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3. Strains in the Social Market Economy
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Overview   |   1. The Deepening of Division   |   2. The Conflict between Democracy and Dictatorship   |   3. Strains in the Social Market Economy   |   4. Responses to Social Conflicts   |   5. Uncertainties of Modernist Culture   |   6. Western Success and Eastern Failure

In the West, the Economic Miracle of the 1950s had rested on a steady supply of labor, mostly from ethnic kin from the East. When the building of the Wall closed off this influx, the Federal Republic started to recruit foreign laborers in order to keep women out of the workforce and tied to traditional roles. Because migrants were supposed to be only temporary, they were euphemistically called "guest workers" [Gastarbeiter]. This rotating contract system brought several million Italians, Spaniards, Yugoslavs, and eventually also Turks to the Federal Republic to do the heavy and unpleasant tasks that local workers disliked. Although many Gastarbeiter went home, others brought their families and thereby turned West Germany into an inadvertent immigration country. When the economic boom ended and unemployment grew, xenophobic attitudes gained ground; throughout the 1980s, immigration and integration remained unresolved issues (18). Eventually, even East Germany recruited some foreign laborers, mostly from developing countries such as Vietnam, but their numbers always remained severely restricted and their impact on society and the economy was marginal.

The oil shocks of the 1970s ended the long growth period. Already the slowdown in the mid-1960s put a dent in the "social market economy," but the "concerted action" of government stimulation and labor peace, orchestrated by Economics Minister Karl Schiller, restarted the expansion. The overheated public spending and double-digit wage increases of the early 1970s came to a sudden stop when the cartel of oil-producing countries (OPEC) raised the price of fossil fuel more than ten times in 1973. The result was a steep recession. Chancellor Helmut Schmidt, an astute economic manager, froze the expansion of welfare benefits and halted wage increases. Although Keynesian counter-cyclical public spending managed to reignite modest growth, the second oil price increase of 1979 created structural unemployment that would persist. Soviet energy prices (which were below the world market) initially helped prolong the GDR's survival, but cuts in Soviet oil deliveries and price increases threatened the basis of East German exports of refined derivatives to the West (19).

For West Germany, one way out of the economic impasse was European integration, since the expansion of the domestic market was supposed to produce economies of scale. The lifting of internal tariffs in the European Economic Community in the 1960s was a boon to German industry which increased its trade with France, Italy, and the Benelux countries. But the preference of French President Charles de Gaulle for a "Europe of the fatherlands" stalled progress on integration, and his veto delayed the entry of Great Britain, Ireland, and Denmark until 1973. In the 1980s, the renamed European Community further expanded into the Mediterranean so as to shore up post-dictatorial democracies in Greece, Spain, and Portugal. The friendship between French President Valerie Giscard d'Estaing and Helmut Schmidt also succeeded in dampening the effects of monetary speculation through the creation of the European Monetary System in 1978. But it was not until the 1980s that integration resumed its momentum with the Single European Act. In contrast, the benefits of the COMECON for the GDR were much smaller, since trade between its members was less extensive and interactions based on Soviet dominance (20).

(18) Ulrich Herbert, Geschichte der Ausländerpolitik in Deutschland. Saisonarbeiter, Zwangsarbeiter, Gastarbeiter, Flüchtlinge (Munich, 2001); Klaus Bade, Migration in European History (Malden, MA, 2003).
(19) Anthony Nichols, Freedom With Responsibility: The Social Market Economy in Germany, 1918-1963 (Oxford, 1994); Steiner, Von Plan zu Plan, pp. 123 ff.
(20) Gerold Ambrosius, Wirtschaftsraum Europa. Das Ende der Nationalökonomien (Frankfurt am Main, 1996); John Gillingham, European Integration, 1953-2003: Superstate or New Market Economy? (London, 2003).

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