Germany's economy compared to Austria-Hungary and Japan

[Guaporense]

In the Great War, Germany's main ally was Austria-Hungary while in WW2, it was Japan (Italy on paper was the main ally but their effort in WW2 was not something that deserves note). In both cases Germany enjoyed a vast superiority in economic/warmaking capacity over her main ally. The question here is, which case was the difference to Germany the smallest? Austria-Hungary or Japan?

Demographics

Let's look at population, in millions:

1913 -- Germany ---- Austria-Hungary ----- %
---------- 66.98 -------- 50.60 --------------- 75.5%

1940 -- Greater Germany --- Japan --------- %
---------- 90.0 ------------------ 72.97 ------ 81.1%

So in terms of population in both cases the ally's population was about 75-80% of Germany's. Greater Germany here includes territories directly annexed in Poland and France.

Development: Per Capita Income

A good way to understand a country's level of economic development is GDP per capita. While estimates of GDP per capita have some variation there exists some strong patterns involved with estimations. For instance, a few days ago I used PPPs from Williamson (1995) and time series GDP growth data to compute some GDP figures for 1927 and 1939 and it's impressive how closely they fit Maddison's figures (usually there are discrepancies but they are at about 10% or less).

Broadberry and Klein (2011) have estimated European per capita income levels from 1870-2000 and in 1913 they estimated Austria-Hungary's GDP per capita at 61.6% of Germany's in PPP. We can use official exchange rates to compare GDP per capita levels. In 1913, Austria-Hungary's GDP was 27,326.2 million krone or 540 krone per capita, the krone was convertible at 0.847 marks. So 457.4 marks per cap. Germany's GNP* was 56,618 million marks which means a GDP per capita of 845.3 marks. So at market exchange rates Austria-Hungary's GDP per capita income was 54.1% of Germany's.

I lack any papers comparing Germany and Japan per capita income directly in the interwar period.

In 1935, Japan's per capita income was 264.5 yen (Fukao, Ma, Yuan (2007)). Germany's GNP was 74.4 billion RM at the same year (http://www.axishistory.com/axis-nations ... roduct-gnp), or 1,113 marks per capita. In 1935 the market exchange rate was 0.712 yen per mark, so Japan's per capita income at exchange rates was 188.3 marks or 16.9% of Germany's.

We can construct a PPP to get an idea of their relative real incomes ca. 1935 using Williamson (1995)'s and Fukao, Ma, Yuan (2007)'s price data for Japan (1935) and the UK (1927), prices from Tokyo and London, respectively. These are the prices for a kilo unless otherwise noted for products that matched:

Prices --------- UK (d) ------ Japan (yen)
Beef ------------ 41.5 -------------- 1.28
Pork ------------ 36.4 -------------- 1.4
Sugar ----------- 7.9 -------------- 0.37
Rice ------------ 6.4 -------------- 0.24
Bread ------------ 5 --------------- 0.37
Flour ------------- 6 -------------- 0.23
Milk ------------- 6.1 ------------ 0.44
Eggs (dozen) --- 27.6 ---------- 0.37

Using the budget weights of Williamson (1995) I have found out that the PPP of a pound in 1927 was equivalent to 11.2 yen in 1935. So Japan's per capita income in 1935 was 23.6 pounds. Germany's per capita income in 1927 was estimated in Broadberry and Klein (2011) to be at 80.5 pounds using Willianson's daata, from 1927 to 1935, Germany's per capita income grew by 4.5% (thanks to the Great Depression), to 84.1 pounds. So Japan's per capita income in 1935 was 28.1% of Germany's per capita income in PPP.

Or we can compare directly Japan's 1935 price data to 1937 German price data, using data from Broadberry and Burhop (2009), using British basket weights (a "neutral country" for more accurate comparison because usually one buys goods that are cheaper in your own country.

