For an appropriate comprehension and consequently treatise of the German ‘Treuhandanstalt’ (THA) or shortened ‘Treuhand’, trust agency as literal translation and privatization agency as analogous translation, it is absolutely necessary to keep in mind the history and context.
“It would be hard to devise a better controlled experiment for comparing different economic systems than the experience provided by East Germany and West Germany: two nations that formerly were one, occupied by people of the same background, the same culture, and the same genetic inheritance, torn apart by the accident of war. On one side of the Berlin Wall is a relatively free economic system; on the other side, a collectivist society” (Milton Friedman 1986, cited in Collier/Siebert 1991: 196).
Milton Friedman was assuredly surprised when his ideal field for experimentation of comparing ran in another direction three years later. As commonly known, the mentioned Berlin Wall fell on 9 November 1989 and became the starting point of a never seen before transformation of the German Democratic Republic (GDR) according to his geographical and geostrategic position also known as East Germany. Nevertheless the statement of the recipient of the Nobel Memorial Prize in Economic Sciences and in general one of the most famous economists of the 20th century remains unaffected. The origin of the so-called ‘German reunification’ or ‘the turning point’ is unique; the still special circumstances liberated by the fall of the Berlin Wall, which only formed part of a series of the demolishing Iron Curtain, led to incomparable possibilities regarding transformations in many countries in Central and Eastern Europe (CEE). The formal political accession, occurred on the 3rd October 1990, is a quite famous date and its anniversary is nowadays the national day, the ‘day of German unity’. The Federal Republic of Germany (FRG), previously known as West Germany, from this day forth consisted of sixteen federal states, eleven old and five new ones. But another, earlier aspect of the reunification is not so well known: the bilateral state treaty about the creation of a monetary, economic and social union (MESU) of 18 May 1990, that came into effect on 1 July 1990. This was the comprehensive economic integration of the command economy GDR in the capitalistic, more precisely social market economy, FRG.
Table of Contents
1. Introduction
2. Initial Situation - The inherited Socialist Economy
3. General Theory of Transformation and Privatization applied to the GDR
3.1 Macroeconomic Stabilization and Control
3.2 Price and Market Reform
3.3 The Role of the State
3.4 Enterprise Reform
4. Privatization in the GDR – The Treuhandanstalt
5. Success and Conclusion
6. Sources
6.1 Literature Sources
6.2 Online Sources
Objectives and Themes
This seminar paper examines the economic transformation of the former German Democratic Republic (GDR) following reunification, with a specific focus on the privatization efforts conducted by the "Treuhandanstalt". It explores the theoretical foundations of socialist economic transformation and assesses the practical implementation, challenges, and outcomes of the "Treuhand" agency's role in the transition from a command economy to a social market economy.
- The historical context and the "shock therapy" model of German reunification.
- Economic characteristics of the inherited socialist system in the GDR.
- Theoretical frameworks for transformation, including macroeconomic stabilization and enterprise reform.
- The operational role and impact of the Treuhandanstalt as the primary privatization agency.
- An evaluation of the success and long-term socio-economic consequences of the privatization process.
Excerpt from the Book
4. Privatization in the GDR – The Treuhandanstalt
With regard to the structure and extent of the state sector (1.; 2.), the illustration of the practical significance is done and the theoretical significance (3.4) could be shown as well. The timing, distribution, the treatment of different size firms and their maintenance, analogous to 3.4, together with GDR’s own privatization characteristics and the effects of the macroeconomic and institutional framework (3.1-3.3) are the content of this chapter. The application of the theoretical ‘enterprise reform’ framework is strongly connected to the name of the ‘Treuhandanstalt’, founded already on March 1st, 1990 by the last socialist government. But shortly afterwards it got an independent statute in the unification treaty and was managed by West German experts, formally supervised by the (West) German Federal Ministry of Finance. It is defined as “legal successor and interim owner of the capital assets of the socialist economy” (Brezinski 1992: 6).
The THA took over all shares of the former socialist combines and enterprises, which were corporations now. Indeed the privatization was the primary task of the THA, but also the accompanying restructuring was its secondary task. The predictions were that the “agency’s coffers [will be] overflowing with profits” (Stack 1997: 1233). Hence possible earnings should either be transferred to the governments or the people of the new federal states and the THA should be closed immediately after fulfilling its tasks (Collier/Siebert 1991: 198f.; Hau 1997: 1179f.; Brezinski 1992: 7f.).
