Ten years ago, Germany embarked on one of the most ambitious projects in its history: the absorption of the east. How far has it succeeded?
WHEN, on October 3rd 1990, the 62m Germans in the west were formally united with the 16m in the east, the two parts could hardly have been more different. The west was one of the richest, most highly industrialised and technologically advanced nations in the world; the east was near-bankrupt, economically and psychologically shattered after nearly 60 years under two successive totalitarian regimes. Yet West Germany’s chancellor, Helmut Kohl, assured his compatriots that the east would be transformed within a matter of years into a “flourishing landscape” with a standard of living comparable to the west’s—and relatively cheaply, too.
Ten years and the net transfer of DM1.2 trillion ($540 billion) later—more than double this year’s entire federal budget—many on both sides of the former barbed-wire and walled divide are wondering what happened to that “flourishing landscape”. After a four-year spurt of rapid transformation, with growth rates well above those in the west, the east’s “catching-up” appears to have stopped. The building industry, which fuelled the east’s earlier boom, is in deep crisis. Economic growth over the past three years has slowed to a sluggish 1.2-2% a year. The east’s GDP per head is still only two-thirds of west Germany’s. Unemployment, stuck at over 17% for the past three years, is twice western levels. Average gross wages are 25% lower. And another DM300 billion-400 billion in public money is still needed to bring the east’s infrastructure into line with the west’s.
Small wonder, perhaps, that some top economists, such as Hans-Werner Sinn, the head of Ifo, a Munich-based think-tank, describe German unification as “an economic failure”. But it is all a matter of perspective. If you consider where eastern Germany has come from, rather than where it is meant to be heading, a much brighter picture emerges.
After the collapse of communism, East Germany found itself in political and economic ruins. So, of course, did many other Soviet-block countries. But, unlike those countries, East Germany was forced to adapt overnight to a completely new system not of its own making nor necessarily suited to its needs. Despite what politicians claimed and easterners had hoped, unification was not a merger but a takeover. Indeed, after the initial euphoria had worn off, many easterners began to wonder whether it did not more resemble a defeat. Everything was thrown out, the good with the bad. All had to be rebuilt from scratch on the West German model: political structures, education system, laws, health and welfare services, police, currency, industrial fabric, institutions, managerial and political elites.Rushing towards freedom
Unification was not the fruit of mature reflection by political leaders. It came in a rush, propelled by an unstoppable wave of popular longing from the east for the dreamed-of freedoms and material benefits of the west. Few politicians desired, or dared, to point out the risks. Yet for many easterners, the shift from a centrally-planned to a market economy came as a tremendous shock. As the antiquated and indebted factories sputtered to a halt and the inefficient collective farms were broken up, three-quarters of East Germany’s 10m workers found themselves out of work.
Matters were made worse by the decision to set the exchange rate for the east German currency at one to one against the mighty west German D-mark. Politically, it was probably justifiable: economically, a disaster. Less than a year earlier, at the time of the fall of the Berlin wall, the East German mark had been exchanging at an official rate of nine to one, and at up to 20 to one on the black market. The crazy new parity sent wages and prices spiralling, making east German products even less competitive. East Germany’s traditional export markets in the former Soviet block collapsed, while its domestic customers, armed with their new D-marks, rushed to buy western products. At the same time, some 2m easterners moved west in search of better jobs. The labour force shrank by a third, and over 1m remained jobless.
That is where east Germany has come from. Yet by that yardstick, enormous strides have been made since unification. Wages, pensions, and GDP per person have almost doubled. Net household income is now 90% of that in west Germany. Productivity has leapt from 41% to 67% of western levels. Fixed capital per job has risen from 20% of the west’s to 75%. Unit labour costs are just 12% higher. Manufacturing, which lost 70% of its jobs after unification, is now growing at a double-digit rate, and manufacturing exports jumped by a third in the first half of this year. They now account for 21% of output, almost double the level in the mid-1990s.
Housing conditions have vastly improved. The Plattenbau, the grim high-rise inner-city cement blocks of communist times, are being abandoned for neat little villas on the outskirts of towns. More than 750,000 new homes have been built since 1993, most of them with every modern convenience (see table). Some 40% of easterners now own their own home, the same proportion as in the west. There is some way to go: hundreds of thousands of abandoned buildings still litter the landscape, many of the streets are still cobbled and full of potholes, and weeds grow up through deserted railway lines. But the fresh-painted, orange-roofed villas are taking over, and town centres gleam with shopping malls, fashionable cafés and beautifully restored old buildings.
