Nazi privatization

This paper was news to me:

The Great Depression spurred State ownership in Western capitalist countries. Germany was no exception; the last governments of the Weimar Republic took over firms in diverse sectors. Later, the Nazi regime transferred public ownership and public services to the private sector. In doing so, they went against the mainstream trends in the Western capitalist countries, none of which systematically reprivatized firms during the 1930s. Privatization in Nazi Germany was also unique in transferring to private hands the delivery of public services previously provided by government. The firms and the services transferred to private ownership belonged to diverse sectors. Privatization was part of an intentional policy with multiple objectives and was not ideologically driven. As in many recent privatizations, particularly within the European Union, strong financial restrictions were a central motivation. In addition, privatization was used as a political tool to enhance support for the government and for the Nazi Party.

I thought this sentence (p.13, see the graph on p.14) was interesting:

Overall, the relative dimension of privatization proceeds in 1934-37 Germany is close to the ratio for the EU-15 in 1997-2000, at 1.79 per cent.

Here is some earlier discussion from Mark Thoma.  Again, history holds a lot of surprises. 



It was privatization plus "nazification." As Arthur Schweitzer wrote back in 1946 ("Big Business and Private Property Under the Nazis," The Journal of Business 19(2):99-126), "the Nazi party gradually occupied all strategic positions in the economy.... Big business was pushed into the back seat...." Meanwhile, "[a]ll holders of private property had to be politically reliable, racially sound, and imperialistically desirable." The party/state could impress private property into public service or simply expropriate private property at any time, with or without compensation. In addition, private enterprises were heavily regulated by the state to further its imperial ambitions.

Thus, while the Nazi's privatized a good deal of economic activity, overall economic production was organized in accordance with national socialist goals and policies. That the Nazis allowed enterprise owners to retain profits may be best explained by positive theories of political economy (e.g., North 1990, Sened 1997), according to which the governors allocate property rights to individuals in favored groups that will support the regime.

Yes, in many instances it is.


Posted by: David at Dec 27, 2008 10:08:23 AM

So the takeaway is that privatization = evil?

The Germa Bel paper is interesting all right --- and certainly stimulating. It does have some major problems though.

1) The most stimulating part of the paper is found in table 3, p. 21. There Bel shows that Nazi fiscal policy was powerfully countercyclical in the depths of the Great Depression --- and a big prod, therefore, to its quick recovery in GDP between early 1933 and 1936 . . . the same period of the initial New Deal programs of FDR.

More specifically, while FDR's deficit spending in that period was restrained --- at its maximum in 1934 it was just above 6% of GDP and averaged about half that until a nearly balanced budget in 1937 --- Hitler's deficit spending, to believe Bel's table 3 (p. 21) rose from 0% when the Nazis took power in January 1933 to 11.3% by 1936.

In short, it is in line with the bulk of studies that showed how Germany --- the only West European country to suffer almost as much as drop in GDP and employment between 1929 and 1933 as the USA --- recovered far faster from the depths of the Great Depression thanks to such deficit spending . . . whether on Autobahnen or armaments (mainly the latter after 1934).


2) Here the problems enter.

* Gel shows no bibliographical refrerence to Albert Ritschl's article, discussed at length in a Marginal Revolution post on Nazi fiscal policy that appeared on December 17, 2008. Click here

* What Ritschl did, among other key things, was use newly discovered budgetary data about Nazi fiscal policies in the 1930s that had been concealed by the Hitlerian government . . . presumably (Ritschl didn't say this himself) to disguise from the public its high level of deficit spending.

* But note. What Ritschl found was that the deficit spending wasn't that stimulating to the GDP's recovery between 1933 and 1936. Hitler and his ministers turned out, he said, to be as fiscally conservative in inclinations as FDR and his advisers. Not least the fiscal multipliers were low, and according to Ritschl, deficit spending would have had to be 3-5 times higher than they were in order to have been a noticeable help to economic recovery.

* Oddly, too, Ritschl found that monetary policy wasn't very stimulative either in this period.

* What then explained fast Nazi German recovery between 1933 and 1936? Ritschl, who used a Bayesian VAR model for his findings, is agnostic, but suggests that the economy was on its way to recovery in 1933 when Hitler came to power. (Whether that is convincing is, as a after-thought tossed in by Ritschl, is another matter).


