Abstract

"Offshoring Incentivized: The Promotion of FDI by the German Government in the 1970s"

Jan-Otmar Hesse, University of Bayreuth (Jan-Otmar.Hesse@uni-bayreuth.de)

Among the interesting lessons in German economic history is the spectacular comeback of the country’s foreign capital stock. Having lost its FDI almost entirely two times after the two world wars, the FDI-stock of the German economy was negligible still in the 1950s (Schröter 1992). A huge and opening surplus in the trade balance enabled the German economy as well as economic policy to carefully build up a significant position in foreign assets (Kling et.al. 2011). However, this was not simply the reconstruction of the stable growth pattern that has existed already before the First World War. Rather, we can consider it as a “reinvention” of the German economy, especially since it was very much supported by Germany’s foreign economic policy-agenda. The economy was planned to be rebuilt along global value chains of production in a way, that labor-intensive parts of the production process should be offshored to developing countries, while high-wage knowledge-based parts should be kept at home. While this process of “offshoring” is largely discussed in the literature (Hesse/Neveling 2019), it is less well known, that German economic policy pushed for this rather modern allocation as early as from 1958.
The paper will use archival material from the German Foreign Office and the Minister of Economics well as a small sample of corporate archives to document the impact of this policy on the German economy. In a joint effort, businesspeople and bureaucrats strengthened the international ties of German business, thereby restructuring the economy as a whole. I want to discuss the hypothesis, if that can be seen as backbone of the country’s international success, which was highly improbable at the beginning of the 1970s, when the shield of the undervalued currency was removed and wages did not enjoy a competitive advantage anymore.