What Was Done to Minimize the Impact of the Great Depression on the Countries Affected? Research Paper Example

Contemporary economic analysts paid attention to the comparative analysis of the contemporary economic decline with the Great Depression as the most vivid example of the economic challenges European countries had to face in the interwar period. The Great Depression was the test for various governments’ ability to deal with new challenges other than interstate warfare and post-war settlement. Various countries managed to handle economic recession relatively successful and overcome it before the World War II, while others were doomed for another half century. In order to understand the differences between political regimes and subsequent policies, governmental policies of winner and defeated countries should be analyzed. In this context, the aim of the present research is to compare anti-Depression policies of two opposite countries and to explain which country’s policy proved to be the most effective and why. The two countries chosen for this research are the Great Britain and Germany or Weimar Republic as it was known at that time.

In order to understand policies of two countries it is essential to understand the effect the Great Depression had on those countries. Unlike Germany, which was slowly recovering from the war and its practical economical and political paralysis during the Paris Conference in 1919, the Great Britain was in much better position. First of all, it was the winner of the war and gained certain preferences. Although war had disrupted the economic and trade ties of the Great Britain, it managed to return to the Gold Standard of pound, which showed the strengthening of the national currency and its position in the world (Rothermund 87). On the other hand, Germany was in complete dependence on mercy of the winners, mainly United States. Although it was gaining economic assistance in the framework of Dawes (1924) and Young (1929) Plans, it also had to pay huge reparations to the winning countries, mainly to France and Great Britain (Clavin 65). Therefore, the severity of Great Depression was much stronger felt in Germany than in the Great Britain.

In both cases, when the New York Stock Market crashed in October 1929, both countries faced immediate implications of broken economic ties between countries of the world, closing of the accessibility of national markets, stagnation of national economies increase of unemployment, causing further strikes and political struggle (Rothermund 81). In both countries, the first suggestion to stabilize the situation was the reduction of the public spending, particularly in the sector of social welfare and unemployment benefits (Leef 9). In the Great Britain, the initiative of Labor Government consisted of the following actions. First of all, public sector reductions were conducted through cuts of public wages, decrease in unemployment benefits payments and general social welfare (Parker 58). Secondly, public burden was imposed on the citizens through the increase of taxes on income from 22.5 to 25,6 % (Clavin 34).

In Germany, the same idea was adopted under the rule of Chancellor of the Weimar Republic of 1930-1932 Heinrich Bruning, who considered British anti-Depression measures to be the most applicable for the situation in Germany contemporary to him (Braun 53). In this context, in 1930, he also suggested decrease of public spending, but conducted on wider scale. First of all, he complete cut of public sector spending on social issues, for provision of children of war with elementary things to complete elimination of unemployment payments (Clavin 38). In this context, German government had decreased the number of public grants previously devoted for the obligatory unemployment insurance (Clavin 69). Thus, the only surviving people under those circumstances were those who were still employed. Under conditions of complete economical stalemate, such policy did not contribute anything but increase of unemployment to 6 million or 25 % of the work force in 1932 (in comparison to 2 million in 1926), reaching its pick of the whole period of the Great Depression (Leef 8).

Therefore, it can be concluded that initial German policy failed to improve the situation. On the other hand, British measures also proved to be fruitless, since they contributed only to the decrease of the purchasing power of the population, which for the flourishing economy should be high and flexible (Hall and Ferguson 102). Unemployment rate also increased to the level of 3 million. Since shortages of public spending proved to be useless, British government, at the time of 1931, it was National/Coalitional Government, could improve the situation through external factor – stimulation of its export. This was achieved through abandoning of the Gold Standard of pound announced on 21^st September 1931 (Samuelson 36). The main implication of this action of devaluation of the pound by 25%, meaning from $4,86 to $3,40, which made British products more favorable for the abroad trade(Samuelson 35). Subsequent gain from the increase of foreign trade was achieved through the introduction of the trade tariffs for the countries outside the British Empire to the rate of 10% (Clavin 81).

Further on, in order to increase purchasing power of people, British government decided to change its initial public cuts policy towards smart payments. In August 1931, previous governmental system of unemployment benefits based on contribution was substituted by the new one based on the need (Burg 41). The essence of this system was severe monitoring of target families for the source of income and actual belongings and entitlement of them for governmental payments (Leef 9). This contributed to equal distribution of the minimal payments for all in need and improvement of their minimal welfare (Samuelson 38). On the other hand, from social perspective in Germany, where population was in much greater need, such measures were not taken and the army of unemployed, hungry and frustrated people continued to increase, bringing new regime and new dictator into power – Adolf Hitler in charge of the Third Reich (Braun 62). Frustration of German people was also conditioned by inappropriate Governmental policy in financial sector. In order to increase purchasing power of population, Bruning found no better solution than printing more money and increasing money turnover, which subsequently resulted in further wave of inflation and deterioration of economical and political life.

