part of Britain, and Wales were massively affected. The highly rate of unemployment and economic hardships led to protests such as Jarrow Crusades. However, due to rising rate of inflation in the economy, Britain witnessed a minor drop in GDP to debt ratios (Ravenhill 2014). The authority was applying the reasonable inflation to facilitate reduction in the debt ratio.

nNonetheless, as compared to Italy and Germany, the country did not have political and social turmoil. In addition, Britain did not see the rise of dictatorship. Extremists political organization did not achieve significant influence in the country. For instance, Oswald Mosley led the Fascist movement, which promised to provide solutions to the current problems in the country (Reynolds 2013). Similarly, the Communist Part of Great Britain also promised radical changes to solve the economic challenges. However, the Fascists ad Communist group did not offer any significant threat to the main political parties in the country. According to Capie (2013), the political environment could be different if the effects of great downturn were deeper in Britain (Capie 2013). Research by Knox, Agnew and McCarthy (2014) noted that the effects of economic crisis in Britain were lower as compared to other European nations such as Italy. This was facilitated by the fact that Britain was one of the initial nations to abandon the gold standard. In addition, the rate of economic transformation was higher as compared to other nations in Europe (Knox, Agnew and McCarthy 2014).

nThe British government also began the rearmament plan in 1938. The programme initiated an extra increase in the economic development of the country. In addition, it boosted the demand of industrial products, which were used as raw materials in construction of weaponry (Lindvall 2013). Consequently, the rise of industrial production played a key role in reduction of unemployment rate in the country (Crowson 2011). The main aim of rearmament policy was to counter a similar policy initiated by the Nazi Germany.

nDuring the World War II, the industrial growth was witnessed as the output increased. Most importantly, women were well mobilised as they served as workers. The industries concentrated in generation of munitions (Capie 2013). The steel companies were used to supply materials for construction of aircrafts, and other ammunitions. The British government received huge amount of financial aid from the US in the course of World War II, which played a crucial role in the sustainability efforts. During this period, Winston Churchill who had won 1935 general elections via Conservative Party led Britain (Sutcliffe 2014).

nThe Economy of Germany in 1945-1950

nBy 1945, Germany was divided into West and East Germany. The East Germany was administered by the Soviet Union while the West was under the US, Britain and France. After the war, Germany had poor economy. War policies such as scorched earth damaged approximately 25 per cent of all accommodation (Logemann 2012). In 1946, the production of food had declined by approximately 52 per cent as compared to that in 1938. In addition, the production in industries had dropped by 67 per cent in 1947 as compared to the industrial output in 1938. Germany also lost its work force because most people were killed during the war (Rieger 2014). Additionally, it had many regulations in terms of monetary system, which led to poor output in the economy in the first two post-war years (Erhard 2013). However, despite all the economic challenges after the war, Germany registered economic miracle (wirtschaftwunder).

nDuring the World War II, the Nazi administration introduced food rations, which controlled the amount of food to not more than 2000 calories daily. Similarly, after the war, the occupying nations allowed the policy to continue, but limited the amount of calories to 1000 – 1500 daily (Jessen and Nembach-Langer eds. 2012). There was also control in prices in other essential services and goods, which caused considerable illegitimate market. Furthermore, the Reichsmark, which was the official currency, lost its value leading to barter trade for services and goods (Logemann 2012).

nFollowing the end of the war, the new administration adopted a social market economy. West Germany led by Konrad Adenauer and his economics Minister Ludwig Erhard introduced effective plans and policies that facilitated prosperity (Erhard 2013). Therefore, the sound economic system, especially the execution of liberalization policy facilitated the ‘economic miracle. In addition, it embarked on reconstruction efforts, which promoted recovery of the economy (Rieger 2014). The West Germany had sufficient technological power and skilled labour force after the war. Nonetheless, its stock of capital was ruined in the war period.

nResearch by Hesse (2012) argued that the Ordo-liberalism process had a significant part in the economic recovery of the West Germany. In this regard, they facilitated capitalism, which permitted government participation to ensure that it helped many people to solve existing challenges. In this regard, the government instituted robust regulations that were meant to control monopolies or cartels from emerging (Hesse 2012). In addition, the massive social welfare program provided a cushion for the citizens who were struggling financially. The West German also established a central bank, which could provide monetary policies in the country. In addition, the bank was not dependant on the government (Jessen and Nembach-Langer eds. 2012). The central bank played a key role in provision of stability in prices

nIn 1948, the government introduced reforms in its currency when it introduced Deutsche Mark and abolished the Reichsmark. The reform played a key role in the economy because it helped to reduce inflation (Siems and Schnyder 2014). The new currency helped to eliminate barter trade and the black market. Many businesspersons opened shops after they realized the value of the new currency. Most importantly, the spirit of industriousness resumed in the West Germany (Rieger 2014). By 1948, the government had eliminated the price control, which promoted industrial productivity, which was nearly 90 per cent of its level in 1938.