This is the data:

---------------- Germany (Rm) ------- Japan (yen)
Potatoes (lb) ------- 0.030 --------------- 0.036
Bread (lb) ----------- 0.142 --------------- 0.170
Milk (quart) --------- 0.260 --------------- 0.421
Pork (lb) ------------- 0.867 --------------- 0.636
Beef (lb) ------------- 0.883 --------------- 0.589
Cigarettes ----------- 0.221 --------------- 0.150
Flour (lb) ------------ 0.204 --------------- 0.105
Eggs (dozen) -------- 1.260 --------------- 0.371
Sugar (lb) ------------ 0.357 --------------- 0.168
Beer (pint) ---------- 0.378 --------------- 0.217
Coal (kg) ------------ 0.032 --------------- 0.030
Electricity (kwh) --- 0.409 --------------- 0.140
Rent (1 room) ------- 6.772 --------------- 5.090

So the result was 1 yen (1935) = 1.36 RM (1937) (compare that to 1.22 RM per yen using German basket weights, since German weights are expenditures in Germany, people there will spend a higher fraction of their money on relatively cheaper goods). Germany's GNP in 1937 was 93.2 billion RM or 1,374 RM per capita. Germany's per capita income in 1935 was 12% lower in real terms, or 1,209 RM. While Japan's per capita income in 1935 was 264.5 yen or 359.7 RM. That's 29.8% of Germany's per capita income in PPP. Using the German basked weights we get Japan's per capita income at 26.7% of Germany's in 1935.

Edit: I figured out the Japanese weights. So the rate now is 1 yen (1935) = 1.38 RM (1937). So Japan's per capita income becomes 30.2% in 1935.

Interestingly, expanding the set of goods and the detail focused on comparing directly Germany and Japan in the mid 30's, instead of Japan (1935) - UK (1927) and UK (1927) - Germany (1927) and using the time series for 8 years, in the estimate still produced estimates of real per capita income very close to each other (discrepancy of only 6%). That's because relative prices were not very different between the countries: the average of prices for these goods in the table above implies in an PPP of 1.3 RM per yen, very close to the weighted Fisher average PPP of 1.38 RM per yen.

So we can safely claim that Germany's per capita income in 1935 was about 3.4 times Japan's. From 1935 to 1939, Germany's per capita income grew 31.2% while Japan's per capita income grew 32.8%, in both cases the countries were recovering fast from the Great Depression, so their per capita incomes were "exploding". Still that means that in 1939, Japan's per capita income was 30.6% of Germany's in 1939.

Germany annexed about 20 million people into their territories from 1938 to 1940, however, including Austria, parts of Poland, France, Czechoslovakia and the small country of Luxembourg. In terms of development, Poland had 1/3 of Germany's per capita income (Poland was about the same level of development as Japan's) while Austria, France and Luxemburg had about the same level while Czechoslovakia was about 55% of Germany's per capita income. So these 20 million people had perhaps about 70% of Germany's per capita income on average, so Germany's per capita income decreased by about 7% with these annexations. Hence, Japan's GDP around 1940 was about 27% of Germany's.

While Austria-Hunger in 1913 had a GDP 43.7% of Germany's.

So we have, in % of Germany's:

-------------------------- Austria-Hungary ---------- Japan
Population ------------- 75.5% ---------------------- 81.1%
Per capita income ---- 61% ------------------------ 31%
Total GDP -------------- 44% ------------------------ 27%

Austria-Hungary was, apparently, considerably stronger economically relative to Germany in WW1 than Japan was in WW2.

Economically speaking, in the 1930's Japan was much less developed than any Western country, Italy, for instance, which was the poorest among Western countries and whose per capita income was 71.7% of Germany's in 1937, which was more than twice Japan's. They used Williamson (1995)'s PPPs for 1927 to make that estimate. It's quite incredible that such backward country (at the time) managed to actually produce fighters and aircraft carriers up to Western technological standards while being able to maintain high levels of military mobilization despite a tiny per capita income.

*GNP usually differs from GDP by less than 1%.