The success of British policy was proved by gradual improvement of economic situation in the country. First of all, unemployment started to decrease in the next couple of years, reaching the point of 1.5 million in 1937 (Burg 47). Lowered interest rates contributed to boosting of the building and supporting industries mainly in the counties of soft economic sectors. This was gradually boosting economic manufacturing and services provision industries (Parker 32). Populations’ purchasing power was also gradually increased contributing to normalization of the import-export relations and boosting of economy. On the other hand, as it was expected, heavy, industrial sectors of economy were still stagnant and required governmental assistance and general economic subside for further development (). Nevertheless, such situation was characteristic also for the United States and required long-termed political and economic stability. As history proved such stability was short-termed and disrupted by the World War II (Burg 45).

From all mentioned above, it becomes clear that British government’s response to the Great Depression proved to be more effective and workable than German one. This fact can be explained by the unity of various reasons. First of all, British government was more sensitive to the negative implications of its initial policy. Although, it was ready to apply the same sever measures as German government, it was not ready to accept negative implications for both economic and political life of the country (Hall and Ferguson 85). Under conditions when economy is slowly recovering due to the cuts of public spending, government can still justify its policy and count on voters understanding mainly because they can also witness improvement of the situation (Temin 62). On the other hand, since this improvement did not take place and governmental policy had only deteriorated the situation and increased unemployment and increased the army of potential revolutionary masses, legitimate government of Western state had to change its approach and to sacrifice external position for the benefits of internal stability (Rothermund 92).

The main reason why this change of policy did not take place in Germany was its continuous disruption of post-war period and lack of socio-political stability, on the first place (Temin 72). Constant changes of government, continuous demands from abroad, payment of reparations, lack of strong economic infrastructure, barely recovering agriculture, complete dependence on the external assistance and subsequent cancellation of recovery plans, financed by USA practically left the country in the condition where no policy could be proclaimed in due time, not to speak of its immediate and efficient application (Burkett 63). It is difficult to assume that Bruning did not see what the results of his policy were. Under those circumstances, he placed emphasis on the importance of state’s survival rather than survival of its population (Parker 43). As further history showed such approach could not be effective or even justified in any rationale way (Burkett 65).

Another reason why British policy turned to be successful was its initial status of the regional and world great power, which meant that it was still the British Empire. Irrespective of the breaking of external trade ties and certain weakening of the inert-Empire connections, it still had potential for renewing its former capacity through one step back from its Royal magnificence status to the status of real country in need for favourable conditions of recovery (Clavin 51). Thus, the success of British policy was not something one could not predict. The reason why this success was not achieved immediately and public spending cuts policy was adopted was due to governments desire to keep the face of British Empire, on the first place, and refuse form the Gold Standard as a symbol of strength only in case of the vital necessity (Samuelson 37). In fact, it was vital necessity, since deterioration of the situation could have resulted in another massive strike similar to the General Strike in May of 1926 or even worse to the revolution (Temin 42).

Another reason for the success of British policy was its political regime, which can be characterized by relative political stability and long-termed history of the royal rule and existence of two-party (later three-party) system. The democratic competition between parties contributed to subsequent attention of each of them to the will of people, the way it is conducted in democratic societies today (Parker 32). When people are unhappy and frustrated by their government, they simply elect another one. That is why the leader of Labor Party MacDonald preferred the division of the party and coalition government with Conservatives rather than failure on the next elections (Burg 51). On the other hand, Germany was in political and economic transition, and it could not provide even constancy of governmental presentation, or its legitimate change. Thus, change of policy towards benefits of population was unrealistic due to the nature of political regime in Germany (Rothermund 99).

Overall, from all mentioned above, it can be concluded that winning state of the World War I had more actual and potential opportunities for political and economic maneuverability towards recovery from the Greta Depression, while defeated state of Germany was limited to the mercy of the winners. In this context, the only party to suffer the greatest damage from German government was German people. The success of British policy was due to its position as winner of the war, its initial string position as Empire with numerous dependant colonies at its disposal, more politically democratic structure of society and importance of population as the corner stone of the state. In other words, Germany had no chances to overcome the Great Depression successfully and non-military without help of the Western states.

Works Cited

Braun, Hans-Joachim. The German Economy in the Twentieth Century: the German Reich and the Federal Republic. London, LD: Routledge. 2002. Print.

Burg, David F. The Great Depression. New York, NY: Infobase Publishing. 2005. Print. Burkett, Paul. “Forgetting the Lessons of the Great Depression”, Review of Social Economy, 52.1 (1994): 60-71.Print.

Hall, Thomas Emerson and Ferguson, J. David. The Great Depression: an international disaster of perverse economic policies. East Lansing, MI: Michigan State University.1998. Print. Clavin, Patricia. The Great Depression in Europe, 1929-1939. London, LD: Macmillan.

Leef, George C. “Rethinking the Great Depression: a New View of Its Causes and Consequences”, Ideas on Liberty, 53.8 (September 2003): 8-10. Print.

Parker, Randall E. Reflections on the Great Depression. London, LD: Edward Elgar Publishing. 2002. Print.

Rothermund, D. The Global Impact of the Great Depression, 1929-1939. London, LD: Routledge. 1996. Print.

Samuelson, Robert J. “Revisiting the Great Depression: The Role of the Welfare State in Today’s Economic Crisis recalls the Part of Played by the Gold Standard in the Calamitous 1930s”, The Wilson Quarterly, 36.1 (Winter 2012): 36-39. Print.

Temin, Peter. Lessons from the Great Depression. Boston, MA: Massachusetts Institute of Technology. 1991. Print.