communication

West German
Expansionism Vassilis Droucopoulos

Günter Minnerup’s recent article on West Germany (NLR 99) is to be

welcomed as a study of the economic and political transformations that
have taken place in what is now the most powerful EEC country.
Minnerup, however, neglects a key aspect of these changes: the growth in
West German foreign investments. This communication may do
something to supplement NLR’s discussion in this respect; its aim is to
document the very striking economic changes which, inevitably, will
change Bonn’s role in international affairs within the capitalist and
imperialist world. To put the issue in its starkest light: in 1976 West
German investment overseas exceeded, for the first time since the war,
total foreign investment in West Germany (see Table 1). Until now, the
West German and Japanese economies have been contrasted to the US and
UK ones. The former showed a much higher rate of internal investment
and their international success rested upon their export of their own
manufactures. The two major ‘Anglo-Saxon’ economies, by contrast, are
dominated by banking and finance capital that invests abroad directly,
and by large international firms which also export their investments
rather than finished products. It now seems, however, that West
Germany is moving closer to the ‘Anglo-Saxon’ model, if it can be called
that; partly because the strength of its currency allows it to, but also
because this very strength obliges West German companies to protect
their overseas markets by making use of the now often much cheaper
labour to be found outside the borders of the Bundesrepublik.1

West German firms appeared late on the post-war international scene.

Initially, this was attributed to psychological inhibitions, since German
property abroad had been expropriated as a consequence of the two
world wars,2 combined with the general ban on direct investments
abroad which was not lifted until 1952 and the non-convertibility—up to
1958—of the D-mark.3 But psychological states of mind and legal
prohibitions cannot provide us with an adequate interpretation of the
events, unless they are related to the actual economic situation of a
particular time period. In the fifties and early sixties higher profitability

1 Estimates by the Institut der Deutschen Wirtschaft for 1976 show West Germany leading
the big Western industrial nations (USA, France, Italy, Japan and UK) in the ‘labour cost per
hour in manufacturing industry’ league table—again, for the first time.
2 It is interesting to note that before the First Wotld War German overseas investments

exceeded those of the USA: G. Hederer et al., ‘The Internationalisation of German Business’,
Columbia Journal of World Business, September/October 1972, p. 39.
3 O. Mayer, ‘New Tendencies in Direct Investment’, Intereconomics, No. 6, 1974, p. 186.

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was earned from domestic projects than that from expansion abroad,
mainly because the home market was quite unsaturated and the
government was granting special incentives for home investment in the
form of high depreciation rates and various forms of tax relief.4 Later, as
home costs soared (and the D-mark revaluations made exports more
expensive and foreign investments cheaper), profits were squeezed
tightly and many West German companies were forced to venture
overseas.5 Added to this was a reluctance to accept extra ‘guest’ workers
in West Germany, when subsidiaries could be set up in the labour-
abundant countries; also the introduction at home of stringent (that is,
costly) regulations affecting the air-and water-polluting industries,
especially steel and chemicals, which motivated West German firms to
dump their factories in other countries.

The growth of West German overseas investments is listed in Table 1. It

shows a rate of growth (based on the US$ figures) in foreign investments
that averages 23.6 per cent over the period 1960–73—i.e. one that was
exceeded only by that of Japan (31.8 per cent). In the same period the US
rate of growth of overseas investment was 9.8 per cent and that of the UK
7.1 per cent.6 It should be noted that the figures in Table 1 significantly
underestimate the real value of direct investment assets since, unlike the
US and UK statistics for instance, neither the volume of foreign
subsidiaries’ reinvestments through self-financing nor the amounts of

TABLE 1
West German Direct Investment Abroad since 1952
million D-marks million US$ million D-marks million US$
1955 421 1966 9,995 2,513
1956 831 1967 12,057 3,015
1957 1,349 1968 14,349 3,587
1958 1,859 1969 17,618 4,775
1959 2,422 1970 21,113 5,788
1960 3,162 758 1971 23,781 7,154
1961 3,843 969 1972 26,597 8,306
1962 4,956 1,240 1973 32,935 11,925
1963 6,071 1,527 1974 36,765
1964 7,205 1,812 1975 41,982
1965 8,317 2,076 1976 47,049*

*This figure for the first time exceeded the amount (D-mark 45,520 million) invested by
foreign countries in West Germany.
SOURCE: Various Issues of Intereconomics and B. Mennis and K. P. Sauvan Emerging Forms of
Transnational Community, Lexington, Mass. 1976.

