Thursday, May 23, 2013

WWII Myths – The German war economy was mismanaged

This is quite a difficult subject to fully analyze. The idea that the Germans mismanaged their war economy is one of the most enduring myths of WWII. This idea is strange considering that everyone acknowledges the ‘economic miracles’ of the period 1933-39 and of the postwar recovery. Why would the Germans do things right up to 1939 and after 1945 but mess things up in between?

Let’s start at the beginning. After taking emergency measures and restarting military production the German economy stabilized and in the mid thirties was running at full speed, meaning that the internal factors of production were fully exploited.
Before the war the main problem was how to finance the import of raw materials that were needed for the production of civilian and military goods. Here the Germans used several tricks including bilateral trade agreements and ‘stealth’ credit.  At the same time they invested in technologies that would allow them to substitute foreign raw materials with internal production (low grade German ores, synthetic rubber, synthetic fuel).

In the period 1939-41 Germany gained control of a large number of European countries BUT could not exploit their economies to the fullest because they were dependent on imports of raw materials. Since the British Royal Navy blockaded Europe those countries instead of adding to the German economy had to be supplied with scarce resources (for example coal for their energy needs and chemicals for their agriculture).
In the period 1942-44 military production increased significantly despite shortages of raw materials and a bombing campaign by the Anglo-Americans. It was this increase in production that led to the creation of the Speer myth.

According to the standard account prior to Speer’s appointment as Armaments minister in 1942 there was widespread wastage and underutilization of industry.
Speer in his memoir ‘Inside the Third Reich’ attributes the increase in production to his radical measures. In chapter 15 (aptly named ‘Organized improvisation’) he lists the main policies:

1). ‘industrial self-responsibility’ with civilian committees being responsible for each procurement program instead of Army personnel and bureaucrats who did not know how industry worked.
2). Standardization of weapons and emphasis on long term production vs the old policy of ‘frequently assigned contracts only for a limited time’.

3). Giving positions of responsibility to younger, energetic men (below 40).
According to him one of the main problems was excessive bureaucratization of the government agencies. Instead his policy was to promote personal initiative and improvisation. 

His policies seem to have been successful. For example two categories that are always mentioned are tracked fighting vehicles and combat aircraft:

1941
1942
1943
1944
Tanks and SPG
3,736
6,058
12,228
19,665
Combat aircraft
8,729
12,011
19,241
34,614

Such a rise in production must have been made possible by eliminating waste and mismanagement. What else could be the reason?

Debunking the Speer myth
Things become clearer if we look at the two largest production categories of the war economy, ammunition and aircraft.


Did the Germans produce more with less? Was mismanagement and misallocation of resources holding production back?

Ammunition production
From ‘The Wages of Destruction: The Making and Breaking of the Nazi Economy’, p575-6

The driving force of this spectacular increase, however, was anything but miraculous. To reiterate, in so far as Speer was responsible, the most important factor was ammunition. And the increased production of ammunition was not primarily an effect of rationalization or reorganization. It was a direct result of a hugely increased allocation of steel. From September 1939 to the end of 1943, there is a near-perfect correlation between the allocation of steel to ammunition production and the quantity of ammunition produced. When plenty of steel was allocated, ammunition production was buoyant. When the steel supply was restricted, so was the production of ammunition, and this relationship holds both before and after February 1942. To the extent that there was a major surge in labour productivity within the remit of the Speer Ministry, the indicator usually used to measure rationalization success, this in fact confirms the rate-limiting role of steel. Without enough raw material, neither labour nor the available industrial plant could be used efficiently.’


Hmm so when it comes to ammunition production the effects of Speer’s rationalization program seem to have been modest to nonexistent…

Aircraft production
After WWI Germany was prohibited from having a military aircraft industry. This meant that in the 1930’s, when rearmament started, the effort to rebuild this industry was constrained by the lack of industrial resources, trained manpower and aviation technology. It took years to build up factories, acquire modern aero engine technology and develop aircraft models for mass production. The Luftwaffe played a major role in the plans of the Nazi regime and thus huge resources were invested in the airforce. Did aircraft production rise as a result of Speer’s rationalization program?