3) So where are we?

Either Ritschl is wrong, maybe because of a faulty model --- or possibly because the newly discovered budgetary data aren't complete. Or, oppositely, Bel is wrong.

If we are left to our hunches, Ritschl has a more scholarly model and explanation that uses more up-to-date data. But, given the puzzle how and why Nazi Germany recovered far faster from the low-point of GDP in 1933 than FDR's America did --- though FDR's initial GDP did bring the US economy back to its 1929 level (it was the fiscal-restraint in 1937 and Fed Reserve upping interest rates that caused the fairly serious recession in late 1937 until the end of summer 1938) --- given that puzzle, how else can we explain the German success except by reference to huge fiscal stimuli?


4) Those stimuli help explain, in turn, the Nazi interest in privatization --- at least in part. Namely, the Nazis' concentration on rearmament as part of the wider strategy to conquer Europe and acquire Lebensraum in Russia and elsewhere was entailing fiscal deficits that were very worrying to the leadership and required, after 1936 especially, developing new Treasury bills and bonds sold to the German public --- not least to the wealthy industrial and banking classes --- to bring in more revenue to reduce the growing deficits.

As they were, those deficits did continue, of course, and as Tooze among others have argued, Hitler's hopes for conquest and Lebensraum and a diabolical Judenfrei Europa required a Blitzkrieg strategy of quick, high-tempo, short-wars. Otherwise, as the British rightly concluded after France's collapse in May and June 1941, a long war would undermine the economic base of the Nazi ability to fight on.


And of course, as the Churchill government counted on, the USA would eventually join the fight . . . reinforcing Hitlerian Germany's failure to achieve a quick victory over the Soviet Union and turning Russia west of the Urals into a German-settled, German-run economic base for the eventual showdown war for global domination with Hitler's biggest bugaboo: the United States.


Michael Gordon, AKA, the buggy professor

"So the takeaway is that privatization = evil?"

Nope. Actually the paper suggests that the motivations of the Nazi party were considerably different than the motivations of privatization when the EU undertook it.

In part, the Nazi party was trying to run their government entirely on short-term debt, and had to raise resources damn fast. Hence, they needed to sell off resources.

A big part of it was political, too: the Nazis "privatized" by handing social services from the state directly to party affiliates. Also, big business hated Hitler, so giving them public resources was a way of reassuring them that Hitler didn't REALLY want to target big business.

Which in turn leads to Hitler's conclusion: private or public, it doesn't matter. The state owns everyone anyway.

how's a command economy also a capitalist economy?

Aren't they antonyms?

Dan Cole and Barkley Rosser are correct. The capitalists supported Hitler in part to secure the re-privatization described, and they got their reward; what they did not expect was Hitler's parlaying his chancellorship into totalitarian Nazi rule, including state direction of private industry.

(The inefficiencies of being directed by the hydra-headed Nazi bureaucracy, pre-Speer, did their share to lose the war for Germany.)

For those who don't have the time or inclination to read the impressive economic history and analysis of Nazi Germany --- during the 1930s and through WWII --- by Adam Tooze (2007), you'll find a long thoughtful review here.

Michael Gordon, AKA, the buggy professor

Tyler, google: The Holocaust.

The Nazi were big on corporatism, they didn't socialize any part of their economy, contrary to modern, right wing historical revisionists (those specifically in America who are trying to get away from their past philosophical and criminal associations to their fellow right wing nazis of yesteryear). The only thing ever "nationalized" during the Nazi reign was their munitions industries, which Hitler himself complained the lack of nationalization cost them the loss of WW1. Other than that, the nazis were hard core, right wing conservative privatizers--just like the study showed.*

* [ “Against The Mainstream: Nazi Privatization in 1930s Germany† Germa Bel, Universitat de Barcelona i ppre-IREA, Dept. de Politica Economica i EEM ]

Quote from Hitler:

"Social democracy and socialism seemed two identical required unprecedented betrayal of the peoples...from which I hope humanity will rid this earth with the greatest dispatch" -- Adolph Hitler, pg 39, Mein Kampf

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