What did Germany do after World War II to recover so successfully that it became more prosperous than its WW2 victors?

What did Germany do after World War II to recover so successfully that it became more prosperous than its WW2 victors?

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Germany lost in World War II. Being the loser, its economy started at a disadvantage compared to her World War II victors in the aftermath of WW2. However, Germany managed to recover more successfully than her World War II victors to become the dominant European economic power by the late 20th century.

What did Germany do to become more prosperous than its victors after World War II?

Can the troubled European nations of today draw lessons from Germany's history of rebuilding so successfully despite being a loser in both World Wars?

What did Germany do to become more prosperous than its victors after World War II?

The boring answer to that it the rather simple: It didn't. The economy of both Germany and France were devastated by the war, the UK and US economy much less. Germany and France both recovered quickly, and Germany, France and the UK ended up with very similar levels of prosperity.

Germany's industry was of course in a much worse state than France and UK's, but they were able to rebuild it to a large extent thanks to economic help from the victors.

As you see the US beat all of them, and the other major victor, the USSR of course never reached levels of prosperity close to this, but that's because of socialism.


Good question with several answers. First a nod to Lennart for pointing out that Germany grew just like France and Britain and the USA, so a certain amount of "a rising tide floats all boats." However there were some factors that advantaged Germany more than the others:

  1. Highly educated, savings-minded workforce whose population losses were instantly replenished by the influx of millions of refugees from former eastern Germany, Poland, and Czechoslovakia.
  2. Wartime destruction meant wonder years for the construction industry. Entire cities were destroyed and had to be rebuilt.
  3. Just fighting the war under conditions of scarcity and bombing engendered a high level of state-industrial cooperation and focus on efficiency and optimization. Do more with less. For example, Germany managed to produce more war materiel in 1944 than in 1940.
  4. Germany shrank by 25% in 1945 compared to its 1937 territory. Most of the lost territory, such as East Prussia and Pomerania, was historically relatively poor and agricultural. Silesia was an industrial region but hardly on a par with the Rhineland. Other relatively poor regions such as Mecklenburg and Brandenburg were sequestered away into East Germany. So the richest and most industrial parts of West Germany could grow without having to subsidize the East.
  5. Ludwig Erhard, the minister given much credit for the "Economic Miracle," astutely kept exchange rates artificially low in order to promote German exports.
  6. The Marshall Plan certainly helped somewhat by infusing capital. Rather than investment, East Germany experienced a net loss of capital and industrial plant as "reparations" but still managed to become the 7th largest industrial economy at its height.

Finally, a political factor that is often overlooked: Before World War II Germany's middle class had no political home. Instead it was fractured six ways to Sunday. This had led to much political friction over the years, to the point of enabling the Nazi Party to rise to power by grabbing the votes of a frustrated middle class who wanted an end to the chaos. Finally the Catholics and the Protestants joined forces to form the CDU, giving it a solid base of political support to carry out the Economic Miracle. By the same token, the Communist Party was outlawed, and working class politics was united under the SPD. Political stability and the rule of law are seen as essential conditions for the growth of capitalism.

At the closing of WWII the Cold War had already begun. West Germany bordered the Soviet Bloc and became the premier battle ground. Long story short, Sec. George Marshall guilt tripped/spooked congress into agreeing to give very very large amount of their constituents money to Europe. W. Germany and Greece being the two most at risk to shifting into the Soviet sphere, they received the most. ^^^(Turkey was as well, & was a big part of selling the idea yet they did not receive Marshal Plan aid) I think what I'm saying is accurate but I did not check… Aside from that we were going to do everything possible to help make sure West Germany looked like Disney Land compared to the other side of the Wall. Also Germany, historically is a very innovative society and has been a technological hub --- so with someone else writing blank checks to invest they were able to produce - that's what i speculate anyway.

When the 2ww ended the cold war started…

The UK, USA, France etc spend a lot of time and effect including using most of their best engineers to create weapons and defenses for the cold war.

Germany was not allowed to create weapons; therefore all their best people worked in industry creating goods that could be sold.

The US and UK also based lots of solders in West Germany, and these solders spend money while there. At least some of the effort in building the bases was then by German workers (that got paid).

Economic history of Germany

Until the early 19th century Germany, a federation of numerous states of varying size and development, retained its pre-industrial character, where trade centered around a number of free cities. After the extensive development of the railway network during the 1840s, rapid economic growth and modernisation sparked the process of industrialisation. [1] The largest economy in Europe by 1900, Germany had established a primary position in several key sectors, like the Chemical industry and steel production. [2] [3] [4] High production capacity, permanent competitiveness and subsequent protectionist policies fought out with the USA and Britain were essential factors for Germany's entry into the World Wars. By the end of World War II, the country's economic infrastructure was completely destroyed. West Germany embarked in its program of reconstruction with financial support provided by the Marshall Plan and, guided by the economic principles of the Minister of Economics Ludwig Erhard excelled in the economic miracle during the 1950s and 1960s. East Germany's last remaining economic facilities were dismantled by the Soviet occupation force as one of the first steps of the war reparations plan. [5] The country was embedded in the Eastern Bloc system of socialist planned economy. Contemporary Germany employs a highly skilled work force in the largest national economy as the largest exporter of high quality goods in Europe, like cars, machinery, pharmaceutics, chemical and electrical products with a GDP of 3.67 trillion USD in 2017. [6] [7] [8] [9] [10]

What did Germany do after World War II to recover so successfully that it became more prosperous than its WW2 victors? - History

Since the end of the Second World War, we have witnessed a long and remarkably stable peace between the major industrial democratic powers. Even the possibility of armed conflict between the U.S., Britain, France, Germany, and Japan seems so remote as to be not worthy of consideration. An increasing number of political analysts have ascribed this happy state of affairs to the fact that the above states have liberal-democratic forms of government. They argue that the norms of conduct and institutional restraints found in a liberal-democracy virtually guarantee that liberal-democratic states will maintain a zone of peace with each other.

However, there is another explanation for the long post-World War Two peace which stresses not so much internal political institutions as the larger international order. According to this explanation, states tend to adopt policies of militarism or peace depending on which policy option promises to bring the most material benefit. A system of free trade among states maximizes possibilities of voluntary exchange and overall wealth creation, creating powerful inducements to peace. The erection of barriers to trade, on the other hand, contributes greatly to inter-state animosity, militarism, and in some cases, war.

In order to fully understand why free trade contributes to peace, we must turn to a number of distinguished thinkers from the past, thinkers whose writings contributed to the making of a new order in international politics.

For centuries, military conquest was perceived to be an important and desirable means of acquiring material goods. War chiefs could build mighty empires by plundering other civilizations, enslaving peoples, and acquiring new lands. Even democratic and semi-democratic republics, such as Athens and Rome, would go to war against fellow republics in the hope of acquiring new slaves and loot. Throughout ancient and medieval times, the economic benefits of conquest remained unquestioned.

However, by the sixteenth and seventeenth centuries, a number of observers in Europe began to notice an interesting pattern: trading states such as Venice and the Netherlands prospered greatly despite their military weakness, while great expansionist military powers such as Spain and France had little to show for their repeated attempts at conquest. This led to some rethinking in Europe as to the material benefits of military competition, and European thinkers began to argue with greater frequency about the unprofitable nature of war as compared with peace and trade. Adam Smith, writing in 1776, argued that optimal wealth creation rested not on the conquest and rule of empires but rather on expansion of the international division of labor and the freest possible trade between peoples. Human productive capabilities were maximized, Smith argued, when each nation specialized in what it did best and exchanged its products with the rest of the world. David Hume, arguing against mercantalist conceptions that the pursuit of wealth was a zero-sum game, wrote that it would benefit Britain greatly if the other states of Europe also flourished economically, that there was more to be gained by trading with other wealthy states than with impoverished states. At the time, this was considered a radical doctrine.

The logical implications of these findings were clear: if states could best fulfill their material needs by peaceful production and trade with other states, then it was economically counterproductive to hinder or destroy the prosperity of other states by means of militarist policies. As long as the possibility of voluntary exchange existed, conquest and pillage was unnecessary or even pointless. Moreover, restrictions on trade hindered productive advances, encouraging old ways of militarism.

It took some time for states to make the transition from policies of military expansion to trade. European powers continued to embark upon imperial adventures in Asia, Africa, and the Middle East in the eighteenth, nineteenth and early twentieth centuries. However, it is important to note that even these imperial policies were directed primarily at areas of the world which were underdeveloped. The empire-building which took place in the underdeveloped world was not merely an act of conquest and plunder, though that did take place, but a temporary phase of dominion and organization which aided the future development of free commerce. For as underdeveloped regions became organized and integrated in the global market system, further acts of military coercion became unnecessary and unprofitable.

A good example of this phenomenon was Great Britain’s experience with its American colonies. When the American colonists declared independence in 1776, Britain attempted to forcibly regain control over America. However, as Adam Smith noted, Britain’s war against the colonists was economically counterproductive. According to Smith, if Britain let the colonies go, it could still obtain the economic benefits from trade with America, and yet not incur the massive costs of administering and defending the colonies.

Subsequent events would prove Smith correct. Britain lost control of America, but continued to prosper, despite, or rather because of this loss. After Britain’s defeat, America and Britain continued to maintain a mutually enriching trading relationship, while Britain saved on the costs of defending and administering its American colonies. By the nineteenth century, Britain was at the forefront of the industrial revolution.

British foreign policy in the nineteenth century aimed at maintaining a network of free trade and ensuring the continuance of a stable balance of power on the European continent. The long period of peace which resulted from this policy has rightly been celebrated as the era of the “Pax Britannica.” Although the Pax Britannica has been attributed largely to Britain’s dominance in naval power, an equally important component of the peace was the set of incentives offered to other states by the free trade system established by the British. By allowing full access to British markets, by providing a steady flow of capital to other parts of the world, and by generally upholding international property rights, Britain provided opportunities for other states to develop and increase their wealth by peaceful means.

World War One and its Aftermath

However, the decline in British power in the late nineteenth/early twentieth centuries, and the inability of the European balance of power system to accomodate the changes caused by the growth in German power and decline of the Austrian and Ottoman empires, contributed to the outbreak of the great conflict known as the First World War (1914-1918). It must be admitted that this war broke out despite the existence of fairly vigorous international trade flows. Thus, free trade cannot be counted on to prevent war in all cases, particularly when issues of power and nationalist pride are involved.

Nevertheless, the First World War did demonstrate beyond all doubt that there was little to be gained materially from warfare. Both victors and defeated emerged from the war worse off than before. Moreover, events in the post-war era would prove that free trade, while not a panacea, is a vital component of a stable and lasting international peace settlement. This fact was overlooked by the statesmen who gathered at the Versailles peace conference to discuss the shape of the post-war world, and the results of this neglect were disastrous for the cause of peace.

In theory, President Woodrow Wilson, the leading statesman at Versailles, was an advocate of free trade policies. One of the platforms in his famous Fourteen Points speech called for a lowering of economic barriers between states. However, at the Versailles peace negotiations, Wilson was hampered by the consideration of other problems he deemed more pressing, and the free trade plank was pushed aside. In fact, Wilson’s promise of a generous and enlightened peace for victors and defeated alike, with no annexations or punitive damages, was also abandoned. Despite having a new democratic government set up in the closing days of the war (the “Weimar Republic”), Germany was forced in the Versailles Peace Treaty to surrender a good portion of its territory and pay massive reparations to the victors.

The economic irrationality of massive reparations had already been exposed by such thinkers such as Norman Angell and John Maynard Keynes. Echoing the writings of Adam Smith and David Hume, Angell and Keynes argued that prosperity could be obtained not through the impoverishment of other states, but through their flourishing. Keynes argued that Germany was the vital center of European post-war recovery, and that massive reparations would only exacerbate the economic disruptions caused by the war. With remarkable prescience, Keynes noted that economic prosperity was the key to a stable peace in Europe, and that such a goal could be obtained not through the ruin of Germany but through the promotion of general economic recovery, among friends and former foes alike, based on the cancellation of war debts and the creation of a European free-trade zone. Keynes’s advice was rejected by the victors.

Germany, already saddled with substantial war debts, was unable to pay its reparations on schedule. It resorted to printing money as a way out of the crisis, but this resulted in hyper-inflation, destroying the savings of the middle class and diminishing the supply of working capital in Germany. Even when reparations were subsequently reduced and the German economy began to recover in the mid-1920s, the structural damage done to the German economy and society remained.

The October 1929 stock market crash in the United States inaugurated an economic downturn which quickly became world-wide in scope. The Great Depression affected the United States and Germany most severely, but few countries emerged from the 1930s without some serious economic setbacks. The depression assumed deep, worldwide proportions partly because domestic economic problems in one state tended to affect other states, but also because the structure of the international economy itself was beset with flaws which turned a temporary, if severe, business turndown into a global meltdown.

During the First World War, Europe had acquired massive debts, most of which were owed to the United States. However, as noted previously, American statesmen had rejected plans for economic recovery in Europe based on the cancellation of war debts and the formation of a free trade zone. Europe’s ability to repay its loans depended on its ability to export goods to the United States—yet, the U.S. had erected tariff barriers to prevent a large flow of imports. It was not merely the U.S. which hampered economic recovery with protectionist policies. The First World War had temporarily disrupted trading patterns throughout Europe, as each country sought to provide for itself during hostilities. The trend toward national autarky was partially reversed after the war ended, but a full transition to free trade was never made. In fact, shortly after the 1929 crash, countries around the world implemented additional trade barriers, worsening the crisis.

Some attempts were made to halt the self-defeating proliferation of trade barriers. In 1931, Germany and Austria announced the formation of a customs union which other countries would be free to join. However, France, fearful of German power, vetoed the proposal, resulting in another decline of confidence and a deepening of the depression.

For Germany, the Great Depression was a final nail in the coffin of Weimar democracy. The prospect of shared economic growth based on international cooperation being no longer credible, many Germans turned to the Nazi Party, which promised a revived Germany based on national socialism and militarist expansion. By 1932, the Nazis became the largest party in the German parliament. Shortly thereafter, Adolf Hitler overturned the Weimar Republic and consolidated all power in his hands.

At approximately the same time that Germany was experiencing its upheavals, Japan was undergoing its own problems of reconciling its material needs with international economic realities. Since the late nineteenth century, Japan had been experimenting with Western political and legal institutions as part of its modernization campaign. Borrowing from the West, it had adopted a parliamentary political system with multiple political parties and a relatively free press. In 1925, Japan granted voting rights to all males over the age of 25. However, Japan’s liberalization campaign was still struggling with older military and feudal elites, who dominated what was an outwardly democratic form of government. These elites campaigned vociferously for a policy of military expansion as a solution to a growing Japan’s need for markets and resources.

A small country with few natural resources and limited arable land, Japan could not even grow enough food to support its own population, forcing Japan to import large amounts of rice. These imports had to be paid for by exports. However, other countries’ tariffs limited Japan’s ability to export. Emigration was one possible solution to Japan’s exploding population, but this option was cut off by restrictions placed by other countries on Japanese immigrants. When the Great Depression hit, Japan’s export markets shrank. When countries erected additonal protectionist barriers in the 1930s as a response to the crisis, Japan faced a catastrophe. As a result, Japanese militarists gained the upper hand politically, and they embarked upon a policy of military expansion in the hope of forcibly capturing markets and building an empire as a permanent solution to Japan’s economic problems.

The Post-World War Two Order: Building a Zone of Trade and Peace

When Germany and Japan were defeated in 1945, American policymakers were careful not to repeat the mistakes of the past in constructing a new post-war order. They believed that free trade and general prosperity were formidable deterrents to war, and hoped to create a new international peace based on a revival of free trade. With the right economic incentives, they felt, the forces of militarism could be kept in check or eradicated altogether.

One component of American policy in the post-World War Two period was the temporary aid program known as the Marshall Plan. Although the Marshall Plan has been viewed by many as proof of the efficacy of government aid in solving social problems, leading to repeated calls for new “Marshall Plans” for other regions of the world or for the American inner cities, it is important to note that the Marshall Plan was in fact merely a temporary measure designed to cover for particular shortfalls in the economies of the countries devastated by the war. As American policymakers were well aware, in the absence of major reforms in the direction of stable currencies, property rights, free markets, and free trade, post-war economic recovery in Western Europe and Japan would not have been possible, no matter how much aid the U.S. poured into its allies.

In fact, the Marshall Plan was explicitly designed so as to promote a free trade zone in Europe, ending the traditional approach of nationalist autarky and beggar-thy-neighbor policies which resulted in so much harm in the past. The U.S. pressured the states of Europe to establish a permanent Organization for European Economic Cooperation (OEEC), in order to distribute Marshall Plan aid, coordinate European recovery, and gradually lower trade barriers throughout Western Europe.

