Thirty Years after the Berlin Wall Came Down: Economic Transition Completed, but Structural Deficit Remains

• Published in: Ifo DICE report Vol. 17; no. 3; pp. 22 - 27
• Main Author: Ragnitz, Joachim
• Format: Journal Article
• Language: English
• Published: Munich Ifo Institute 01.10.2019
• Subjects: Demonstrations & protests; Economic conditions; Infrastructure; Parliamentary elections; Political activism; Political systems; Reunification; East Germany; Eastern Europe; West Germany; Germany
• ISSN: 2511-7815; 2511-7823

[...]collective memory talks of a "peaceful revolution," which attributes the demonstrations of GDR citizens mainly to the desire for individual freedom: besides the first demonstrations in Leipzig and elsewhere that were carried out by a small minority of civil rights activists, the motivation for the ongoing mass protests in late autumn 1989, the electoral success of the unity supporters in the parliamentary elections of March 1990, and, finally, the rapid accession of the GDR to the Federal Republic of Germany was a primarily economic one - namely, participation in the West German level of prosperity. [...]it also included the illusion that the introduction of market-based incentive systems, the free movement of capital, and the granting of freedom of trade would trigger a growth process similar to the West German "economic miracle" in the 1950s.3 Under these assumptions, the adoption of the West German regulatory framework appeared to be not only viable, but also helpful on the way to rapid convergence. [...]after the introduction of the market economy, the East German economy collapsed to a large extent because the existing enterprises were hopelessly backward due to suppressed investment during GDR times and the impossibility of gaining access to Western technology.4 In addition, they suffered from massive overstaffing, as the GDR economy had to apply labor-intensive production technologies in order to compensate for the lack of capital and technology. While the introduction of the D-Mark in East Germany at an exchange rate of 1 Mark of the GDR to 1 DM meant an appreciation of the GDR currency in foreign trade of about 400 percent, the companies lost their markets in West Germany and abroad, aggravated by the simultaneous collapse of the other socialist states in Central and Eastern Europe, which had until then been the main recipients of East German export products.