nIn addition, the Adanauer government also decided to reduce the taxes on some low-income earners. By 1950, the rate of marginal tax had reduced to 18 per cent from over 85 per cent in 1944. Moreover, the country developed strategies to re-invents its capital stock aiming to improve the economic productions at higher rates. The economic proliferation was witnessed in the first five post-war periods because of high rates of investments in capital (Black 2012). Addition, the country also experienced improvement in the living standards by 1950. In this regard, the purchasing power of the Germans improved by 1950. Furthermore, improvement in productivity level in West Germany helped employees to acquire substantial development in their standards of living (Jessen and Nembach-Langer eds. 2012).

nA study by Black (2012) suggested that West Germany received the highest percentage of the money through the Marshall Plan (Black 2012). The Marshall Plan also helped West Germany to grow its economy. The US government introduced the recovery system to help European countries that suffered from the Second World War (Rieger 2014). However, other research from Siems and Schnyder (2014) argued that economic rebirth in the country cannot be credited to the Marshall Plan because the financial assistance from the plan only provided less than 5 per cent of the domestic revenue (Siems and Schnyder 2014). Therefore, it had limited impact in the economic resurgence of Germany in first five post-WWII years.

nThe Economy of Italy in 1945-1950

nAfter the end of the WWII, the Italian economy suffered greatly because of death of skilled work force and destruction of property. In 1946, the nation held a referendum where most people accepted to end the monarchy rule (Lees-Maffei and Fallan eds. 2013). The Christian Democrats Party won elections led by Gasperi de Alcide. The new government helped to formulate a new constitution and to introduce free economy in the country.

nThe Marshall Plan had a substantial contribution in the economic rebirth in the country. In 1948, during the parliamentary elections, the US funded the capitalist party. The Marshall Plan helped to rebuild the economy by funding infrastructural projects. The country received more than $2 billion from the US (Coltorti, Resciniti, Tunisini and Varaldo eds. 2013). Consequently, Italian economy registered massive economic growth in the first five years after the war. Major Italian cities such as Turin, Rome and Milan recorded notable economic growth because of modernisation and re-construction of the country. Research by Grabas and Nützenadel eds. (2014) pointed that the Italian economic prosperity was only second to Germany in the world during this period.

nThe industrial sector growth in Italy was registered from 1945. The financial support from the US, particularly in oil and food sectors played a role to recreate the domestic industries such as steel. The government removed the restrictions that had occurred in the Fascists government (King 2015). Moreover, it reintroduced the trade unions aiming to meet the demands of workers. The rebuilding program instituted between 1945 to 1947 puts a lot of emphasizing on industrial growth. Through these economic programs, Italy was able to recover the levels of production that existed prior to the Second World War by 1948 (Lees-Maffei and Fallan eds. 2013). Moreover, the commencement of Korean War in 1950 helped to maintain high levels of growth because it provided a market for manufactured goods. In addition, Italy became part of the European trade and was also integrated in the oil exploration efforts in the Middle East.

nThe GDP of Italy between 1890 and 1990, Source (Coltorti, Resciniti, Tunisini and Varaldo eds. 2013)

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nFurthermore, Italy played a key role in research and development, especially in the engineering sector. The country had an annual growth of 8 per cent due to stimulus industrial transformation (Coltorti, Resciniti, Tunisini and Varaldo eds. 2013). Some of the major industries generated outstanding fashions such as shoes and clothing. Others included furniture, washing machines, refrigerators, typewriting, artificial fibres, plastics and refrigerators. Similarly, motor industries such as Alfa Romeo, Lambretta, Fiats and Vespa were produced (Baffigi, Bontempi, Felice and Golinelli 2015). The period helped the Italian industrials to improve their reputation as they become popular because of their stylish designs and less costly production mechanisms (Forte and Magazzino 2016). On the other hand, the industrial growth was boosted by the improvement of infrastructure such as railways, airports and superhighways (Grabas and Nützenadel eds. 2014). Most importantly, its economy was converted from agricultural-based economy to a vibrant industrial economy.

