The experts and politicians were well aware of what the consequences would be. Nonetheless, already by April 20, 1990, calls were being made in responsible circles for a "consistent reorientation towards a market economy". Everyone
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GERMANY disaster
October 12, 1992• # 236 International Viewpoint accepted this: the Federal government, the new transitional government in the GDR, the Social Democratic Party (SPD) and the unions, the East German citizens' movements and even the PDS (Party of Democratic Socialism - the revised version of the former ruling Communist party).
Everyone believed in the miracle of the market. The "employment" problem would be solved, after some transitional difficulties, through the sale of the enterprises to genuine entrepreneurs, through an influx of additional capital and the development of new service industries (which were to create a million jobs). Almost everybody believed in this fairy-tale (in spring 1990 almost 90% of East Germans were for economic union), which means that the implementation Proposed site for DM 500bn federal government highway. Donations welcome. of this policy presented no difficul ties.
The Trehand' has only carried out a policy which had almost unanimous support. Indeed its first head was a social democrat and the unions sit on its board. The political responsibility does not therefore lie with that institution. Protests against its activities should rightly be directed at the ministers and party leaders in Bonn or at the DGB [German Trade Union Confederation] headquarters in Düsseldorf.
The Treuhand takes control
The Treuhand took control of effectively the whole of the country's wealth producing assets, including retail, banking and hotels, with a total of 4.1 million
This amounted to the expropriation without compensation of the property of all those who had created this wealth over the past 40 years. Since then, most has been sold, put on ice or closed down. The Trehand now employs less
First, everything was devalued. The initial stock taking in DMs saw the value of the assets of the enterprises under Treumarked down from DM940bn to DM230bn. Then the goodies were more or less given away. So far the sales have only raised DM28bn, of which, moreover, only DM10bn has actually been paid. The creation of 1.2 million jobs and DM140bn in investments have been promised, but this is worth as much as one of Kohl's election promises; nobody can be held to them. In reality only a half of the promised jobs exist in these enterprises and the number will decline further (from 773,000 to 553,000) while the promises on investments will be fulfilled well after the year 2000, if the present tempo is maintained.
The only success to the Treuhand's credit has been in the suppression of jobs -some three million of them until now. From an economic point of view privatization has flopped; only a tenth of fulltime workers in East Germany work in
Finally the Treuhand wound up with losses of between DM250bn DM400bn (without taking into account property in the former GDR of which the Treuhand effectively controls half). The overall loss of assets of the former GDR amounts to around DM1,000bn. There are few states on earth that could cope with
West German capital has taken over the enterprises. Some 550 boards were set up to oversee the combines and other enterprises, on which sat West German bankers and industrialists along with their acolytes: lawyers, accountants and politicians — a mixed bag of worthies, competitors, opportunists and thieves. It was they who decided what happened. The Trehand has merely rubber stamped their actions.
### Subsidies and corruption
Inevitably all this has been the setting for plenty of corruption. If big concerns were going to take over enterprises, they wanted proper incentives. The West German Carl Zeiss got subsidies of DM3.5bn when it took over the East's Carl Zeiss
Jena. The takeover of the East German shipyards was sweetened with DM 6.2 bn.
The workforce was cut from 34,500 to
7,600 and will probably shift some production from the West to the East - which has led the IG-Metall to occupy the shipyards. At the same time the distribution networks and infrastructure were taken over, including the electricity supply industry, retail, banking and hotels.
In general, West German capital has, as could be predicted, shown little interest in East German productive industry. Firms are bought in order to win new technologies or markets. The first were not to be found in the former GDR, and the combines no longer had the second. There was no need to invest in additional capacity in the East, since there were still reserves in the West and the economic situation did not require expansion. The newly won East German market could be supplied through better use of existing capacity.
In these conditions only medium sized enterprises with a specific regional or local market to defend in East Germany could hope to cope. In any case, they were of little interest to big capital. Some 1,500 such enterprises were bought by their managements.
