Reasons for economic miracle 2

What did the Korean War increase?

Demands for goods that the Ruhr could supply and this reduced the pressure Erhard was under to abandon his ‘social market economy’ during difficulties of the early 1950s.

What impact did the Korean War have on exports?

It doubled exports.

What did refugees become to be?

They became an advantage as industry began to grow again.

What did the continued supply of refugees from the GDR provide?

Provided a continuous supply of qualified, disciplined and highly motivated employees to the labour market who were easily satisfied with moderate incomes.

What did the growth in the economy lead to?

A rise in wages, which improved industrial relations through 1950s and 60s.

How did higher wages improve industrial relations?

Helped end conflicts between workers and employers.

What did growth in wages also stimulate?

The economy, as workers had more disposable income and incentives to buy property further pushed up demand.

What happened as living standards rose?

There was little reason to challenge the system and this also helped to create political stability which again helped the economy.

What policies in Bizonia were crucial for economic recovery?

• Removal of price controls which accompanied currency reform in 1948 stimulated business activity by allowing free competition between private enterprises.

What policy was crucial to the recovery?

The currency reform, which not only helped to end the black market but also reduced inflation.

What did policies from 1947 to 1949 encourage?

Encouraged people to work and were clearly reflected in the decline in absenteeism.

What proves the success of these policies?

The rise in the industrial production index for Bizonia from 51% in June 1948 to 78% by December 1948.

However, what can be said about the impact of policies and currency reform?

The impact was not immediate - was originally a steep rise in prices which were not matched by a wage increase and so the poor suffered.

What was there still a shortage of?

Coal, and other resources that had to be imported which caused a balance of payments deficit with the result being a recession from 1949-50 as there was not enough demand to sustain growth.

What did the FRG sign in 1952?

An agreement in London to pay debts from the Marshall Plan credits and the Dawes Plan, it did not have to pay reparations and its defence costs were at first limited.

So, what was government expenditure like in this period as it did not have to pay reparations and limited defence costs?

Its government expenditure was more limited than other countries, like Britain, and Erhard was able to be more generous with social spending, which enhanced the stability of the young democracy (compared to Weimar).