The Myth of the Marshall Plan and Its Effects on GrowthTHE ECONOMIC RECOVERY OF GERMANY AFTER WORLD WAR II WAS DRIVEN BY MOSTLY INTERNAL RESOURCES, EXPLAINS TAMAS VONYO IN A PAPER.
When the German military forces surrendered in May 1945, not a single bridge spanned the Rhine. The transport system was ground to a halt and most cities destroyed. It appeared as if the German economy had been turned to rubble. Yet, in the following quarter century, West Germany enjoyed rapid economic growth that most contemporary observers ascribed to the liberal reforms of 1948 and to the Marshall Plan.
Quantitative economic history has since revised this view dramatically. The Economic Consequences of the War: West Germany’s Growth Miracle after 1945 (Cambridge University Press, 2018) synthesized a decade of research that Tamás Vonyó, Assistant Professor at the Department of Social and Political Sciences, has written on the topic.
“West Germany did not restart from scratch”, he says. “Manufacturing industry survived the war remarkably intact and saw its productive capacity expand”. Millions of ethnic German refugees expelled from Central and Eastern Europe after 1945 enhanced the labor force despite horrendous war casualties. The West German economy was more richly endowed with both physical and human capital than ever before. Low productivity, not inadequate resources, was responsible for modest industrial output in the post-war years.
Professor Vonyó collected detailed industry statistics and census data to show how geographic dislocation and structural imbalances owing to spatial variation in strategic bombing and the post-war division of Germany can explain this low-productivity paradox. The elimination of these bottlenecks, in turn, fueled post-war recovery.
Macroeconomic policy mattered surprisingly little. Despite the pro-market rhetoric, post-war West Germany was an interventionist state and government intervention did not foster growth. “Its biggest contribution to the economic miracle was the rebuilding of the urban housing stock and the resettling of refugees to the industrial heartlands of the country. Marshall aid was equally insignificant in Germany and the investments it financed were allocated to declining industries”, Professor Vonyó notes. “The German miracle is a fine example for why quantifying history matters as it can radically alter views based on contemporary observation.”
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