In Germany, American occupation officials, with the aid of the German economist Ludwig Erhard, issued a new, stable currency and ended controls on the market in 1948. Almost immediately, the economy began to recover. In fact, across Western Europe economic recovery was swift and dramatic. By 1952, production levels in the region exceeded pre-war levels. In such an environment, extremist parties had little to latch on to. Even as increasing tax rates and economic regulation in later decades hindered Europe’s growth and job creation, trade barriers in Europe continued to fall, ensuring that the economic disasters of the 1920s and 1930s were not repeated. As predicted, the unprecendented prosperity made possible by means of peaceful exchange made policies of militarist expansion unattractive.

Japan experienced a recovery as dramatic as Europe’s. Although Japan never completely liberalized its economy, nor fully opened its domestic economy to foreign manufactures, it was able to insinuate itself into the free-trade system set up by the U.S. Consequently, Japan finally found a reliable market for its exports and a steady source of raw materials to import. In fact, it is not likely that Japan’s export-oriented growth strategy could have succeeded at all if the U.S. were not willing to accept Japanese imports. Free trade made all the difference in confirming pacifist inclinations in this small, resource-poor, island nation. Although in recent years, the Japanese economy has faltered, the Japanese are well aware that their economic problems are internal, and require internal reforms rather than external expansion.

It has become popular of late to claim that the long peace between liberal-democracies in this century demonstrates the importance of promoting democracy in other countries. However, such a claim overlooks the large role that a system of free trade plays in promoting general prosperity and thereby providing incentives for peace. When opportunities for voluntary exchange with other productive nations are maximized, there are strong incentives to avoid major military conflict. When trade is restricted or denied, nations will more often resort to militarist policies as a solution to their economic plight. Indeed, free trade plays a significant role in ensuring that incipient liberal-democracies do not succumb to militarist-authoritarian movements in the first place.

However, the long post-1945 peace cannot be taken for granted. The temptation to erect barriers to trade continues to exist to this day, and democracies are not immune to this temptation. The desire to retreat from the world into nationalist autarky, to shield one’s country from the effects of global competition, or to punish other states by denying them trade, are still powerful impulses in the domestic politics of many states. Maintaining peace will require a renewed commitment to the principle of free trade as the best long-term guarantor of prosperous, satisfied, and pacified societies.

Europe's Common Market founded in major step toward economic unity

On March 25, 1957, France, West Germany, Italy, the Netherlands, Belgium and Luxembourg sign a treaty in Rome establishing the European Economic Community (EEC), also known as the Common Market. The EEC, which came into operation in January 1958, was a major step in Europe’s movement toward economic and political union.

By 1950, it was apparent that centuries of Western European world supremacy was at an end. The national markets of Europe, isolated from each other by archaic trade laws, were no match for the giant market enjoyed by the United States. And looming over Europe from the east was the Soviet Union, whose communist leaders commanded vast territory and economic resources under a single system. Many European leaders also feared the resumption of conflict between traditional European antagonists such as France and Germany, which would only diminish the European economies further.

As a means of improving Europe’s economic climate and preventing war, some influential statesman and political theorists suggested economic integration. The first major step in this direction was taken in 1951, when France and West Germany formed the European Coal and Steel Community (ECSC), integrating their coal and steel industries. French leaders proposed the organization primarily as a means of monitoring German industry, and West German leaders immediately agreed, to allay fears of German militarization. To supervise the ECSC, several supranational bodies were established, including an executive authority, a council of ministers, an advisory assembly, and a court of justice to settle disputes. Italy and the three nations of the Benelux Economic Union�lgium, the Netherlands, and Luxembourg–soon joined. The groundwork for the EEC was laid.

On March 25, 1957, representatives of six European nations signed two treaties in Rome. One created the European Atomic Energy Community (Euratom) for the common and peaceful development of Europe’s nuclear resources. The other created the EEC. In the Common Market, trade barriers between member nations were gradually eliminated, and common policies regarding transportation, agriculture, and economic relations with nonmember countries were implemented. Eventually, labor and capital were permitted to move freely within the boundaries of the community. The EEC, the ECSC, and Euratom were served by a single council of ministers, representative assembly, and court of justice. In 1967, the three organizations were fully merged as the European Community (EC).

Britain and other European nations initially declined to join the Common Market and established the weaker European Free Trade Association (EFTA) in 1960 as an alternative. By the early 1960s, however, the Common Market nations showed signs of significant economic growth, and Britain changed its mind. Because of its close ties to the United States, however, French President Charles de Gaulle twice vetoed British admission, and Britain did not join the EC until January 1973, when Ireland and Denmark also became EC members. Greece joined in 1981, Portugal and Spain in 1986, and the former East Germany as part of reunified Germany in 1990.

In early 1990s, the European Community became the basis for the European Union (EU), which was established in 1993 following ratification of the Maastricht Treaty. The treaty called for a strengthened European parliament, the creation of a central European bank and common currency, and a common defense policy. In addition to a single European common market, member states would also participate in a larger common market, called the European Economic Area. Austria, Finland, and Sweden became members of the EU in 1995. In 2009, the EEC was absorbed into the EU&aposs framework. As of 2020, the EU had 27 member states. 

South Korea’s Economic Development, 1948–1996

At its independence in 1948, South Korea was an impoverished, predominately agricultural state, and most of the industry and electrical power was in North Korea. It faced a devastating war from 1950 to 1953, and an unpromising and slow recovery in the years that followed. Then, from 1961 to 1996, South Korea underwent a period of rapid economic development, during which it was transformed into a prosperous, industrial society. During these years, its economic growth rates were among the highest in the world. Under the military government of Park Chung Hee (Pak Chǒng-hǔi), which came to power in 1961, the state gave priority to economic development, focusing on a combination of state planning and private entrepreneurship. Possessing few natural resources, it depended on a low wage, educated, and disciplined labor force to produce goods for exports. As wages rose, economic development shifted from labor to capital-intensive industries. Focusing initially on textiles and footwear, South Korean manufacturing moved into steel, heavy equipment, ships, and petrochemicals in the 1970s, and electronics and automobiles in the 1980s. Two major reforms under the administration of Syngman Rhee (Yi Sǔng-man, 1948–1961) helped prepare the way: land reform and educational development. However, it was the commitment to rapid industrialization by the military governments of Park Chung Hee and his successor, Chun Doo Hwan (Chǒn Tu-hwan), that brought about the takeoff. Industrialization was characterized by a close pattern of cooperation between the state and large family-owned conglomerates known as chaebǒls. This close relationship continued after the transition to democracy, in the late 1980s and 1990s, but after 1987, labor emerged as a major political force, and rising wages gave further impetus to the development of more capital-intensive industry. In 1996, South Korea joined the Organization for Economic Cooperation and Development, being internationally recognized as a “developed state.” Although living standards still lagged behind those of North America, Western Europe, and Japan, the gap was significantly narrowed. After 1996, its economic development slowed but was still high enough to achieve a per capita income comparable to the countries of Western Europe and to shift from a borrower of to an innovator in technology.



Economic Development from 1948 to 1961

At its creation in 1948 , South Korea ranked as one of the world’s poorest states. Twelve years later, in 1960 , it remained so with a per capita income about the same as Haiti. A number of factors contributed to that poverty. South Korea was predominantly an agricultural society, but it did undergo some industrialization during the Japanese colonial rule, from 1910 to 1945 , mostly in the northern provinces. The Japanese colonial administration created a professional civil service and an efficient, development-oriented state that worked closely with private business and banks to achieve economic targets. But it was a predatory, exploitative development designed to benefit Japan rather than Korea.

Korea was partitioned in 1945 by the Soviet Union and the United States, who then fostered the creation of two states: the Democratic People’s Republic of Korea (DPRK) in the north and the Republic of Korea (ROK) in the south. The DPRK inherited most of the industry, most of the mining, and more than 80% of the electric power generation. The ROK possessed most of the productive agricultural areas, but these were barely adequate to feed the densely inhabited country’s rapidly growing population. South Korea faced additional challenges: the repatriation of the large population of resident Japanese after the liberation resulted in a loss of many skilled workers, professionals, and teachers an influx of refugees from the North the loss of Japan as its main market for its agricultural exports and a turbulent political situation in the country. These problems were compounded by the highly destructive Korean War, 1950–1953 .

South Korea’s economic takeoff, its spurt of rapid industrialization and economic growth, began in the early 1960s under the direction of the military government. During nearly three decades of military-led governments, the economy was rapidly transformed in a process sometimes referred to as the South Korean “economic miracle” or the “miracle on the Han,” referring to the Han River that flows through Seoul. The years before 1961 , by contrast, are dismissed as a time of stagnation, inflation, corruption, and dependence on foreign assistance. In fact, the period from 1948 to 1960 is sometimes seen as an interregnum between the development-oriented colonial state that preceded it and the military government that followed it. 1 Real economic growth was only 4 percent a year, less than 2 percent per capita when the high birthrate is factored in. 2 This real but modest rate of growth meant that, in 1960 , the country was still extremely poor.

The years after the war, from 1953 to 1961 , saw only a slow recovery despite the country being one the world’s largest recipients of foreign aid per capita. There was a lack of central planning and only modest investment in infrastructure. Misallocation of aid funds, government corruption, an unrealistically high exchange, political volatility, and the threat of renewed war with North Korea all made the country unappealing to domestic and foreign investors. Fear of recreating colonial dependency on Japan prevented Seoul from opening the country to trade and investment with its booming next door neighbor. With few natural resources, the country produced little that the rest of the world wanted, and its international trade was miniscule.

South Korea followed an import substitution industrialization policy typical of many postcolonial states after World War II. This was less a carefully constructed strategy for economic development than a rather haphazard system of protecting consumer industries such as food processing, textiles, and items such as toothpaste and soap. The over-valued currency kept its potential exports uncompetitive. South Korea’s exports in this period consisted mainly of small amounts of tungsten, rice, seaweed, iron, and graphite. In 1956 , these amounted to $25 million against the import products amounting to $389 million, a huge deficit made up for by the infusion of U.S. aid funds. 3 Almost all of the nation’s foreign exchange earnings came from the U.S. aid. In fact, the country was heavily reliant on American assistance, not only for postwar reconstruction but for public finances. American aid accounted for nearly 80% of all government revenues and a substantial portion of South Korea’s entire gross national product (GNP). Foreign aid, along with the inflated exchange rate, was also used to support crony capitalism. The state under President Syngman Rhee had close ties to elements of the business community, but these were used as a means to finance the regime by channeling U.S. dollars into government coffers. The government gave out import licenses to favored businessmen to buy commodities. Since the official exchange rate of the hwan did not reflect any market reality, this meant that import licenses were highly profitable.

Nonetheless, some of the basic foundations were being laid out for the country’s later economic growth. As riddled with self-serving, corrupt officials as it was, the Rhee administration also had many able and talented people in the areas of economics, education, and finance. To these were added a steady stream of South Koreans who were going to the United States to study science, engineering, public administration, economics, education, and a variety of other fields. They often were employed as young technocrats by the government. In 1958 , the administration created the Economic Development Council, a body of these technocrats that began to draw up plans for long-term economic development. The Rhee administration, however, collapsed in 1960 , before they could be implemented.

More importantly, two fundamental changes took place in South Korean society before 1961 that contributed enormously to the country’s economic takeoff. One was the rapid expansion of education. From 1945 to 1960 , the enrollment in primary schools increased three times its size, secondary schools more than eight-fold, and higher education ten times. By 1960 , 96% of all children of primary school age were attending school. Additionally, state and private groups carried out highly successful adult literacy programs. As a result, South Korea, in 1961 , had the best-educated work force of any country with a comparable income level. The other major change was land reform, carried out in 1950 on the eve of the Korean War, which limited property holdings to 7.5 acres (3 hectares). In 1944 , 3 percent of landowners owned 64 percent, but in 1956 the top 6 percent owned only 18 percent tenancy had virtually disappeared. 4 Traditional peasants became small entrepreneurial farmers, and many landowners invested in business or established schools. 5 Land reform brought stability to the countryside and redirected much of the capital and entrepreneurial energy of the old landlord class toward commerce, industry, and education.

Economic Take-Off

South Korea’s “economic miracle” began under the military government of General Park Chung Hee (Pak Chǒng-hǔi), who came to power in a coup in May 1961 . The previous year had seen the overthrow of President Rhee’s authoritarian regime in a student-led revolt and a rather chaotic experiment in parliamentary democracy under Chang Myun (Chang Myǒn). Under Chang Myun, the government drew up a long-term plan for economic development that partially served as the basis for the new military regime.

The new military regime of Park Chung Hee did not have clear ideas about what to do about the economy. What it did have was a determination to end the country’s poverty. Partly this was a matter of national pride and a desire to free the nation from its “mendicant” status as an economic ward of the United States. Park questioned whether South Korea could preserve its “self-respect as a sovereign nation, independent, free, and democratic” while being so dependent on the Americans, who financed a little over half the government’s budget. This meant, he remarked, that the United States had “a 52 percent majority vote with regard to Korea.” 6 Besides the desire to free their country from its economic dependency on America, the new military leaders were motivated by competition with a rapidly industrializing North Korea. It was clear that the country was falling behind North Korea, undermining Seoul’s claim as the legitimate government of all Koreans. Initially, the military leaders turned on the business community and its corrupt relationship between businessmen and the government. But after detaining and fining fifty-one prominent leaders, including Lee Byung Chull (Yi Pyŏng-ch’ŏl), the country’s richest, they began working closely with them to harness their entrepreneurial skills to the national effort at economic development. Park appointed thirteen to the Promotional Committee for Economic Reconstruction, with Lee as chair. 7 In this way. the military government began its partnership with the country’s entrepreneurial elite.

Several steps were taken to direct the state toward economic growth: the development of five-year economic plans, the redirection of the economy from import substitution to exported-oriented industrial development, and state control over credit. The Park regime created an Economic Planning Board (EPB) staffed by technocrats to direct economic growth. The EPB head served as a deputy prime minister, outranking all other cabinet members. The state nationalized all commercial banks and reorganized the banking system to give control over credit. 8 It then provided low interest loans to businesses according to the needs of economic plans. Most historians regard the First Five-Year Development Plan to be the point of economic take-off. Launched in 1962 , it called for a 7.1 percent economic growth rate for 1962–1966 , by encouraging the development of light industries for export. Despite skepticism by many American advisors that it was unrealistic, the target was exceeded with the economic growth rate averaging 8.9 percent, propelling South Korea on its path to rapid industrialization. Exports grew 29 percent a year, manufacturing 15 percent a year. 9 A Second Five-Year Plan, 1967–1971 , followed, which gave greater emphasis to attracting direct foreign investment and improving the basic infrastructure. 10

A major feature of South Korea’s economic development was its focus on acquiring technical skills. The state created a number of centers to promote research and the dissemination of technical knowledge to business enterprises such as Korean Institute of Science and Technology (KIST), established in 1966 . It also promoted technical education by expanding the number of vocational secondary schools and two-year technical colleges, and encouraged students to study abroad, although many of these did not return. At the same time, the Park administration made impressive progress in professionalizing the state bureaucracy. Officials received appointment through a highly competitive civil service examination system and were promoted based on clear guidelines for merit. Attracted by good pay and benefits, job security, and enhanced prestige, many of the country’s top university graduates as well as those with overseas degrees entered the ranks of the bureaucracy. As a result, a highly competent, respected set of officials were able to help guide and promote economic and social development. 11

Since Park’s economic development policies were driven by economic nationalism and the desire to achieve autonomy for his country, he was concerned about avoiding foreign economic control. Consequently, he initially limited direct foreign investment into the country. Soon, however, on the advice of his economists, he began easing up on these restrictions. In 1966 , the Foreign Capital Inducement Act exempted foreign managers from income taxes, provided tax holidays, and streamlined the process for investing in the country. 12 Despite Park’s desire for autonomy, South Korean economic development was tied to the United States. Washington gradually began to reduce direct aid, but its technical assistance remained crucial to South Korea’s economic development. Perhaps most importantly, the United States absorbed the majority of the country’s exports. South Korea was also able to use political and military relations with the Americans for economic development purposes. Park sent 300,000 troops to support the Americans in Vietnam in exchange, South Korean firms were to be given lucrative contracts to supply goods and services to the South Vietnamese, American, and allied military forces. South Korean firms such as Hyundai gained valuable experience in completing construction and transportation projects for the United States in Vietnam, experience that they applied to win contracts in the Middle East and elsewhere.

