With the Iron Curtain being drawn, the Soviet Union, on the one hand, and the three Western powers, on the other, began to stabilize their respective zones of occupation, bringing them into line with their own principles of political and economic organization. In doing so, they promoted the establishment of two divergent orders. In West Germany, liberal democracy was eventually enshrined in the Basic Law ratified in 1949 by the Federal Parliament in Bonn, the new West German capital. At virtually the same time, the Soviet-installed communist regime in East Germany promulgated a constitution that looked good on paper and was in some ways similar to the West German Basic Law. Unfortunately, it was constantly violated by the repressive policies of a Stalinist government headed by SED [Socialist Unity Party or Sozialistische Einheitspartei Deutschlands] leader Walter Ulbricht.
In the economic realm, stabilization measures adopted in the West with Allied guidance and material aid first yielded results after the currency reform of 1948. With the establishment of a competition-based market economy, the latent potential of industry was unleashed. Under the leadership of Ludwig Erhard, economics minister in the newly appointed coalition government led by Federal Chancellor Konrad Adenauer of the Christian Democratic Party, the “Economic Miracle” of the 1950s unfolded. It saw increased production, the creation of employment opportunities, and the appearance of consumer goods that West Germans had been dreaming of for years. For all of Erhard’s liberalism, however, this was not an economy that relied exclusively on the dynamic of market forces. The Federal Republic also had an extensive welfare net that provided support for millions of war widows, orphans, veterans, and others who had lost their assets.
Legislation introduced in accordance with Article 131 of the Basic Law also restored pension and employment rights to civil servants and former soldiers, lifting the suspension imposed by the Allies in 1945. The Equalization of Burdens Law, which was ratified in 1951, represented an attempt to redistribute wealth from those fortunate enough to have retained property and other assets to those who had lost everything. Efforts to provide restitution to families whom the Nazis had expropriated and forced into emigration – however inadequate they may have been – should also be seen in this context. Still, the overall hope was that full employment and “prosperity for all” (Ludwig Erhard) would eventually solve the enormous social problems the war had left behind, and hence stabilize the expansion of a welfare state that offered universal support in cases of illness or unemployment and in old age. Indeed, Article 20 of the Basic Law put society under a permanent obligation to preserve the Republic as a “democratic and social federal state.”
A growing majority of the working population had no wish to return to the class conflicts of the 1920s, and this aided the restoration of socioeconomic harmony and the gradual spread of prosperity. Even trade union members supported a reformist trend that focused on improving wages and working conditions within the framework of a capitalist market economy. This situation was one factor behind the low incidence of strikes in the 1950s; another was that peculiar West German institution, labor-management co-determination. In the coal and steel industries, co-determination went so far as to provide for a “worker director” who sat on the company management board and participated in all major company decisions. Moreover, capital and labor were equally represented on the company supervisory board under a neutral chairperson. The Works Council Law [Betriebsverfassungsgesetz] of 1952 did not extend this arrangement to all larger companies in the remaining fields of industry – the result unions had been hoping for in 1950/51. Still, the law that finally reached the statute books in reduced form reflected some union gains and stipulated the election, by the workforce, of works councils with which management was required to cooperate on questions such as redundancy and location planning.