The remaining enterprises were dismantled, slowly but steadily. They were saddled with some DM85bn of so-called "old debt", on which they had to pay interest. This had been a form of planning control; in 1965 firms had raised only 4% of their financing from credit, but by 1989 this had risen to 60%.
They were thereby stripped of all their freedom of action. The decision was taken that these enterprises should not simply be set free without debt into the marketplace. It was, moreover, the Trehand or the management boards which decided on policy, which normally meant liquidation.
First of all research and development was abolished. There was no money for modernization or new plant. There were
1. The Treuhandanstalt (known as the Treuhand)
was formed in March 1990 to organize the privatization process in East Germany. It rapidly became the target for protests about the social and economic effects of that process. On April 1, 1991 its then head Detlev Rohwedder was assassinated by the head Pay action ears aganization. The Tre: 1 3 hand has also been plagued by corruption scandals.
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HIER PLANT DIE BUNDESREGIERUNG VERKEHRSWECE FOR 500 Mrd. DM MILDE GABEN Der Bauherz GERMANY 492
October 12, 1992
GERMANY no means for redirecting production. In these circumstances replacements and even repairs stopped. As a result after two years the plant was in substance destroyed. The experts from McKinsey's have stated that soon there will be only 650,000 employed in industry.
Only where an enterprise was considered to be a possible purchaser was there credit. When it was a question of preserving markets for the future significant sums of money could be found. Otherwise production has declined still further.
East German industry has now been to a large extent destroyed and cannot be rebuilt. In the past year eight times as much was imported from the West as went in the opposite direction (DM114bn compared to DM15bn). If the workers were now to conduct a belated but successful struggle they could perhaps save about a third of the previously existing plant. Only 750,000 people are working full time in industry and trade; a quarter of the number two years ago.
Things are hardly better in other sectors. Employment in agriculture is projected to fall to a third of its level of two years ago. Even in construction there have been losses. The infrastructure (transport, telecommunications, trade and services) which currently employs 1.5 million faces rationalization, as do the public administration, education, the arts and science.
In 1989 there were 9.7 million workers. Some 500,000 have since left for West Germany or have been sent back to their countries of origin as superfluous forei-
In May 1992, there were officially 1.1 million out of work (13.2%), and 2.1 million on various kinds of social security (24.6%). A further 5.7% commute to work in the West. That means that since the change, 4.3 million or almost half of jobs have gone. And this process is far from over.
Experts expect that even if there is an economic revival another million and a half jobs are set to go, bringing the total down to around four million - 40% of the number two years ago.
Rises in living standards
Thanks to massive West German subsidies, this economic disaster has not yet been reflected in living standards. Real incomes have been raised by 20 to 45% depending on the type of household. Moreover, savings were converted from East German marks to deutschmarks at a favourable rate. And people could suddenly travel. People have been better off and have felt freer. This explains the social peace. In addition, incomes are to be raised to West German levels by 1995. 14 Those who have kept their jobs and oldInternational Viewpoint # 236 age pensioners can hope to profit from this. Nonetheless, today their average income is very low — those in paid work have only 45% of the West German income, while only a few pensioners get as much as the 1,500 marks a month (15% of men and 0.5% of women) needed to bring them above the poverty level.
Conditions are deteriorating noticeably. Price rises do not compare with those in the West. The rate of inflation in the East is rising (14.1% in the East compared to 4% in the West). The cost of transport, health, education and above all rents have risen strongly. As a result and because millions have lost their jobs, the real incomes of about a third of the population may fall. And more will follow them.
This type of unification has carried a high price; East Germans live by the grace and favour of the West. Two thirds of Eastern GNP is made up of Western grants (some DM130bn in 1991). This year the figure will be DM170-80bn6.5% of the West German GNP - more than double arms expenditure.