Japan was also important in South Korea’s economic development. Park normalized relations with Tokyo in 1965 , over the heated objections of Koreans who feared a return of Japanese dominance, if not a revival of colonial hegemony. Korean cheap labor and Japanese capital and technology were a good match. In the years after the treaty, Japan was a major foreign investor in South Korea, second only to the United States. In the decade after the treaty, trade between the two countries expanded more than ten times Japan supplied nearly 60 percent of foreign technology between 1962 and 1979 . 13 The U.S. market and Japan’s investments and technology transfers greatly facilitated South Korea’s economic transformation. Japan was also a useful model for imitation. During the colonial period and after, Koreans learned much from Japan about what a non-Western country could do to successfully modernize and industrialize. As one Korean put it, the policy of his country’s business community was “Do what the Japanese have done, but do it cheaper and faster.” 14

In the 1970s, there were changes in the direction of economic development—a shift to heavy industry and the production of capital goods, accompanied by more restrictive policies on direct foreign investment. The change was motivated by a desire to become economically and politically autonomous. The United States started to appear less reliable as a military and political partner, as it established relations with the Peoples Republic of China in 1971–1972 and, as Americans began their withdrawal from Vietnam, President Nixon began calling for a reduction of U.S. forces in Korea. It now seemed to the leadership more urgent to make the country more economically self-reliant, able eventually to manufacture its own armaments and capital goods and to compete with North Korea’s own heavy industrial development. Self-reliance was reinforced in 1973 by new restrictions placed on direct foreign investment. The shift to these heavy and chemical industries required the government to play an even greater role in aiding and guiding industrial development. The companies favored by the Park regime were able to grow and expand, some into industrial giants.

The change in economic direction was accompanied by a more authoritarian turn by the Park regime. In 1963 , the country was returned to civilian rule, although in reality, the power was still in the hands of the military. Park was elected three times in semi-open presidential elections: 1963 , 1967 , and 1971 . Then, in 1972 , he declared martial law and promulgated a new constitution that gave him nearly dictatorial powers. Using these powers, Park redirected the economy toward the development of heavy and chemical industries inaugurating the HCI (heavy and chemical industry) phase of South Korea’s economic development. In 1973 , six industries were targeted: steel, chemical, metal, machine building, shipbuilding, and electronics. This stage of industrial development was concentrated in five small provincial cities, four of them in Park’s home area, Kyŏngsang, in the southeast part of the country: Yŏsu-Yŏchŏn, for petrochemicals Ch’angwŏn, for machine-building P’ohang, for steel Okp’o, for shipbuilding and the Kumi complex for electronics. 15

Despite the fact that many foreign experts believed South Korea was neither ready nor large enough to support a heavy industrial base, the plan was largely successful. The economy grew by double digits despite a less favorable international situation in the 1970s. In the decade from 1972 to 1982 , steel production increased fourteen times. The petrochemical industry did not become that competitive, but others such as steel, led by the state-owned Pohang Iron and Steel Company (POSCO), did. POSCO operated the world’s largest steel-making complex, an efficient operation that successfully competed in the world steel markets. Shipbuilding was another success story: in the 1980s, South Korea became the world’s second largest shipbuilder, with a reputation for being able to complete orders for new ships quickly and on time. These successes were tempered somewhat by the fact that the energy-intensive industries were launched at a time of sharp increases in petroleum prices, in 1973–1974 . However, the outflow of foreign exchange to pay for more costly imported oil was soon compensated in part by the inflow of earnings from Korean construction companies and their workers in the Middle East. Thus South Korea weathered the economic crisis quite well. More serious problems were inflation, which reached an annual rate of 40 percent in late 1979 , and the country’s mounting foreign debt. The country has become a major borrower to finance not just new investments but also huge infrastructure projects, such as expanded power generation, telecommunications, port facilities, and roads.

Big Business and the State

The South Korean government, after 1961 , worked closely with selected business entrepreneurs to achieve development goals. These entrepreneurs created large family owned conglomerates known as chaebŏls. Eventually some grew to enormous size and came to dominate the economy. Under Park and his immediate successors, the state—through its ownership of the banks—poured credit into a few companies to develop industries targeted for development. The chaebŏls received exemptions from import duties on capital goods and special rates for utilities and the state-owned rail system. Firms engaged in enterprises not favored by the development plans found it difficult to gain access to credit: nor could they receive special discounts and exemptions. Each chaebŏl leader found it necessary to work closely with the government and contribute generously to pro-government political campaign coffers and to pet projects favored by regimes of Park and his successor Chun Doo Hwan.

A key to this alliance between big business and the state was the performance principle. The state constantly monitored chaebŏls to determine if they were using their support efficiently. They had to demonstrate their ability to produce results, that is, to efficiently meet economic targets and compete in the domestic and foreign marketplaces. When they were not performing well they lost state support. Thus performance in meeting economic targets, and not political connections, was the basis for preferential loans and other forms of state assistance. Another factor was that the government did not allow any chaebŏl to achieve a monopoly but rather encouraged competition among several in each industrial sector to keep them efficient. Corruption was generally not tolerated, at least the kind of behavior that reduced the efficiency of the firms. As a result, there was considerable fluctuation in the fortunes of the chaebol groups. Of the top 100 firms in 1965 , for example, only 22 were in the top 100 for ten years. And only 30 of the top 100 firms in 1975 were still in the top 100 in 1985 . 16 The successful chaebŏls expanded rapidly, with the top ten conglomerates growing at three and a half times the GDP growth rate. 17 As they grew, they tended to expand horizontally, branching out into a highly diversified range of activities, often far removed from their original core businesses.

Although most became publically traded, the chaebŏls were essentially family-run businesses. Family members held the top managerial positions with second tier offices staffed by those with school or hometown ties to them. 18 Control was kept in the family by low inheritance taxes and marriage networks. 19 Most were products of the post-liberation period. Of the fifty largest chaebŏls in 1983 , only ten predated 1945 . 20 A majority were established in the 1950s and 1960s. Most were well established by 1980 . Among those with colonial roots was Samsung, founded by Lee Byung Chull. Lee started out with a trading company in 1938 . In the 1950s, he established the Cheil Sugar Refinery and the Cheil Textile Company. He developed a close relationship with the Rhee regime, which provided him with profitable import licenses in return for contributions to Rhee’s Liberal Party. Initially targeted by Park Chung Hee for corruption and cronyism, he soon established an important working relationship with the new military government. Lee’s new Samsung (Three Stars) group acquired a reputation for being efficient and well managed. Involved in many areas, in the late 1960s, Lee made electronics his prime focus. By the early 1980s, Samsung was one the world’s largest manufacturers of TV sets. In the mid-1980s, it moved into the semiconductor business promoted by the government.

Ssangyoung (Twin Dragons) was another older chaebǒl, originating in the late colonial period as a textile manufacturer. Under Park, its owner Kim Sung Kon (Kim Sŏng-gŏn) branched out into many industries, including trading, construction, and automobiles, becoming one of the six largest chaebŏls in the 1970s and 1980s. Most of the chaebǒl founders emerged after 1945 . The most successful of these was Hyundai, founded by Chung Ju-yung (Chŏng Chu-yŏng), who started out with a construction company that worked for the U.S. Army and the Korean government. He came to the attention of the Park regime for his ability to complete tasks, such as a bridge over the Han River, ahead of schedule. After 1965 , Hyundai Construction received many contracts to build in Southeast Asia during the Vietnam War, and in the Middle East in the 1970s. Chung established Hyundai Motors in 1967 to build the first South Korean car, which became known as the Pony. He established Hyundai Shipbuilding and Heavy Industries in 1973 in response to the HCI initiative. Later in the early 1980s, Hyundai entered the electronics industry and became in time the largest of the chaebǒls.

Another chaebǒl, Lucky-Goldstar was originally founded by Koo In-hwoi (Ku In-hoe) as Lucky Chemical Company in 1947 , the country’s major toothpaste manufacturer. 21 In the 1960s, he went into the electronics business under the Goldstar label. In 1995 , the Lucky-Goldstar company changed its name to LG, eventually becoming one of the world’s largest consumer electronics firms. Daewoo began in 1967 , as a trading company established by Kim Woo Jung (Kim U-jung). Having established a reputation for efficiency, Kim was given two failed enterprises—Shinjin, an unsuccessful automotive company, and the failing Okp’o shipyard—and managed to turn them into a major manufacturers of cars and ships. By the 1980s, South Korea’s economy was increasingly dominated by these largest of these family-owned conglomerates.

Social Transformation

As the economy grew, South Korea underwent a radical social transformation. This was most clearly seen in the rate of urbanization. Millions of Koreans left their rural homes to find work in the urban areas. Parents sent their kids to the cities to get a better education, and their children seldom returned. In 1960 , farmers made up 61 percent of the population. This fell dramatically to 51 percent in 1970 , and to 38 percent in 1980 . 22 By comparison to the cities, development in rural areas saw much slower growths. In fact, industrialization in the 1960s came partly at the expense of the countryside, whose development was visibly neglected. Farmers suffered from low prices for their crops, prices set by the state to keep food relatively cheap. Then, in part to shore up his rural base of political support, Park launched the New Village (Saemaǔl) Movement in the winter of 1971–1972 to promote rural development. Local governments were enlisted in programs to educate farmers to modernize their farms and their homes. Much of this was carried out in a heavy-handed manner. For example, he ordered all rural households to replace their thatched roofs with tiles, which were more fireproof and considered more modern. These were expensive, and the poor often had to settle for corrugated metal roofs painted blue or orange to simulate tiles. Village committees were established to formulate and carry out their own improvement schemes. Rural-urban income disparities, however, were closed only in the 1980s and 1990s, when the state increased the prices it paid for the agricultural produce in order to protect farmers from the imports. As urban incomes rose, workers could afford higher food costs. In general, by the 1990s, there was greater income and regional equality than in most developing and many developed countries.

South Korea’s swift economic development was accompanied by an equally swift decline in the birth rate. The Park regime’s technocrats generally accepted the argument by Western advisors that cutting the birthrate was essential for fast economic growth and modernization. Working with the Planned Parenthood Federation of Korea, which was formed in 1961 by the International Planned Parenthood Federation, the state sent family planning staff to local clinics. In 1968 , the Ministry of Health and Social Welfare created Mother’s Clubs for Family Planning and introduced oral contraceptives. A government program to recruit and train women in rural communities to instruct their neighbors in birth control proved effective. The state carried out major family planning campaigns in 1966 and in 1974 and began a female sterilization campaign in the 1980s. 23 By the early 1990s, the birth rate had fallen to replacement level and soon fell below that. While family planning efforts were probably important at first, the country’s shift to smaller families was characteristic of most societies as they became more urbanized and more middle class, and as women became better educated.

Educational development also proceeded rapidly throughout the period from 1961–1996 , with secondary education becoming close to universal in the late 1980s, and higher education enrollments reaching the levels of developed countries by the 1990s. Higher education enrollments, however, did not lead to a significantly higher percentage of labor participation by women who also entered the professional and managerial careers at much lower rates than that of most states at comparative levels of economic development. Health standards saw considerable improvement, with infant mortality rates matching those of most European countries by 1996 . Consumer growth was lower than the GDP growth. Lack of a social welfare safety net encouraged high rates of savings, as did the bonus system, in which workers received bonuses, usually set aside for savings, up to 400% of the monthly salary. Consumer desire was also constrained by state policies, such as keeping the prices of luxury goods extremely high and restricting foreign travel.

A Maturing Economy

On October 26, 1979 , President Park Chung Hee was assassinated. A period of political turmoil followed, compounded by the 1979 oil price hikes, a bad rice harvest, and an alarming 44 percent inflation rate, resulting in the economy contracting 6 percent in 1980 . But the economy quickly recovered. The 1980s saw high rates of GDP growth, peaking in the years 1986–1988 , at 12 percent annually the highest in the world. After that the growth rate slowed down, but the economy continued to expand through 1996 at an average rate of 7 percent. 24

Chun Doo Hwan, another military man who had served as president from 1980 to 1988 , continued Park’s developmental policies for the most part. However, as the South Korea economy matured in the 1980s and 1990s several major changes in the economy took place. Exports diversified and shifted to medium and high tech goods, with the industry becoming more capital and less labor intensive. Textiles exports declined in relative terms in the 1980s, replaced by consumer electronics, computers, and semi-conductors as lead exports. In 1983 , the first Hyundai cars were exported. By then, the country had become one of the largest shipbuilders and steel exporters in the world. Export markets also became more diversified, with less dependence on the United States. A serious problem was massive trade imbalances with the United States, still the biggest overseas market, which led to American pressure on the ROK to adopt a code of voluntary restraints on exports. Despite large trade surpluses with the United States, the South Korean economy continued to suffer from trade deficits as a whole. This was due partly to large imports of oil to fuel its heavy industry, although a drop in oil prices after 1982 helped somewhat. The ROK also suffered from huge trade deficits with Japan, which supplied Korean firms with capital equipment and industrial parts. South Korea, however, maintained its ability to work out technology transfer arrangements so that this dependency on imported technology diminished over time. Government-funded research centers such as the KIST, meanwhile, made impressive strides in promoting technological and scientific expertise. Gradually, the country expanded its trade with Southeast Asia, Europe, and, significantly, with China, after 1991 , when Seoul and Beijing opened trade offices in each other’s countries.

There was also a shift back in terms of attracting direct foreign investment and becoming less dependent on foreign borrowing. The country’s foreign debt rose from $2.2 billion in 1970 to $27.1 billion in 1980 . 25 It peaked at $47 billion in 1985 , but declined after that. 26 While the state reduced its foreign debt, however, corporate debt rose as the chaebŏls borrowed money to finance their expansion drive. To prevent overexpansion and needless duplication of investments the National Assembly passed a Chaebŏl Specialization Reform in 1993 . The top thirty chaebŏls had to list core industries that would be their focus. This, however, was not effectively implemented the number of subsidiaries owned by the major chaebŏls actually increased by 10% between 1993 and 1996 . 27

From 1987 , economic development was impacted by democratization. That year the country held free and open elections for president, and the state lifted most political censorship, and many over of its controls over civil society ended or lessened. The administrations of the popularly elected presidents, former general Roh Tae Woo ( 1988–1993 ) and former opposition leader Kim Young Sam ( 1993–1998 ) did not possess recourse to the wide range of actions available to their predecessors. The era of strong-armed governments was over, and the economy had to contend with a newly empowered labor movement and a politically active middle class that now had a real input into policy-making processes. The years 1987 , 1988 , and 1989 saw widespread strikes and soaring membership in militant, non-government affiliated labor unions. Wages rose sharply in the late 1980s and early 1990s, in part due to the greater power of labor unions, the membership size of which increased approximately 15 percent a year. While benefitting millions of working class Koreans and increasing domestic purchasing power, wages from 1988 to 1996 rose much faster than productivity, threatening the competitiveness of Korean exports. Rising wages also contributed to inflation, leading to the appreciation of the won.

Democratization, likewise, brought about the end of some of the measures to control foreign exchange. For example, restrictions on foreign travel were ended in 1988 , resulting in a surge of overseas tourism by the new middle class. Importation of luxury foreign products increased. The state countered this by carrying out campaigns to avoid “excessive consumption,” in some cases threatening tax audits for those who bought goods such as luxury foreign cars. However, the overall rise of consumption in the 1990s was further aided by increasing pressure from the United States and the signatories of the Uruguay Round of the General Agreement on Trade and Tariffs to open its markets. It also proved harder to discipline the larger chaebŏls that became “too big to fail”—their bankruptcies now risked damaging the national economy. There was also increasing concern among the public about the crony capitalism involving bureaucrats and politicians. Bribery, kickbacks, secret political funds, and bank accounts by officials and businessmen under false names were very much a part of the South Korean system. By the early 1990s, the pervasive corruption in business and government not only offended the moral sensibilities of the public but was also seen as a hindrance to the nation’s transition into a modern, First World country. A series of scandals in the mid-1990s, involving all nine of the leading chaebŏls and their connections with former presidents Chun and Roh, brought to light the depth of crony capitalism. Nonetheless, the same patterns of alliance among big business, the bureaucracy, and the ruling government persisted.

