The West German System

The extraordinary events of 1989/90, which made unification possible, took everybody by surprise. Although it was an issue much discussed during the past 40 years it was not something that anybody seriously beleived would happen in their lifetime. As such, apart from a few articles in the West German constitution, no formal plans existed to assimilate two very different countries into one. Obviously this caused many problems, both politically and economically and I have mainly concentrated on the latter and the social problems that have arisen from these difficulties.

I shall also give a brief background on the countries' differences, differences which were far greater than most polititians in the west thought possible.At the end of World War II, Germany stood in ruins with most of its major towns and industrial heartland bombed beyond recognition. The country was divided between the allies, with France, Britain and the US holding land in the west and Russia holding land in the East. Like orphaned twins, separated at birth they became very different adults 40 years on.

With one being rich and succesful and the other, the proverbial poor relation. THE WEST GERMAN SUCCESS STORY After World War II, it soon became clear that it was impossible to subsidise an entire nation of starving people. Something needed to be done soon to restore German prosperity and prevent the country from falling in to complete disarray. Key action was taken on the 20 June 1948 when the worthless Reichmark was abolished and each citizen received 40 of the new DM. It was a risk, as prices were still high and the black market was rife.

Luckily it paid off and prices soon began to fall and the black market was virtually wiped out. Rationing, which continued for several more years in Britain, ceased to be required in the FRG. This experience of currency conversion, was to play a crucial part in the decision to abolish the Ostmark over 40 years later. Decisive action was taken to boost the construction industry and provide the many displaced persons with suitable housing. By a series of tax incentives, the government encouraged private sector firms to invest in construction and ensured the continuence of this fragile market economy.

The FRG received further investment under the Marshall plan and with the formation of the Common Market, in 1958 established itself as a huge exporting nation. According to Communist propaganda the G. D. R. was just as successful as the F. R. G. Jorg Roesler in his essay, "The rise and fall of the planned economy in the G. D. R. 1945-1989" paints a different picture.

After World War II the Soviets dismantled entire factories and shipped them, along with confiscated East German goods, east under armed guard. In 1949, reparation and occupation payments to USSR were 16.9% of the national income. Whilst the West had received heavy investment and assistance under the Marshall Plan the East had to contend with Soviet 'raiders'. This 'punishment' continued until 1958 along with rationing.

In the 1960's The New Economic System was introduced which replaced production quotas for factories with new targets designed to measure efficiency and profit. There was increased investment in automation and a drive for improved technology, but yet again production levels, after an initial rise, began to fall and the scheme was scrapped in the early 1970's.

The Communist hope that 'Made in East Germany' would have exactly the same connotations as 'made in Germany' had become laughable and instead only stood for inefficiency, incompetence and ideological failure and shame. A 1990 EC bulletin noted that the economic structures of the GDR had "changed relatively little over the past few decades". Output per worker in the GDR was on average a third of that of equivalent workers in the FRG due mainly to centralized bureaucratic planning, lack of incentives and little or no investment in technology. In the West energy production was safe and cleaner ways of producing energy were being developed.

The east relied on its old soft coal burning power stations whose highly polluting smoke accounted for the destruction of 25% of the trees and wildlife in the surrounding areas, and Nuclear Power stations, which were, as one might expect, below western safety standards. The chemical and textile industries had changed little in GDR since 1939, and with little or no automation were no match for the newly industrialised nations. The car and truck industry, an area of great economic importance in most countries, was of nominal significance in the GDR. Food production was of poor quality and of little variety.

The telecommunications network was completely antiquated and needed total modernisation. In fact in 1991 it was still virtually impossible to dail from west Berlin to a number in East Berlin. The sewerage system needed to be rebuilt as only half of the system was connected to purification plants and safe driking water was scarce. Roads needed massive investment if they were to cope with the increase in car ownership and subsequent heavier traffic. The EC Bulletin highlighted infrastructural and environmental problems as being "a major impediment to private investment".

One piece of propaganda, however was true, the standard of living in East Germany was the highest in Eastern Europe, and was even above that of Ireland or Portugal. The East Germans did not take a positive view on this, since they compared themselves to the West as well as the East. They saw for themselves, that the West Germans had a standard of living which was rapidly advancing beyond their own. This then was the truth behind the East German myth and politicians and business leaders faced an almost impossible task of intergrating an ailing command economy into one of the most successful post war market economies in the world.