The recent study ‘Demystifying the German “armament miracle” during World War II. New insights from the annual audits of German aircraft producers’ says

This paper uses the annual audit reports of the Deutsche Revisions- und Treuhand AG for seven firms which together represented about 50 % of the German aircraft producers. We question the received view by showing that in the German aircraft industry the crucial changes that triggered the upswing in aircraft production already occurred before World War II. The government decided in 1938 that aircraft producers had to concentrate on a few different types, and in 1937 that cost-plus contracts were replaced with fixed price contracts. What followed was not a sudden production miracle but a continuous development which was fuelled first by learning-by doing and then by the ongoing growth of the capital and labor endowment.
Aircraft manufacturers had already taken measures similar to those that Speer promoted so again there was no miracle in the increased production. The same study says in page 20:

‘The precise timing of the Ju88 program gives us some idea, why the concurrence of the German armament miracle and Albert Speer’s reign might just have been coincidental. It was in May 1938 when the aviation department finally decided that the Ju88 bomber would become one of the major weapons of the German air force. The firms which were chosen to participate in this program were instructed to end their established production and adapt their plants to the new design instead. Production of the Ju88 bombers started in 1939. The firms used the following two years to move down their learning curves and to realize the substantial increases in labor productivity that occurred in the early stage of a production run. Around the end of 1941 the production processes were finally broken in, and the Ju88 producers were ready to take off. In February 1942 Albert Speer became armament minister, in the middle of a seasonal downturn. This was exactly the right time to be credited with the considerable increase in the Ju88 production in the following two and a half years. This growth was not a sudden miracle made possible by Speer but the continuation of a development that started in 1938 and was fuelled by the ongoing learning effects shown by table 6 and the growth of the firms’ capital and labor endowment discussed in section 2.’


So why did the Germans produce more armaments in the period 1943-44?

The answer is simple. For the same reason they produced more in 1941-42 compared to 1939-40.
Production rose because more inputs of raw materials, capital and labor were invested. At the same time workers became better at producing weapon systems whose specifications had been fixed for a long time.

There were certainly benefits from cutting down on inefficiencies and bureaucracy but these were not the primary reasons.
The main cause for the 1943-44 ‘miracle’ was the diversion of resources from long term investment into production.

Major investments in infrastructure started in the 1930’s but took till mid war to become operational. These projects absorbed large quantities of capital and labor without contributing to the output of munitions. Once they were completed they helped boost production plus the resources that they kept occupied could be redirected to other projects.


For example tank production significantly increased thanks to the expansion of existing tank facilities and by building new factories, especially the gigantic Nibelungenwerk in Austria.

Aircraft production took advantage of investment in the expansion of aero engine capacity but also profited from the production of the same types throughout the war (Bf109, FW-190, JU-88, Ju-52, He-111 etc).
In both cases we also need to consider that production numbers were boosted by taking shortcuts. In the case of tanks there was an emphasis on vehicle production at the expense of spare parts (engines, transmissions, gearboxes etc). In the aircraft industry the impressive production numbers of 1943-44 were achieved by concentrating resources on the single engined fighters Bf109 and FW-190. These were much cheaper to build than the twin engined Ju-88 bomber. For example in terms of weight we have Bf109 - 2.250kg , FW-190 -  3.200kg compared to ~9.000kg for the Ju-88.

There are two more important issues that come up when discussing the German war economy.

Women in the workforce and butter over guns

1). German women stayed at home taking care of the kids instead of working in the factories
Actually the Germans used a larger percentage of women in their workforce than the US and UK. According to ‘The Wages of Destruction: The Making and Breaking of the Nazi Economy’, p358:

In 1939 a third of all married women in Germany were economically active and more than half of all women between the ages 15 and 60 were in work. As a result women made up more than a third of the German workforce before the war started compared to a female share of only a quarter in Britain.
And in page 515: ‘When the chief statistician of the Reich Labour Ministry investigated the issue in the autumn of 1943, using data that were very unfavorable to Germany, he arrived at the conclusion that the share of women in war work was 25.4 per cent in the United States, 33.1 per cent in Britain and 34 per cent in Germany.

2). The Germans continued to produce lots of civilian goods throughout the war because Hitler did not want to disadvantage the population
According to ‘Germany: guns, butter and economic miracles’ (chapter 4 of ‘The Economics of World War II’) ‘by late 1940 most of the consumer branches were already devoting between 40 and 50 percent of their output to the military, leaving very little for the civilian population’.