4 Hederer
et al., op. cit., p. 39.
5
‘West Germany: The Push to Make Products Overseas’, Business Week, 2 March, 1974, p.
31; ‘Wage Costs at Home Drive German Firms Abroad’, Business International, 12 December
1973, p. 404; J. Hebga, ‘La Place de l’Afrique dans la Politique des Investissements Privés
Allemands à l’Etranger’, Revue Française d’Études Politiques Africaines, Avril 1971, p. 59.
More specifically, Wesr Germany experienced the highest average annual change in unit
labour cost in manufacturing industry for the period 1960–73 (and 1970–3) among all
capitalist countries; S. Webley, Foreign Direct Investment in the United States: Opportunities and
Impediments, London 1974, p. 29. On the decline of domestic profitability, see Minnerup, op.
cit., p. 17.
6
Mennis and Sauvant, op. cit., p. 17.

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capital raised locally are included in the statistical returns.7 Moreover,
they do not reflect the successive revaluations of the D-mark.8 For a
realistic comparison, at least 20–30 per cent should be added to the total
figure.9

West German investment overseas is still fairly small relative to the size of
its economy. More specifically, although West Germany’s foreign
production in relation to annual exports rose from 13 per cent to 35 per
cent in the years 1960–73 one should record that US foreign production is
more than three times the level of its exports (and remaining more or less
stable), while that of the UK is as high as two times (though declining).10
In other words, the very remarkable rate of growth of overseas
investments by West German concerns must nonetheless be placed in the
overall context. Table 2 shows West Germany’s growing but still
relatively small stock of foreign direct investment.
table 2
Stock of Foreign Direct Investment
million D-marks
1971 1975
West Germany 23,781 41,982
USA 197,030 315,990
UK 37,900 68,440
Japan 10,520 37,830
Switzerland 35,720 51,410
SOURCE: H. Krägenau, ‘Deutsche Direktinvestitionen in den siebziger jahren’,
Wirtschaftsdienst, No. 7, 1977, p. 361.

If this is the general picture, what is the quality of West German

investment, and where is it going? Table 3 shows that it is
overwhelmingly committed to manufacturing, and that most of it is
going to the already developed capitalist economies. The significance of
this needs to be stressed, perhaps, because it represents a major part of an
important shift in European/North American relations, Basing himself
on the figures for the fifties and sixties, Nicos Poulantzas once argued that
European investment in the USA was relatively less significant than US

7
B. Olbricht, ‘Business Policies of Large and Medium-sized German Companies in Brazil’,
Intereconomics, No. 4, 1975, p. 128. For the magnitude of reinvested profits see Awni-Al-Ani,
‘German Investment in Developing Countries’, Intereconomics, No. 7, 1969, p. 221; Hebga,
op. cit., pp. 57–8; and B. Baker, ‘West German Investment in Latin America’, BOLSA
Review, December 1971, p. 695.
8 ‘German Direct Investments Abroad’, Deutsche Bundesbank Monthly Report, December

1965, p. 20.
9 Mayer, op. cit., p. 186; Mennis and Sauvant, op. cit., p. 17; and L. G. Franko, The European

Multinationals, London 1976, p. 13, note 26.

10 Mennis and Sauvant, op. cit., p. 19, where the ratios of foreign direct flows to GDP and of

stock of foreign direct investment to GDP are also presented. See also ‘Industry Exports
itself’, German International, November 1974, p. 24; and R. Jungnickel and G. Koopman,
‘German Firms Go International’, Intereconomics, No. 12, 1973. On the internationalization
of West German banking, see F. Ost, ‘International Activities of German Banks’,
Intereconomics, No. 7, 1970; and U. Steuber, ‘Foreign Engagement by German Banks’,
Intereconomics, No. 7, 1973. As was candidly expressed by the last author: ‘[The
internationalization of German banks] is bound to continue because integration of
production and world trade is inconceivable without integration of the capital markets’ (p.
226).

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investment in Europe: ‘whereas the overwhelming part of American
direct investments in Europe is concerned with the processing industries,
hence directly productive capital, a minor part (approximately a third) of the
direct European investments in the USA is concerned with directly
productive capital, the greater part going towards the “services” sector,
insurance, etc.’.11 However, as Table 4 shows, this is no longer the case.
The consistent increase of the manufacturing share of European direct
investments in the USA had by 1975 almost reached the manufacturing
share of US investments in Europe. It seems likely, on the evidence
available, that this increase has to a considerable degree been generated by
the expanding activity of West German capital.
TABLE 3
Industrial Distribution of West Getman Direct Investment Abroad, End of 1976

All Regions Developing Countries

% %
million D-marks million D-marks
Agriculture 351 1 97 1
Manufacturing 56,153 77 9,829 69
Services 9,829 21 4,183 19
Others 716 i 101 1
Total 47,049 100 14210 100

SOURCE: Krägenau, op. cit., p. 362.