After 1996

In 1996 , South Korea became a member of the Organization of Economic Cooperation and Development (OECD), a thirty-member group of developed nations. Symbolically, South Korea had graduated from a developing country to the ranks of the wealthy developed nations. But it still faced many economic problems. South Koreans still worked among the longest hours of workers among the OECD nations, and the quality of life had not reached the levels of developed countries. Many South Korean companies had over-extended themselves, staying afloat only with low-interest loans from the state-controlled banks. The size of corporate debt reached frightening proportions when, in 1997 , the Asian financial crisis hit the country, requiring an international rescue package. Newly elected President Kim Dae Jung carried out a number of needed reforms, forcing chaebǒls to reduce subsidiaries in order to concentrate on the core businesses and reduce their debt-equity ratios, and he carried out measures to liberalize the labor market. The effects were immediate, with a brief near double-digit growth rate during 1999–2000 , and South Korea moved from a debtor to a creditor nation in just a few years. Unfortunately, the speedy recovery reduced the urgency for further needed reforms. The economy continued to be dominated by huge conglomerates with enormous economic and political influence. South Korea entered a period of slower growth after 2000 , although it was still fairly high compared to most OECD members.

By 2017 , the Republic of Korea had a global reputation for technological innovation, its GDP per capita was slightly above the EU average, and it ranked among the highest in the world in health standards and educational attainment. Yet it faced many challenges. China, which by 2004 had replaced the United States as South Korea’s largest trading partner, was a profitable market, but it was also becoming a formidable competitor. Unemployment, once negligible, was rising among both university and non-university graduates. The country had become a major exporter of entertainment, but other sectors of the service economy were underdeveloped. Many South Koreans feared that the domination of the economy by a few huge chaebǒls such as Lotte and Samsung (the latter the world’s third largest publically traded company by sales volume) was stifling many smaller start-ups and having too much influence on public policy. With one of the lowest birthrates and longest-lived population, it was facing an aging population, a shrinking workforce, and an inadequate social safety net. The country began importing immigrants, but it was difficult for such a highly homogeneous society to accept the challenges of multiculturalism. And there were concerns about air and water pollution and other environmental costs of its economic development. These were mostly the problems of a mature, prosperous, technologically advanced country, for by the second decade of the 21st century , that is what South Korea had become.

Discussion of the Literature

The so-called South Korean “economic miracle” has attracted considerable attention from students of economic development. Much of the literature, especially in the 1980s and 1990s, focused on explaining the reasons for the country’s successful development and drawing lessons for other developing nations. Some scholars have viewed South Korea’s economic growth as a product of a unique set of historical circumstances. These include the timing of its development—when there were fewer export-led economies to compete with—the openness of the U.S. market, the proximity of Japan at a time when the Japanese were seeking to move production to low cost countries, the rivalry with North Korea for legitimacy and the need to compete with it, and the relative lack of ethnic and sectarian strife in this homogenous society. 28

Some scholars have pointed to the importance of U.S. aid, technical assistance, and the presence of U.S. troops to guarantee security and assure foreign investors. From 1946 to 1976 , the United States provided $12.6 billion in economic assistance: only Israel and South Vietnam received more on a per-capita basis. 29 Korean immigrants also played some role they provided a link to the American wig business, to name one industry. 30 Some historical studies have placed a great deal on the importance of Japan, providing some of the foundations during colonial rule and serving as a model to emulate.

South Korea’s economic development has often been examined within the context of the general rise of the Pacific Rim of Asia after 1950 , and particularly as one of the “four tigers” along with Taiwan, Hong Kong, and Singapore. It has been argued that they were developmental states, a term coined by Chalmers Johnson for postwar Japan—states that gave overwhelming priority to economic development. Researchers have also seen South Korea along with most of the other miracle economies as possessing a strong state capable of overriding vested interests. 31 The general interpretation is that South Korea inherited a powerful centralized bureaucracy and national police from the Japanese colonial administration, and that the security-minded American military occupation and the subsequent Syngman Rhee regime made use of these instruments to suppress leftist dissent and maintain internal security. After 1961 , military rulers further centralized authority and directed the state toward economic development. The state then was able to achieve autarky and impose its will on society. This argument appears most valid for the 1960s and 1970s, when the military government was able to exercise discipline over the business class and suppress labor movements. Just how strong the South Korea state was and how important the role of business, labor, and other interest groups were in shaping policy has been a matter of discussion. 32

Some Korean and Western writers tend to refer to the so-called “Confucian ethos” that contributed to the economic success of South Korea, along with that of Singapore, Hong Kong, and Taiwan. South Koreans came to attribute much of their success to these traditional values as well. By this, they mean hard work, discipline, respect for learning, frugality, and the importance of family, the emphasis on education, the high esteem in which civil servants were held that attracted talented technocrats to serve the state, and even to the willingness to delay gratification that resulted in the high savings rate that characterized the period of rapid economic growth. Yet, South Koreans possessed this “Confucian” heritage before 1961 , as did North Koreans. Many scholars found it necessary to look at specific development policies and historical contingencies to explain the economic transformation of South Korea, including the roles played by land reform, by educational development, and by the ways the country achieved technical transfers.

A great deal of attention has been paid in recent years to the social cost of economic development. The suppression of labor and political dissent, the authoritarian nature of the Park Chung Hee and Chun Doo Hwan regimes, and exploitation of cheap female labor have been cited among negative consequences of rapid economic development. Hundreds of thousand young women worked and lived in cramped company dormitories called “beehives,” for long hours and low wages. But by concentrating close together, often suffering from sexual assault by police, they often organized and resisted. In the 1970s and to the mid-1980s, women participated in labor unions and in labor strikes at a higher rate than male workers. The role of women in the labor force constitutes a burgeoning new field for scholars of Korean economy. 33 The labor force grew rapidly in the 1960s under Park’s drive for industrial development, but the workers were kept under tight restrictions. South Korea had a system of company unions relatively easy for large employers to control. Efforts to organize strikes were brutally repressed by the police. Corporate heads were quick to call upon riot police to break up demonstrations. They also employed thugs called kusadae (“save our company troops”) to beat up labor organizers, a practice that became common in the 1980s. 34 Working conditions were often appalling, with scant regard to safety and long hours. Working conditions began to improve in the 1980s and 1990s, and the workweek peaked at 54.5 hours in 1986 and was even into the 1990s the longest in the world. 35

A number of scholars have specifically examined the role of Park Chung Hee administration in promoting South Korean economic development. Some regard his authoritarian but disciplined and goal-oriented leadership as a key to the country’s economic take-off. Others have argued that he largely borrowed from the economic plans already drawn up by the democratically elected previous regime headed by Chang Myun, or that his heavy-handed policies were sometimes counter-productive. 36 Other scholarship has looked at the close cooperation between state and business, including the network of corruption that has plagued the country. The exact nature of the cooperation has been the subject of a number of studies. 37 Scholars continue to examine the concentration of the economy into a small number of family-owned and run chaebǒls.


This economic miracle was the result of post-World War II Japan and West Germany benefitting from the Cold War. It occurred chiefly due to the economic interventionism of the Japanese government and partly due to the aid and assistance of the U.S. aid to Asia. [1] After World War II, the U.S. established a significant presence in Japan to slow the expansion of Soviet influence in the Pacific. The U.S. was also concerned with the growth of the economy of Japan because there was a risk that an unhappy and poor Japanese population would turn to communism and by doing so, ensure Soviet control over the Pacific. The American led deconstruction and reconstruction of Japan demonstrated that democracy was transferable that societies could be encouraged to transform themselves and that drastic changes could endure. [2]

The distinguishing characteristics of the Japanese economy during the "economic miracle" years included: the cooperation of manufacturers, suppliers, distributors, and banks in close-knit groups called keiretsu the powerful enterprise unions and shuntō good relations with government bureaucrats, and the guarantee of lifetime employment (shūshin koyō) in big corporations and highly unionized blue-collar factories.

The Japanese financial recovery continued even after SCAP departed and the economic boom propelled by the Korean War abated. The Japanese economy survived from the deep recession caused by a loss of the U.S. payments for military procurement and continued to make gains. By the late 1960s, Japan had risen from the ashes of World War II to achieve an astoundingly rapid and complete economic recovery. According to Knox College Professor Mikiso Hane, the period leading up to the late 1960s saw "the greatest years of prosperity Japan had seen since the Sun Goddess shut herself up behind a stone door to protest her brother Susano-o's misbehaviour." The Japanese government contributed to the post-war Japanese economic miracle by stimulating private sector growth, first by instituting regulations and protectionism that effectively managed economic crises and later by concentrating on trade expansion. [3]

Overview Edit

Japanese economic miracle refers to the significant increase in the Japanese economy during the time between the end of World War II and the end of the Cold War (1945–1991). The economical miracle can be divided into four stages: the recovery (1946–1954), the high increase (1955–1972), the steady increase (1972–1992), and the low increase (1992–2017). [4]

Although heavily damaged by the nuclear bombardment in Hiroshima and Nagasaki, and other Allied air raids on Japan, Japan was able to recover from the trauma of WWII, and managed to become the third-largest economic entity of the world (after the United States and the Soviet Union) by the 1960s. [5] However, after three decades, Japan had experienced the so-called "recession in growth", as the value of the Japanese yen was raised. In an attempt to prevent further slowing of growth, Japan greatly improved its technological advances and raised the value of the yen, since devaluing the yen would have brought further risk and a possible depressing effect on trade. [6] The appreciation of the yen led to a significant economic recession in the 1980s. To alleviate the influence of the recession, Japan imposed a series of economical and financial policies to stimulate domestic demand. Nevertheless, the bubble economy that took place in the late 1980s and early 1990s and the subsequent deflationary policy destroyed the Japanese economy. After the deflationary policy, the Japanese economy has been through a time of low increase period which has lasted until today.

Recovery stage (1946–1954) Edit

Japan was seriously harmed in WWII. For instance, during wartime, "the Japanese cotton industry was brought to its knees by the end of the Second World War. Two-thirds of its prewar cotton spindles were scrapped by wartime administrators, and bombing and destruction of urban areas had caused a further loss of 20 percent of spinning and 14 percent of weaving capacity". [7] Nonetheless, the ability of recovery astonished the world, earning the title of "Japanese Economic Miracle". By and large, every country has experienced some degree of industrial growth in the post-war period, those countries that achieved a heavy drop in industrial output due to war damage such as Japan, West Germany and Italy, have achieved a most rapid recovery. In the case of Japan, industrial production decreased in 1946 to 27.6% of the pre-war level, but recovered in 1951 and reached 350% in 1960. [8]

By the end of the American occupation of Japan in 1952, the United States successfully reintegrated Japan into the global economy so as to eliminate the motivation for imperial expansion, and rebuilt the economic infrastructure that would later form the launching pad for the Japanese economic miracle. [9]

One reason for Japan's quick recovery from war trauma was the successful economic reform by the government. The government body principally concerned with industrial policy in Japan was the Ministry of International Trade and Industry. [10] One of the major economic reforms was to adopt the "Inclined Production Mode" (傾斜生産方式 keisha seisan hoshiki). The "Inclined Production Mode" refers to the inclined production that primarily focuses on the production of raw material including steel, coal and cotton. Textile production occupied more than 23.9% of the total industrial production. [11] Moreover, to stimulate the production, Japanese government supported the new recruitment of labour, especially female labour. By enhancing the recruitment of female labour, Japan managed to recover from the destruction. The legislation on recruitment contains three components: the restriction placed on regional recruitment and relocation of workers, the banning of the direct recruitment of new school leavers, and the direct recruitment of non-school leavers under explicitly detailed regulations issued by the Ministry of Labour. [7]

The second reason that accounts for Japan's rapid recovery from WWII was the outbreak of the Korean War. [12] The Korean War was fought in territory that had been, until 1945, Chōsen (朝鮮) that Empire of Japan had annexed. As the United States was participating in the conflict on the Korean Peninsula, it turned to the Japanese economy for procurement of equipment and supplies because the logistics of shipping from the States soon became a significant problem for the military. Japan's industry was soon providing the required munitions and logistics to the American forces fighting in Korea. The demand stimulated the Japanese economy enabling it to recover quickly from the destruction of the Pacific War and provide the basis for the rapid expansion that was to follow.

High increasing stage (1954–1972) Edit

After gaining support from the United States and achieving domestic economic reform, Japan was able to soar from the 1950s to the 1970s. Furthermore, Japan also completed its process toward industrialization and became one of the first developed countries in East Asia. The Japanese Economic Yearbooks from 1967 to 1971 witnessed a significant increase. In 1967, the yearbook said: the Japanese economy in 1966 thus made an advance more rapidly than previously expected. [13] In 1968, the yearbook said that the Japanese economy continued to make a sound growth after it had a bottom in the autumn of 1965. [14] The words "increase", "growth" and "upswing" filled the summaries of the yearbooks from 1967 to 1971. The reasons for Japan to complete industrialization are also complicated, and the major characteristic of this time is the influence of governmental policies of the Hayato Ikeda administration, vast consumption, and vast export.

Influence of governmental policies: Ikeda administration and keiretsu Edit

In 1954, the economic system MITI had cultivated from 1949 to 1953 came into full effect. Prime Minister Hayato Ikeda, who Johnson [ who? ] calls "the single most important individual architect of the Japanese economic miracle," pursued a policy of heavy industrialization. [ citation needed ] This policy led to the emergence of 'over-loaning' (a practice that continues today) in which the Bank of Japan issues loans to city banks who in turn issue loans to industrial conglomerates. Since there was a shortage of capital in Japan at the time, industrial conglomerates borrowed beyond their capacity to repay, often beyond their net worth, causing city banks in turn to over-borrow from the Bank of Japan. This gave the national Bank of Japan complete control over dependent local banks.

The system of over-loaning, combined with the government's relaxation of anti-monopoly laws (a remnant of SCAP control) also led to the re-emergence of conglomerate groups called keiretsu that mirrored the wartime conglomerates, or zaibatsu. Led by the economic improvements of Sony businessmen Masaru Ibuka and Akio Morita, the keiretsu efficiently allocated resources and became competitive internationally. [15]

At the heart of the keiretsu conglomerates' success lay city banks, which lent generously, formalizing cross-share holdings in diverse industries. The keiretsu spurred both horizontal and vertical integration, locking out foreign companies from Japanese industries. Keiretsu had close relations with MITI and each other through the cross-placement of shares, providing protection from foreign take-overs. For example, 83% of Japan's Development Bank's finances went toward strategic industries: shipbuilding, electric power, coal and steel production. [16] Keiretsu proved crucial to protectionist measures that shielded Japan's sapling economy.

Keiretsu also fostered an attitude shift among Japanese managers that tolerated low profits in the short-run because keiretsu were less concerned with increasing stock dividends and profits and more concerned about interest payments. Approximately only two-thirds of the shares of a given company were traded, cushioning keiretsu against market fluctuations and allowing keiretsu managers to plan for the long-term and maximize market shares instead of focusing on short-term profits.

The Ikeda administration also instituted the Foreign Exchange Allocation Policy, a system of import controls designed to prevent the flooding of Japan's markets by foreign goods. MITI used the foreign exchange allocation to stimulate the economy by promoting exports, managing investment and monitoring production capacity. In 1953, MITIs revised the Foreign Exchange Allocation Policy to promote domestic industries and increase the incentive for exports by revising the export-link system. A later revision-based production capacity on foreign exchange allocation to prevent foreign dumping.

Vast consumption: from survival to recreation Edit

During the time of reconstruction and before the 1973 oil crisis, Japan managed to complete its industrialization process, gaining significant improvement in living standards and witnessing a significant increase in consumption. The average monthly consumption of urban family households doubled from 1955 to 1970. [17] Moreover, the proportions of consumption in Japan was also changing. The consumption in daily necessities, such as food and clothing and footwear, was decreasing. Contrastingly, the consumption in recreational, entertainment activities and goods increased, including furniture, transportation, communications, and reading. [17] The great increase in consumption stimulated the growth in GDP as it incentivized production.

Vast export: Golden Sixties and shift to export trade Edit

The period of rapid economic growth between 1955 and 1961 paved the way for the Golden Sixties, the second decade that is generally associated with the Japanese economic miracle. In 1965, Japan's nominal GDP was estimated at just over $91 billion. Fifteen years later, in 1980, the nominal GDP had soared to a record $1.065 trillion.

Under the leadership of Prime Minister Ikeda, former minister of MITI, the Japanese government undertook an ambitious "Income Doubling Plan" (所得倍増計画). The plan called for doubling the size of Japan's economy in ten years through a combination of tax breaks, targeted investment, an expanded social safety net, and incentives to increase exports and industrial development. To achieve the goal of doubling of the economy in ten years, the plan called for an average annual economic growth rate of 7.2%. In fact, Japan's annual growth averaged more than 10% over the course of the Plan, and the economy doubled in size in less than seven years. [18]

Ikeda introduced the Income Doubling Plan in response to the massive Anpo protests in 1960 against the US-Japan Security Treaty, as part of an effort to shift Japan's national dialogue away from contentious political struggles toward building a consensus around pursuit of rapid economic growth. [19] However, Ikeda and his brain trust, which most notably included the economist Osamu Shimomura, had been developing the plan since mid-1959. [20]

Under the Income Doubling Plan, Ikeda lowered interest rates and rapidly expanded government investment in Japan's infrastructure, building highways, high-speed railways, subways, airports, port facilities, and dams. Ikeda's government also expanded government investment in the previously neglected communications sector of the Japanese economy. Each of these acts continued the Japanese trend towards a managed economy that epitomized the mixed economic model.

