This column is a lead commentary in the VoxEU Debate “The Economics of the Second World War: Eighty Years On“
Adam Tooze wrote that, in 1940, in “Belgium, the Netherlands and above all France […] economic activity collapsed, never to recover”. Nonetheless, he estimated, occupied Europe paid 25% of Berlin’s war costs, which raises the question of how this was achieved (Tooze 2007: 28, 420). An even higher figure comes from Götz Aly (2005: 166ff, 326), who concluded that the occupied countries paid 70% of Hitler’s war.
While Aly’s work is more aligned with left-wing journalism focusing on German war guilt than with scholarly literature, his point is correct that, whenever Germany conquered a country, Berlin immediately started to exploit its economy. Germany had to do this, being a middle-sized country at war with the world’s major powers. Already in 1939, when it attacked Poland, Germany was in desperate need of labour. The army claimed ever more men. Between 1939 and 1944, the German civil workforce decreased from 39 to 29 million (Herbert 1992: 165–180, Overy 1994: 50–51). To keep the war going, this loss had to be compensated at the expense of occupied Europe.
Seizing stocks of labour, materials, and machinery was easy but destroyed the occupied economy. Everywhere in occupied Europe, one aspect of occupation policy was a ‘hunt for labour’ (Klemann and Kudryashev 2014: 128-154). Young men, and sometimes young women, were ordered to report to the railway station to be sent to Germany for work. Because many went into hiding, people of that age group were subsequently rounded up with increasing arbitrariness and violence from cinemas, football matches, and the streets. Meanwhile, production fell.
The alternative was to seize a share of the occupied economy’s flow of output; this was less destructive but more difficult (Klemann 2008). Companies produced in return for payment, while Germany, a debtor country, paid only with IOUs of dubious value. Because the war began half a decade earlier than was expected by Hermann Göring, overseer of the Four-Year Plan, the methods of exploitation of conquered territory were improvised. Army officers, Berlin potentates, party ideologists, and occupation authorities all made their own policies.
Order was introduced only in 1942 when Albert Speer became minister of munitions. Speer was hated by Nazi Party insiders, who undermined his policies by gaining Hitler’s support for hunting labour (Klemann and Kudryashov 2012: 31-32). The economic outcomes for occupied Europe reflected this complex mix of factors.
Different rates of exploitation across occupied Europe may be explained by levels of economic development, the military context, and racism (Klemann and Kudryashov 2012: 43ff). Before the war, Western Europe had highly productive economies with a per capita GDP more than double that of Eastern Europe (Table 1). The German authorities concluded that the western economies should produce, while factors of production were taken from elsewhere to employ in more productive settings. Agriculture and mining, however, were to continue even in the most inefficient countries, just as the Czech production of coal, iron, steel and machinery remained important.
Table 1 German-controlled Europe by real GDP and population in 1938
Source: Harrison 1998: 7–8, own calculations. Real GDP is measured in international dollars and 1990 prices.
The military context also varied widely across occupied Europe. From June 1940, there was little fighting in Western Europe for four years. In the USSR, however, German attacks pressed the front eastwards with each spring, while Soviet winter offensives pushed the Wehrmacht back. Armies foraged and plundered behind the front lines; when retreating, they destroyed what they could not take. A German general remarked: “Without grub, we cannot fight” (Schüler 1987: 557).
When the Wehrmacht’s need was urgent, it confiscated what it needed from in the occupied USSR, Poland, or the Balkans, the foraging zone for Rommel’s Afrika Korps. Given that these regions were initially poor, such requisitions immediately threatened the population’s survival chances.
Finally, Nazi racism made a difference. German behaviour towards so-called Aryans was much better than toward Slavic people, not to mention Jews or Roma. Western Europeans, considered Aryan, were in principle respectfully treated. Worse off was the population of Eastern Europe and the Balkans: Nazi-racism ranked them higher than Jews or Roma so they were not immediately murdered, but any who were not productive for Germany were denied food rations. Given that most survived, clandestine production must have been substantial (Klemann and Kudryashov 2012: 393 et seq.).
An exception was the Czech lands of Bohemia and Moravia. To keep production going there, official rations were higher than elsewhere in occupied Europe (Kroener et al. 1999: 244, Lindberg 1946). In the rest of Eastern Europe, men and women were hunted for work in Germany. There, they lived in barracks; their clothing was marked to isolate them; they were paid less for longer hours and given smaller rations. Forced workers from Germanic countries were treated as Germans, except that they were not promoted (Klemann and Kudryashov 2012: 132).
Occupied Europe contributed 93.6 billion Reichsmarks (RM) to the German war effort (Table 2). If we add the value of unpaid booty and of forced labour, the sum increases to RM118.2 billion, or 28.6% of the cost of Germany’s war effort (Klemann and Kudryashov 2012: 105).
