The Ruhr Valley provided an excellent location for the German iron and steel industry because of the availability of raw materials, coal, transport, a skilled labor force, nearby markets, and an entrepreneurial spirit that led to the creation of many firms, often in close conjunction with coal mines. By 1850 the Ruhr had 50 iron works with 2,813 full-time employees. The first modern furnace was built in 1849. The unification of Germany in 1871 gave further impetus to rapid growth, as the German Empire started to catch up with Britain. From 1880 to World War I, the industry of the Ruhr area consisted of numerous enterprises, each working on a separate level of production. Mixed enterprises could unite all levels of production through vertical integration, thus lowering production costs. Technological progress brought new advantages as well. These developments set the stage for the creation of combined business concerns.
The leading firm was Friedrich Krupp AG run by the Krupp family. Many diverse, large-scale family firms such as Krupps reorganized in order to adapt to the changing conditions and meet the economic depression of the 1870s, which reduced the earnings in the German iron and steel industry. Krupp reformed his accounting system to better manage his growing empire, adding a specialized bureau of calculation as well as a bureau for the control of times and wages. The rival firm GHH quickly followed, as did Thyssen AG, which had been founded by August Thyssen in 1867. Germany became Europes leading steel-producing nation in the late 19th century, thanks in large part to the protection from American and British competition afforded by tariffs and cartels.
By 1913 American and German exports dominated the world steel market, and Britain slipped to third place. German steel production grew explosively from 1 million metric tons in 1885 to 10 million in 1905 and peaked at 19 million in 1918. In the 1920s Germany produced about 15 million tons, but output plunged to 6 million in 1933. Under Nazi rule, steel output peaked at 22 million tons in 1940, then dipped to 18 million in 1944 under Allied bombing.
The merger of four major firms into the German Steel Trust (Vereinigte Stahlwerke) in 1926 was modeled on the U.S. Steel corporation in the U.S. The goal was to move beyond the limitations of the old cartel system by incorporating advances simultaneously inside a single corporation. The new company emphasized rationalization of management structures and modernization of the technology; it employed a multi-divisional structure and used return on investment as its measure of success. It represented the "Americanization" of the German steel industry because its internal structure, management methods, use of technology, and emphasis on mass production. The chief difference was that consumer capitalism as an industrial strategy did not seem plausible to German steel industrialists.
In iron and steel and other industries, German firms avoided cut-throat competition and instead relied on trade associations. Germany was a world leader because of its prevailing "corporatist mentality", its strong bureaucratic tradition, and the encouragement of the government. These associations regulated competition and allowed small firms to function in the shadow of much larger companies.
With the need to rebuild the bombed-out infrastructure after the Second World War, Marshall Plan (1948–51) enabled West Germany to rebuild and modernize its mills. It produced 3 million tons of steel in 1947, 12 million in 1950, 34 million in 1960 and 46 million in 1970. East Germany produced about a tenth as much.