The Income Doubling Plan was widely viewed as a success in achieving both its political and economic objectives. According to historian Nick Kapur, the plan "enshrined 'economic growthism' as a sort of secular religion of both the Japanese people and their government, bringing about a circumstance in which both the effectiveness of the government and the worth of the populace came to be measured above all by the annual percentage change in GDP." [21]

Besides Ikeda's adherence to government intervention and regulation of the economy, his government pushed trade liberalization. By April 1960, trade imports had been 41 percent liberalized (compared to 22 percent in 1956). Ikeda planned to liberalize trade to 80 percent within three years. However, his liberalization goals met with severe opposition from both industries who had thrived on over-loaning and the nationalist public who feared foreign enterprise takeovers. The Japanese press likened liberalization to "the second coming of the black ships," in reference to the black ships Commodore Matthew C. Perry had sailed into Tokyo Bay in 1853 to open Japan to international trade via a show of military force. Accordingly, Ikeda moved toward liberalization of trade only after securing a protected market through internal regulations that favored Japanese products and firms, and never achieved his ambitious 80 percent goal.

Ikeda also set up numerous allied foreign aid distribution agencies to demonstrate Japan's willingness to participate in the international order and to promote exports. The creation of these agencies not only acted as a small concession to international organizations, but also dissipated some public fears about liberalization of trade. Ikeda furthered Japan's global economic integration by negotiating for Japan's entry into the OECD in 1964. By the time Ikeda left office, the GNP was growing at a phenomenal rate of 13.9 percent.

Steady increasing stage (1973–1992) Edit

In 1973, the first oil-price shock struck Japan (1973 oil crisis). The price of oil increased from 3 dollars per barrel to over 13 dollars per barrel. During this time, Japan's industrial production decreased by 20%, as the supply capacity could not respond effectively to the rapid expansion of demand, and increased investments in equipment often invited unwanted results—tighter supply and higher prices of commodities. [22] Moreover, the Second Oil Shock in 1978 and 1979 exacerbated the situation as the oil price again increased from 13 dollars per barrel to 39.5 dollars per barrel. Despite being seriously impacted by the two oil crises, Japan was able to withstand the impact and managed to transfer from a product-concentrating to a technology-concentrating production form.

The transformation was, in fact, a product of the oil crises and United States intervention. Since the oil price rose tenfold, the cost of production also soared. After the oil crises, to save costs, Japan had to produce products in a more environmentally friendly manner, and with less oil consumption. The biggest factor that invited industrial changes after the oil crises was the increase in energy prices including crude oil. [23] As a result, Japan converted to a technology-concentrating program, ensuring the steady increase of its economy, and standing out beyond other capitalist countries that had been significantly wounded during the oil crises. Another factor was the friction between the United States and Japan, as Japan's rapid economic growth could potentially harm the economic interests of the United States. In 1985, the United States signed the "Plaza Accord" with Japan, West Germany, France and Britain. The "Plaza Accord" was an attempt to devalue the US dollar, yet harmed Japan the most. Japan attempted to expand international markets through the appreciation of the Japanese yen, yet they over-appreciated, creating a bubble economy. The Plaza Accord was successful in reducing the U.S. trade deficit with Western European nations but largely failed to fulfill its primary objective of alleviating the trade deficit with Japan.

The Ministry of International Trade and Industry (MITI) was instrumental in Japan's post-war economic recovery. According to some scholars, no other governmental regulation or organization had more economic impact than MITI. "The particular speed, form, and consequences of Japanese economic growth," Chalmers Johnson writes, "are not intelligible without reference to the contributions of MITI" (Johnson, vii). Established in 1949, MITI's role began with the "Policy Concerning Industrial Rationalization" (1950) that coordinated efforts by industries to counteract the effects of SCAP's deflationary regulations. In this way, MITI formalized cooperation between the Japanese government and private industry. The extent of the policy was such that if MITI wished to "double steel production, the neo-zaibatsu already has the capital, the construction assets, the makers of production machinery, and most of the other necessary factors already available in-house". The Ministry coordinated various industries, including the emerging keiretsu, toward a specific end, usually toward the intersection of national production goals and private economic interests.

MITI also boosted the industrial security by untying the imports of technology from the imports of other goods. MITI's Foreign Capital Law granted the ministry power to negotiate the price and conditions of technology imports. This element of technological control allowed it to promote industries it deemed promising. The low cost of imported technology allowed for rapid industrial growth. Productivity was greatly improved through new equipment, management, and standardization.

MITI gained the ability to regulate all imports with the abolition of the Economic Stabilization Board and the Foreign Exchange Control Board in August 1952. Although the Economic Stabilization Board was already dominated by MITI, the Yoshida Governments transformed it into the Economic Deliberation Agency, a mere "think tank," in effect giving MITI full control over all Japanese imports. Power over the foreign exchange budget was also given directly to MITI.

MITI's establishment of the Japan Development Bank also provided the private sector with low-cost capital for long-term growth. The Japan Development Bank introduced access to the Fiscal Investment and Loan Plan, a massive pooling of individual and national savings. At the time FILP controlled four times the savings of the world's largest commercial bank. With this financial power, FILP was able to maintain an abnormally high number of Japanese construction firms (more than twice the number of construction firms of any other nation with a similar GDP).

The conclusion of the economic miracle coincided with the conclusion of the Cold War. While the Japanese stock market hit its all-time peak at the end of 1989, making a recovery later in 1990, it dropped precipitously in 1991. The year of the conclusion of the Japanese asset price bubble coincided with the Gulf War and the dissolution of the Soviet Union. The subsequent period of economic stagnation has been referred to as the lost decade.


The Germans are one of the best civilizations in regards to military prowess. Their unique ability allows them to both maintain a larger army than normal, and to press-gang Barbarians into their army throughout the game. This is especially useful in the early game when there are plenty of Barbarian encampments around, and more so if Raging Barbarians is active. Units such as the Horseman and Swordsman - which normally require strategic resources such as Horses and Iron - do not require or use strategic resources when acquired from encampments, but will require the resource to be upgraded. Once the Germans have researched Optics, units recruited from Barbarian encampments will have the ability to embark when they are received, without needing to enter German territory.

Note that the Germans receive a flat 25 /> Gold for recruiting the defender of a Barbarian encampment, whereas the amount of /> Gold acquired when an encampment is captured is dependent on both the difficulty level and the game speed.

However, playing as Germany need not be about conquering. If a domination victory is not desired, good use can still be made of the Germans' unique ability by sending out two units together on a permanent mission to seek and destroy Barbarian encampments. This will produce an army strong enough to deter any warmongers while simultaneously leaving cities free to build civilian buildings and wonders. The Honor policy tree comes in handy, as it gives notifications about new Barbarian encampments as soon as they appear.

Germany's unique building, the Hanse, replaces the Bank and is a very nice way to bolster both Gold income and Production in the mid-game. Trading primarily with city-states maximizes this special ability.

The Panzer, mirroring the historic tank brigades of the Third Reich, is one of the most terrifying weapons of the late game, thanks to its enhanced speed and strength.

Kurdish forces strike a deal with Syrian army

Posted On April 29, 2020 15:55:57

The Kurdish-led administration in northeastern Syria announced on Oct. 13, 2019, that it had struck a deal with the Syrian army in order to combat an intensifying attack by Turkish forces in the region.

Turkey has embarked on major air and land offensives against The Syrian Democratic Forces (SDF) who control a sizeable area of land in Syria’s northeast which runs along the Turkish border. The move comes just days after Trump announced that he would soon be pulling out US troops still stationed in the region.

On Oct. 13, 2019, the Kurdish-led administration announced that it had reached a deal with Syrian President Bashar al Assad, and that Syrian government troops would be deployed in the north in order to fend off the Turkish incursion.

“In order to prevent and confront this aggression, an agreement has been reached with the Syrian government… so that the Syrian army can deploy along the Syrian-Turkish border to assist the Syrian Democratic Forces (SDF),” the statement said, according to Al Jazeera.

Syrian President Bashar al Assad

The statement added that the Syrian deployment would also help “liberate” areas held by Turkish-backed Syrian rebel groups like Afrin, a city which was occupied as a result of the Turkish military operation in 2018.

Syria’s state-run SANA news agency reported that Syria’s army had begun moving north “to confront Turkish aggression on Syrian territory.” The agency also condemned Turkish “massacres” against locals in the north.

The move represents a shift in alliance for the Kurds after US ‘stab in the back’

The surprise move represents a major shift in alliance for Kurdish forces, who were once the United States’ main allies in the region and had been fending off Islamic State militants alongside US troops for years.

The SDF has called Trump’s sudden decision to withdraw troops a “stab in the back” and has vowed to “defend our land at all costs.”

U.S. and Turkish military forces in northeast Syria.

Turkey’s assault on Kurdish-held areas stems from the group’s ties to the Kurdistan Workers Party, also known as the PKK, which has long fought an armed conflict for Kurdish independence against Turkey. Turkey and other allies have labeled the PKK a terrorist organization, and Turkey has expressed concern that Kurdish forces along its southern border could pose a security threat in the future.

Videos have surfaced online which appear to show Turkish-backed rebel groups slaughtering Kurdish fighters. The US State Department also confirmed on Sunday that Havrin Khalaf, the civilian secretary-general of the Kurdish movement called the Future Syria Party, was captured and killed by Turkish forces.

On Oct. 13, 2019, US Defense Secretary Mark Esper said that the US was officially preparing to withdraw its remaining 1,000 troops. The hasty pullout has reportedly left dozens of “high value” ISIS prisoners behind in the area gripped by chaos.

This article originally appeared on Business Insider. Follow @BusinessInsider on Twitter.

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The Aftermath of the Second World War

At the beginning of the Second World War, Europe was dominated by fascism. The workers' movements in Britain and the US had been crushed and demoralised during the depression. All the leaders of the Russian Revolution had been murdered and the USSR was held in the iron grip of Stalin. The national liberation movements in the Far East had been brutally suppressed.

Nevertheless, the revolutionaries of the time anticipated that the Second World War would make way for an unprecedented upsurge of revolutionary struggle.

Despite the criminal misleadership of Stalin, the mighty Red Army and the Soviet working class saved Europe from fascism, and at the end of the war half of Europe was occupied by the Red Army. The economies of the entire capitalist world outside of the USA were in a state of disintegration and the masses of Europe and the colonial world were in rebellion.

The situation was indeed ripe for world socialist revolution! Between 1944 and 1948, there were working class or anti-imperialist uprisings in Albania, Algeria, Bulgaria, Burma, China, Czechoslovakia, Egypt, France, Greece, Hungary, Germany, India, Indonesia, Iran, Italy, Korea, Malaya, Palestine, Poland, Rumania, Syria, Thailand, Vietnam and Yugoslavia and powerful movements of the working class in countries like Britain and Australia.

How did the leadership of the USSR respond to this situation? What was their perspective? And how did events actually unfold?

From the time Hitler tore up the non-aggression pact with Stalin and invaded the USSR, Stalin was committed to a policy of combining military might with collaboration and peaceful co-existence with 'democratic imperialism'. Loyally adapting themselves to the diplomatic requirements of the Soviet Union, the Communist Parties in the democratic imperialist countries became 'respectable'.

The alliance between the capitalist governments and their domesticated Communist Parties rested on the strategic alliance cemented at the Potsdam and Yalta Conferences in which the world was divided into two domains, and the USA and the USSR each agreed not to interfere in the other’s 'legitimate affairs'.

The post-war revolutionary upsurge was contained on the basis of this agreement between the USSR and imperialism and the pre-eminent military and economic position of the USA among the capitalist powers.

Stalinism did not have a perspective of leading wars of national liberation struggles in the countries such as China and Vietnam where the Communist Parties held the leading position in the national liberation movements. Nor was it the perspective of the Communist Parties in the old capitalist countries to make socialist revolution. This was part of the deal which was intended to guarantee the security of the USSR.

What was the perspective of Stalin in relation to the countries left under its control? It was not to impose 'socialism', but the Menshevik one of forming a bloc with 'all progressive forces' for a peaceful transition through capitalism - 'People’s Democracy'.

The paradox of the post-World War Two period is summed up in the opening words of the Transitional Program of 1938:

'The world situation as a whole is chiefly characterised by a historical crisis of the leadership of the proletariat. . the chief obstacle in the path of transforming the pre-revolutionary into the revolutionary state is the opportunist character of proletarian leadership'. [67]

In the course of the war the combined repression of Stalinism and fascism had virtually eliminated revolutionary Marxism in the USSR and Europe and it remained marginalised in Britain, the Americas and most of Asia. The Trotskyist perspective of a post-war revolutionary upsurge was confirmed but perversely , for socialist revolution is impossible without a Marxist party capable of leading the revolution.

I: Sell-Out of the Century

At a series of Conferences in Teheran, Moscow, Yalta and Potsdam between November 1943 and August 1945, the 'Big Three' [68] carved up the world between the Soviet Union and the West. Churchill recorded the proceedings at Moscow in October 1944 in his diary:

'The moment was apt for business, so I said “Let us settle about our affairs in the Balkans. Your armies are in Rumania and Bulgaria. We have interests, missions and agents there. Don’t let us get at cross-purposes in small ways. So far as Britain and Russia are concerned, how would it do for you to have ninety per cent predominance in Rumania, for us to have ninety per cent of the say in Greece, and go fifty-fifty about Yugoslavia?” While this was being translated I wrote out on a half a sheet of paper:

RumaniaRussia 90%The others 10%
GreeceGreat Britain 90%Russia 10%
(in accord with USA)
BulgariaRussia 75%The others 25%

'I pushed this across to Stalin, who had by then heard the translation. There was a slight pause. Then he took his blue pencil and made a large tick upon it, and passed it back to us. It was all settled in no more time than it takes to set down, . After this there was a long silence. The pencilled paper lay in the centre of the table. At length I said, “might it not be thought rather cynical if it seemed we had disposed of these issues, so fateful to millions of people, in such an off-hand manner? Let us burn the paper”. “No, you keep it” said Stalin'. [69]

This agreement between Stalin and the leaders of imperialism extended not just to the countries named in Churchill’s note, but across the entire globe. The events which followed the end of the war can therefore only be understood in the light of this agreement made before the war had ended.

The Aftermath of the War

In November 1945, in defiance of an agreement by Stalin that King Peter would be restored in Yugoslavia , Tito declared a People’s Republic.

During the War, Stalin established relations with the 'Royal government-in-exile' and promised the British that King Peter would be restored. In line with the promises made to the British, Stalin instructed Tito to form a Popular Front with bourgeois parties. But the 800,000-strong partisan army led by the Yugoslavian CP was waging a civil war against not only 40 divisions of the German army, but the Royalists and the bourgeois organisations who were collaborating with the Nazis! The 'progressive sections of the bourgeoisie' with whom Tito was supposed to be forming a Popular Front did not exist.

'from the first day of the struggle against the occupying forces we had to begin creating a new people’s government instead of the old government . which under the occupation had for the most part placed itself at the service of the Germans and the Italians . the Comintern warned us not to forget that an anti-fascist war was being waged and that it was a mistake to found new organs of government. What did this mean? What would have happened if we had accepted these instructions? It would have meant suicide. We should never have been able even to launch the uprising, we should have been unable to mobilise the majority of the people if we had not offered them a clear prospect of a new, happier and more equitable Yugoslavia rising out of that terrible war . during this period [the Comintern] was negotiating with the Royal Yugoslav Government In Exile'. [70]

In October 1943, Tito sent a telegram to the 'Big Three' conference in Moscow warning that 'we acknowledge neither the Yugoslav government in exile nor the King abroad, because for two and a half years they have supported the traitor Draza Mihailoic . we shall not allow them to return to Yugoslavia because that would mean civil war'.

By the end of the war, People’s Committees were in control of the country. Stalin had agreed with the Allies however, that King Peter and his government-in-exile in London, would be included in the government. In the post-war election, Tito was elected President with a 90 per cent vote.

After the failure of a short-lived attempt to form a coalition government with bourgeois elements, a rapid process of nationalisation was implemented in 1945.

The nationalisation of the property of former Nazi collaborators and enemy nationals painlessly brought 80% of industry into state ownership. Land was distributed to the peasants, who made up 93% of the population. There was very little collectivisation of agriculture, which remained in private hands. Despite the fact that their Soviet teachers were advocating capitalism for Yugoslavia, the Yugoslavs emulated Stalin’s model of a centrally planned economy.

