Lecture Notes for March 23, 2009

Democratic Stability in Post-1945 (West) Germany, continued Policy makers pay more attention to institutions-based arguments because they appear to be more easily implemented Re-engineering ideas or a culture isn?t as easy, but it seemed worthwhile after World War II because nobody wanted to have another world war Berhard argues that interests also had a role ? Interwar Germany was influenced by landowners who supported authoritarian regimes while postwar Germany was more middle class based, more polarized, and more prone to democracy Comparison of the three explanations Interwar ? authoritarian ideas, bad institutions, polarized eastern Germany and middle-class western Germany Post-1949 ? democratic ideas, good institutions, middle class western germany Berhard says the West Germany that emerged in 1949 was the very part of Germany that was always more democratic Even though ideas were supposedly anti-democratic and the institutions were supposedly bad, western Germany interest were always pro-democracy Berhard argues that interests played the biggest role in West German democracy Is the German Welfare State Sustainable? Germany doesn?t nationalize industries or soft planning The country used a welfare state and kind of used Keynesian demand management Germany had the same 30 years of economic growth ? among the fastest in the world Incredibly productive and export-oriented economy because it depended so much on imports From 1945-1949 the Allies called the shots on German economics Center-right government wins the 1949 elections Economic goal of the Christian Democrats ? growth via exports; exports earned hard currency Emphasis on private ownership, undervalued currency (made it easier to export at the expense of making imports expensive), low inflation policies (kept export prices low), job training and technology (boosted productivity), maximize investment through corporate profits (and encouraged wage restraint), and tried to compensate workers through welfare state benefits that were funded for by payroll taxes (?social insurance contributions?) Economic policies gave Germany the nickname ?social market? economy Results ? booming economy, low unemployment, not much inflation either 1962-1969 was dominated by a cruddy Grand Coalition government In 1969 the Free Democratic party allied with the Social Democrats and tilt government towards the center-left Government sought to push economic balance towards consumers and employees Currency gained value (making imports cheaper), government spending increased, and higher inflation and borrowing were tolerated Wages soared ? highest labor costs of developed countries SPD was in power during the bad economic times, unfortunately FDP switches back to CDU and forms a new government in 1982