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Dr Oliver Hartwich: The Economic Miracle


Dr Oliver Hartwich, Executive Director, The New Zealand Initiative

15 January 2023


Transcript


The German philosopher Georg Hegel once said, “The only thing we learn from history is that we learn nothing from history.” That was a pessimistic way of looking at things. But then again, I did mention that Hegel was German. Well, I am German too. But I also carry a New Zealand passport. And as it happens, I believe, possibly optimistically, that history can teach us a lot. If we all knew just a bit more history, the world would be a much better place. As another great philosopher said: “Learn from the mistakes of others. You can never live long enough to make them all yourself.” That was Marx, by the way. Well, not Karl Marx – Groucho Marx.


So let’s have a quick history lesson and see if we can learn something.


The year is 1945. World War II has ended. Nazi Germany has been defeated by the allied forces: the United States, Britain, France and the Soviet Union. In Britain, it was Prime Minister Winston Churchill who led his country to victory. He was celebrated as a hero in May 1945. But only two months later, the Brits elected a new Parliament and a new Prime Minister, Clement Attlee. Why did they elect Attlee and his Labour Party? Well, because Attlee had a simple and appealing message: Britain had won the war. But now it needed to win the peace, too. Clement Attlee promised to build a ‘New Jerusalem’ – a country where milk and honey flow.


And how did he want to make that happen?


Well, with the same tools that Britain had used to win the war: a massive, collective, national effort. The idea was that the British state, which had defeated evil Nazi Germany would now use its extraordinary power to build a better country. The Attlee Government took control of the British economy. Entire industries were nationalised. Coal, iron and steel, aviation and railways, telecommunications and shipbuilding, gas and electricity supplies, even the long-established Bank of England. They were all brought into state ownership.


Britain’s new economic order expanded the welfare state. The Attlee Government created the National Health Service. Countless regulations and controls accompanied it. Britain never got as close to central planning as it did in the years following World War II. The result was dismal. It ended in economic disaster. In 1973, the UK had to introduce the Three-Day Week to save electricity. Then, in 1976, it needed a bailout from the International Monetary Fund. The economic crisis culminated in the “Winter of Discontent” of 1978/79, when nothing worked. The British experiment of a state-run economy had failed. So, Britain demonstrated how not to pursue economic policy.


For sure, sweeping state powers are necessary to win wars. But running an economy is different from fighting a war. Ironically, the country that showed the alternative was West Germany. For the Germans, their total war had ended in total defeat. German cities had been bombed out; the economy lay in ruins; the population was demoralised; the nation was morally disgraced. These were hardly the best conditions for an economic recovery. But West Germany managed an economic miracle.


The miracle was led by Ludwig Erhard, a liberal economist. He later became Economics Minister and Chancellor. In all areas of the economy, the West Germans did the opposite of Great Britain. There were no nationalisations, no economic planning, no price controls. Instead, there was solid monetary policy through an independent central bank, economic freedom and a basic system of social security. Erhard called his concept the “social market economy” and promised “prosperity for all”. It delivered just that. West Germany became the economic powerhouse of the post-war era. By the late 1960s, West Germany overtook Britain in GDP per capita.


If we look at New Zealand today, we just fought a kind of war: that was the war against Covid. For this war, we gave the state extraordinary powers: to lock us up, to close our borders, to support the economy. But now that we are leaving Covid behind us, we need to return to our liberal traditions. We cannot let the state plan our lives. We cannot let it run large parts of the economy. We need a free market, a free economy and free Kiwis to generate prosperity for us all. And to deliver opportunities for all New Zealanders.


That is what I have learnt from history. And I hope you enjoyed this history lesson.


I’m Oliver Hartwich, Executive Director of The New Zealand Initiative, for The Common Room.


For more items from The Common Room go here

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71 Comments


Centralization of planning and authority seems like a good idea. If "experts" can plan for a better social and economic future, the people can be "encouraged" to coply with the plans by legialation and regulations and taxpayers' curent and future incomes are used to impliment the plans everything should turn out fine. Right? Well NO! It does turn out very well for an elite minority of the people but badly for the rest. Believers in centralization ignore some important facts.

1. No-one can predict and accurately plan for the future. 2. There are more wrong ways to acive something that right ways.

3. Politicians and bureaucrats who desire authority and power over the rest of the people become corrupted and incompetent when they gain…

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Why is it that people who favor communism don't just bugger off and live in an already established communist state. Silly me the answer is obvious.

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Mark Laslett
Mark Laslett
Jan 16, 2023

Thank you Oliver. Message well & truly understood, but you are talking to the already converted. Problem is, successive socialist administrations (Labour and National led) since the 1930s have followed the UKs lead, with the exception of the period 1984-mid 90s. We have gone from a "First World" country to a "second world" one as a consequence. We have exported our raw materials and a large proportion of out best minds. Not because we are small, but because of a tall poppy syndrome. We could burst out of these doldrums very easily by following 19th century Frederic Bastiat's advice and that of his predecessors Gournay & Quesnay - see https://www.merriam-webster.com/dictionary/laissez-faire#:~:text=The%20French%20phrase%20laissez%20faire,the%20operation%20of%20natural%20economic To degree to which laissez-faire is adopted, economies and people…

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Octavian Augustus
Octavian Augustus
Jan 15, 2023

I find it hard to accept that there was an economic "miracle" in Germany that lifted it out of its decimated post-war state. By every measure, physically and otherwise, it was in a far worse state than Britain was, although at wars end, both were completely subservient to the United States, politically and economically. In mid 1945, the allies had just finished their merciless and sustained campaign of terror-bombing nearly the entirety of Germany, including much of its civilian areas and non-military infrastructure, with the firebombing of Dresden being probably the most notorious incident (incidentally, this campaign was a war crime by most objective standards, although conveniently swept under the rug at Nuremberg, along with other dubious war time allied…


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Tom Hunter
Tom Hunter
May 15, 2023
Replying to

I suggest you read this, A Different Economic Starter Motor. The West Germans did it themselves by ignoring the French, British and Americans - and as you'll see from the link, there was plenty of internal opposition from Social Democrats who thought the same as British & NZ Labour of the day.

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Kloyd0306
Kloyd0306
Jan 15, 2023

The Poms certainly blew it in 1945. Dumping Churchill was a huge mistake.

Then followed the strength of the unions, a poison that was exported to New Zealand.

Unionism, collectivism, socialism and communism - all failures and they are at the heart of this bastard Labour government that we have had to endure since 2017.

Not helped by idiotic NZ First voters whose 7% gave the poisonous dwarf, Winston, the balance of power.

His pathetic decision makes MMP look the crock that it is.

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Kloyd0306
Kloyd0306
Jan 16, 2023
Replying to

Really?

How come most of the NZ union leaders that called for disruptive strikes in the 70s and 80s had pommie accents.

Poison is an accurate description. All unions are a curse. Pommie led ones were a bigger curse.

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