Tito’s reluctant defiance of Stalin was forced upon him by the People’s Committee movement which had won the overwhelming support of the masses in the fight against fascism. For this 'crime', Tito was threatened and slandered by Stalin and in June 1948 the Yugoslav CP was expelled from the Cominform. [71] It was only after 1948 that Tito began to develop ideas of “market socialism” and workers' co-operatives.

The Baltic states (Estonia, Latvia and Lithuania) had been a part of the Tsarist Empire and were retained under the 'democratic' government of Kerensky. They had enjoyed national independence only from 1920 after their liberation from Poland by the Red Army until August 1939, when Stalin and Hitler carved up Poland and the Red Army occupied the Baltic States. In 1945 they were simply annexed into the Soviet Union. [72]

In Bulgaria , the masses rose up in advance of the liberating Soviet army. At the end of 1944, soldiers set up soldiers' soviets, refused to recognise rank, dismissed officers who opposed them, removed local government officials and raised red flags everywhere. The Russians insisted that the removed officers and officials be reinstated and that the soldiers recognise the authority of The Fatherland Front Government being set up by the Russians as a popular front between themselves and Bulgarian bourgeois elements. For its part, the Bulgarian Communist Party solemnly declared that there would be a return to the status quo and no nationalisation. In March 1945, Stalin declared: 'We are building a democratic country based on private property and private initiative'.

The Polish Communist Party had been dissolved by Stalin in 1938, but once the War began the need for the support of the Polish working class became obvious, and a group of Polish communists was parachuted into Poland in December 1941. Most of these were arrested or killed, but in November 1943 Wladyslaw Gomulka, who had remained in Poland after 1939, became the Secretary of the PPR.

In late 1943, Gomulka organised a National Council of the Homeland, intended to be the nucleus of a broad 'democratic front'. The Socialists and the Peasants' Party declined to join however. But the National Council received Soviet support and organised the Polish First Army, numbering 80,000 soldiers and fought their way westwards with the Soviet armies. In January 1945, Stalin formally recognised the Committee of National Liberation as the legitimate Polish government.

Five years of Nazi occupation had left Poland physically and socially shattered. One Pole in five had perished as a direct result of the war. The Polish bourgeoisie and middle classes had not collaborated with the Nazis, but they had been virtually destroyed by fascist repression. Nearly 40 per cent of the national wealth had been destroyed. Half the public transport, 60 per cent of the schools and 60 per cent of all postal and telephone equipment had gone. Half the doctors and lawyers in Poland had been murdered, and 40 per cent of the university professors.

Despite the devastation of the War, the Polish workers had maintained their resistance to the Nazi occupation from beginning to end, and there was now an impatience for real change. A land reform in September 1944 broke up the large estates and distributed six million hectares of land to small farmers. All industrial enterprises employing more than fifty workers were nationalised, so that by late 1946, the state sector accounted for 91 per cent of industrial production. Reconstruction went ahead rapidly, living standards began to recover, and by 1946, the PPR membership reached 235,000.

The Red Army entered Hungary in September 1944, after a battle in which 50 per cent of Hungary’s soldiers perished. The masses rose up everywhere against the hated fascist Horty regime.

A Provisional government was set up by the Red Army in Debrecen in December 1944, and Budapest laid under siege until falling on 18 January 1945. With massive uprisings against the capitalists and landowners throughout the country, sweeping land reforms were carried out by Interior Minister Imre Nagy. Nagy was a popular figure in Hungary, and regarded as a moderate.

The conception behind the land reforms was the abolition of feudalism in the countryside. There was no intention to carry forward towards nationalisation of industry.

Elections were held in November 1945. Rather than boosting the popularity of the Communists, the land reforms gave an enormous boost to the Smallholders' Party (57%), which won a majority over the Hungarian United Workers Party [73] (the Communist Party and the Social Democrats each getting 16%)

In May 1946, the Communist Party of Czechoslovakia , which had led the anti-fascist resistance and had the support of the great majority of the working class, won a commanding position in parliamentary elections. CP leader Klement Gottwald headed a coalition government, and Soviet troops were withdrawn.

King Michael of Rumania took the throne in August 1944 as the Red Army reached the frontier. He was retained in power by the Stalinists with the promise of a continuation of capitalism. For three years after the entry of the Red Army, Rumania was ruled by a coalition between the Stalinists and extreme right-wing elements including Nazi collaborators and wealthy bankers.

The aim of Soviet policy was to secure Eastern Europe militarily. While national Communist leaders in Poland or Yugoslavia, for instance, had aspirations to build socialism in their countries, Soviet policy had no such aim. The greater the degree of independence of the local Communist Party, the bolder the socialist policy favoured by the local communists. In Yugoslavia, Czechoslovakia or Poland the only force capable of saving capitalism was Stalin. Otherwise, with a policy of land distribution rather than collectivisation for the peasants, social revolution was a 'lay down misère' in any of the European countries not occupied by the Western Allies.

In Hungary, Bulgaria, Rumania and the area of Germany under Soviet occupation the capitalists had in the main collaborated with the Nazis and now faced the vengeance of masses. In these countries the Stalinist armies facilitated the reconstruction of capitalism.

While continuing to suppress any independent political or social organisation, the 'liberators' systematically milked these countries for their own needs, either in the form of 'reparations' (especially Hungary and Rumania), or simply by means of unequal contracts. The economies of the occupied countries were also tied into trading relations with the Soviet economy. In particular, the USSR needed the industrial produce of Czechoslovakia and Poland.

The Impact of the War on the Soviet Union

The War had had a devastating effect on the Soviet Union. For three and a half years the war had been fought on its territory, and the Soviet Union fought under a criminally incompetent leadership. 1,700 towns and 70,000 villages had been totally destroyed, twenty-one million people were killed, and over a million people were deported to the interior on Stalin’s order. Even by 1950, the USSR still had only 90 per cent of its pre-war population and the birth rate was declining .

The bureaucratic centralist structure of the economy had been accentuated during the war, despite the absence of the basic infrastructure necessary for the successful operation of a centrally planned economy over its vast territories. Under these conditions, military command backed by military forms of compulsion made the bureaucratic fiction an institution in the Soviet Union. Totally unrealistic plans would be drawn up at the top based on Stalin’s idiosyncratic schemas, and passed down the line. Finding the plans unworkable, but facing severe penalties for failure, subordinates obediently reported fulfilment. Lie built upon lie.

All the nations of the USSR had mobilised for war to repulse imminent annihilation at the hands of the Fascist armies. No appeal to internationalism or socialist principles was necessary. After the War, Stalin abandoned any reference to internationalism or socialist ideas. The US maintained the threat of nuclear annihilation, so good old-fashioned chauvinism could be relied upon to deflect criticism from the leadership. A comprehensive system of uniforms, medals and ranks was introduced for all government officials, with a corresponding graduation in privileges from dire poverty for the workers up to dachas in the Crimea for top officials.

The deeply conservative turn in Stalinist politics was reflected in a new family law introduced in 1944. This law removed the recognition previously afforded to de facto marriages, revived the notion of illegitimacy of children, made divorce even more difficult and expensive , further restricted the conditions under which abortion was legal, and introduced rewards for bearing large numbers of children. The schools and official media vigorously propagated moral standards which had more in common with Victorian England than Revolutionary Russia.

Whole generations of young men had been obliterated by the War, and to a much greater extent than in the West, women moved into 'non-traditional' jobs in order to fill the gap. This was not matched however by an easing of the burden of domestic labour or in the patriarchal structure of the family. Consequently, the formal equality of women under Soviet law simply imposed a double burden.

Despite the enormity of the suffering which had been visited upon the people of the Soviet Union, the USSR had emerged from the War as victors and occupied half of Europe. Despite the fact that Stalin was at least equally responsible for the extent of Soviet casualties as was Hitler, Stalin remained firmly in control of the Party, the State and the country. Stalin’s regime of terror continued unabated. National minorities, Soviet prisoners of war and even soldiers who had penetrated enemy lines were special targets for repression. If there was to be a renewal of workers struggle, the impetus for this was not going to come from within the Soviet Union.

Only a handful of individuals of the old Opposition survived from the pre-war period in the labour camps. Even there resistance continued. In the Vorkuta region of Siberia where most of the oppositionists laboured in the mines, there were strikes against cruel working conditions and marking important anniversaries. These struggles continued up until 1956, but no news of them reached the outside world. The only other centre of opposition to Stalin in the Soviet Union during this period was amongst the children of “enemies of the people” who had been brought up in the labour camps. Two youth groups, ITL (Lenin’s True Work) and the Lenin Group carried on the defence of Bolshevism against Stalin, but they were small and marginalised. In a revolt by the secret Democratic Movement of the North of Russia in the Vorkuta camp in 1948, 2,000 prisoners seized their guards' weapons and took to the Urals, but they were crushed. The Ukrainian Partisan Army carried on guerrilla warfare against Stalinism into the early 1950s. [74] They were reputed to be social democrats politically.

Stalin’s perspective at the end of the war was based on the promises given to Churchill and Roosevelt. Stalin had no interest in making revolution in Europe. On the contrary, everything was based on a pact intended to eliminate any possible threat to the USSR and the Western powers from social revolutions in Europe and elsewhere.

This view was not shared, of course, by the workers of Europe, nor by any genuine workers leader in Europe. However, the Stalinist policy of resurrecting capitalism was enthusiastically embraced by the Communist Party leaders in Western Europe.

Stalinist policy in the West

Stalin had promised to assist in the reconstruction of capitalism in Western Europe and the Communist Parties of these countries faithfully fulfilled Stalin’s promise.

In the summer of 1943, Allied troops advanced through Italy from the South, large areas of the country fell to the CP-led partisans and the working class in the Nazi-occupied North was in revolt. Mussolini’s regime collapsed. Where could the Italian ruling class find a suitably democratic government? A coalition was formed including the former King of Italy and the fascist General Badoglio. Even the Allied powers withheld recognition from this government. However, the USSR and Italy exchanged ambassadors in March 1944, opening the way for the expeditious return from Moscow of the leader of the Italian Communist Party Palmiro Togliatti.

'Among officers in the Army and Navy, the Catholic bourgeoisie, monarchist circles, industrialists and intelligentsia, and in the fascist party, there is a growing number of those who realise the necessity for Italy to break with Germany before it is too late.' [75]

In April 1944, Togliatti became Minister for Justice in the National Unity Government, providing the Italian ruling class with their much-needed 'left' support. One of Togliatti’s first tasks was to negotiate the new Concordat with the Vatican.

Likewise, in France the Communist Party was favourably placed in the leadership of the Resistance when the Vichy-Nazi regime fell. French Stalinist André Marty explained their policy:

'Placing the interests of the French nation above everything else, the French Communists are closely collaborating with those who, poisoned by a decade of Hitler propaganda, have dealt France a heavy blow by persecuting the Communists . for the past three years the French Communist Party has been tirelessly agitating for a united national front that the French Communists are now co-operating with General de Gaulle.

'Thus the Communist Party of France now supports General Delattre de Trassigny who but yesterday was faithful to Vichy . ' [76]

In September 1944, a Provisional government was formed under General de Gaulle, and two Stalinists, Billoux and Tillon, served in the Cabinet. Maurice Thorez, French CP leader returned from Moscow in November 1944 and proclaimed:

'Make war, create a great French army: work like blazes, rapidly rebuild industry. One state, one army, one police force'.

The Resistance units were dissolved and all arms collected.

In the October 1945 election the French Communist Party and Socialist Party polled between them more than 50% of the votes. De Gaulle was not slow to recognise the value of the Stalinists in helping rebuild French capitalism. Stalinists were given Cabinet portfolios for National Economy, Production, Labour and Defence. Maurice Thorez was appointed one of the three Vice-Presidents of France. Not only did the Stalinist Ministers work to suppress union militancy and boost production, but when war broke out in Vietnam against their comrades in the Viet Minh, all the French Stalinist Minsters supported French imperialism. Thorez counter-signed the order to bomb Haiphong. It was not until May 1947 that the Stalinists left the government.

In countries like Britain, the US and Australia which had not been occupied, there was a huge upsurge of militancy after the war. Workers returned from the holocaust of World War Two battle-hardened and determined that they were not going to return to selling bootlaces on the street corner. Workers not only sought to take advantage of the post-war upturn to improve conditions but also wanted to settle accounts with employers who had dealt so mercilessly with them during the Depression and the War.

In the immediate post-war period, Stalin’s line was for continuing the class collaboration of the war period in the interests of establishing peaceful relations with the capitalist world. The 'popular front' policy of the Communist Parties in the capitalist countries was applied in the service of Stalin’s strategic agreement with imperialism to suppress the independent mobilisation of the working class in exchange for a 'free hand' in the countries occupied by the Red Army.

In Britain the CP was calling for a 'national government':

'These is a wide and growing readiness to recognise the necessity of national unity in the crucial coming years and full recognition of the sincerity and genuineness of Mr Churchill’s concern for it . '

and actively campaigned against a Labour government:

'If the Labour Party desires to win public confidence, it will resist the sorry quibbling of those who want to undermine the great agreement between Churchill, Roosevelt and Stalin . ' [77]

Ignoring the advice of the CP, the working class swept Churchill aside and elected a Labour Party government.

The CPGB then portrayed the Atlee government as representing the 'transition to socialism', condemned the Tories they had shortly before been defending as 'the half brother of fascism' and enthusiastically worked to dampen down class struggle.

'the trade unionists must recognise the fact that they are operating in a controlled economy, which is being steered by a labour government. They will have to consider the bearing of any wage policy which they put forward on the entire economic policy that the government is pursuing'. [78]

The post-war upsurge in Australia was bringing the workers into headlong confrontation with the Chifley ALP government. Their loyal support for the war effort had left CP with members in leading positions in all the most important unions and with three members on the ACTU Executive. They were unable and increasingly unwilling to hold back a growing strike movement.

Between 25 and 40 per cent of union membership was controlled by the CPA, concentrated in the most militant unions. As a result, CPA members appeared more and more in the front line of major strikes and demonstrations. The CPA led 84% of strikes during the first two years after the war. Consequently, the CPA increasingly became the target of government repression.

Without any deliberate effort on the part of the CPA leadership, it found itself in conflict with the reactionary policies of the Chifley government. This position sharply contradicted Stalin’s international perspective and the orientation of the other Western Communist Parties at the time. In an uncharacteristic display of independence, in 1948 the CPA leadership actually criticised the British CP, who were after all only following Stalin’s line in bolstering the British Labour government. [79]

This 'ultra-left' period in CPA history was not as aberrant as it might appear. Many national Communist Parties were finding themselves to the left of Stalin at this time.

In Greece , the guerilla army led by the Communist Party, ELAS (National People’s Army of Liberation), had led the resistance to Nazi occupation during the War. Inspired by the success of Tito’s partisan army in Yugoslavia, ELAS held two-thirds of the country in February 1945, when Stalin pressured them into a truce with the Royalists.

In October 1946, in defiance of Stalin’s instructions, Greek Communist Party leader Markos Vafiades launched a campaign to win control of the whole country, and received support from neighbouring Yugoslavia, Albania and Bulgaria.

Despite the presence of British troops and aid from the US, the Royalists were not expected to last more than six months.

Despite the 'Sell-Out of the Century', the US was feeling extremely threatened by the situation in Europe. Stalin had promised to keep Europe safe for capitalism, but things seemed to be getting out of control. Was Stalin capable of delivering his promise? The majority of workers' leaders reflected the revolutionary mood of the masses. Many Communist Parties (certainly not including those of Western Europe for instance) thought that their perspective should be to set up copies of the USSR. Stalin thought otherwise. Stalin succeeded in averting a post-war world socialist revolution, but the world was still far from “safe for capitalism”.

II: The “Truman Doctrine”

Citing the dire situation in Greece, the inability of the British to cope with the situation and alleged breaches of the Yalta Agreements in Rumania, Poland and Bulgaria, US President Harry Truman launched the 'Cold War'. Truman had terminated aid to the Soviet Union and the other Allies under the Lend Lease program in August 1945. He now decided to break irrevocably from the alliance with Stalin formed during the war, and enunciated the “Truman Doctrine”.

In his speech on 12 March 1947, President Truman posed the policy in terms of the need to provide aid to the governments of Greece and Turkey, but the speech contained the clear implication that Truman was proposing a new global role for the United States. A British Foreign Office official commented that the request for $400m of aid for Greece “was made to seem hardly less than a declaration of war on the Soviet Union”. [80]

'It must be the policy of the United States to support free peoples who are resisting attempted subjugation by armed minorities or by outside pressures . primarily through economic and financial aid . But we cannot allow changes in the status quo in violation of the Charter of the United Nations by such methods as coercion, or by such subterfuges as political infiltration. .