On the outskirts, spanking new factories, high-tech research centres and exhibition complexes have sprung up, outshining much of what the west has to offer. More than three-quarters of the east’s industrial plant has been installed since 1990. New motorways weave their way across the countryside; not a single kilometre was built during 40 years of communist rule. The railways have been electrified and modernised, and east Germany now boasts one of the most modern telephone systems in the world.
Pollution, one of the horrors of the communist era, has all but disappeared. The east’s stinking rivers are once again teeming with fish and plant life. The choking smog that used to hang over every town, engendered by the use of brown coal in houses and factories and by dirty two-stroke-engine cars, has gone. (The old “Trabi” has become so rare that it is now a collector’s item.) Dust particles in the air have been reduced by 99%, sulphuric acid by 88%. Thanks to an injection of DM50 billion, east Germany, formerly the world’s third-most-wasteful consumer of energy, now has the most modern, efficient and clean brown-coal-fuelled power stations in the world. Billions more have been spent in bringing the east’s lamentable sewage-treatment and water-purifying systems up to western standards.A sense of loss
What has been achieved has been staggering. But unification has produced losers as well as winners. Although 60% of easterners admit that their lives have improved over the past ten years, 16% claim they have got worse. They miss the certainties of centralised organisation, the solidarity between neighbours in the face of shared deprivations, the lack of envy in a classless society where all earned more or less the same wage, even the sense of personal security in a supervised police state. Women miss the free, universal creche and kindergarten places that made it so much easier to combine a career with family life. Although only a small minority (6%) would like to see the return of the German Democratic Republic, two-thirds complain that they do not yet feel “totally at home” in a united Germany.
A similar, and growing, proportion of easterners complain that they feel like second-class citizens. They resent being paid lower wages than their western colleagues for the same work, often with longer hours. A bus driver, university lecturer or hospital doctor in east Berlin, for example, earns 13% less than his counterpart just down the road in the west of the city, but is expected to work one and a half hours more a week. In the private sector wages on average are 20% lower and, in some industries, 40%. The fact that easterners are often earning triple what they were ten years ago is no consolation. Despite the huge transfers of public money, six in ten complain that the government is “not doing enough” to bring their living standards into line with those in the west.The unknown other
Adding insult to injury, most of the top jobs in business, banking, public administration, the universities, law and the media are in the hands of westerners, brought in after unification when the east’s elites were thrown out. Ten years later, they are still there. Even in the political domain, two of the five east German states are led by westerners—Kurt Biedenkopf in Saxony and Bernhard Vogel in Thuringia—and around half of all eastern state ministers are westerners. The same is not true of easterners in west Germany. In the federal government, only two out of 17 ministers are from the east, and it was only this year that a mainstream political party, the Christian Democrats, chose an easterner, Angela Merkel, as their leader.
This dismissive attitude can be warranted; after 40 years in an economically backward place, east Germans sometimes simply lack the skills for the top jobs. More often, it stems from ignorance. An estimated 80% of west Germans have never set foot in the former Democratic Republic. They still tend to look down their noses at their eastern cousins, regarding them as uncultured, inefficient and ungrateful. The easterners’ relatively low level of productivity is put down to laziness rather than lack of investment. Why should they, the hard-working westerners, continue to bail them out?
The German media, almost exclusively in western hands, tends to present the east’s communist past as a period of unrelieved misery, where everyone was either a spy or a victim, and where children were brought up in a godless society with no ethical values and no tolerance for others, providing a breeding-ground for the neo-Nazi excesses that are emerging today. But Axel Schmidt-Gödelitz, a former West German diplomat in East Berlin, points out that most people in East Germany were simply apolitical and made the best of what they had. “They had good lives,” he says. “Most did not feel they were living in a prison.”
Outwardly, there is no longer much difference between the Germans of the east and the west. They dress the same, watch the same television, read the same newspapers, learn the same things in school, eat pretty much the same food. But many can still detect a difference in style and attitude. “I can tell east from west within five minutes of entering a room,” says Mr Schmidt-Gödelitz, who now organises weekend conferences between easterners and westerners in an attempt to remove mutual prejudices. “Easterners tend to be warmer, simpler, more reticent, more honest about themselves, less willing to put on a façade. Westerners are more self-assured, assertive, better able to sell themselves in a way that many easterners take for arrogance.” Wolfgang Thierse, the first eastern president of the Bundestag, the parliamentary lower house, complains that his more direct, unsophisticated approach is often mistaken for naivety and a lack of political cunning. Angela Merkel suffers from the same misconception.