As of 1938, the economies of all occupied Europe were roughly twice as large as the German economy; the Western European economies alone were nearly as large (86%). The above 28.6% shows Germany’s failure to exploit its empire at the same rate as the metropolitan economy. If exploitation had been in proportion to size, the Western occupied territories alone should have supplied around 40% of all that Germany needed to fight its war.
Berlin especially failed to exploit France, which contributed just RM955 per head, compared with the Dutch at RM1,667 and the Norwegians at RM2,379 (Boelcke 1985, Buchheim 1986: 117-147Klemann 2002). At the same rate as the Netherlands, the French would have contributed RM30 billion more, raising occupied Europe’s contribution to 36%.
Table 2 Contributions of occupied Europe to the German war economy, 1938 to the end of 1944
Source: Klemann and Kudryashov (2012: 99, 105).
The relative failure was not caused by sabotage. It was a consequence of the fact that France’s production of coal and raw materials fell, while the Nazi elite failed to see the advantage of supplying the occupied economies with resources that were also dearly needed in Germany itself. Thus the concept that Germans should always come first backfired, with adverse consequences all over Europe but especially in France (Klemann and Kudryashov 2012: 334-335, Nefors 2000: 168–169, Mensink 1946: 65–66). Deprived of coal and raw materials, the empire could not deliver.
Disappointed with deliveries, the more fanatical Nazis, in turn, promoted the hunt for labour. From 1942, young men were also taken from Western Europe. Most went unwillingly and, for each one taken, two went into hiding (Klemann and Kudryashov 2012: 131). Thus, the damage caused by this policy to the local economies was much greater than the gain to Germany.
Europe did not literally pay Germany, as Tooze’s words might be taken to imply. Berlin wanted goods and factors of production such as labour—not money. Germany’s suppliers in the occupied countries were paid, but Germany took the money from the treasuries or central banks of these countries. Thus, it was the whole country that carried the burden of its occupation, rather than the supplying firm.
Occupied economies found the means by inflating the money supply. Stimulated by a total of RM76 billion (Table 2), the Western European economies boomed from the last months of 1940 to the autumn of 1941. Then, problems with the supply of coal and raw materials became manifest. Nonetheless, the policy of letting these countries produce kept their economies intact.
In 1941, Western Europe reached full employment for the first time since 1929 (Klemann 2002: 364–365, Radtke-Delacor 2000: 103, Maddison 2003: 48–54, Luyten 2008: 152-153). Profits and investment increased. In the Netherlands, industrial capacity in 1945 was substantially higher than in 1940 (Klemann and Kudryashov 2012: 316).
While shortages developed, the destruction of trade and German confiscations were more important factors than the decline of production, which was greatly exaggerated by wartime statistics. In fact, to avoid wartime regulations and prohibitions, clandestine markets developed while increasing shares of production and consumption disappeared from the data. This had a further effect after the war when the legalisation of the underground economy gave post-war recovery the appearance of a miracle.
It is true that the Western European economies declined from 1942 as the production of consumer goods was prohibited and supplies of coal and raw materials stagnated. In France, where legal economic activity fell by about one half, the clandestine economy was relatively large, but France was still the only occupied Western country that did not quickly recover (Klemann and Kudryashov 2012: 331).
The best data are available for the Netherlands, where legal economic activity fell by about one-quarter—not three-quarters, as was believed after the war. With a modest correction for clandestine production, overall economic activity declined by just 14%, the lowest point being the famine year 1944 (Klemann and Kudryashov 2012: 32).
The situation was far worse in South-Eastern Europe and the Balkans. Estimates for given territorial units are impeded by the German policy of carving out new borders and obliterating the old ones. Despite this, it is clear that, in the East, exploitation did not stimulate economic activity, but rather devastated it. The German authorities took anything that was needed and destroyed everything that could be used by the enemy.
The average human losses of the East European countries was 14% of the pre-war population (Table 3). The main causes of death were combat, genocide, and economic hardship arising from the occupation regime. Combat is represented in the table by soldiers fallen in battle, and genocide accounted for murdered Jews. The remainder, amounting to 6.7% of the pre-war population, fell victims of economic circumstances.
Table 3 War casualties in thousands and in percentages of the population, 1938–1945
Source: Klemann and Kudryashov (2012: 418).
Notes: Partisan deaths are included in military casualties. Key: * Occupied USSR, Poland, Estonia, Latvia, and Lithuania. ** Greece and Yugoslavia. *** France, Belgium, the Netherlands, Denmark, and Norway.
On top of that, mines and industries were destroyed along with towns, villages, roads, and railways, especially in the occupied USSR. In 1945, therefore, it seemed impossible to restore production within a reasonable timespan.
The people of the Balkan countries also suffered greatly, although economic hardships carried off non-Jewish civilians at only half the rate of Eastern Europe—3.1% rather than 6.7% of the pre-war population.
Against the wider European background, mortality from hardships in Western Europe was very low at 0.6% of the population, and near zero in Denmark. That Czechoslovakia fell in the same category suggests that Nazi racism mattered less than the quality of production and the proximity to combat.
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