Allied plans for German industry after World War II

• 1. Introduction

  ›

  Allied plans for German industry after World War II set an explicit benchmark for postwar living standards. Germany was to be reduced to what it had been in 1932, the lowest point of the Great Depression. The Potsdam Conference, held between July and August 1945, was where this vision took formal shape. It drew on a proposal by Henry Morgenthau Jr., the United States Secretary of the Treasury. The goal was to strip Germany of the heavy industry that had fuelled two world wars. Armed forces would be abolished. Munitions factories would be destroyed. Ship-building and aircraft manufacturing would be eliminated entirely. What remained was the question of how Germany would feed itself and how Europe would recover if its largest industrial economy was deliberately dismantled. Those questions would drive the next decade of Allied policy.

  21047141

• 2. The Level of Industry Plans

  ›

  On the 29th of March 1946, the Allies signed the first formal level of industry plan. It called for German heavy industry to fall to 50% of its 1938 levels. That meant the deliberate destruction of 1,500 listed manufacturing plants.

  In January 1946, the Allied Control Council set Germany's maximum allowed steel production at about 5,800,000 tons per year. That figure represented just 25% of Germany's prewar production level. The United Kingdom, which controlled the occupation zone where most German steel was made, had pushed for a higher ceiling of 12 million tons. The Soviet Union had argued for a far tighter limit of 3 million tons. The final number fell closer to the Soviet position.

  Car production was capped at 10% of prewar levels. The industries that remained were redirected toward a specific list of approved exports. These included coal, coke, electrical equipment, leather goods, beer, wines, spirits, toys, musical instruments, textiles and apparel. These were to replace the heavy industrial products that had formed the backbone of Germany's prewar trade.

  Brigadier General William Henry Draper Jr. was chief of the American Economics Division. In February 1946 he reported that general agreement had been reached on converting Germany to an agricultural and light industry economy. He noted that Germany's future industrial pattern was being drawn for a population of 66,500,000. That population would need large imports of food and raw materials to sustain even a minimum standard of living.

  Timber exports from the US occupation zone were particularly heavy. Sources within the US government admitted that the purpose was the ultimate destruction of the war potential of German forests. In March 1948, E.J. Bryce warned that deforestation was progressing faster than recovery. At the current rate, the British Zone's forest resources would be exhausted within a very few years.

  By 1950, the level-of-industry plans had run a diluted course, with equipment removed from 706 manufacturing plants and steel capacity reduced by 6,700,000 tons. What drove that moderation was a policy shift that began as early as mid-1946.

  21232759

• 3. The Hunger Economy

  ›

  According to the UNRRA, the average German's daily caloric intake in 1946-47 was estimated at 1,080 kilocalories. Alan S. Milward described that amount as insufficient for long-term health. Other estimates placed the intake as low as 1,000 calories on the worst days. William L. Clayton reported to Washington: "millions of people are slowly starving."

  Denmark offered 150 tons of lard a month to help address the food shortfall. Turkey offered hazelnuts. Norway offered fish and fish oil. Sweden offered considerable quantities of fats. The Dutch and the Italians had surplus vegetables they could no longer sell in Germany, their traditional market. The Dutch were forced to destroy considerable portions of their crop. The Allies disallowed the Germans from trading for any of it.

  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 US, UK, and France sold German coal for $10.50 per tonne. The world price hovered closer to $25-30 per tonne. From coal exports alone, the Allies extracted roughly $200,000,000 from the German economy in that period. In September 1947 the price was raised, but it remained $5-7 below world-market levels.

  Until 1948, German steelmakers were barred from importing high-grade Swedish iron ore. They had to use low-quality local ore that required almost twice the coal to process. German producers were also forced to sell their steel at wartime prices until the 1st of April 1948, meaning sustained losses for an already weakened industry.

  The Bizone's economy hit rock bottom early in 1948 as a consequence of these compounding pressures. By that year, the combined US and UK expenditure on relief food in Germany through GARIOA and other means stood at close to $1.5 billion. That cost was charged to the Germans. Nicholas Balabkins concluded that the distributed rations "represented a fairly rapid starvation level." The UNRRA charter limited the organization to assisting non-ethnic German displaced persons only; ethnic Germans had no such entitlement under its terms.

  2413202822

• 4. The Intellectual Harvest

  ›

  John Gimbel concluded in Science, Technology and Reparations that the intellectual reparations taken by the US and UK amounted to close to $10 billion. For context, America's total GDP in 1948 was $258 billion. The entire Marshall Plan, which ran from 1948 to 1952, totaled $13 billion in expenditure. Germany itself received $1 billion in loans and $400 million as a grant from that plan.

  Immediately after Germany's surrender, the United States began a two-year program to harvest every scientific and technical patent in the country. Copyrights and trademarks were confiscated as well. US competitors of German firms were encouraged by the occupation authorities to access all their records and facilities.

  In 1947, the director of the US Commerce Department's Office of Technical Services made the government's reasoning explicit to Congress. "The fundamental justification of this activity," he said, "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."

  Electron microscopes, tape recorders, and a unique chocolate-wrapping machine were among the items documented by the program. Other items included cosmetics formulas, textile machinery, insecticides, a continuous butter-making machine, a manure spreader, ice skate grinders, and paper napkin machines. Sources described almost all of these as either new to American industry or far superior to anything then in use in the United States.

  British authorities abducted German scientists and technicians outright. Others were interned until they agreed to reveal trade secrets.

