What was the economic basis for West Berlin?

Question

From the 1950s to 1989, West Berlin was physically and economically cut off from the surrounding countryside. Since WWII it had lost the government service functions that help drive a capital's economy. And it didn't exactly sit on a trade crossroads, since transportation through the surrounding east bloc country was cumbersome and subject to unpredictable interference from the GDR/Soviet authorities.

Yet the city didn't become depopulated, even though its inhabitants were free to move to the West in search of jobs in the Wirtschaftswunder.

What did all those people live from? (Many of them were of course providing services to each other, but somewhere there must have been an inflow of money into the economy). For example, did they have a manufacturing industry, importing raw materials from the West and shipping finished goods back? If so, how did it stay competitive with West Germany, which would be free of West Berlin's particular logistical challenges? Or were they being directly subsidized by the Federal Republic and/or the western allies, for political reasons?

Most of what I can find on the web seems to be focused on chronicling travel restrictions for individual citizens, the shifting arrangements of utilities and communications across the sector boundaries, and the logistics of importing food and consumables. They don't really discuss where the money to pay for said imports ultimately came from.

Answer 1

how did it stay competitive with West Germany, which would be free of West Berlin's particular logistical challenges? Or were they being directly subsidized by the Federal Republic and/or the western allies, for political reasons?

Yes. There was a Berlinförderungsgesetz (Law of Promotion of Berlin).

Daher entschied sich die Bundesregierung, die Wirtschaft Berlins durch Bürgschaften und vor allem durch Umsatzsteuersubventionen zu begünstigen. Die Umsatzsteuer wurde um drei Prozentpunkte verringert

Rough translation:

Therefore, the federal government decided to promote the economy of Berlin through guarantees and primarily through sales tax subsidies. The sales tax was reduced by three percentage points

I remember myself, when I worked in a factory in the eighties (West-Germany) that we send semi finished products to West-Berlin. When I asked why we don't finish the work ourself, the answer was: With some work in Berlin we get tax advantages.

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Another German Wikipedia-Quote about the economy of West-Berlin:

In den Folgejahren wurde West-Berlin als Industriestandort durch die Umsiedlung ganzer Betriebe, sowie die vielerorts drastische Reduzierung der Arbeitsplätze (nicht nur durch Rationalisierung) geschwächt. Der West-Berliner Arbeitsmarkt wurde immer stärker von der öffentlichen Beschäftigung, der Wissenschaft und dem Dienstleistungssektor geprägt.

Translation:

In subsequent years (1), West Berlin was weakened as an industrial location through the relocation of entire companies, as well as many places drastic reduction of jobs (not only through rationalization). The West Berlin labor market has been increasingly dominated by the public employment, science and the service sector.

(1) After the building of the Berlin Wall (13. August 1961), when commuter could not pass the border any longer.

So, there were in fact negative effects. But there was a big support of public services.

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In the Berlinische Monatsschrift Heft 6/2001 was a German article Nach Abschottung die Zitterprämie about economics and demographics while the wall time. Maybe you find more information in the translated version.

Some quotes:

Most of the increase in wages and salaries of all workers and the income of self-employed and the employers' profits caused the possessed by federal law Berlin-promotion. She was by supplements for workers, once popularly known dither premium, as well as tax deductions.

...Every year, were among the immigrants and young men who wanted to avoid in this way the service in the Bundeswehr. ... Alarm signal and at the same time signs of structural weakness of the economy of West Berlin: Production of electrical industry stagnated, the the power industry fell by 10 percent. The craft made the wall a sustained decrease in performance. Thus, the distance to the West German craft is enlarged on nearly 25 percent

West Berlin was in August 1961, both insular and cosmopolitan part of the city. She could only with enormous subsidies from the Federal Republic to maintain its existence and offer the residents an acceptable material existence. No comparable settlement area, no comparable business location has ever existed over a period of more than 28 years as an enclave in a non-homogenous, politically hostile surroundings. No comparable city has ever received such high financial and material assistance from outside to live. ...

Assuming federal aid and preferences as well as the allowances under the Berlin Promotion Act together, you come to about 950 billion DM, ie approximately one trillion DM. The freedom of West Berlin had an almost astronomical price.

Answer 2

Your question is legitimate and in fact the unique state of West-Berlin had much influence what would happen in the Future.

• The city was depopulating. Berlin lost nearly half a million people from 1957 to 1984.

• The special status of the West Allies meant that conscription was not allowed in West-Berlin. This meant many, many young people who had no intention to join the Army were moving to and living in West-Berlin. The people were students and the economy was targeting their needs: Cheap accomodation, even cheaper if you are living in a shared apartment or squatting. Culture was thriving: Bookshops, cinemas, theater, art, discussion groups. Given the time it was no wonder that many Hippies found their dream environment in West-Berlin. There were free-sex communes like Kommune 1 with Rainer Langhans and the most important part was the APO, the non-standard opposition outside the regular political establishment.

• The police in West-Berlin on the other hand was not the normal police, it had more signs of a paramilitary troop. According to Klaus Hübner, the police president of West-Berlin more than 50% of the police force were military officers. Their political stance ranged from strictly conservative to hidden Nazi sympathies. The Berlin police was and is still considered one of the most brutal units.

Now imagine if a Hippie meets a Texas US Trooper. It did not help that most media at that time were right-wing and strictly in favor of police and conservative politicians. So the whole thing was a time bomb which finally exploded when the Persian Shah visited West-Berlin and one innocent person, Benno Ohnesorg, was murdered by the policeman Kurras during the demonstrations. The following protests challenged the old policy in the public opinion and triggered finally a discussion about the handling of WWII and the Holocaust in the public. It also triggered the birth of the RAF (Red Army Faction).

Answer 3

Well....first West Berlin was surrounded by...drum roll please....GERMANS. So there were no shortage of sympathizers. Berlin also became a major media center...if not the major media...for all of Europe. The social scene was pretty wacky...but certainly better than New York City in the 70's. And simply put Russia was spending trillions in Rubles they did not have to support "their Capital of Berlin." In the end the whole non sensical mess collapsed and Berlin and the bulk of Germany was reunited with its Capital in Berlin. Very little of the Wall remains.