[Guaporense]

Industrial production

Raw Materials: Coal, Steel and Iron

Coal - The basic raw material of early industrial economies: the main source of energy and also used for metallurgy. It's essential for the functioning of transportation systems (railroads), iron and steel industries, heating, electricity production, production of energy for industries in general (which were still using steam power directly).

--------- Germany ------ Austria-Hungary
1913 -- 277,342 -------- 54,112
1914 -- 245,331 -------- 48,302
1915 -- 234,816 -------- 47,300
1916 -- 253,350 -------- 49,900
1917 -- 263,200 -------- 47,300

Average coal production in Germany was 254.8 million tons, in Austria-Hungary, 49.4 million tons, that's 19.4% of Germany's output.

--------- Germany -------- Japan
1941 ---- 317,900 -------- 55,602
1942 ---- 340,400 -------- 54,178
1943 ---- 347,600 -------- 55,538

Japanese average production was 52.2 million tons, German average production was 335.3 million tons, so average Japanese supply was 15.6% of Germany's output.

Pig Iron

-------- Germany ------ Austria-Hungary
1915 -- 11,529 -------- 1,814
1916 -- 13,314 -------- 1,930
1917 -- 13,142 -------- 2,380

Average Austria-Hungary/Germany = 16.1%.

-------- Germany ------ Japan
1941 -- 21,373 --------- N.A.
1942 -- 22,237 -------- 4,306
1943 -- 24,244 -------- 3,813
1944 -------------------- 2,713

Average Japan/Germany = 16.0%

Steel

-------- Germany ------ Austria-Hungary
1915 -- 13,288 -----------2,667
1916 -- 16,183 ---------- 3,563
1917 -- 15,288 ---------- 3,116

Austria-Hungary/Germany = 21.2%

Edit: corrected Japan's steel numbers.

-------- Germany ------ Japan
1941 -- 28,233 -------- 5,120
1942 -- 28,744 -------- 5,166
1943 -- 30,603 -------- 5,609

Average Japan/Germany = 18.2%

Steel production was apparently more important for the Japanese war effort than Germany's because shipbuilding demanded huge amounts of steel, while ground combat munitions require, perhaps, less steel although Germany had issues with steel supply for ammunition. While Austria-Hungary's steel production is also relatively greater than pig iron because of demand for ammunition as well.

Overall, it appears that both Japan and Austria-Hungary were relatively smaller in terms of production of basic industrial inputs versus GDP. Austria Hungary had ca. 44% of Germany's GDP in 1913 but during the war only produced on average 18.9% of these basic raw materials, Japan had 26% of Germany's GDP and produced on average 16.6% of these basic raw materials.

Munitions

In WW1 it was easier to compare munition production of different countries because everything was fighting the same type of war and the main type of munition was one: shells. So counting the number of shells gave a pretty good idea of the overall levels of war-related output in WW1. While in WW2, for countries like Japan, the bulk of munitions production was not artillery ammunition but ships and aircraft (which are very qualitative things), while for Germany their main munitions item was still artillery ammunition but they produced a lot of things like tanks, aircraft and guns, and these tend to be very heterogeneous products which are hard to compare in terms of "quality".

However, one homogeneous item among both countries, however, was production of powder and explosives, which were used to make bombs, naval ammunition and ground ammunition. So they give a general idea of the destructive power available to the country's armed forces, no matter if its focused on navy, airforce or the ground army. So it's another way of measuring "shell output" but by WW2 standards.

Production of shells

------- Germany ---- Austria-Hungary
1915 - 40,000 ------ 15,600
1916 - 72,000 ------ 24,000
1917 - 108,000 ----- 16,800

On average shell output of Austria-Hungary was 22.3% of Germany's.

