Economics in Blockaded Berlin

 Politics is by its nature factional and divided. Not so economies. Berlin had been the capital of Germany ever since unification under Bismarck, and it still had an integrated economy at the start of the Soviet Blockade. That created some strange anomalies.

 

Berlin’s Sector borders had been drawn by foreign soldiers with the objective of controlling a soon-to-be-captured enemy capital by joint military occupation forces. The Sector boundaries had no economic logic, and nor were the Sectors designed to be self-sufficient or defensible. For a start, over two-hundred thousand Berliners worked on the “other side” of the political divide from where they lived. The situation for factories and enterprises of all sorts was even more difficult. Berlin industry and retail establishments depended on power, raw materials, components, products, workers and customers in all Sectors of the city, the surrounding Soviet Zone or even in the Western Zones and abroad. In short, the Berlin economy was hopelessly intertwined with both East and West in 1948.

It was not until the start of the Blockade, when factories were cut off from power, raw materials and customers that the economy started to tear in two. The very complexity of the economic ties between Sectors within Berlin and between Berlin and its surrounding countryside, made it highly vulnerable to the Blockade. For factories in West Berlin it wasn’t just a question of getting enough coal to fire the ovens or enough food for workers it was about all the fragile relationships between suppliers and buyers, between salesmen and customers, between producers and markets.

Those relationships were not damaged by the Blockade alone; they were almost equally ravaged by the “counter-blockade.” In July 1948 in retaliation for the Soviet imposed Blockade General Clay forbade factories and retailers located in the Western Zones and in the Western Sectors of Berlin from selling or delivering goods and products to customers in the East. For producers in the Western Zones, this generally constituted an inconvenience; it was not always easy to replace good customers at short notice, but on the whole alternatives existed. After all, Marshall Aid was now pouring into all of Western Europe, making customers in France, Holland and Scandinavia far more attractive than Soviet Zone customers paying in the worthless “East Mark.” 

But Berlin factories and retailers could not so readily find new customers in Western Europe. They could hardly get out of the city to make initial contacts. Worse, raw materials and component parts for production were competing with baby’s milk and medicines for space on the airlift transports. And last but not least, getting their finished products transported out again and to customers on time entailed enlisting the (often reluctant) services of the Allied Air Forces.

The result was that with the introduction of the Deutsche Mark the “Economic Miracle” started in the Western Zones – despite the Blockade of Berlin or the Counter Blockade. But that “Economic Miracle” passed Berlin by. Worse: rather than starting to recover, Berlin’s economy went into a sharp decline after the imposition of the Blockade, negating all the progress that had been made since the end of the War. 

It has been estimated that the industrial capacity of Berlin at the end of the war was roughly 38% of 1936 levels; during the Blockade it fell to just 20%. Of the roughly 60,000 employers operating in the Western Sector of Berlin at the start of the Blockade, nearly one tenth were forced to close their doors before the Blockade ended. In the period of the Blockade, June 1948 – May 1949, the unemployment rate in Berlin more than tripled to nearly 18%. Although an estimated 56,000 Berliners found Airlift related employment as unloaders, in airfield maintenance and construction, and as caterers and cleaners for the Allies, these jobs in no way compensated for the jobs lost in Berlin’s own economy. The nearly 20,000 Berliners who found employment building Tegel Airport, for example, had employment for just under four months of the 10 month Blockade. Furthermore, many of those who were still nominally employed in Berlin’s industry were working only a few hours a week – when there was electricity and sufficient raw materials available. No less than 8,738 different employers were reporting working “short-time” – i.e. something less than normal operating hours.[i][i]

Rising unemployment had the effect of reducing tax revenues for the city while raising city expenditures in the form of unemployment benefits. The situation was so dramatic that it is fair to say the Blockade bankrupted the City of Berlin. The Allies started pumping aid into the City and the emerging governing bodies in the Western Zones voted to divert some of their own revenues to Berlin while also approving a special tax for the support of Berlin. A short term crisis was avoided, but henceforth the city of Berlin became dependent upon subsidies – a lasting and often forgotten negative legacy of the Blockade.

While Western Germany experienced a dramatic increase in economic activity and in its wake prosperity and East Germany became increasingly isolated from the West and ever more dependent upon and integrated economically in the Soviet block, Berlin became a centre for smuggling and racketeering. 

No business in Berlin at this time was bigger or more lucrative than the Black Market. Entire housing complexes straddled the Sector borders throughout the city, providing marvellous opportunities to move goods across the borders illicitly. All over the city, there were places where one could enter a house through the front door in one Sector, and then by crossing the multiple courtyards or moving through the inter-connected cellars emerge from the front-door of a different house in a different Sector. There were never enough police or soldiers to control these rabbit warrens of routes across the Sector Borders. It was only decades later, with the construction of the Berlin Wall in 1961, that courtyard by courtyard and cellar by cellar the passages would be bricked up, cemented, and turned into barricades. Throughout the Blockade, these “hidden” - but not really secret – passageways served those “enterprising” Berliners willing to take the risk of dealing on the Black Market.

And there were many such “enterprising” Berliners. After all, with so little legitimate employment available and with wages so poor, the Black Market was practically the only avenue to tangible economic success. So the Black Market boomed, fuelled not – as earlier - by the worthlessness of the currency per se but rather by the endless opportunities for arbitrage and trade offered by two currencies with radically different fixed exchange rates and huge differentials in the availability of products across a very short distance.

Illicit markets existed in practically everything as long as it was coveted, in short supply, durable and could be transported and concealed by people on foot. Cigarettes, of course, were the most common and familiar Black Market product because it acted as a secondary currency (less important now that a hard currency was also in circulation). Other common Black Market commodities were coffee, rice, silk-stockings, soap and chocolate. Indeed, the breaking of the “Cadbury chocolate ring” was one of the infant West Berlin police force’s greatest successes. The Chocolate Ring was a much a feature of Berlin in the Blockade as the Chocolate Bomber, whose tale will be told another time. 

[i] Gerhard Keiderling, Rosinenbomber ueber Berlin, Dietz Verlag, 1998, p. 247.

NOTE: The content of this blog post is based on Helena P. Schrader. The Blockade Breakers. Pen & Sword, 2008.

The Berlin Airlift is the subject of Bridge to Tomorrow, a trilogy of novels starting with Cold Peace.

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