1. GERMAN MODEL
Many different political projects have been dubbed as socialist successes by the Left over the last century. At least they were dubbed as successes at first because, as we always found out afterward, the failures and misery which followed obviously showed that this wasn’t real socialism. The list is long, going from the Soviet Union, Maoist China, Cuba, Latin America to even countries like North Korea.
But with the ongoing failures of classic socialist examples – most recently Venezuela, Argentina, and Brazil – it seems like the Left has resorted to looking to continuously successful economies as versions of what they might call moderate socialism, or “democratic socialism.”
Scandinavia is most often used in this new strategy. Disproven a thousand times – even by the Danish Prime Minister himself, who declared in 2015 that “Denmark is far from a socialist planned economy, Denmark is a market economy” – it is nonetheless used frequently.
One country I have not seen used as a prime example of socialism yet is my own home country Germany. It seems, though, as if there’s a first time for everything because, a few weeks back, I got an email with the question: “What is it about Germany that seems to make socialism work?”
Of course, it would be great for the Left to lay claim to the success of Germany. And sure, Germany is indeed a country that has lived under extreme economic interventionism over a long period.
Otto von Bismarck, Chancellor of the German Empire from 1871 to 1890, set up the first modern welfare state as we know them today. He found lots of helping hands in the historicist school led by Gustav Schmoller, which not only had the famous “Methodenstreit” (i.e. the methodological debate) with Carl Menger and the up-and-coming Austrian School of Economics but also continuously argued in favor of state intervention into the economy.
The dark economic history of Germany continued with excessive money printing which led to the hyperinflation of 1923, and then the rise of the collectivist right. When Hitler got into power, the Nazis regulated the economy to death. It’s true that they weren’t socialists in the way that they communalized all property. Instead, private property did still exist in name – the problem: nothing could be done with it. There were no more entrepreneurs who could use their property to innovate. There were mere “Betriebsführer,” i.e. “works managers,” who led businesses by solely following the commands of central planners. The economy slumped, people were close to starvation, and after World War II, the entire country was in ruins.
The “Economic Miracle”
But the indeed socialist – or at least interventionist – past of Germany took a turn post-World War II. And with the now so famous, and even more so mystical “Wirtschaftswunder,” i.e. “economic miracle,” started off the success story seen over long periods since then.
Common knowledge says that the United States’ Marshall Plan was responsible for the rapid economic growth, rebuilding the country by throwing a lot of money at it. But that’s a mistaken view – and an important one, because to this day it helps perpetuate the myth that nation-building such as in the Middle East or sending billions of dollars of aid to Africa works in any way (“It worked in Germany, so …”).
Marshall Plan aid to West Germany was not that large. Cumulative aid from the Marshall Plan and other aid programs totaled only $2 billion through October 1954. Even in 1948 and 1949, when aid was at its peak, Marshall Plan aid was less than 5 percent of German national income. Other countries that received substantial Marshall Plan aid exhibited lower growth than Germany.
So, why was there a “Wirtschaftswunder”? Henderson gives two main reasons: a monetary reform and the freeing of the economy by abolishing price controls and cutting taxes. All of this was implemented thanks to one man: Ludwig Erhard.
Erhard, who had lost his pre-WWII job because he refused to join the Nazis, was the perfect man for the Allies’ goal of de-Nazification. But even better for advocates of free markets, he was influenced by the likes of Wilhelm Röpke, Friedrich Hayek, and especially the Freiburg School, a group of economists led by Walter Eucken who advocated for ordoliberal policies. Ordoliberals don’t advocate for completely free markets, but pretty darn close: They want the state to only set the framework, provide some small welfare services, and use anti-trust measures when monopolies start to build.
What Erhard did was unthinkable in a hostile environment. The Allied forces, still heavily controlling Germany, left the Nazi price controls and rationing intact. But when Erhard became Secretary of the Economy in West Germany, he quickly ended all price controls and stopped rationing – to the dismay of the US advisors. After enacting these new policies, Erhard was confronted by US General Clay:
Clay: “Herr Erhard, my advisers tell me what you have done is a terrible mistake. What do you say to that?”
Erhard: “Herr General, pay no attention to them! My advisers tell me the same thing.”
It is no surprise that Robert Wenzel calls Erhard “the greatest policymaker ever.” He is certainly in the running. He, not a Keynesian Project like the Marshall Plan, enabled the miracle that wasn’t miraculous – as he admitted himself in his book Prosperity Through Competition:
What has taken place in Germany … is anything but a miracle. It is the result of the honest efforts of a whole people who, in keeping with the principles of liberty, were given the opportunity of using personal initiative and human energy.
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