Getting back together is so hard
Sep 16th 2004 | DRESDEN
From The Economist print edition
Fifteen years after the Wall came down, there are still two Germanies
ASK a German to recall memorable phrases from unification, and he may pick “flourishing landscapes”, and “now comes together what belongs together”, coined by two admired post-war chancellors: Helmut Kohl and Willy Brandt, respectively. They might be less memorable had they come true. Sadly, Germany's east is not flourishing; nor have the country's two parts come together. The divide was highlighted again this week by Horst Köhler, Germany's president, when he said that Germans must accept inequality between regions, because the country can no longer guarantee comparable living conditions in all of them.
On September 19th, voters in the states of Brandenburg and Saxony will show that, politically as well as economically, west and east are growing apart. In Brandenburg, the former communists, the Party of Democratic Socialism (PDS), could take top spot. And in both states, extreme-right parties could get into the parliament.
It is not that unification has failed utterly. Dresden, Saxony's capital, is a prime example of what has been achieved. Its historic centre sparkles anew in baroque splendour. The reconstruction of the Frauenkirche, reduced to rubble in 1945, is almost finished. This “Venice of the north” is again one of Germany's most popular tourist destinations. But many other cities in the east resemble Potemkin villages. Consider Löbau, a town of 19,000 an hour's drive east of Dresden. Its refurbished buildings mostly house discount shops or for-rent signs. Unemployment is officially 23%, and would be higher if young people had not moved west in droves. In the past decade, Löbau has lost one-third of its population.
The eastern economy is much like Löbau. From roads and railways to hospitals and airports, its infrastructure is often better than in the west, thanks to generous subsidies adding up to some €1.25 trillion ($1.5 trillion) since unification. In some regions, industry has revived. The Dresden area is an example: thanks to many high-tech investments, attracted by government grants, it calls itself Silicon Saxony.
Yet the eastern German economy has failed to become self-sustaining, says Rüdiger Pohl, former director of the Institute for Economic Research in Halle. Although it is growing faster than the west's, it would shrivel without government transfers, which are still flowing at an annual rate of €83 billion (about 4% of total German GDP and a whopping 22% of east German consumption). Many firms lack adequate capital, carry out only low-value activities or produce solely for the local market. Unemployment is stuck at 18.5%, more than twice the western rate.
Many of east Germany's problems flowed from the political decision to go for quick unification in 1990. East German firms, whose productivity was lower than expected, had too little time to adapt. Two other much-criticised decisions are almost secondary: the one-to-one exchange rate adopted for eastern and western marks, which meant high costs, and the rapid sale of eastern state firms by the Treuhand privatisation agency, which allowed western firms to buy and close competitors.
Too much money from the west was, for political reasons, spread around indiscriminately or wasted. Saxony poured resources into building up its strengths in cars and chips. But, starting from a weaker position, Brandenburg frittered away money on such things as a Formula One racetrack and trying to keep everyone happy—earning itself the nickname of the “little GDR”. Yet what really set back the eastern economy was the wholesale transfer of the western industrial relations and legal systems. Fledgling companies in the east had to put up with strong trade unions and high wages. And the east acquired a new bureaucracy—Brandenburg was taken over by officials from North Rhine-Westphalia. “We got a system that favours the status quo when we needed one that supports development—just like western Germany in the 1950s”, says Georg Milbradt, Saxony's premier.
The German welfare state was also imported wholesale. In a way, this was the grand bargain of unification: people were happy to be colonised as long as money kept coming. But, taken with promises such as Mr Kohl's “flourishing landscapes”, this continuation of the old East Germany by other means slowed down a necessary change in mentality—as the state continued to take care of things.
A recent survey by the Allensbach Institute shows how different mentalities in the two parts of the country remain. To most western Germans, freedom (49%) matters more than equality (35%). To eastern Germans, it is the other way around (36% and 51%, respectively). In the west, 41% are happy with Germany's political system; in the east, only 27%. Other polls suggest that eastern Germans still feel like “second-class citizens”, in the words of Matthias Platzeck, Brandenburg's premier.
All this may explain why so many eastern Germans are taking to the streets to protest against labour-market reforms, which hit them hard. The reforms have become a symbol that western Germany, itself in dire need of reform, cannot keep up its end of the grand bargain. Eastern Germany is going through the same phase of disillusion with capitalism that other central European countries did a decade ago. It too is turning to ex-communists and right-wing populists.
Even before the protests, the woes of the east were triggering debate. In June, a high-level commission argued that continuing to transfer billions eastwards would endanger Germany's future. The group proposed more focused subsidies, a smaller bureaucracy and a new minister for the east. The commission also broke a taboo by blaming many of Germany's economic ills squarely on the cost of unification. Politicians had always avoided this argument, for fear of creating conflict between west and east. Now, according to a survey by Forsa, another pollster, 24% of western Germans believe that it would be better if the Berlin Wall were still up (against only 12% in the east).
Yet the worst thing that could happen to Germany would be if its two parts started fighting over scarce resources, instead of creating the conditions for growth through structural reforms. And it would be a shame if the prediction of Wolfgang Nowak, a former junior minister in Saxony who now heads the Alfred Herrhausen Society, a think-tank, came true: “We might be the first country which has, by unifying, created two peoples.”
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