Open Access

Ralf Ahrens

• In the aftermath of World War II, the political and geographical isolation of the Western parts of the former German capital also cut economic hinterland ties and caused an exodus of industrial companies. In consequence, West Berlin soon became dependent on West German transfer payments to balance the city’s budget. At the same time, a system of tax preferences was created to foster private investment and employment in the isolated city. The complex of subsidies was maintained and even expanded during the following decades though its negative economic effects became obvious in the second half of the 1960s. The article focuses the conceptual significance of subsidies in industrial policy as well as their factual impact on Berlin’s economic development from the early 1960s to the late 1980s, i.e. in a period of massive structural change. It comes to the conclusion that the persistence of subsidization should be explained primarily by its symbolic political value and by a lack of alternatives.