But notice that up to 1916 it was about 35-30% but then collapsed following the collapse of their economy as they country began to starve by 1917 due to the collapse of agricultural production (the result of conscripting 9 million soldiers out of a labor force of 23.7 million (1910) of which 14.1 million were agricultural laborers before the war. WW1 was more of a total war than WW2 since several countries mobilized to such a great extent that they suffered from general starvation of their population (Russia, Austria-Hungary, Germany, France did not because they could import foodstuffs but their economy collapsed as hard as the central power's from excessive manpower mobilization). As a result, Austria-Hungary lost WW1 partly because they mobilized too many men leaving to few people to work in the fields to feed the army and cities.

Production of power and explosives

-------- Germany ----- Japan
1941 -- 343,200 ------- 50,964
1942 -- 438,000 ------- 62,064
1943 -- 648,000 ------- 65,832

Japanese production on average was 12.5% of German output over these 3 years.

Overall, though it's clear that the lower level of industrialization of both Austria-Hungary and Japan vis, Germany meant that their levels of industrial production were lower in proportion to GDP (ca. 40% and 25% respectively). Although Japan appears to have been more industrialized relative to it's GDP than Austria-Hungary, that was the result of intense effort for industrialization in Japan during

[Stiltzkin]

during the early 20th century?

[Guaporense]

1910's for Austria-Hungary, 1935-1944 for Japan.

[Guaporense]

Japan compared to the West

One of the most miraculous events of the last 140 years was Japan's transformation from one of the world's most backward countries to one of the most advanced ones. Between 1870 and 1990, Japan's level of per capita income went from 11th century England's level to the same level as the most advanced parts of Europe and of the US's in 1990.

In Broadberry and Klein (2011), they made a benchmark comparison between 8 European economies in 1927 using Willianson's PPPs. Using the same PPP's for the US using data from Balke, Gordon (1989) (Broadberry did that for a benchmark comparison between UK and US in 1910, using Willianson's 1905 PPP's) and using the PPP of 11.2 yen per pound estimated in the post above (using the same budget weights as Willianson's but with 8 goods instead of 14) we can compare Japan's per capita income with 9 Western countries. Japan's population was 61.43 million in 1927 while Japan's GDP was of 12,857 million yen at 1935 prices (source: Estimates of Long-Term Economic Statistics of Japan since 1868, edited by Kazushi Ohkawa).

That means that Japan's per capita income in 1927 was 18.7 pounds. That's extremely low compared to Western countries in 1927:

USA -------------- 106.9
UK --------------- 101.6
Denmark -------- 101.4
Netherlands ------ 98.8
France ------------ 83.4
Germany --------- 80.5
Italy --------------- 59.1
Spain -------------- 57.8
Portugal ---------- 29.7
Japan ------------- 18.7

One thing to keep in mind though, is that in Japan people ate mostly rice and fish, while the western diet was based on bread, milk and beef, so that rice and fish were relatively cheaper in Japan but rice doesn't have a high weight in Willianson (1995)'s estimates. Shifting all the weight from bread to rice changes the PPP to 9.41 yen per pound, which means Japan's per capita income becomes 22.2 pounds. Which still is much lower than any western European country except Portugal.

Japan's warmaking potential, however, was much greater than it's per capita income might suggest. The reason is that Japan's economy had developed heavy industry to a much higher extent than economies at similar levels of development as Japan. And this was further encouraged by a highly militaristic government who embarked on a program of militarization from the late 20's onwards. Also, since Japan was tremendously poor it had great potential for economic growth: from 1927 to 1940, Japan's per capita income grew more than any Western country, in fact from 1910 to 1940, Japan was the world's fastest growing economy. The incredible Japanese growth performance of the decades following WW2 was just a continuation of the country's pre-war process of development, accelerated by two main factors:

1) The natural process of reconstruction from damage caused by warfare.
2) A much more prosperous world than the world from 1910-1940, which was characterized by massive volatility and stagnation.

[Stiltzkin]

1) The natural process of reconstruction from damage caused by warfare.
2) A much more prosperous world than the world from 1910-1940, which was characterized by massive volatility and stagnation.

3) A US and not a Soviet occupation.