by Norman Stone
But, beyond that, there was a whole school of German historians and commentators who appreciated that what had gone wrong had something to do with the monopoly-capitalistic and protectionist ways of the last generation before the First World War. It had been called ‘The alliance of Iron and Rye’. Behind protectionist tariffs the great heavy-industrial works on the one side, and estate-agriculture on the other, had had a charmed life; finance capital, since the banks were part of the charmed circle, had joined in. Some crumbs from this table had been thrown to millions of peasants. Accordingly, there was a majority bloc in the Reichstag in favour of protection, and Germany had not been part of the world’s trading order on the same terms as, say, Britain or Belgium. Germany might have developed as a normal Western country, a sort of huge Netherlands, but instead, in politics, liberals and social democrats were in a large but hopeless minority; and some outstanding interpretative works on German history have been written in exposition of this (Lujo Brentano, Ralf Dahrendorf, Alexander Gerschenkron and, today, David Blackbourn). Now, with ‘Iron’ under a Ruhr Authority or an ECSC, and ‘Rye’ occupied by the Russians, there was a chance for a normal Germany, and Erhard well understood what he was doing. He had a strategy. Like so many other good financial managers, he was not a good politician, was happiest with businessmen, themselves generally none too good with politics, and was impatient with men less intelligent than himself. He needed Konrad Adenauer, who had the right and complementary gifts.
It was a measure of the change in Germany that Ludwig Erhard, a Bavarian Protestant, and Adenauer, a Rhineland Catholic, worked together, because the religious divide had been vastly important and even, in its way, a reason for the Nazis’ rise (the third of Bavaria that was Protestant had voted quite heavily Nazi, the Catholics, hardly at all). Erhard at least had a clean record, and had acted as an obscure adviser to some retailers. He emerged as executive director of the Economic Council for Bizonia, which the Allies set up in summer 1948 as a prototype for a West German government. His appointment was a fluke — one man’s resignation had been forced, and the politicians could not agree on anyone else. The fluke meant that Germans, at last, had a lucky break. All the other candidates were thinking only of more efficient rationing and some reduction of the tidal wave of paper money; then they would go over to a planned economy, such as the French and British were supposed to be doing. Erhard said no. He would ‘jump into the cold water’ of the market, would deregulate, would scrap much of the rationing, and would introduce a new currency altogether. The old one, with its endless noughts, would be abolished, and holders of these notes would get only limited compensation. That way, the entire wartime and pre-war debt would be wiped out; the tidal wave of paper money would become an orderly stream, and people who set prices would be free to do so without government dictation. After an uncomfortable moment or two, West Germany prospered, but there was another vital difference from the past. Erhard did not try to beggar his neighbours if they fell into deficit trouble because German competition undercut their goods and weakened their currency. By 1955 the EPU had become a machine for taking German money to pay for the trade deficits of other Western countries, and especially France. This was the financial base for the various meetings that led up to the Treaty of Rome. Erhard could have exchanged his winnings for dollars, and for a build-up of reserves. But Germany was now European — the solution that so many intelligent central Europeans had foreseen.
If a country were to be judged by its institutions, Germany was a nearly perfect place. The makers of the constitution were wise men of the Philadelphia class (some of whom had in any case been German). They had a truly dreadful precedent from which to learn. The republican constitution set up in 1919 at the historically enlightened town of Weimar had been designed to show the Americans how very democratic Germany had become. This was an effort at gaining American sympathy in Germany’s hour of defeat, and the men of Weimar proceeded with a literal-minded clumsiness that had a majority of Germans voting either for the Nazis or for the Communists within a dozen years of relentless elections, proportional representation, referenda, constitutional-court cases and the paraphernalia of self-destructive democracy. The method of decentralization had given the country seventeen different governmental spending and borrowing points, and finance soon became a headache: a hugely destructive inflation early on, an even more destructive deflation ten years later. Now, the wise men in Bonn composed a very sensible and even a model document. It was quite short, as these things go. There was decentralization of a sensible kind. States — eleven Länder, Bavaria the largest — were set up, and they competed in a healthy way over cultural matters and, as things turned out, decisively for the better over education. Bavaria and Baden remained conservative as regards this, and defied American attempts to set up comprehensive schools that would somehow be more democratic than the existing selective ones. In time, the south German Länder were thus to reverse the historic pattern, and become considerably better off than the northern ones.
