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reduced to 16% of 1936 production. In the field of electrical engineering heavy
types of equipment are limited to 30 percent, within an overall limitation for
the entire electrical industry, of 50 percent of total 1938 value. In this way
Germany's capacity to produce those types of equipment which heretofore
have been converted to the production of armaments will be reduced to the
level necessary to support a minimum peace economy.

The chemical industry, a third major source of supply in a modern war economy, has been cut back to preclude the diversion of facilities to military production. The basic chemicals, nitrogen, calcium, carbide, sulphuric acid, chlorine and alkali, have been reduced to 40 percent of total 1936 capacities. Considering the fact that these basic chemicals include those required for fertilizers, this reduction is extremely severe. Certain other chemicals, notably pharmaceuticals and dyestuffs, have not been so sharply reduced because of the necessity for allowing sufficient exports to pay for imports

Two other industrial restrictions are notable. Installed capacity for the production of electric power is reduced from more than 15 billion KW in 1936 to 9 billion KW in 1949, or 40 percent below 1936.. Such a limitation on generating capacity is expected to be an effective deterrent to expansion of such war potential industries as electro-metallurgy and chemicals. Cement is the only building material included in the restricted list, but it is also the most important. Production capacity is reduced to 68 percent of 1936 production.

The industries already described are expected to yield the bulk of anticipated deliveries of industrial equipment on reparations account. equipment will constitute the difference between existing capacity and the amount required to meet the prescribed production levels.

Two other groups of industries are included in the plan, but are not expected to provide reparations. The first of these groups includes coal mining, railroad rolling stock production, agricultural machinery, textiles, rubber (natural and reclaimed), paper, and boots and shoes. Levels for these industries are fixed or estimated, and although they are not expected to yield reparations, the possibilities of exacting reparations are not excluded if the Control Council decides that there are surplus capacities suitable for reparations. The second group of industries includes building and building materials (except cement), furniture and woodworking; flat glass, bottle and domestic glass; ceramics; bicycles; small motorcycles and potash. No levels have been set for these industries, and they are "free to develop within the limits of available material and financial resources"

These are the major features of the plan. It starts by eliminating production essential to a war, but not necessary to a peace economy. Then it cuts deeply into industries which are major supports for war, but necessary to the maintenance of peaceful production. Finally, in accordance with the policy of encouraging peaceful industries, it allows a wide range of freedom for peacefu! industries to develop.

Balance of Payments

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One other feature of the plan merits discussion the balance of payments. The ultimate balancing of imports and exports is essential to self-support in Germany. Without sufficient exports to balance necessary imports, there is danger that import deficits will continue to be a drain on the treasuries of the occupying powers. The plan states that approved imports will not exceed RM 3 billion, and exports totaling, RM 3 billion at 1936 prices will be provided for in the industry levels. Of the total proceeds from exports, not more than RM 1.5 billion will be spent for food and fodder. Any portion of this amount not needed for food and fodder will be used to pay for occupation costs and other charges.

The total food import bill is a little larger than the 1936 bill, and amounts to 50 percent of the total imports for 1949. Considering the fact that Germany will be supporting a population equal to, or even greater than, the 1936 population without the highly productive area east of the Oder-Neisse line, the import allowance will not support a very luxurious diet. Estimates indicate a per capita calorie consumption of about 2700 per day, a large proportion of which will consist of grain and potatoes rather than the more expensive meats


and fats. It is not assumed that minute control will be exercised over the German diet, but lack of internal agricultural resources and export capacities will compel the Germans to rely heavily on inexpensive high-calory foods.

While estimated total imports in the target year 1949 will be nearly 30 percent less and exports 38 percent less than in 1936, the changed composition of imports and exports illustrates better than do the total figures the effect of the plan on the German economy. Among the imports, for example, those items which will not be produced domestically when it is physically and financially possible to import them - ball and taper roller bearings, synthetic gasoline and oil, nitrogen fertilizer (from synthetic ammonia) and rubber will cost almost twice as much as the same items in 1936, and will amount to 14 percent of the total import. bill as compared with 5 percent in 1936. Raw materials, on the other hand, will amount to only 41 percent, and miscellaneous imports 35 percent, of 1936 expenditures for the same items.

Exports, even more than imports, reflect the effects of economic demilitarization. Exports of metal products - machinery, electrical equipment, optics and precision instruments, and non-ferrous metal goods are reduced to 37 percent, and chemical products to 42 percent, of 1936 exports. In line with the policy of encouraging peaceful industries, emphasis is placed on exports of products from natural resources and light manufacturing industries. Exports of coal, coke, and potash are estimated at 122 percent, and consumer goods leather, textiles, glass, ceramics, paper, etc. at 109 percent of 1936 exports. Thus Germany is almost excluded from export fields in which she was preeminent prior to the war - metallurgy, engineering, and chemicals and turned toward the production of consumer's goods.

It is estimated that the general effect of the plan is to reduce the level of industry as a whole (excluding building and building materials industries) to about 50 or 55 percent of the 1938 level. It is not now possible to translate this figure into an estimate of average consumer income. The real effect upon the German standard of living, therefore, is not too clear. It will depend, in part, upon the manner in which the occupying powers deal with the planned removal problem. If industry in general is too badly disorganized in the removal process, the achievement of permitted and estimated levels in 1949 will be made more difficult. Long-range results will be influenced even more by the ability of the German people to reorganize industry and to find new methods of achieving economic utilization of remaining industrial resources. The speed of the anticipated gradual recovery from present emergency levels of industrial production will depend to a large degree on food and coal availabilities, and the degree to which interzonal and export trade and financial problems are handled for Germany as a whole. The location, character, and

volume of employment opportunities will be greatly changed after the plant removal period, and the maintenance of a reasonable level of consumer income will depend upon the extent to which unrestricted industries can be expanded and the labor force adjusted to the new pattern of industry.

The plan is only a first step toward solution of the reparations problem. It is not a document for the long-range control of Germany and should not therefore be regarded as a complete answer to the problem of the German industrial war potential. The lasting controls over German industry will probably be written into the future peace treaty. Indeed, the plan itself may, in the light of experience, require revision either because the basic assumptions prove to have been unwarranted or because the parts do not balance. It would be almost a miracle if it were not faulty at least to some degree, considering the fact that it represents quadripartite planning and compromise. The real achievement lies in the fact that a plan has been developed and agreed on by the four occupying powers.

"It is our inflexible purpose to destroy German militarism
and Nazism and to ensure that Germany will never again
be able to disturb the peace of the world. We are determined
to disarm and disband all German armed forces; break up
for all time the German General Staff that has repeatedly
contrived the resurgence of German militarism; remove or
destroy all German military equipment; eliminate or control
all German industry that could be used for military produc-
tion; bring all war criminals to justice and swift punishment
and exact reparation in kind for the destruction wrought by
Germans; wipe out the Nazi Party, Nazi laws, organizations,
and institutions; remove all Nazi and militarist influences
from public offices and from the cultural and economic life
of the German people; and take in harmony such other
measures in Germany as may be necessary to the future
peace and safety of the world."

Occupation and Control, Crimea,
3 February 1945


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