TABLE 4
Manufacturing as Percentage of Total of Direct Investments

European Direct Investment US Direct Investment

in the USA in Europe
1950 30 54
1960 34 57
1970 43 56
1975 50 53

SOURCE: Estimated from various issues of Survey of Current Business.

The dynamic of the West German economy has, of course, made it an

attractive zone of investment for American firms; but it is an increasingly
expensive one. From 1959–67, US companies maintained a higher rate of
growth of new investment in the Federal Republic than West German
firms did in the United States. But while US investment is still growing, in
recent years its rate of growth has sunk back so that now West German
capitalism is increasing its rate of investment in the United States at
almost twice the rate that American capital is increasing its stake in West
Germany. As a result, West German direct investments in the USA now
stand at nearly 15 per cent of the value of American holdings in West
Germany, whereas in 1968 they were worth only just over 10 per cent.12 It
may not be too long before a ‘West German lobby’ begins to make itself
11
N. Poulantzas, ‘Internationalisation of Capitalist Relations and the Nation-State’,
Economy and Society, May 1974, p. 153.
12
Estimated from various issues of Survey of Current Business. However, it should be borne in
mind that ‘the figures may understate the trend, because for tax reasons some West German
companies invest in the US through their Swiss or Dutch subsidiaries, and consequently
German-controlled investment counts as coming from Switzerland or Holland’: N. Faith,
The Infiltrators, London 1971, p. 21. It has also been noted that the cumulative foreign total

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felt in Congress, as it already has in some of the US states, as Congressmen
from regions where large German factories are located act to defend the
special interests of their area.

But the major State agency that acts to support West German interests
internationally is Bonn itself. Apart from the conclusion of bilateral
agreements on the protection and promotion of capital investments and
double taxation agreements, the West German government founded in
1962 the German Development Company for Economic Co-operation to
support private investments in developing countries by either
participating in the equity capital of a direct investment or by providing
loans.13 In 1969, a law was introduced that enables West German firms to
write off operating losses on their investments abroad by setting them off
against domestic profits.14 In 1970, the West German government
improved the i960 guarantee scheme covering West German
investments abroad against political risks by reducing the annual
premium from o.8 per cent to 0.5 per cent, and by allowing the inclusion
of reinvested profits into the guarantee.15 Finally, the revised form of the
Developing Countries Taxation Act of 1975 aims at adapting tax
incentives for West German firms investing in developing countries,
towards development criteria.16

The full implications, on the domestic as well as on the foreign front,17 of

the manifest intensification of West German investment activity abroad
have still to be established. But they are surely of more than statistical
significance, and more than disinterested. The recent currency
movements which have weakened the Federal Republic’s trading
prospects slightly, while increasing its investment powers more
noticeably, will only further intensify the process signalled in the tables
above. A further sharp surge in the amount of West German investment,
and a perhaps decisive picture of its distribution, can be expected in the
last years of this decade.

direct investment in the USA may be three to four times higher than the Department of
Commerce figures on which the above estimates are based. On this, see R. Howe, ‘Invest in
America—while they’ll let you’, Vision, July/August 1974, p. 38 and Multinational Business,
No. 2, i974, p. 1.
13 For details on its operations, see German International, ‘Private Investment Plays Big Role’,

April 1970; and Baker, op. cit., pp. 694–5.

14
W. Pohle, ‘Germany Copes with Foreign Investments’, Columbia journal of World Business,
September/October 1970, p. 38.
15
Intereconomics, ‘Ten years of Federal Guarantees for Capital Investment Abroad’. No. 4,
1970, pp. 132–3; and H. Jüttner, ‘Legal Safeguards for Direct Investments in LDCs’,
Intereconomics, No. 9, 1976.
16
Report on the Development Policy of the Federal Government (Second Report)—Development Policy
Concept of the FRG (Revised Edition), Bonn, November 1975.
17
E.g. structural unemployment; intensified exploitation; non-employability of young and
unskilled workers; friction between West Germany and USA on international trade and
monetary issues.

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