The Eastern Länder as a Transition Economy

  • Michael Kaser
Part of the Studies in Economic Transition book series (SET)


This chapter places the German eastern Länder in the context of the almost thirty countries of Europe and Asia which have accompanied the collapse of exclusive communist rule with systemic change towards the market. It compares the Länder as a group within unified Germany against the broadly-accepted benchmarks of the process in other transition economies. Eight years after the political transformation began in the Warsaw, Budapest, Berlin and Prague of late 1989, the economies — Poland alone excepted — have not regained the level they had then. All had become market economies, the German eastern Länder more thoroughly a market economy than any, notably because the federal set of laws and institutions were applied immediately on unification and because the privatisation was more thoroughgoing. Nevertheless, the eastern Länder ‘industrialisation’ that resulted from the operation of the Treuhand could have been less severe under alternative possible policies, and the output recovery after the nadir of recession has been heavily dependent on resource inflows from the western Länder. At no time in the transition, past or future, could equivalent external support be expected for other countries.


Corporate Governance International Monetary Fund Purchase Power Parity Purchase Power Parity Unit Labour Cost 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. 4.
    Some multi-national comparisons cover more than twenty countries, but not the eastern Länder, e.g. Stanley Fischer, Ratna Sahay and Carlos Végh, ‘Stabilization and Growth in Transition Economies: The Early Experience’, Journal of Economic Perspectives, vol. 10 (1996), pp. 45–66;CrossRefGoogle Scholar
  2. 4a.
    Darius Rosati, ‘Output Decline during Transition from Plan to Market: A Reconsideration’, Economics of Transition, vol. 2 (1994), pp. 419–42 takes the former CMEA members in Europe, but not the ex-GDR.CrossRefGoogle Scholar
  3. 4b.
    A notable comparison between East Germany and a set of transition states is in Hans-Werner Sinn, Factor Price Distortions and Public Subsidies in East Germany, Centre for Economic Policy Research (CEPR) Discussion Paper Series no. 1155 (May 1995).Google Scholar
  4. 4c.
    See also Hans Werner Sinn and Alfons Weichenrieder, Foreign Direct Investment, Political Resentment and the Privatization Process in Eastern Europe, mimeo for an EBRD Conference, 26–27 April 1996 (the writer is grateful to John Bennett, University of Wales Swansea, for a copy of this paper).Google Scholar
  5. 5.
    It is fair to point out that the NATO Colloquium of the year before had specifically covered the Länder (Wolfgang Vehse, ‘Privatization German Style’, in Reiner Weichhardt (ed.), Privatization in NACC Countries: Defence Industry Experiences and Policies and Experiences in Related Spheres, NATO, Brussels, 1994).Google Scholar
  6. 6.
    Peter Rutland, ‘Successes and Failures: Privatization in the Transition Economies’, in Reiner Weichhardt (ed.), Status of Economic Reforms in Cooperation Partner Countries in the Mid-1990s: Opportunities, Constraints, Security Implications,’ NATO, Brussels, 1996, pp. 157–8.Google Scholar
  7. 11.
    Treuhandanstalt, Entschlossen sanieren, April 1992, cited by Claus Köhler, ‘The Privatisation of the East German Economy and the Role of the Treuhandanstalt’, in Stephen Frowen and Jens Hölscher (eds), The German Currency Union of 1990: A Critical Assessment, Macmillan, London, 1997, pp. 154–5.Google Scholar
  8. 12.
    Lutz Bellmann, ‘Labour Market Policies in Germany’, MOCT-MOST: Economic Policy in Transitional Economies [hereafter MOCT-MOST], vol. 5, no. 4, 1995, pp. 153–9, describes the many allowances of the time and tabulates numbers of recipients.Google Scholar
  9. 13.
