Erhard’s growing reputation as the architect of economic recovery made him a valuable asset to whichever political party secured his support; he himself had no political ties, although his sympathies were with the Free Democrats. Konrad Adenauer, leader of the Christian Democrats, saw in Erhard a powerful weapon with which to defeat the Social Democrats in the first Federal elections, to be held in August 1949. The Ahlen programme was dropped and the Christian Democrats adopted a pragmatic version of the Ordo-liberal doctrine. The conversion of the principal conservative party to liberalism was an important event in post-war Germany; before the war the parties of the right, influenced by vested interests in industry and agriculture, had put more weight on nationalism and autarky than on the virtues of competition.12
Although the Christian Democrat share of the vote in the elections was not much higher than that of the Social Democrats – 31 per cent to 29 per cent – the support of smaller parties, including the Free Democrats, was sufficient to give the non-socialist parties a clear majority, and Erhard was installed as economics minister in the new Federal government. Less than a year later another crisis threatened to derail his policies. The outbreak of the Korean War led to a worldwide shortage of raw materials and semifinished goods as the Americans and their allies scrambled to re-equip their armed forces. A combination of higher prices and rising imports put the German balance of payments into deficit, and Erhard came under pressure to reimpose controls on the allocation of raw materials. Adenauer’s confidence in his economics minister was shaken, and there was a risk that Erhard would resign or be dismissed. But although import liberalisation was briefly suspended, the market economy proved to be more flexible than Erhard’s critics had expected, and by the spring of 1951 the ‘economic miracle’ was back on course.
The impressive performance of the German economy under Erhard’s stewardship made the alternative prescriptions offered by the Social Democrats increasingly irrelevant. Heavy defeats in the 1953 and 1958 elections prompted a reformist group within the SPD to rethink the party’s commitment to planning and nationalisation. The anti-capitalist element was out of touch with events, and the party’s conversion to the principles of the market economy was formalised at the Bad Godesberg conference in 1959; the rhetoric of the class struggle was abandoned. The slogan on which the Social Democrats united – ‘as much competition as possible, as much planning as necessary’ – did not eliminate differences with the Christian Democrats on aspects of economic policy, but there was a broad consensus in both parties about the priority that should be given to competition and free markets.
The opposition to Erhard’s insistence on competition came more from cartel-minded businessmen than politicians. The anti-cartel law which he introduced in 1952 met strong resistance, and when it was finally passed in 1957 it was weaker than Erhard would have preferred. The rules on monopolies were mild, and there were too many loopholes and escape clauses. But the law established the principle that cartels and other restrictive practices were unacceptable, and helped to wean German industry away from the anti-competitive practices which had been widespread before the war.
In pressing for action against cartels Erhard could count on support from the Americans, who regarded the introduction of US-style antitrust policies as a way of injecting dynamism into the German economy. The other aspect of competition policy to which the US attached great importance – the break-up of dominant firms – was more contentious. Two of the principal targets for the American trust-busters were IG Farben and Vestag; other large companies, including Siemens and Bosch, were briefly considered as candidates for break-up, but no action was taken against them. Erhard agreed with the Americans on the need to prevent monopoly, but had no objection to bigness if it could be justified on economic grounds. He was concerned that an over-drastic approach to deconcentration would weaken the ability of German companies to compete in world markets. IG Farben was broken up, but the three main successor companies – Bayer, Hoechst and Badische Anilin und Soda Fabrik (BASF) – were large enough to hold their own against the world leaders in the chemical industry, such as Du Pont in the US and ICI in Britain. In steel, the ties between steel-making and coal-mining were partially broken, but deconcentration was milder than the more enthusiastic American trust-busters had hoped for. The outcome was an industrial structure nearer to the American model of competitive oligopoly than to German practice in the 1920s and 1930s.13
The strongest safeguard against a return to cartels was not domestic competition policy, but the openness of the German economy to imports.14 Erhard was an enthusiastic proponent of free trade, and Germany was the pace-setter in European trade liberalisation; the average level of tariff protection was reduced from 19.6 per cent to 10.6 per cent during the 1950s. Imports of manufactured goods, principally from neighbouring European countries, increased rapidly, adding to the competitive pressure on German industry.15 Erhard favoured the widest possible free trade area and the minimum amount of government intervention in regulating exports and imports. When the French foreign minister, Robert Schuman, put forward the idea of a European Coal and Steel Community (ECSC) in 1950, Erhard was not enthusiastic. He disliked the idea of a supranational authority to control European trade in steel, suspecting that it might be a vehicle through which the German and French steel-makers could recreate their pre-war cartels. But there were great political attractions in the scheme for West Germany. It offered the prospect of defusing French anxieties over the future of the Ruhr, bringing to an end Allied controls over German steel production, and confirming the status of the Federal Republic as an acceptable partner in European affairs. These were the issues which mattered most to Adenauer, and the Coal and Steel Community proved to be a decisive step towards European political integration.16
On this larger issue, too, Erhard did not see eye to eye with his Chancellor. He was concerned that the proposed European Economic Community – first put forward by the Dutch foreign minister, Johan Willem Beyen, in 1953 – would be pushed by France in an illiberal direction. A better alternative, in Erhard’s view, was a free trade area covering Western Europe as a whole, including Britain. But Adenauer was more interested in the political than the economic aspects of the Common Market, seeing it as a means of binding West Germany into the Western alliance and strengthening the Federal Republic’s ties with France. The row between the two men simmered on after the Common Market had come into operation in 1958, and Erhard was disappointed, as were other liberals within the German government, when General de Gaulle vetoed Britain’s application to join the EEC in 1963. However, although the creation of the Common Market had a distorting effect on the pattern of trade – most notoriously in the field of agriculture – it had the offsetting advantage for West Germany of opening up the two most protected European markets, France and Italy. The process of tariff reduction within the EEC was almost certainly faster than it would have been in a looser free trade area, and in that sense the creation of ‘Little Europe’ had a positive effect on the growth of West German exports.17
Membership of the Common Market did not alter the fundamentally liberal thrust of German economic policy. But there were other reforms which had to be made if the social market economy was to function effectively. Conflict-prone labour relations had contributed to the instability of the Weimar Republic, and the collusion of many employers with the Nazis made the trade union movement even more determined to reassert itself after 1945. The unions were in a strong political position because of their opposition to fascism, and their demands for public ownership and ‘economic democracy’ were regarded sympathetically by the Labour government in Britain. But nationalisation faded from the political agenda after the defeat of the Social Democrats in the 1949 election, and the unions concentrated their efforts on the issue of codetermination – the sharing of power between employee representatives and shareholders in the management of companies.
The unions had made a significant advance on this front in 1947, when the British authorities in the Ruhr agreed that the reconstituted steel companies should assign half the seats on their supervisory