Another feature of Bismarck’s domestic policy was his clash with the German Social Democratic Party. Bismarck had no liking for Socialism. So when after a period of reorganization the German Social Democratic Party obtained half a million votes in the Reichstag in 1877 Bismarck became alarmed. So in 1878 he began a campaign against the Social Democratic party with the express object of crushing the whole movement. A law against the Socialists went through the Reichstag. Offencing Socialist papers were suppressed, many clubs broken up and meetings stopped, and some of the leaders banished. Nevertheless it was still possible for a Social Democrat to take part in political activity and to stand for the Reichstag, even if his meetings had to be licensed in advance.

Yet in spite of his power Bismarck failed to crush Socialism. Too intelligent to rely on purely negative means he also tried a more positive approach by sponsoring what he would call welfare legislation. He succeeded in passing between 1883-1889 three welfare measures of great importance based on the principle of compulsory insurance.

§           The first in 1883 was for compulsory insurance against sickness by all industrial workers, the worker paying 2/3 (two-thirds) of the weekly contribution and the employer one-third. This scheme was later extended to other classes of workers.

§           The second scheme approved in 1884 was an accident insurance scheme to which employees had to contribute for nearly all their workers except the higher paid.

§           The third passed in 1889 was for pensions in old age or incapacity. This applied to most of the lower paid workers and was based on weekly contributions of one-half by the employer and one-half by the employee, with the state making an addition to the actual pension.

The Socialists however were not appeased. They saw no real socialism in what they mockingly called this ‘state socialism’ of Bismarck’s, and increased their efforts to secure further social reforms (such as limitation of working hours, fixed minimum wages and increased powers for the trade unions all frustrated by the Chancellor. So they kept up their attacks on Bismarck and his attempts to weaken and silence them failed. By 1890 the Social Democrats polled nearly one and a half million votes (1,500,000) and with the relaxation of persecution following the retirement of the Chancellor in the same year, the figure rapidly mounted until 1914 when it was 4 ½ million votes. By that time the Social Democrats were the strongest single party in the Reichstag.

Substantial progress was made in the organization of the Empire. Within five or six years of the proclamation of the Empire (1871) a common currency and banking system had been established, together with a Postal System for the whole Empire with the exception of Bavaria which had its own Railways though not state owned were constructed and co-ordinated in the state interest. New codes of commercial civil and criminal law were framed. Above all industry and trade flourished so that Germany soon became like Britain, one of the workshops of the world.

If the 20 years before 1870 saw the foundation of Germany’s Industrial might, the two years after unification saw its full fruition . The economic unification of Germany embracing currency taxes, economic law and so on, which followed political unification certainly helped towrads this; as did the acquisition of the territories of Alsace and Lorraine, with their textile and engineering industries as well as rich deposits of iron ore which Germany had previously lacked.

The reparations taken from France in 1871, totalling ₤200m also helped to put the German economy on the gold standard and the German banks on a solid financial basis.

The German banking system played an important role in the growth of German Industry, after 1870, by making money available to industrial entrepreneurs. As industry became larger in scale so large amounts of capital and investment were needed to set up manufacturing plants. In their turn the Industrial magnates invested money in the banks and often took their seats on the board of management. Thus arose the inter-penetration of banks and industry in Germany which came to be described as Finance Capitalism. Gradually economic power became concentrated in the hands of the very powerful German banking system.

C:   KARTELS:  Concentration in banking led to concentration in Industry itself and to the formation of Kartels (or Cartels). Businessmen faced with the huge risks involved in founding large scale enterprises wanted to be assured of a good profit. The way they did this was to combine among themselves to restrict competition and to fix a common agreed price in their final products. Kartels such as the Rhenish Steel Syndicate and the Ryhr Coal Syndicate were enormously powerful and helped keep industry in Germany highly profitable. Bismarck himself encouraged the formation of Kartels.

D:   PROTECTIONISM:  This was another feature of Bismarck’s domestic policy. The general trend in economic legislation in Germany after 1850 was towards economic liberalism and the abolition of such things as import and export duties. The economic slump which hit Europe in 1873 led to a severe depression in the German heavy industries and agriculture and there were urgent calls for the protection of German Industry by import duties. In 1879 there occurred the first rise in tariff duties in Germany for three decades.

The Constitution of the German Empire adopted a certain number of democratic looking characteristics, but the effective control was in the hands of  Prussia.

The Constitution established two assemblies, the Bundesrat and the Reichstag. The Bundesrat consisted of representatives of the different states. It consisted of 61 members, Prussia had 17, Bavaria 6, 17 small states had one member only. The number of members was according to the size of the state. It was this small body which had the main law-making functions. But even the powers of the Bundesrat were seriously limited; a vote of 14 against any measure meant its rejection. This gave a decisive veta in Prussian hands if they wished to exercise it, for there were 17 Prussian members in the Bundesrat.  The Reichstag (picture) was the assembly elected by universal manhood suffrage. It contained 397 members, distributed according to the size of the state. Prussia had 236. Its powers were extremely limited, and it was mainly concerned with debating and suggesting amendments to the laws sent to it from the Bundesrat. Moreover the Ministers of the Government were in no way responsible for it. Their responsibility was to the Emperor alone.

The King of Prussia who was automatically German Emperor controlled the armed forces, and appointed all the principal officers including the Chancellor. Bismarck also compromised with the individual states by leaving them a great deal of local power in matters which did not affect the whole of Germany. But the Army, Navy, Foreign Affairs, taxation, trade and railways came under the control of the Central Government.