### State investment
No fundamental improvement in this situation can be expected. There will certainly be a lot of investment (the rate of investment is a third of GNP) - but not in accordance with holy writ. Some 60% is the work of the state (forecast for 1992: 54.5 of the expected DM94bn) and is directed towards the infrastructure. Although about half of the value of private investments is underwritten by the state by various forms of incentive and tax break, West German capital still plays only a secondary role. In 1991 DM25bn came from this source and DM43.4bn this year, only DM8bn and DM18bn respectively being invested in industry, creating some 70,000 jobs.
The only really significant exceptions are the plans for vehicle manufacture. At present there are only 250,000 industrial jobs provided by West German owned enterprises with another 200,000 in 3,000 privatized medium-sized firms belonging to West or East Germans — altogether a seventh of the total industrial workforce. Nor does it seem likely that this figure
It is, furthermore, highly questionable to what extent this private capital is likely to stay. In any case, the West Berlin regional unit of the Federal German CID (investigating police) and the Berlin association of public prosecutors believe that a third of investments in East Germany are in fact money laundering exercises by organized crime.
In East Germany, state investment is undertaking the building of a new infrastructure, a slow clean-up of the long neglected housing stock and perhaps a number of ecological improvements. Furthermore trade, banking and services are being modernized. At the same time, the country is being and will remain deindustrialized. It may perhaps be more beautiful, but it will certainly be poorer.
It seems likely that in the future there will be only around four million jobs. Certainly the number of job seekers will also fall — through extended education, emigration, early retirement and women resigning themselves to being housewives. Nonetheless, there will still be some seven million persons on the job market of whom almost a half will be
This will hit different categories unequally. The elderly will be pushed out and the young will have a hard time finding their first job. Many women will be singled out. Already the share of women in the total unemployment rate has reached 64%, of which almost half (340,000) are mothers with sole responsibility for young
The income of those in secure public employment will probably reach West German levels in the next few years, but in other spheres this will only take place in a formal sense. The performance-related extra payments seen in the West will not be seen in the East. This means that a real drop in income will take place. Furthermore, there are and will be an increasing number of cases where the agreed union rate is renounced. In SPD-run Brandenburg teachers have accepted a 20% pay cut to avoid redundancies. In the printing industry the unions have accepted a clause renouncing wage rises. This trend
Bleak future for pensioners
People living on pensions or unemployment benefit face a bleak future. These will be calculated on the basis of past incomes, which were low both before and just after the change. In the predictable future it is likely that some two thirds of East Germans will live either wholly or partly on social benefits. This means the concentration of a new poverty in East
There will of course also be winners, only rarely from among the wage-earners. Almost all East German enterprises will be branches of West German concerns. The new East Germany will be as free of homegrown big capital as the old GDR!
The Western centres have parachuted in enterprise managements and even middle managers. The banks are a good example: of the 19,000 employees, 4,600 are from the West and it is the latter who have taken every halfway decent job, leaving few prospects for the locals. Maybe we
Mass actions and negotiations
October 12, 1992 should start demanding quotas for "Ossies" [slang for East Germans]!
There is nevertheless already a budding East German bourgeoisie, even if its importance has been over-estimated: Some 650,000 people have gone into business - although many have gone straight out again. Only some 180,000 have survived, that is 2% of those employed, and many of these will go under in coming years. However the overall figure is slowly rising, especially in agriculture where there were still only 6,000 private farmers in the spring of this year.
However this figure will remain lower than in the West, especially after all the claims for property restitution have gone through, creating a class of absentee small owners.
The economic collapse of East Germany has consequences. The financial ones are already apparent. The costs of pensions and unemployment payments are being met from West German taxes, that is to say by West Germany's wage-earners. In 1991 this cost DM23bn and in 1992 DM50bn - that means DM2,000
APARTHEID is not dead. This was the message of the clash at Boipatong on June 17 which left 42 dead - without doubt in an incident orchestrated by the "Zulu" Inkatha movement - and the police repression three days after which left three dead. In the true spirit of apartheid the Boipatong police felt