The rules for politics were also sensible — a system of proportional representation, but not one that allowed tiny local parties to enter parliament. Rights of a basic kind were spelled out, and these included those of small children to be brought up by their mothers: tax was not to fall so heavily on the father that the mother would have to go out to work. Then again, Germany had the great benefit of not having a single capital, sucking in all of the wealth and talent of a country, as were London and Paris. Hamburg, Cologne, Munich were the chief cities, and Berlin was kept going, but the government was confined to little Rhineland Bonn: the assembly originally met, and it was a sign both of the weaknesses and of the strengths of the new Germany, in a schoolroom undamaged in the latter stages of the war. Giving government a city of its own is generally a good idea: it allows other cities to be more interesting. But the common sense attached to the German Basic Law — it was not called a ‘constitution’, because its makers were acting on behalf of all Germany, not just the Federal Republic — spread elsewhere. Knowing what had done so much damage in the days of Weimar, the trade unions accepted sensible reforms: there were only twelve unions, they had considerable privileges as regards management, and they built up a considerable interest of their own in the fortunes of ‘capitalism’. They therefore had every interest in making sure that the system worked, such that they would be flexible as regards the introduction of new machinery, even if it meant a loss of old-fashioned or obsolete jobs. True, the position of the trade unions was in a sense quite weak in the early years because of the huge numbers of hungry immigrants. Twelve million of them poured in from the east, latterly from the Communist-run Soviet zone (3.2 million of them, four fifths of them aged between eighteen and twenty-five, 20,000 of them engineers and 4,500 doctors). Finally there was the Federal Bank as it was soon called. It was independent, or at any rate as independent as human wisdom could make it in the circumstances. Its brief was to avoid the inflation that had twice shattered the country’s finances. It managed to do so quite successfully. One result was that the Germans saved: they saved and saved, at twice the British rate. There was therefore money for investment, and German business duly invested, taking a long-term view, which the lack of inflation again made possible. German business, much of it medium-sized and family-run, flourished, and, when it had to deal with exports, would behave quite sensibly, in establishing a chamber of commerce that knew the market. Germans of course had been determined never to repeat their past mistakes, and they were sometimes very literal-minded in applying the lessons. Nevertheless, a remarkable country emerged from the years of the Marshall Plan.
Broadly speaking, the country was twice as rich as in 1950, itself a year much better than its predecessors. By 1959 Germany was producing half of Europe’s steel (30.6 million tons) and 50 per cent more than Britain; it was then the vital element in a manufacturing economy. By 1957 Germany had become the chief producer of automobiles in Europe, with 1.5 million to Britain’s 1.4 million and
France’s 1.1 million. The Volkswagen was economic in fuel, not expensive, had an air-cooled engine and could be parked in a small place: it was popular worldwide. The fifties saw a world in which stable families took a joy in the wave of consumer gadgets that were coming on the market, at more and more affordable prices, such that refrigerators or washing machines or telephones or typewriters or new electric coffee-machines marked the decade. By 1959 German exports overtook British.
10. The Sixties
In the outcome of the great dramas of 1956, the Americans could be quite content. The European empires were finished; the West had been refashioned in America’s interest, or at any rate in the interest of most Americans. NATO took firm shape, as the Communist threat in western Europe receded; the fifties were a time of American triumphalism, and the immensely popular new President, General Eisenhower, was an apt and genial symbol. Eisenhower could as easily have been elected as a Democrat if he had chosen, but the Republicans, whose chief platform was tax-cutting, got in first. America had become very prosperous; her trade and investments boomed. By 1965 the USA produced 119 million tons of steel, almost as much as France, Germany (37 million, as against the maximum 10 million generously allowed in 1948), Great Britain and Japan put together, and it easily led in the consumer goods that marked the age — nearly 8 million television sets to very few German, for instance. The Europeans were catching up, but even in 1969 American workers earned over twice as much as German workers ($460 per month as against $209, and $199 in the British case). Three million Europeans emigrated to the USA in the fifties. However, Europe was becoming more united, and the impetus was really American: the European Economic Community contained the arm spiritual of NATO. Besides, for all of the talk of a European bloc, it was open to cheap and very rewarding investment.
The USA did very well out of this. The conglomerates such as IBM spread abroad. Investment ran at $2bn per annum in these years, and in 1956 American private investment abroad exceeded public spending there for the first time since the twenties. From 1946 to 1950 US foreign investment rose from over $7bn to nearly $12bn and by 1958 $25bn, and spread from mining and trade into more sophisticated fields such as petroleum-linked industries and manufacturing. The investment was dominated by the ‘multinationals’, firms which set up in western Europe to take advantage of lower costs or a growing market, or to escape from the tariffs that would otherwise have hit them, and some of the great American companies became worldwide names, the products ranging from soap to oil tankers. They were regarded as models of efficiency, with headquarters of plate glass and concrete, abstract sculptures and fountains well to the fore, and they developed a large research-and-development infrastructure. Their managers were also, often enough, teachers: IBM became something of a model, even, in the 1960s, for Romanians whose Communist government was then trying to become less dependent on the USSR. There was much alarm at the time about the allegedly predatory nature of this, but in 1950 there were higher western European investments in the USA than vice versa and in the later 1950s the USA had a positive balance of payments, despite the NATO spending. In the fifties and sixties — at any rate their first half — American business had a formidable reputation: it could do what Europeans could not imagine themselves doing, because the quality of management was so high. Some explanation is needed. In the twenties, when the phenomenon had first struck Europeans, it had seemed inhuman — workers like cogs in a machine, much exploited and put upon, turning out the same bit of a machine or an automobile on an assembly line, and not able to take any pride in the craftsmanship of a completed product. Fritz Lang, in the Weimar cinema, or Charlie Chaplin, captured this hostility, though it had roots in the England of Blake (‘dark satanic mills’). But it resulted in a huge flow of goods, and in high wages; during the war it had produced the extraordinary American production miracles, whereas for much of the time German workers, putting together a first-class piece of aeronautical engineering in craft groups, might take pride in the product but did not make nearly enough of it. In Europe in 1948 there was not a single continuous strip steel mill, because small firms and cartels resisted it, such that the cheap steel needed for refrigerators or automobiles was much more expensive than in the USA. A washing machine cost eight man-hours in New York, and 500 in Paris. But it was American management that shone.