nThe rebirth of the Italian economy after the World War II was enhanced by availability of less costly raw materials. Additionally, its currency was relatively stable, which helps to stabilize the economy by reducing inflation. For instance, the discovery of oil helped to supply the industries with a cheap source of energy (King 2015). Rural-urban migration played a central role in the provision of inexpensive workforce for industries. Between 1945 and 1950, the trade union systems were weaker while the taxes for labour were low which encouraged growth. Mostly, the internal economic environment enhanced investments. Entrepreneurs could easily access credit from financial institutions such as national banks and loan organizations (Coltorti, Resciniti, Tunisini and Varaldo eds. 2013). Therefore, both the government institutions and market forces facilitated the economic miracle that was experienced in the Italian economy during this period.

nThe government also introduced land reforms in 1949 aiming to promote agricultural production. In addition, the government created agencies to take land that was poorly utilized, especially in central and southern part of the country. The agencies had a role to develop and sell the land to new farmers (Crafts 2015). The objective was to establish a settled community of farmers. However, the initiative was only successful in few parts of the country since they were inadequate land to give out to the peasants. Instead, landless people migrated to other parts of the country especially the cities. Fortunately, the initiative was beneficial in agricultural development because it facilitated modernization and mechanization, which replaced many traditional farming methods (King 2015). Additionally, the country established small, well-designed and productive farms, which increased food production in the country.

nEconomic Growth after the World War II

nAfter the War, the Labour Party defeated Churchills government and introduced various reforms in the countrys economy. For instance, the administration introduced social programmes such as social security, pension, and domestic health welfare for the workforce. In addition, Sir Clement Attlees administration also nationalized major industries in the country and increased taxes. The period after the war was characterized by improvement in the economy (Knox, Agnew and McCarthy 2014).

nBritain is one of the countries that benefited from the Marshall plan. Between 1945 and 1950, there was rapid recovery of the economy never seen before. The fast growth in economy and trade was boosted by the resurgence of other economies in other parts of the world such as Germany and Japan. In addition, the period was characterized by low level of international inflation, which catalysed international trade (Crowson 2011). Furthermore, they were decrease of the tariff obstacles, which promoted the free trade. Additionally, this period offered stability in terms of economic and political environment. The British government also facilitated adoption of technology such as use of petrol engines and computers (Ravenhill 2014).

nRate of Unemployment in UK after WWII, Source, (Crowson 2011)

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nOn the other hand, the shortages of labour in the country were very high in Britain. Consequently, the government allowed mass immigration, which increased the productivity in the industries. Similarly, it played a significant role in the rise of real GDP. However, research by Reynolds (2013) noted that although Britain achieved drastic growth in the economy, the rate was slower as compared to other nations such as Germany. The competitiveness of British products in the global market reduced considerably. The country also had poor working relations in the industries. The Labour government also maintained huge rates of taxes in the country (Reynolds 2013). The income tax was approximately 99 per cent higher in World War II. However, it did not reduce after this war. The inflation rate was positive which enabled economic prosperity in the country (Knox, Agnew and McCarthy 2014). The country was able to service the national debt because there was very low rate of interest.

nConclusion

nThe effects of World War I and Great Recession in Europe lead to high rate of unemployment, and inflation. Consequently, in pre-world war II period, unlike Britain, both Germany and Italy experienced a rise of dictatorial regimes such as Nazism and Fascism (Crafts 2015). In Germany, the first five years prior to the war was a period of high rate of economic growth because of the development of technology and industrialization (Forte and Magazzino 2016). However, in Italy, the economy was relatively poor because of weak economic policies adopted by Mussolini government. In Britain, the economy experienced a period of slow growth. After the war, between 1945 and 1950 all countries nations recorded economic miracles because they were able to recover massively leading to financial rebirth (Coltorti, Resciniti, Tunisini and Varaldo eds. 2013). The adoption of capitalism policies in West Germany, Britain and Italy helped to promote economic development. In addition, these countries benefited from financial aid through the Marshall Plan initiated by the US.

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nReferences

nAdena, M., Enikolopov, R., Petrova, M., Santarosa, V. and Zhuravskaya, E., 2015. Radio and the Rise of the Nazis in Prewar Germany. Available at SSRN 2242446.

nBaffigi, A., Bontempi, M.E., Felice, E. and Golinelli, R., 2015. The changing relationship between inflation and the economic cycle in Italy: 1861–2012. Explorations in Economic History, 56, pp.53-70.

nBernhard, P., 2013. Borrowing from Mussolini: Nazi Germany’s Colonial Aspirations in the Shadow of Italian Expansionism. The Journal of Imperial and Commonwealth History, 41(4), pp.617-643.

nBlack, M., 2012. Miracles in the Shadow of