    Horst Brezinski and Michael Fritsch, ‘Transformation: The Shocking German Way’, MOCT-MOST, vol. 5, no. 4, pp. 1–25 (Figure 2); Lutz Hoffmann, East Germany in Transition’, Joint Economic Committee, US Congress, East-Central European Economies in Transition, US Government Printing Office, Washington DC, 1994, p. 664.Google Scholar
  10. 15.
    Joachim Frick, Richard Hauser, Klaus Müller and Gert Wagner, ‘Income Distribution in East Germany after the Fall of the Wall,’ MOCT-MOST, vol. 5, no. 4, 1995, pp. 79–108.Google Scholar
  11. 16.
    Data for 1995 from Statistisches Bundesamt, Volkswirtschaftliche Gesamtrechnungen (earlier tracking from Deutsche Bundesbank, Monatsbericht). Estimates for 1936 and 1980 were compiled by Michael Kaser, ‘The Economic Dimension’, in Edwina Moreton (ed.), Germany between East and West, Cambridge University Press, Cambridge, 1987, pp. 123–4 and 138–9, from sources there stated.Google Scholar
  12. 17.
    Federal Ministry of Economics, Wirtschaftsdaten Neue Länder, April 1996.Google Scholar
  13. 22.
    Jurgen von Hagen, East Germany: The Economics of Kinship, CEPR Discussion Paper Series no. 1296 (November 1995).Google Scholar
  14. 23.
    Friedrich Sell, ‘The Currency Conversion Controversy’, MOCT-MOST, vol. 5, no. 4, 1995, Figure 8.Google Scholar
  15. 25.
    Daten und Fakten zur Aufgabenerfüllung der Treuhandanstalt, Treuhandanstalt, Berlin, December 1994. For a list of Treuhand reports and a tabulation of the progress of its privatisations, see Herbert Brücker, ‘Selling Eastern Germany. On the Economic Rationale of the Treuhandanstalt’s Privatisation and Restructuring Strategy,’ MOCT-MOST, vol. 5, no. 4, 1995, pp. 27–53.Google Scholar
  16. 26.
    Early perceived by Wendy Carlin, ‘Privatization and Deindustrialization in East Germany’ in Saul Estrin (ed.), Privatization in Central and Eastern Europe, Longman, London, 1994, pp. 127–53.Google Scholar
  17. 29.
    Wolfram Fischer, Herbert Hax and Hans Karl Schneider, Treuhandanstalt: The Impossible Challenge, Akademie Verlag, Berlin, 1996, p. 30; they term the first incarnation the ‘Original-Treuhand’, to distinguish it from the federal agency it became.Google Scholar
  18. 30.
    Lesley Lipschitz and Donough McDonald (eds), German Unification: Economic Issues, IMF, Washington DC, 1990, pp. 7–9;Google Scholar
  19. 30a.
    Vito Tanzi (ed.), Fiscal Policies in Economies in Transition, IMF, Washington, 1992, pp. 69, 73–4.Google Scholar
  20. 33.
    Roland Tichy, ‘Privatisierung und soziale Marktwirtschaft’, Basis-Info: Wirtschaft, no. 28, 1996, p. 9.Google Scholar
  21. 34.
    Klaus-Dieter Schmidt, German Unification: A Progress Report, Kieler Arbeitspapiere, no. 722 (February 1996), Table 2.Google Scholar
  22. 36.
    A close analysis of the forest and farm disposal and of the successor agencies to the Treuhand is in Dieter Bös, The Treuhand: A Never-Ending Story, Rheinische Friedrich-Wilhelms-Universität Bonn, Discussion Paper no. A-531 (September 1996).Google Scholar
  23. 37.
    Report by Judy Dempsey, Financial Times, 14 February 1995.Google Scholar
  24. 38.
    Report by Frederick Studemann, Financial Times, 20 August 1997.Google Scholar
  25. 40.
    Birgit Sander, ‘Foreign Investors’ Activities in the Context of German Privatization’, MOCT-MOST, vol. 5, no. 4, 1995, pp. 109–32.Google Scholar
  26. 41.
    See in particular, Dieter Bös and Gunter Keyser, Treuhandanstalt: Heads or Tails, Institut für Mittelstandsforschung Bonn, Materialen no. 119 (June 1996).Google Scholar
  27. 43.
    Wolfram Schrettl, ‘Transition with Insurance: German Unification Reconsidered’, Oxford Review of Economic Policy, vol. 8, no. 1, 1992, p. 147.CrossRefGoogle Scholar
  28. 47.
    Maria Haendcke-Hoppe-Arndt, Michal Keren and Günter Nötzold, ‘The Currency Union and the Economic Road to German Unity,’ in Michael Keren and Gur Ofer (eds), Trials of Transition. Economic Reform in the Former Communist Bloc, Westview Press, Boulder, 1992, p. 182.Google Scholar
