A Splendid Failure: Reflections on Two Decades of East German Economic Reconstruction

Abstract

The title of this chapter borrows the words chosen by W.E.B. Du Bois to characterize the political process of extending rights of citizenship to the black population of the American South after the Civil War.¹ My purpose here is to consider the economic reconstruction of the German East following unification. For a two-word summary of that process, one would be hard-pressed to find a better characterization than “splendid failure.” The institutional structure of a planned socialist economy was indeed successfully replaced by that of a modern European welfare state and private market economy. The fact that this economic transformation occurred without any significant groups experiencing a drop in material standards of living was truly a splendid achievement. The scale of transfers from West to East for both private and public consumption and investment was completely appropriate to the magnitude of the historic task of German unification. And yet two decades after the Treaty of Monetary, Economic, and Social Union went into effect, the East German states and the city of Berlin are only about half way to catching up with the back of the pack of West German states, much less the average economic performance of West Germany. That gap between per capita output in West and East Germany has become smaller than it was during the last year of divided Germany, but its continued persistence constitutes a major policy failure.