  Konrad Adenauer cited the IG Farben patents as a specific example. According to an American expert he quoted, those patents had given the US chemical industry a lead of at least 10 years. Germany was not a member of the Patent Union, meaning even new German inventions were unprotected against foreign exploitation. Under Allied Control Council Law No. 25, German companies were required to report all research results in detail to the Allies. A German report dated the 1st of May 1949 found that many entrepreneurs preferred not to do research at all. They feared the work would directly benefit their competitors.

  West Germany's 1955 sovereignty contracts required the country to renounce all claims to compensation for taken assets, including scientific and technical knowledge. Gimbel noted that this made any later accounting practically impossible.

  3135342932

• 5. The Reversal

  ›

  Secretary of State James F. Byrnes gave a speech in Stuttgart in September 1946 that publicly marked a shift in US policy. Known afterward as the Speech of Hope, it accompanied a broader American and British move toward supporting German economic recovery. In A History of West Germany, Dennis L. Bark and David R. Gress observed that the Morgenthau approach was increasingly seen as inflicting undue hardship. Vladimir Petrov, writing in Money and Conquest, concluded that the change in US occupation policy was driven almost exclusively by economic considerations. The US and UK were being forced to fund food imports to prevent mass starvation, and the costs were mounting.

  Former President Herbert Hoover made the case for change directly in a 1947 report from Germany. He argued that turning the country into a pastoral state was simply impossible: "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."

  General Clay commissioned expert studies on necessary changes in German economic policy. He put it plainly: "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 the punitive occupation directive JCS 1067 on national security grounds. That directive had instructed US forces to take no steps toward the economic rehabilitation of Germany. Its replacement, JCS 1779, stated instead that "an orderly, prosperous Europe requires the economic contributions of a stable and productive Germany." General Clay needed over two months to overcome resistance among his staff to the new policy. The final version of JCS 1779 was approved at a SWNCC meeting on the 10th of July 1947. The document was described as purged of the most important elements of the Morgenthau Plan. The machinery that governed German industrial limits would soon shift from occupation directives to a new multilateral framework built around European coal and steel.

  111261914

• 6. Coal, Steel, and Borders

  ›

  The Ruhr lay within the British occupation zone after the war's end. Control over it was imposed on the Germans as a condition for establishing the Federal Republic of Germany. The International Authority for the Ruhr governed how much coal and steel the Germans themselves could access, and in effect it controlled the entire West German economy. German resentment of the arrangement was considerable, and they were eventually permitted to send delegations to the authority.

  With US permission, France expanded the Saarland's borders in 1947 by adding parts of the Rhineland. It then detached the territory as a French protectorate. The Saarland was Germany's second largest remaining source of coal, and its separation was designed to further curtail German industrial capability. The territory was integrated into the French economy. Although nominally politically independent, the Saarland's security and foreign policies were set in Paris, and France kept a High Commissioner with wide-ranging powers there.

  Shipments of dismantled German industrial equipment from the western zones to the Soviet Union began on the 31st of March 1946. By August 1947-11,100 tons of equipment had been shipped east, including large portions of the railway track itself. Among the installations stripped were the Kugelfischer ball-bearing plant at Schweinfurt and the Daimler-Benz underground aircraft-engine plant at Obrigheim. The Deschimag shipyards at Bremen and the Gendorf powerplant were also removed.

  Under the agreement, the Soviet Union was to send raw materials west in return, including food and timber for the western zones. The Soviets failed to do so. The US temporarily halted eastward shipments, and they were never resumed. Though the halt was presented as a response to Soviet non-compliance, subsequent evidence indicated that the main cause was the refusal of France to cooperate. The conditions that had sustained the dismantling program were shifting by the late 1940s, pushed by economic pressures that no occupation directive had anticipated.

  3839362148

• 7. The Long Unwind

  ›

  In 1948, the US Marshall Plan was extended to Western Germany. A currency reform introduced the Deutsche Mark and halted the rampant inflation that had gripped the occupation period. Both measures had been prohibited under JCS 1067. Their arrival marked a concrete turning point in how the occupation powers related to the German economy.

  In 1949, Konrad Adenauer wrote to the Allied powers requesting that industrial dismantling come to an end. He argued that there was an inherent contradiction in encouraging industrial growth while simultaneously removing factories. He also cited the political unpopularity of the policy. Support for dismantling by that point was coming predominantly from the French. The Petersberg Agreement of November 1949 reduced the levels of dismantling vastly, though removal of minor factories continued until 1951.

  West Germany agreed to join the European Coal and Steel Community in 1951, with full membership taking effect the following year. When the ECSC entered into force in July 1952, it lifted the final limitations on German industrial production levels. With West Germany's membership, the International Authority for the Ruhr's role passed to the ECSC. French access to Ruhr coal was thus secured through a multilateral framework. Arms manufacture remained prohibited. Efforts to de-concentrate and reorganize the German coal, iron and steel industry also continued alongside the broader ECSC framework.

  All remaining restrictions were lifted when the Allied occupation of West Germany ended on the 5th of May 1955. Restrictions on actual steel production and on key industries had persisted long after factory dismantling formally ended in 1951. This was known as industrial disarmament. Frederick H. Gareau described that date as the final act of the Morgenthau drama. He added that some would place that ending at the 1st of January 1957, when the Saar was returned to Germany.

  Vladimir Petrov concluded that Allied policy had delayed the continent's economic reconstruction by several years. That rebuilding subsequently cost the United States billions of dollars. Confiscated German knowledge was commercially adopted so fast that US officials sought to redact Germany's peace treaty, shielding American industry from potential lawsuits.

  344546213