It had quite long origins: even in the 1830s, Stendhal, for instance, has throw-away and dismissive lines about American business and dollar worship, and the Teamsters, a famous union mainly on the docks, took their name from the mule-drivers of yore. In the 1850s Sam Colt was able to assemble a first-class gun in thousands, because he made each part the same, to within a thirty-second of an inch to start with, and then a five-hundredth, so that they were interchangeable, and Linus Yale, of locks fame, goes back to that period. Machines were soon made with interchangeable parts, and the tools that produced these became an American specialty, keeping British war industries going in both of the world wars. Henry Ford famously transferred this to motor cars that were therefore cheap. Various explanations have been offered: unskilled immigrant labour, needing to be given simple and repetitive tasks within their capacity; expensive labour, putting pressure on firms to diminish their costs by use of machinery; practical education, such as was plentifully on offer; the peculiarly classless atmosphere in the USA, where ordinary workmen would co-operate on friendly terms with an owner when it came to reporting faults and taking an interest in machines, whereas elsewhere workmen regarded them as an enemy and in Britain were notoriously reluctant to accept them, because they would be tended by fewer workmen and might depress wage rates. In the Marshall years British trade unionists went to the USA to learn about productivity and the results were generally depressing. But the essential seems to have been the quality of management.
In Europe at large this was misunderstood, because of business schools; and it was a curious fact that they did more damage than good. Any true businessman regarded them as pernicious or at least useless: Sir James Goldsmith remarked, for instance, that he would never hire anyone for senior management who had failed to leave school at sixteen. One trouble was that those who could not manage, taught, and sometimes preached. Real managers have better things to do, and asking them about theories of management is equivalent to asking a first-class golfer to lecture on ballistics. There was even around 1900 a group of men who wanted to make business academically respectable and Harvard acquired a business school that its founders expected to rival the law school. Frederick Winslow Taylor (1856-1915) invented the time-and-motion study, in which white-coated experts studied the performance of the workforce, and, with slide-rules, criticized. Early on, the application of these methods caused demoralization and in the Ford plant at Dearborn turnover of the workforce stood at 900 per cent a year. Taylor’s claim was to ‘mathematize’ everything, and though himself a failure as a manager of men, he was the ancestor of the management consultant, and even the originator of a notion that management could be learned from books as distinct from experience. He and later followers referred to their creed as ‘Scientific Management’, and this suited some modern production methods, by ‘flow’, i.e. of workers each, on a slowly moving belt, assembling one part and moving it on to another worker who would add something to it. To manage men doing this mechanical stuff was not at all easy: in fact Taylor himself once remarked that he preferred a ‘little Dutchman’ for a pig-iron job because what it needed was ‘the mental make-up’ of an ‘ox’. In the USSR later on, ‘Taylorism’ was thought to be a good doctrine to follow. As things turned out, it was not, because it was so machine-like and inhuman. One reason for the failure of the USSR in the end was that it copied what it thought to be the most successful, because nastiest, method of managing labour. It merely demoralized, and created drunks.
America’s businessmen managed in fact in different ways and in the fifties they were very successful. One striking aspect was the in-house research laboratory. The Dupont Company, the first of Ame
rica’s great ones, already employed a hundred technicians in gleaming new buildings, and the example was followed by General Electric, where a mathematical genius tinkered away at Schenectady in New York State, and helped produce the cathode tube and the high-frequency alternator which made commercial broadcasting possible. General Electric then set up the National Broadcasting Corporation. Bell Laboratories was the research side of AT&T and it produced sixteen Nobel Prizes over the half-century: even the theory of information technology came from there, with a paper in 1948 called ‘A Mathematical Theory of Communications’, by Claude Elwood Shannon (like other mathematicians a considerable eccentric, who rode along the corridors on a specially made bicycle which enabled him along the way to juggle balls). As Kenneth and William Hopper say, these vastly successful companies ‘achieved a delicate… balance between… share-holders, employees, managers, suppliers, customers — and researchers’. They also attracted young scientists, who somehow gave of their best, because they were well-led, by men with knowledge and enthusiasm. Productivity growth per man-hour was 3 per cent per annum in the fifties and sixties, an extraordinary and unmatched figure.