Civilian consumption was contained even by the mid 1930’s by cutting the steel allocation. According to ‘The Wages of Destruction: The Making and Breaking of the Nazi Economy’, p254:  Measured in terms of steel, the quantity of materials available for non-Wehrmacht purposes was cut by 25 per cent between March and July 1938, from a  high point of 1.345 million tons to 1.041 million tons.
The calorific content of food rations also fell after 1940-1. Although the regime tried to protect the civilian population there was never a policy of ‘butter over guns’.

Conclusion

The performance of the German war economy has always fascinated historians. However in order to evaluate the performance of the economy one needs to understand the major factors that limited production.
It was not wastage and bureaucratization but rather the lack of vital resources that affected production. The best way to describe the German war economy is scarcity management. The Germans responded to resource limitations by investing in new technologies (hydrogenation plants etc), in infrastructure and by shifting resources to important projects. They also substituted German workers (that were drafted by the armed forces) with forced and slave labour.

The belief that the German economy could have produced more armaments if it hadn’t been mismanaged is not supported by the evidence.

13 comments:

  1. While this may be true to a point, you forget the germain war industry wasn't running on 24hr clock. At first, they continued to go as if they weren't at war. If they had been operating 24hr days producing equipment. They might have won the battle for Brittain!

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    1. How could they do that when they lacked workers? Check http://chris-intel-corner.blogspot.gr/2013/04/speer-and-one-factory-shift-story.html

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  2. Excellent article. Kudos to you Chris! You may want to check out Alexander Dallin's book on the German occupation of Eastern Europe, as it verifies your thesis here. The Germans were extremely hard up for labor and agricultural goods. This is why they had to enact forced labor. Of course this was a crime against humanity, but from the military standpoint...an army marches on its stomach and a war machine is only as well oiled as its workers. They really were running a tight ship.

    Anyway, thanks again. I bookmarked this page and will use it in my own research.

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    1. Well it isn’t exactly my thesis. The recent research on the German war economy by people like Tooze, Budrass, Scherner, and Streb has debunked the old version of ‘armaments in width not in depth’ and ‘inefficient’/‘mismanaged’. I’ll write more about their research soon.

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  3. Mismanagement was less on economic level and more on tactic, strategy and grand strategy (ie Hitler's) level. That is what to build. Looking at the figures for crucial 1942 we can notice how little was spent for tanks and how much for navy, mainly submarines.

    However we have to keep in mind:

    1) Increasing tank production without increasing production of supporting weapons (eg artillery) and trucks to supply the additional tanks and guns would have had a limited efect on the front

    2) In 1942 it could seem sensible to devote resources to stranglingthe UK out of war and to preventing American buildup. Had it succeeded it would have allowed to send to the Eastern fronts the forces tied in the West and specially the planes, pilots and 88 AA guns who were fighting the British bombers. What made the decision a wrong one was that in the 1943 Spring a mix of technological breaktroughs, tactics and availability of escorts suddenly made the U-Boots nearly harmless. From distant memories at one point the U-Boots were sinking less merchants than the Allies were sinking U-Boots . and the materials and akilled work involved in building that huge fleet of U-Boots instead of tanks had gone to waste.

    We can also question why production of inferior models was kept for so long. The MkIII's only ceased in 1943 and the MkIV's continued during all the war despite the fact the far more capable Panther was only marginally more expensive to manufacture. Could have been due to operational costs (eg a thirstier engine, heavier maintenance needs) or could be because of Germans newer willing or being able to take the loss of production during factory conversion.

    Also the 1943 shift to turretless AFV's instead of tanks. While turretless AFvs are cheaper and can be built with thicker armor and bigger guns than tanks using the same chassis they shine at sniping at an advancing enemy and don't fare that well in the attack. Ie the priority for turretless AFVs (note most of them were _not_ assigned tp Panzer Divisions but to infantry support role) hampered the capability for any kind of offensive operations including elastic defence.

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    1. ‘Mismanagement was less on economic level and more on tactic, strategy and grand strategy (ie Hitler's) level.’

      Yes it was all Hitler’s fault. He was to blame for all of Germany’s troubles, such as not having a developed vehicle industry which meant no spare capacity for tank production.

      ‘We can also question why production of inferior models was kept for so long’

      Because that’s what they could built.