Far from finding east German workers any less diligent than their colleagues in the west, west German and foreign investors often judge them as more reliable, harder-working and more willing to learn new skills. That should be no surprise: over the past ten years, two-thirds have had to change their job at least once to something quite different from what they did before.Dynamism or violence?
Among many of the younger generation, in particular, there is now a new zip, curiosity and optimism. They are eager to embrace the new technologies and ready to take risks. Tens of thousands of new companies are being set up every year, most by young entrepreneurs from the east itself. Many fail. But some 500,000 firms created over the past ten years have survived, bringing jobs for 3m people. Many are in the forefront of their field—in data-processing, office equipment, biotechnology, optical precision instruments, electrical and medical engineering. Around towns such as Jena in Thuringia and Dresden in Saxony, impressive mini- “Silicon Valleys” have been set up.
Not all the young, however, have been so willing to take up the challenges of the new world. Some, deprived of the social structures and ideological certainties of the communist regime, simply feel lost. Their parents, often themselves jobless, depressed and disillusioned, can provide no help. Their teachers are no longer so close to them as in the communist era. Their communist- organised sports clubs, leisure activities and cheap collective holidays have gone.
Some, a tiny minority, have sought refuge—and an identity—in far-right and neo-Nazi groups. Such groups are not exclusive to east Germany. But easterners are responsible for nearly half the racist violence in Germany, although they represent less than one-fifth of the population. Foreigners, who account for less than 2% of the east’s inhabitants compared with 10% in the west, provide a convenient scapegoat for the easterners’ fears and feelings of inferiority. A recent survey of 16,000 14-year-olds in Rostock, a northern port in Mecklenburg-West Pomerania, in the former east, showed 40% blaming foreigners for unemployment and 18% considering violence an acceptable solution.
East Germany may not yet be quite the “economic powerhouse” proclaimed by Rolf Schwanitz, the (eastern) minister for the five eastern states. But it is on the move. The apparent stalling of the catching-up process was linked to the contraction of the overheated building industry, which is expected to continue to shrink for another couple of years. But manufacturing industry, which surged ahead by 12% in the first six months of this year, is now the main motor of the east’s economy, and has overtaken construction in terms of the numbers employed. The east German economy is expected to grow by 2.5-2.7% this year, still slower than the west’s forecast 3% or more, but almost double last year’s 1.5%.
Rüdiger Pohl, a western professor who heads an economic think-tank in the city of Halle, in Saxony-Anhalt, reckons that the east is now well on its way to establishing a competitive market economy. “It is a massive success story,” he concedes. “The east had good reason to be proud.” But it has not yet drawn level with the west. Indeed, some wonder whether it ever will. Mr Biedenkopf, the premier of Saxony, has estimated that even with economic growth of 4% a year in the east and 2% in the west, it would take another 30 years for eastern GDP per person to equal that in the west.
But perhaps equality is the wrong target. There have always been differences between regions. No one expects the GDP in agricultural Schleswig-Holstein to equal that of industrial Baden-Württemberg, though both states are western. Putting the east on a self-sustaining footing is all that should be aimed at in the short term. And how long will that take? Manfred Stolpe, the premier of Brandenburg, reckons just six or seven years. The government estimates another ten. Others, like Mr Pohl, say a whole generation may be needed.
And how much longer will the west be willing to go on footing the bill? Last year, a net total of DM144 billion (after the deduction of the tax revenue collected from the east) of public money was transferred to the east, the equivalent of nearly 5% of the west’s GDP. Westerners are made all the more aware of the burden by having to pay an earmarked 5.5% “solidarity” surcharge on their tax bills—also paid by easterners—to help pay for the reconstruction in the east. In fact, two-thirds of that goes on things like motorways, which the government also finances in the west. But most westerners are unaware of that. Those who venture into the east are often horribly envious of some of the east’s superb modern installations, paid for with “their” money. The Frankfurter Allgemeine Zeitung, one of Germany’s weightiest dailies, recently carried a front-page editorial arguing that it was “neither necessary, nor desirable” to continue to give special treatment to the east. It should learn to stand on its own two feet.
That debate will certainly continue for years to come. In the meantime, a growing number of eastern leaders feel that it is time to proclaim their achievements a little more loudly to the world. “Perhaps we don’t speak so much about our successes because we’re still only halfway there,” says Reinhard Höppner, the dynamic premier of Saxony-Anhalt. “We’ve got to persuade people to continue to support us. But we’ve also got to teach the easterners to have more pride in what they have achieved...With the enlargement of the EU, we will soon no longer be on the margins of Europe, but at its centre. I am very optimistic.”
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