The Economic Growth of Germany, 1871-1890: The Role of Government Policy

The unification of Germany in 1871 ushered in an era of unprecedented economic growth. From 1871 to 1890, Germany underwent rapid industrialization, transforming itself from an agrarian society into a burgeoning industrial power. While various factors contributed to this rapid economic expansion, the role of government policy remains a point of contention among historians. This essay will assess the validity of the view that government policies were the primary driver of German economic growth during this period.

Arguments Supporting the Role of Government Policies

Several government policies played a significant role in fostering economic growth. Firstly, the introduction of protective tariffs in 1878-79 shielded nascent German industries from foreign competition, allowing them to grow and flourish. This protectionist policy proved particularly beneficial during the global depression of the 1870s, as German industries were less affected compared to their more exposed European counterparts.

Secondly, Bismarck's strategic alliance with the National Liberals ensured that government policy generally aligned with the interests of industrialists and businessmen. This collaboration resulted in legislation favorable to business expansion, such as the removal of internal customs barriers and the standardization of weights and measures. These measures facilitated trade and reduced transaction costs, further boosting economic activity.

Furthermore, the government's investment in infrastructure, particularly the expansion of the railway network, was crucial. Railways facilitated the transportation of goods and resources, connecting industrial centers with markets across the newly unified nation. This investment in infrastructure significantly reduced transportation costs and stimulated both internal and external trade.

Arguments Challenging the Centrality of Government Policies

While government policies undoubtedly played a role, attributing Germany's economic success solely to them would be an oversimplification. Several other factors significantly contributed to the economic boom.

Germany was endowed with abundant natural resources, particularly coal and iron ore, essential raw materials for industrial production. The availability of these resources within German borders provided a considerable advantage, lowering production costs and fueling industrial growth.

Moreover, Germany experienced significant population growth during this period, providing a large and readily available workforce for factories and industries. Concurrently, there was a strong emphasis on education and technical skills development, leading to a skilled workforce that further boosted productivity and industrial expansion.

The rise of cartels, while often viewed controversially, also played a role in Germany's economic success. By reducing competition and setting production quotas, cartels aimed to stabilize prices and eliminate wasteful competition. This allowed businesses to generate consistent profits, some of which were reinvested in research, development, and further expansion.

Finally, the German banking sector played a crucial role. Unlike in other countries where banks primarily focused on short-term loans, German banks engaged in long-term investment in industries. This patient capital provided German companies with the financial resources needed for large-scale projects and sustained growth.

Conclusion

In conclusion, while government policies under Bismarck, such as tariffs, infrastructure investment, and pro-business legislation, did contribute significantly to German economic growth between 1871 and 1890, attributing success solely to these policies would be a reductionist view. Germany's abundant natural resources, growing and skilled workforce, the emergence of cartels, and the unique role of the banking sector were all significant contributing factors. It was the interplay of these factors, along with government policies, that propelled Germany's remarkable economic transformation during this period.