      ‘Also the 1943 shift to turretless AFV's instead of tanks’

      SPG production exploded in 1942 (three times that of 1941).

      Be more careful with your beliefs. Just because you read something somewhere doesn’t make it true. Axis history forum has many discussions on these issues.

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    2. I have been trying to find figures for production of turretless AFVs and failed miserably. Could you point me to one? The only data I have is the number of German AFVs at Kursk where tanks still outnumber turretless AFVs 2 to 1. This hints that even if production of turretless AFVs exploded in 1942 it remained inferior to production of true tanks. I agree it only hints since part of AFVs engaged at Kursk could have been built in earlier years. Also since at Kursk Germans were on the offensive the forces they deployed were probably stronger than average on "offensive armor" (tanks).

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    3. I’ve written down the production statistics here:

      http://chris-intel-corner.blogspot.gr/2013/05/german-afv-production-1939-45_7.html

      Source was ‘Waffen und Geheimwaffen des deutschen Heeres 1933 – 1945’. Tank production was greater than SPG and SP A/T gun production in the years 1941-43 but in 1944 this changed.

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    4. Dear Christos,

      I have read your post with great interest. Could you maybe point me to some good sources for statistics on the general war production of all the great powers during World War 2? I have been looking all over the internet for this, but can only find this on wikipedia. Other sources only provide partial information on the production of tanks, planes etc but not all together. I am trying to compare the production of the different powers during this conflict for a paper.

      If you read this, please reply to: rorydavidse@msn.com

      Kind regards,

      Rory Davidse

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    5. ‘Brute Force: Allied Strategy and Tactics in the Second World War’ has tables with war production at the back but they do not list vehicles and planes by type, just totals for each country. Thus the answer is that probably no book has that kind of detail.

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  4. It is a very interesting question since according to some and in fact most sources, from the 60M people who died in ww2, 20M died in the armies, and 40M were civilians.

    From that 6M was of Jewish descendent and another 7M non Jewish descendent who died in the labor/concentration camps.The cause of death was work/overwork/disease/malnutrition and cruelty.

    The remaining 27M civilians died from war related disease and famine.

    As to "Why would the Germans do things right up to 1939 and after 1945 but mess things up in between?"

    The number crunchers can look at the figures. In laymen's terms though, when there is a war the men get enlisted and many of them killed. The economy refocuses on supplying the military, and the basics. After a couple of years this will take it's toll and I am very surprised why it is that people can not see the obvious.

    Displaced populations (even in 2015) need to be put up in camps and supplied food, water, sanitation and other basics. They can not work so need to be supported. The majority of them are also not accepted by other countries (refugees), or become undocumented along the way.

    What I think Hitler did was turning the political prisoner camps/ concentration camps and turned them into labor camps. The only difference being that they now also had to work.

    Over the years things must have deteriorate, although it has been well documented that most these camps had no facilities built to gas and cremate people.

    The conditions however meant that mortality rates were very high in all the camps.

    So the obvious answer is that between 1939 and 1945 the German economy was weighed down by the war effort.

    It may be that countries such as the USA and anyone commenting from there can not remember what it's like to have a world war on its own soil. The USA tends to fight on foreign land only.

    It is also possible than the colonial powers such as England and France won't remember what it's like to not use cheap resources from the colonies.

    Since Germany is practically non colonial, and had a war on it's own land, it must have taken it's toll.

    It is common sense that needs to be applied, as opposed to wrangling on about Hitler the monster and the Jewish victims. Additionally to common sense, declassifying classified documents that remain hidden should uncover some interesting additional facts.

    What is there to hide.

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  5. I won't stop wondering why people are still thinking Soviet could take 7 times more heavy losses than Germans (until late 1943) though population rate of Greater Germany and Soviet Union was just about 1:2. Why this myth of Soviet "unlimited resources" dies hard? Of course there was limit for any country. And surely for both Greater German and Soviet Union in late 1943. They were both exhausted. The latter however got plenty of material aid from west while Germans got plenty of bombs by RAF and USAAF.

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  6. Most people still believe in Speers miracle (Streb and Scherner demystified it), but the interesting thing is that the multidimensional scale, labour and resource allocation mentioned by most economists and historians (tooze?) is usually summed up to an oversimplified denominator.
    Harrison, Walter Dunn and others still repeat the story of the outproduced axis (not by the entire effort of the allies but the soviet union).

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