'The free peoples of the world look to us for support in maintaining their freedoms. If we falter in our leadership, we may endanger the peace of the world - and we shall surely endanger the welfare of our own nation'. [81]

The Truman Doctrine had two main elements: (1) providing massive economic and military support to “friendly” governments in every part of the world, while economically isolating the USSR, and (2) building a massive arsenal while making all-out covert war against the workers' movement.

It marked the recognition by imperialism that Stalin was unable to deliver the promise made at Yalta, to leave the areas outside of Red Army occupation safe for capitalism. In the short term, it meant military intervention in the civil war in Greece, and soon after in Korea. Most importantly, it meant massive economic aid to western Europe while isolating the USSR, China and Eastern Europe behind an 'iron curtain'. [82]

The full scale of what was required to save capitalism was made clear when US Secretary of State George Marshall announced the Marshall Plan to Congress on June 5 1947. In this speech, Marshall showed a clear understanding of the crisis facing Europe:

'The breakdown of the business structure of Europe during the war was complete. . The farmer has always produced the foodstuffs to exchange with the city dweller for the other necessities of life. This division of labour is the basis of modern civilisation. At the present time it is threatened with breakdown. The town and city industries are not producing adequate goods to exchange with the food-producing farmer. . He, therefore, has withdrawn many fields from crop cultivation [etc] So the governments are forced to use their foreign money and credits to procure these necessities abroad. . This process exhausts funds which are urgently needed for reconstruction . The modern system of the division of labour upon which the exchange of products is based is in danger of breaking down.

'The truth of the matter is that Europe’s requirements for the next three or four years of foreign food and other essential products - principally from America - are so much greater than her present ability to pay that she must have substantial help or face economic, social and political deterioration of a very grave character.

'The remedy lies in breaking the vicious circle ..' [83]

In July 1947, a Conference was convened in Paris, and all European countries were invited to send a representative to discuss the Plan and pick up their share. All the Eastern European countries were invited to send a representative, but as Jan Masaryk, the Czech Foreign Minister put it:

'the Americans will be very happy to bribe both us and the Poles into loosening our bonds with the Russians. . The offer of credits to us is quite genuine I am less sure about the Rumanians and the Yugoslavs. But as for the credits for Russia, that is the biggest piece of eyewash in the whole scheme. Do you see Truman and Congress forking out billions to Enemy Number One, communist Russia, from whom we all have to be saved?' [84]

At that time 50 per cent of Polish trade was with the West, and 70 per cent in the case of Czechoslovakia. Russia was told that if they wanted to be part of the Plan, then they would be contributors , not recipients, and all the Eastern bloc countries withdrew under Soviet pressure.

At this time there was a sharp turn in the relations between the USSR and the USA. It dawned on Stalin that Truman was not going to help in the reconstruction of the USSR, that the USSR was not going to get any Marshall aid. The USA would help in the reconstruction of Europe only to the extent that the beneficiaries politically aligned themselves with the USA and cut relations with the USSR. With or without Eastern Europe, the Soviet Union was to be blockaded.

The architect of the Cold War strategy, George Kennan, proposed the policy in a paper written for the Secretary of the Navy, James Forrestal, in late 1946, in this way:

'. we have in Russia today a population which is physically and spiritually tired . There are limits to the physical and nervous strength of people themselves. These limits are absolute ones and are binding even for the cruellest dictatorship. . [thus the USSR could be] sensitive to contrary force . and flexible in its reaction to political realities. [Thus the US should commit itself to] longterm, patient but firm and vigilant containment of Russian expansive tendencies . [through] the adroit and vigilant application of counterforce at a series of constantly shifting geographical and political points.' [85]

Under the Marshall Plan the US provided 'friendly' governments in Europe with $17,000 million in investment between 1948 and 1952 and succeeded in stimulating the reconstruction of capitalism. The COMECON countries, even more war-devastated than Western Europe, were to get none of this aid and all trade between the two halves of Europe ceased.

The post-war reconstruction of capitalism rested on two pillars: (1) The pre-eminent strength of one capitalist power - the USA, and (2) The support of Stalinism and Social-democracy.

The US had come through the Second World War actually strengthened economically. The overwhelming majority of the world’s economic capacity was in the USA. Three-quarters of the world’s gold reserves were owned by the USA. The economic fabric of its capitalist competitors had been devastated. While this situation threatened the very existence of capitalism, it also created the basis for a planned reorganisation of world capitalism.

The economic arrangements that were to provide the basis for the reconstruction of capitalism after the war had been put in place even before the war was over. At the Bretton Woods Conference in July 1944, 28 governments had participated in the founding of the World Bank and the International Monetary Fund.

Totally failing to foresee the hostile stance that imperialism would take towards the USSR as soon as its usefulness in the war against Nazi Germany was over, the British Stalinist leader, Harry Pollitt had welcomed the establishment of the IMF in these words:

'. a new political framework exists for a future economic co-operation [between the capitalist world and the Soviet Union]. . the conference at Bretton Woods not only represents significant agreement on monetary policy, which will greatly facilitate world trade, but the proposal to create an International Bank to be used where private investment is not available strikes a blow at those people who try to use economic crises and the distress of the people to feather their own nests'. [86]

Through the World Bank and the IMF the United States underwrote the budget deficits of all the main capitalist nations in the post-war period. On the basis of the USA’s supreme economic position the US was authorised to print however many dollars were required to fund post-war expansion. The Gold Standard of pre-war years was replaced by linking the US dollar to gold at $35 per oz., thus allowing dollar-credits to be used to massively expand the medium of international exchange so as to enable an expansion of trade and post-war reconstruction.

These policies were necessary to avoid a head-on confrontation with the working class at a time when revolutionary situations existed in many countries, and a return to the conditions of the 1930s would have triggered a chain of socialist revolutions. The US rescue of European capitalism was possible only because of the treacherous sell-out of Stalin at the end of the War.

US imperialism understood the character of USSR and the crisis facing capitalism better than Stalin.

The Cold War policy did not contradict the accord established with Stalin at Yalta and Potsdam, but complemented it. Yalta and Potsdam gave imperialism the opportunity to pacify the working class within its own sphere of influence, and do so with the cooperation of the Communist Parties. Imperialism did not have the capacity to wage a war against the USSR, but they were confident that with Stalin’s cooperation they could strangle the USSR economically.

Undeterred by Truman’s declaration of Cold War, Stalin willingly cooperated in the establishment of an imperialist base in the Middle East, supporting the establishment of Israel as a Jewish State. In speaking to the United Nations in November 1947, the Soviet Ambassador specifically supported the proposal that the new state should be Jewish, rather than the non-racial secular state proposed by a minority of UN delegations.

Victory lay within the grasp of ELAS in Greece . But the $400m worth of military aid to the Greek Royalists with which Truman had launched the 'Cold War' was probably not necessary. Stalin’s pact had already sealed the fate of Greece. While the Stalinist methods of ELAS leader General Markos Vafiades and the premature decision by Party leader Nicos Zachariades to abandon guerilla methods in favour of conventional warfare contributed to the defeat of ELAS, Stalin left nothing to chance, and had Vafiades expelled as an "agent of British intelligence and Tito" and exiled. The withdrawal of support from neighbouring Yugoslavia after the break between Tito and Stalin, denying sanctuary to ELAS forces, made the defeat of the Greek Communist Party inevitable. After a prolonged and bitter civil war, ELAS was defeated. [See Interview] .

Along with the extremely reactionary Royalist government now in power in Greece and the reactionary US puppets in Turkey and elsewhere across the Middle East, US domination of Britain, France, Holland and Belgium extended to their colonial possessions, and its own “back-yard” of militarist regimes in Latin America, the US had military bases in Japan, Italy, South Korea, China, Egypt, Iran, Turkey, Greece, Austria, Germany and the Arctic.

The Effects of the Marshall Plan

The provision of truly massive US credits to 'friendly' governments in Europe succeeded in allowing these countries to avoid the dire crisis which Eastern Europe had had to deal with.

The Keynesian economic policy of 'controlled inflation' was instituted to maintain stable growth and low unemployment. These conditions were used to facilitate the introduction of social welfare policies. These varied from country to country: in Britain, the National Health Service in Australia, the public housing program, and national enterprises such as Telecom and TAA in Europe, comprehensive social welfare policies. In the US, Truman’s “Fair Deal” program was blocked by the Republican Congress, but the Eisenhower administration subsequently introduced a system of social security.

The use of Marshall aid to pacify the working class was quite explicit. Following the announcement of the Marshall Plan, Communist Party members were excluded from the government in both Italy and France. The World Bank announced a loan to France a few hours after the sacking of the CP members from Cabinet in May 1947, making it crystal clear that Europe had to choose between having Communists in the government or receiving Marshall Aid.

The conservative parties in Europe made sure that the point was clearly understood by the voters. An election was called in Italy just as the first aid convoys set off for Europe, and the Christian Democrats increased their vote to 50%, while the Popular Front parties declined to 30%. French governments moved further and further to the right.

The Communist Parties in France and Italy combated this policy with a militant strike policy, but they had already blown their chance. With the policies of economic reconstruction and increased social services based on massive amounts of aid from the US, allowed the European bourgeoisie to successfully avoid a confrontation with the working class, and severely contain the influence of the Communist Parties.

The US approached the problem of Germany in the same way: 'the political direction which 66 million Germans went might have a decisive effect on European future' said US State Department official in Germany Robert Murphy. British Labour Foreign Secretary Ernest Bevin was told in no uncertain terms that if Britain wanted Marshall Aid, then he should back off with his ideas of “socialism” for Germany. In fact the entire political system in Germany was reconstructed according to US requirements. In June 1947, the Military Governor of the British occupation zone, General Robertson, established the German Zonal Trade Union Federation, and British trade union officials assisted in organising sixteen unions.

The same attention was paid to reconstructing the Japanese economy, and ensuring that the powerful Japanese Communist Party was marginalised by means of massive US bribery.

This counter-attack by US imperialism was devastatingly effective in undermining support for the Communist Parties in the West. The countries which remained within the Soviet bloc faced enormous economic problems.

It is important to recognise that the War and these dramatic measures taken after the War, set off a qualitative development in the world productive forces. This development was made possible under capitalism only because of the treacherous sell-out of Stalin at the end of the War. To some extent these changes were to be a mere postponement of the crisis, but to a significant extent there was also an irreversible and qualitative change in the productive forces.

These changes were extensive and intensive.

Extensive Changes in the World Market

By the turn of the century, capitalism had already outgrown the confines of nation states. Large corporations spanning across many industries, integrated and controlled by finance capital, spanned across the entire world. These corporations carved up markets, sources of raw material and cheap labour.

The redivision of the world market, based upon the supremacy of the United States opened the way for a more extensive penetration of imperialism into new markets away from the declining colonial powers. This extension was facilitated by world-wide financial and political instruments of unprecedented magnitude.

The post-war boom stimulated under these arrangements temporarily laid aside the paralysis into which capitalism had fallen in the 1930s. The Bretton Woods arrangements, the booming US economy, the Marshall Plan, the post-war reconstruction and the splurge of public sector investment made to pacify the working class all contributed to a development of the productive forces in a world market and a world-wide division of labour that far transcended anything that was previously conceivable under capitalism.

The policies of unlimited expansion of credit which was used to finance the post-war reconstruction had lit a time bomb for capitalism however. The whole basis of the international monetary system was undermined. The US also sowed the seeds for the loss of its hegemony, and the growth of powerful competitors in Europe and Asia. The price for postponing a confrontation with the working class would be paid twenty years later, when the link between the dollar and gold burst under the pressure of the unlimited expansion of credit allowed over the preceding two decades.

Nevertheless, the post-war monetary policies were absolutely necessary for capitalism to survive this most dangerous period.

For their part, the Stalinists welcomed these arrangements, which they saw as an integral part of the collaboration initiated by the 'Big Three':

'The conference at Bretton Woods not only represents significant agreement on monetary policy, which will greatly facilitate world trade, but the proposal to create an International Bank to be used where private investment is not available strikes a blow at those who try to use economic crises and the distress of the people to feather their own nests'. [87]

Intensive Changes in the World Market

A number of factors combined to stimulate an intensive development in capitalist relations. In part these changes resulted from developments in the productive forces, in part from pressures on the rate of profit and in part from the development of new public sector industries. This development is the socialisation of women’s labour .

Lynn Beaton [88] was the first to explode the myth that women were simply the “reserve army of labour” for capitalism that after the war, women had simply dropped out of the labour-force and back into domestic labour. This myth was created by bourgeois propaganda which said that women ought to go back to their husbands. In fact, women did give up the “male” jobs they had secured during the war, but large numbers of them found employment elsewhere. These new “women’s” jobs were created by industries which were coming out of the changes taking place in the nature of women’s domestic labour.

Put another way, the commodity relation was breaking up the last bastion of bonded labour, the family. A whole range of new industries, including the new social services of the 'welfare state' and the 'white goods' industries, were springing up. Labour formerly done outside the economy within the family was socialised. That is, instead of being done as unpaid labour on behalf of family members, it was done by women either in private firms and sold back to them (manufacture of washing machines, for instance), or done in public sector enterprises and provided as a social service (health services, for instance).

This intensification of capitalist exploitation provided the basis for a further development of the productive forces under capitalism.

Failed Peace: The Treaty of Versailles, 1919

Although we typically think of November 11, 1918, as the end date of World War I, that day only marked the start of an armistice ending the actual fighting, not the official termination of the war. To bring about a formal conclusion to the Great War, the victorious Allied Powers (led by Britain, France, the United States and Italy) had to complete peace treaties with each of their opponents in the Central Powers (Germany, Austria, Hungary, Bulgaria and the Ottoman Empire).

The most important of these treaties was the Treaty of Versailles ending the war with Germany that was produced by the Paris Peace Conference and signed June 28, 1919. Yet even before the treaty was signed, it sparked criticism and controversy. And when World War II erupted 20 years later, the treaty was maligned and blamed for causing the political, economic and military conditions that led to the 1939-45 global conflict.

In the decades since, generations of historians have written countless books and other works creating what “everyone knows about the 1919 Treaty of Versailles: The overly punitive treaty, imposed as “victors’ justice” on helpless Germany by the triumphant Allies, was chiefly responsible for making World War II inevitable. Its “war guilt” article humiliated Germany by forcing it to accept all blame for the war, and it imposed disastrously costly war reparations that destroyed both the post-World War I German economy and the democratic Weimar Republic. The treaty, therefore, ensured the rise of Adolf Hitler and the Nazi party. Moreover, the U.S. Senate’s refusal to ratify the treaty caused the collective security organization, the League of Nations, to fail because the United States was not a member. Furthermore, no less an authority than French Marshal Ferdinand Foch, the World War I supreme Allied commander, apparently agreed with this assessment, famously complaining in 1919, “This is not peace. It is an armistice for 20 years!”

Yet while the Treaty of Versailles did result in a failed peace and another world war only two decades later, its real failures are not what we have been led to believe for over 90 years. When we examine the facts, it becomes clear that what “everyone knows” about the infamous treaty is simply wrong.


From January 18 to June 28, 1919, 32 delegations representing 27 countries met in Paris to produce the Versailles Treaty officially ending the Allies’ war with Germany. Despite the large number of countries involved, the conference was dominated by the “Big Four” major Allied Powers: the United States, Great Britain, France and Italy. Anyone remotely familiar with the history of international diplomacy would not be shocked to learn that during the conference each of the Big Four representatives pursued his own agenda, which included goals that frequently conflicted with those of his counterparts.

President Woodrow Wilson decided to personally represent the United States at the conference, yet it is hard to imagine anyone more naively idealistic about the true nature of international relations. (See Special Feature, “War and Diplomacy,” July 2010 ACG.) Wilson was a bona fide intellectual and social “progressive,” but he often seemed insufferably self-righteous and his view of how nations conducted international relations was, at best, a triumph of hope over experience – he was convinced that “good will” among world leaders would overcome supposedly petty national interests and cynical balance of power politics. Wilson’s idealistic worldview is best captured in his “14 Points” statement, announced in January 1918, calling for free trade, freedom of the seas, open agreements between nations, the promotion of democracy and self-determination among peoples worldwide, and the establishment of the League of Nations to ensure territorial integrity and to maintain world peace.