  29. 49.
    George von Furstenberg, ‘Overstaffing as an Endgame and Prelude to the Employment Collapse in Eastern Germany?’, Communist Economies and Economic Transformation, vol. 7, no. 3, 1995, pp. 229–318 (p. 312).Google Scholar
  30. 50.
    Dieter Bös, ‘Privatization in East Germany’, in Vito Tanzi (ed.), Transition to Market. Studies in Fiscal Reform, IMF, Washington DC, 1993, p. 204.Google Scholar
  31. 57.
    Leon Podkaminer et al., Transition Countries: Economic Developments in 1995 and Outlook for 1996 and 1997, Research Reports no. 225, February 1996, WIIW, Vienna, pp. 35–9.Google Scholar
  32. 59.
    Gerlinde Sinn and Hans-Werner Sinn, Kaltstart: Volkswirtschaftliche Aspekte der deutschen Vereinigung, Mohr, Tübingen, 1991.Google Scholar
  33. 60.
    Richard Rose and Christian Haerpfer, ‘The Impact of a Ready-made State: Advantages to East Germans’, Studies in Public Policy, no. 238, University of Strathclyde, 1996;Google Scholar
  34. 60a.
    and in Helmut Wiesenthal (ed.), Einheit als Privileg? Vergleichende Perspektiven auf die Transformation Ostdeutschlands, Campus Verlag, Frankfurt am Main, 1996.Google Scholar
  35. 61.
    ‘Thirty to 40 years’ is estimated by A. J. Hughes Hallett and Yue Ma, ‘Real Adjustment in a Union of Incompletely Converged Economies: An Example from East and West Germany’, European Economic Review, vol. 38 (December 1994), pp. 1731–61; ‘20 years’ is from Sinn and Sinn, Kaltstart, ‘10 years’ is from T. Mayer, Borrowed Prosperity: Medium Term Outlook for the East German Economy, Goldman-Sachs International, London, May 1992.CrossRefGoogle Scholar
  36. 62.
    Wendy Carlin and Peter Richthofen, ‘Finance, Economic Development and the Transition: the East German Case’, Economics of Transition, vol. 3, 1995, p. 192.Google Scholar
  37. 63.
    Andrea Boltho, Wendy Carlin and Pasquale Scaramozzino, ‘Will East Germany Become a New Mezzogiorno?’, Journal of Comparative Economics, vol. 24, no. 3, 1997, pp. 241–64.CrossRefGoogle Scholar
  38. 65.
    EBRD, Transition Report Update 1997, Appendix tables; Poland is not shown for 1995, but was 47.5 per cent in 1994.Google Scholar
  39. 66.
    See Richard Pomfret, Asian Economies in Transition, Edward Elgar, Cheltenham, 1996;Google Scholar
  40. 66a.
    Michael Kaser, ‘Economic Transition in Six Central Asian Economies’, Central Asian Survey, vol. 16, no. 1, 1997, pp. 5–26.CrossRefGoogle Scholar
  41. 68.
    Report by David Marsh, Financial Times, 6 March 1995. The current account deficit in 1996 was 0.8 per cent of GDP, compared to a 1.2 per cent surplus for western Europe as a whole (OECD, Main Economic Indicators).Google Scholar
  42. 69.
    Peter Dolton and Donal O’Neill, ‘Unemployment Duration and the Restart Effect: Some Experimental Evidence’, Economic Journal, vol. 106 (March 1996), p. 397CrossRefGoogle Scholar
  43. 70.
    Richard Layard, Stephen Nickell and Richard Jackman, Unemployment: Macroeconomic Performance and the Labour Market, Oxford University Press, Oxford, 1991, ch. 9.Google Scholar
  44. 73.
    Michel Albert, Capitalisme contre capitalisme, Seuil, Paris, 1991 (English trans. Capitalism against Capitalism, Whurr, London, 1993);Google Scholar
  45. 73a.
    and Colin Crouch and David Marquand (eds), Ethics and Markets: Cooperation and Competition within Capitalist Economies, Blackwell, Oxford, 1993.Google Scholar
  46. 74.
    See, for example, Michael Kaser, ‘Privatization in the CIS’, in David Dyker (ed.), Challenges for Russian Economic Reform, Brookings Institution, Washington DC, 1995, pp. 184–93.Google Scholar

Copyright information

© Michael Kaser 1998

Authors and Affiliations

  • Michael Kaser

There are no affiliations available

Personalised recommendations