Summary of Chapters
1. Introduction: This chapter provides the historical context of German reunification and outlines the scope of the paper, focusing on the Treuhandanstalt's role in the economic transformation of the GDR.
2. Initial Situation - The inherited Socialist Economy: This section describes the economic state of the GDR before 1990, highlighting the dominance of the state sector and the structural problems inherent in a centrally administered economy.
3. General Theory of Transformation and Privatization applied to the GDR: This chapter outlines the theoretical "pieces" of economic transition, including stabilization, market reform, state roles, and enterprise restructuring.
3.1 Macroeconomic Stabilization and Control: Discusses the necessity of reducing deficits and the specific impact of the monetary, economic, and social union on the GDR economy.
3.2 Price and Market Reform: Examines the transition from state-fixed prices to world market prices and the required deregulation of labor and capital markets.
3.3 The Role of the State: Focuses on the establishment of new institutional frameworks, such as tax systems and social safety nets, necessary for a functioning market economy.
3.4 Enterprise Reform: Analyzes the strategies for privatization, contrasting "shock therapy" with "gradualism" and discussing the process of corporatization.
4. Privatization in the GDR – The Treuhandanstalt: Details the practical implementation of privatization by the Treuhandanstalt, including the challenges of restructuring, evaluation, and the political context of its operations.
5. Success and Conclusion: Evaluates the overall outcomes of the Treuhand's work, including its financial costs, the resulting unemployment, and the broader socio-economic legacy of the German unification.
6. Sources: Lists the literature and online resources used throughout the research.
6.1 Literature Sources: A detailed bibliography of academic books and journal articles referenced in the paper.
6.2 Online Sources: A collection of internet-based data and media reports regarding the Treuhandanstalt and unemployment statistics.
Keywords
GDR, Treuhandanstalt, German Reunification, Economic Transformation, Privatization, Socialist Economy, Shock Therapy, Enterprise Reform, Social Market Economy, Macroeconomic Stabilization, Monetary Union, Restructuring, Treuhand, Market Economy, Central Planning.
Frequently Asked Questions
What is the primary focus of this research paper?
The paper focuses on the economic transformation of the former GDR during the reunification process, specifically investigating the role and the practical results of the Treuhandanstalt in privatizing state-owned enterprises.
What are the central themes discussed in the work?
Key themes include the differences between command and social market economies, the theoretical approaches to transition, the political context of the Treuhand's mandate, and the socio-economic impacts on East Germany.
What is the main research objective of this study?
The objective is to analyze how the classical "top-down" privatization was applied in the specific case of the GDR and to assess the success of this monumental economic project.
Which scientific methodology does the author employ?
The paper employs a qualitative analytical approach, utilizing existing economic theories and literature to review the transformation process, historical context, and empirical outcomes of the Treuhand's activities.
What topics are covered in the main body of the paper?
The main body covers the initial state of the socialist economy, the theoretical framework for transformation (stabilization, price and market reform, state role, enterprise reform), and a detailed case study of the Treuhandanstalt.
Which key terms characterize this study?
The study is characterized by terms such as privatization, Treuhandanstalt, GDR, shock therapy, economic transformation, and social market economy.
What was the official function of the Treuhandanstalt?
The Treuhandanstalt served as the legal successor and interim owner of the capital assets of the GDR, with the primary task of privatizing state-owned enterprises and a secondary task of restructuring them.
Why does the author consider the German case unique?
The author argues that the German case is unique because of the rapid "incorporation" of the GDR into the existing, well-developed political and institutional framework of the Federal Republic of Germany (FRG), which differs from standard transition processes in other CEE countries.
How does the paper evaluate the overall success of the privatization?
The paper concludes that while the privatization is often viewed by commentators as a "triumph of the market" and the most successful of its kind, it was associated with massive costs, high unemployment in the East, and significant distributional problems.
- Quote paper
- Jan H. Bühring (Author), 2013, The economic transformation in the GDR with focus on the privatization by the "Treuhandanstalt", Munich, GRIN Verlag, https://www.grin.com/document/277659