Although the Big Four European members used Wilson’s 14 Points as enticing propaganda to help convince Germany to surrender in 1918, they represented colonial powers that hardly considered global “democracy and self-determination” in their national interests. Self-determination was applied in the Versailles Treaty when it suited the European members’ interests, but was ignored when it did not. Wilson found that to persuade his more pragmatic European allies to agree to his cherished League of Nations, he had to compromise on most of his other points.

France was represented by its “Tiger,” Prime Minister Georges Clemenceau. Since Germany had invaded France twice in the previous four decades in wars fought on French soil (in 1870 and 1914), Clemenceau’s principal goals were ensuring his country’s security against future German aggression, to include permanent demilitarization of the Rhineland (Germany west of the Rhine River) and restrictions on German military forces, and requiring Germany to pay reparations for the civilian damages wrought by its brutal, exploitative, four-year occupation of northern France and Belgium. During the occupation of northern France – an area containing nearly 60 percent of the country’s steel manufacture and 40 percent of its coal production – the Germans had confiscated and shipped back home what they wanted, and when they evacuated the region near the end of the war, they sabotaged much of what they had left behind. Clemenceau’s insistence that the German invaders be required to pay for the civilian damages they had caused in France and Belgium became the principal justification for the Versailles treaty’s war reparations articles.

Prime Minister David Lloyd George, who had held the post since 1916, represented Great Britain. Although he was considered the epitome of 20th-century liberalism and a social reformer, he proved ruthless enough to maintain Britain’s naval blockade that strangled Germany of vital food supplies for eight months after the November 1918 armistice. Tens of thousands of German civilians died of starvation or malnutrition-related illnesses before Britain finally lifted the blockade once Germany signed the Versailles treaty. Lloyd George largely accomplished his main goals, which were eliminating Germany’s High Seas Fleet as a threat to the Royal Navy and maintaining the British Empire. He even added to Britain’s colonial empire when it (along with France, Belgium and Japan) assumed “mandates” (colonies in all but name) over colonies the treaty stripped from Germany and the Ottoman Empire. Britain acquired Iraq, Palestine and Jordan in the Middle East and four former German colonies in Africa.

The major goal of Italy’s representative, Prime Minister Vittorio Orlando, was “loot” in the form of increased territory for his country. Bribed by the Allies with promises of territorial gains, Italy entered the war in 1915 against Austria-Hungary and in 1916 against Germany. Thus Orlando was in Paris to collect, but Italy’s dismal battlefield record had hardly put him in a position to make demands. Orlando stormed out of the conference in April when it became clear that Italy would not receive all the territory it wanted.

The treaty signed June 28, 1919, in Versailles’ Hall of Mirrors comprised 440 articles in 426 pages (English text and French text on facing pages), plus annexes and maps. Its several parts notably included part I establishing the League of Nations part II creating Germany’s postwar boundaries (Germany lost 13 percent of its territory and all of its colonies) part V imposing military restrictions on Germany’s armed forces and part VIII specifying war reparations to be paid principally to France, Belgium, Britain and Italy for civilian damages caused by the German invasion and occupation.

After decades of propaganda and mythmaking, however, it is time to set the record straight by revealing what the Treaty of Versailles did not do.


First and foremost, a stake should be driven once and for all through the heart of the most egregiously false claim about the Treaty of Versailles – that Germany was unfairly saddled with heavily punitive, disastrously costly war reparations that destroyed its postwar economy, caused crippling hyperinflation and doomed the democratic Weimar Republic. In fact, requiring defeated nations to pay reparations to the victors was a long-standing feature of treaties ending European wars. This penalty was not suddenly invented at the 1919 Paris Peace Conference to punish Germany rather, it was simply “business as usual.” Germany had typically imposed similar penalties on countries it had defeated, including demanding billions of marks from Russia in the heavily punitive March 1918 Treaty of Brest-Litovsk. (See “Treaty of Brest-Litovsk,” p. 45.) Significantly, Germany had forced France to pay billions in “indemnities” after its victory in the 1870-71 Franco-Prussian War – and German forces continued occupying part of France until payment was made. The French promptly paid in full, even though the cost was equal to 25 percent of their national income.

The next important point is two-fold: First, the reparations Germany was required to pay were for civilian damages caused by its invasion and occupation of Belgium and northern France. Second, the Allies calculated the amount based on Germany’s ability to pay, not on the actual cost of repairing those damages – which was much greater. The claim that the Versailles treaty required Germany to pay “the entire cost of the war” is completely false, as verified in Article 232, which stated that Germany was to pay “compensation for all damage done to the civilian population of the Allied and Associated Powers and to their property during the period of belligerency.”

Another revealing fact is that the figure Germany supposedly was required to pay for reparations – a hefty 132 billion marks – was intentionally misleading. The Allies never intended Germany to pay such a huge sum. It was only included in the treaty as “spin” – an effort to fool the (principally French) general public into thinking that Germany was going to be severely punished economically for its war depredations. As historian and economist Sally Marks, among others, has pointed out, the actual figure the Allies intended Germany to pay, and which they had calculated Germany could pay, was a more modest 50 billion marks. In fact, during treaty negotiations, the Germans had offered to pay 51 billion!

Yet Germany never paid even that much lower figure. Between 1920 and 1931 (when Germany suspended reparations payments indefinitely) it paid only 20 billion. But even this figure is misleading, since only 12.5 billion of it was paid in cash. The remainder was paid “in kind” through deliveries of coal, chemicals, lumber and railway assets. Moreover, the 12.5 billion in cash was from money Germany acquired through loans from bankers in New York. Germany not only received far more money in U.S. loans (27 billion) than it paid out in cash for reparations, in 1932 it also defaulted on these loans after paying back only a small percentage.

In effect, except for a few billion “in kind” payments, Germany paid no war reparations out of its own pocket. What “everyone knows” about Germany being crippled by war reparations therefore is a myth. French economist Etienne Mantoux surely was right when he wrote, “Germany was not unable to pay reparations, it was unwilling to pay them.”


Closely related to the “crippling and punitive” war reparations myth is the claim that the reparations were the cause of the disastrous hyperinflation that ruined Germany’s economy between 1921 and 1924. Yet as noted, from 1920 to 1931, Germany, with the help of U.S. loans, paid only a small fraction of the reparations it was supposed to pay – hardly enough to ruin its economy.

The roots of Germany’s post-World War I disastrous hyperinflation stem from the beginning of the war when the Kaiser and his ministers decided how they would finance the costly conflict. Instead of imposing taxes to pay for the war, they decided to fund it by borrowing. The effect of this decision was to begin a steady devaluation of the German mark against foreign currencies. Germany’s solution to the problem – unwisely continued by the postwar Weimar government to solve its own economic woes – was to print more money. Predictably, this caused inflation, and as more money entered circulation, inflation rates increased.

The trigger that moved postwar Germany’s increasing inflation rates to the level of disastrous “hyperinflation” was the way the Weimar government chose to respond to the 1923 French occupation of Germany’s Ruhr industrial region after Germany continually defaulted on its reparations payments. The Weimar government encouraged and abetted “passive resistance” – such as work stoppages and strikes – to the French occupation and paid German workers for their cooperation by printing vast amounts of money. The result of this deliberate policy decision by Weimar politicians was to send inflation rates skyrocketing into “hyperdrive.” By November 1923, a loaf of bread cost Germans 3 billion marks, a pound of meat cost 36 billion, and a glass of beer was 4 billion.

Although the Weimar government conveniently blamed “war reparations” for causing the hyperinflation crisis, Germany was in fact paying no reparations at the time. Germany’s hyperinflation and economic catastrophe during the Weimar Republic years was due to its politically motivated economic policies, not “crippling” reparations payments to the Allies.

Moreover, the claim that hyperinflation led directly to the rise of Adolf Hitler and the Nazis flies in the face of reality. Revaluation of the German mark in 1924 stabilized the German economy, and by 1927 – years before Hitler’s rise to power – it was one of the world’s strongest (although Germany did later suffer economically in the global Great Depression, which between 1930 and 1933 created conditions Hitler exploited).


Perhaps the most contentious part of the Treaty of Versailles is Article 231, the so-called “war guilt” clause that has been egregiously mis-nicknamed and habitually misrepresented. Neither “guilt” nor “war guilt” is mentioned in the article, yet German politicians – first those in the Weimar Republic and later Hitler and the Nazis – used these terms to demonize the treaty in their efforts to sidestep Germany’s obligations. Although German propagandists in the 1920s and 1930s created the story that the treaty forced Germany to accept the humiliating “war guilt” clause assigning it blame for the entire war, historians have continued to echo this propaganda ever since. In fact, the German “war guilt” propaganda was so effective that during the 1920s many in the populations of Allied countries – particularly Britain – began accepting the idea, which helped sap the Allies’ will to rigorously enforce the treaty’s provisions.

When read by itself, Article 231 does appear to make the Germans’ “war guilt” claim seem plausible: “The Allied and Associated Governments affirm and Germany accepts the responsibility of Germany and her allies for causing all the loss and damage to which the Allied and Associated Governments and their nationals have been subjected as a consequence of the war imposed upon them by the aggression of Germany and her allies.” However, it is vitally important to place the article within the proper context of the treaty. It is the preamble to part VIII, regarding reparations, and not a “standalone” section solely intended to blame Germany for the war – which, if that had been the Allies’ intention, surely would have merited its own section. Clearly, the authors of the article, American diplomats Norman Davis and John Foster Dulles, merely intended it to establish Germany’s acceptance of its responsibility to pay the reparations for the civilian damages its military had wrought, as laid out in the subsequent articles (232-247) of part VIII.

Both Davis and Dulles were shocked when German politicians chose to interpret Article 231 as Germany taking full blame for World War I. Indeed, the exact same text was used in the Allied treaties with both Austria and Hungary, and neither of those nations ever considered that the language implied any “war guilt” on their part. Only German politicians – both for their own domestic political reasons and as a means to gain international sympathy – chose to interpret Article 231 as unfairly placing blame for the entire war on Germany.

Article 231, when correctly read in conjunction with Article 232 immediately following it, actually limits Germany’s responsibility for the war by requiring Germany to pay only for civilian damages caused by its invasion and occupation of Belgium and northern France. And, as noted, even that was further limited to what the Allies calculated Germany could pay.

Yet German propagandists in the Weimar and Nazi eras eagerly promoted what they termed the “war guilt lie” – which right-wing politicians often linked with the equally false claim that “the German army was stabbed in the back” – to gain domestic and international support for their efforts to avoid compliance with the Versailles treaty provisions. But the term “war guilt lie” more accurately should be applied to what the propagandists succeeded in making us believe all these years – the myth that the Treaty of Versailles unnecessarily humiliated Germany by forcing it to accept total blame for World War I.


The last enduring myth regarding what “everyone knows” about the Treaty of Versailles is that the U.S. Senate’s failure to ratify the treaty doomed the League of Nations to failure since the United States was not a member of the global security organization. Yet that claim assumes that the league would have been successful at preventing another world war if the United States had been a member. In fact, due to serious flaws in its concept, organization and procedure for settling international disputes or stopping aggression, the League of Nations could hardly have prevented predatory nations from doing whatever they wanted, whether or not the United States was a part of it.

Wilson’s vision for the League of Nations, as set out in the last of his 14 Points and codified as part I of the Versailles Treaty, was a “general association of nations established to afford mutual guarantees of political independence and territorial integrity of all nations great and small.” The pillars of the league were collective security, disarmament and settlement of international disputes through arbitration. Yet this was based on voluntary participation by league members – essentially relying on “good will.” The League of Nations had no standing military force to back up any decision it made, and if a nation disagreed with the league’s decision, it could simply “opt out” – as Nazi Germany (1933), Imperial Japan (1933) and Fascist Italy (1937) eventually did when they withdrew from the league after it tried to oppose their aggression.

The league’s only recourse was to try to impose international sanctions on an offending nation. But since these could be economically detrimental to the nations imposing them, this procedure ran counter to the national interests of many league members, whose response was typically to ignore the sanctions. Most often, league members preferred to deal individually with other nations, essentially reverting to traditional “balance of power” bilateral international relations. Increasingly, as the 1930s wore on the league became irrelevant in international affairs. Those who embrace the long-standing myth that the United States doomed the league to failure never seem to explain how U.S. membership in the league could have overcome the inherent fatal flaws in its organization and procedure.

Moreover, as Henry Kissinger noted, the general mood in the United States in the 1920s and 1930s (non-entanglement in European affairs), the abysmal shape of America’s military forces from 1919 until after 1939, and the inability of any American representative to the league to commit the United States to action without prior legislative approval would “not have made a significant difference” to what actually transpired.

Finally, one need only point out that the League of Nations’ successor organization, the United Nations – of which the United States is a founding member – has not been particularly successful at preventing wars and global conflict over the course of its existence.

After exposing the egregious but long-standing myths about the Treaty of Versailles, it is important to examine the real failures of the much-maligned treaty.


First, the Treaty of Versailles was not tough enough on Germany. In fact, as historian Correlli Barnett claimed, the treaty was “extremely lenient in comparison with the peace terms that Germany … had in mind to impose on the Allies” had Germany won the war. Barnett characterizes the Versailles treaty as “hardly a slap on the wrist” compared to the harsh Treaty of Brest-Litovsk that Germany imposed on defeated Russia. Germany’s claim, which countless historians have parroted, that the Versailles treaty was overly harsh and too punitive against Germany is, as Kissinger noted, “self-pitying nonsense.”

Even Marshal Foch’s oft-cited quote about the treaty being only “a 20 year armistice” is flagrantly misleading when presented out of context, as it often is. Foch was not criticizing the treaty as being too hard on Germany but was actually making the opposite point – that it was not punitive enough. He was lamenting that the treaty did not ensure that Germany’s armed forces and strategic position were permanently weakened, principally through perpetual French occupation of the Rhineland.

Second, despite the fact that Germany lost 13 percent of its territory and all of its colonies, it actually emerged from World War I in an overall more favorable strategic position than when it started the war. Germany’s colonies, essentially “prestige possessions” to bolster Kaiser Wilhelm’s ego, were an unnecessary drain on its economy. The Allies did Germany a favor by taking them away. The European territory Germany lost – principally a slice in the east to help form independent Poland, and Alsace and Lorraine in the west, which Germany had taken from France in 1871 – was not vital to German industry, which, unlike the industry in northern France and Belgium, had avoided wartime destruction. The eastern territory that was lost helped establish a buffer zone between Germany and the rising power in the East, the Soviet Union, while Germany’s other borders, save that with France, abutted a collection of weak new nations replacing the stronger ones that had bordered prewar Germany. Given Germany’s larger population and, after 1927, more robust economy than its European rivals, within a decade after World War I ended, Germany’s strategic position was greatly enhanced over what existed in 1914.

Perhaps the Allies’ gravest failure in the Versailles treaty was allowing Germany to voluntarily comply with the provisions, since Germany had no incentive to fulfill the obligations to which it had agreed. A closely related failure is that of Allied will to enforce the treaty. With isolationist America essentially “opting out” of the task, and the demoralized, increasingly pacifist British population suddenly getting a collective guilty conscience when it fell for German propaganda, it was left to France to try to enforce the treaty. Except for some half-hearted attempts – notably the 1923 occupation of the Ruhr industrial region in a vain attempt to get Germany to stop defaulting on reparations – France proved incapable of going it alone. In Germany’s clash of wills with its former World War I opponents, Germany won.

In effect, Germany simply ignored its obligations under the Treaty of Versailles. Although much has been made by historians about the military restrictions imposed on Germany – the dissolution of the German General Staff, limiting the size of the German army to only 100,000 men, armaments prohibitions, etc. – none of these restrictions were ever rigorously enforced, and Germany began violating them immediately. It was the democratic Weimar Republic in the early 1920s, not Hitler in the mid-1930s, that hid the treaty-banned German General Staff behind the façade of the innocuous-sounding “Truppenamt” (Troop Office) bureaucracy Weimar politicians and military leaders who negotiated in the 1920s secret training facilities in Russia where German tank tactics and equipment, later to become “blitzkrieg,” were developed Weimar officials who colluded with German military leaders to avoid the Versailles treaty restrictions, clandestinely training combat pilots and the Weimar government that in 1932, a year before Hitler took power as chancellor, announced that Germany would no longer abide by the military restrictions imposed by the Versailles treaty.

Finally, and most tragically, one thing the Treaty of Versailles did not fail to do was to give German politicians – from Weimar democrats to Hitler’s Nazi thugs – a useful propaganda tool when they twisted the facts and lied about what was actually in the treaty to support their political agendas. Unfortunately, those lies and myths have become what “everyone knows” about the Treaty of Versailles.

Jerry D. Morelock, PhD, “Armchair General” Editor in Chief Originally published in the November 2013 issue of Armchair General.

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