Firstly, as typical for a centrally planned socialist economy, the great majority of productive capacity belonged to the state. Large, state owned enterprises (Volkseigene Betriebe), often grouped into huge industrial conglomerates (Kombinate), made up 80.7 percent of total assets. Cooperative property accounted for another 14.7 percent in March 1990. Private property merely amounted to 4.7 percent of economic resources and was confined to small-scale businesses, restaurants, and craft shops. Employment was consequently almost entirely in the hand of the state leaving only about 2 percent of the workforce independently employed (Merkl 1994, p. 200). Also, the structure of the GDR economy differed largely from its western counterpart. Employment was heavily concentrated in sectors and branches that had actually been declining in the West. The production was skewed towards agriculture, energy, mining and manufacturing, which together accounted for 47 percent of employment in the GDR (37 percent in the BRD) (Lange and Pugh 1998, p. 32). As shown in table 1 agriculture, forestry and fishery, energy and mining as well as textiles and clothing employed almost 18 percent of the GDR’s workforce in contrast to 7 percent in West Germany. Further differences appeared in the service and trade sector which, by Western standards, was rather underdeveloped in the GDR. [...]
Table of Contents
Introduction
German Unification and Economic Transformation
Privatization
The Treuhandanstalt
Phase 1 – Rapid privatization
Phase 2 – Active restructuring
Assessing Privatization under the Treuhand
Objectives and Core Topics
This paper examines the economic transformation of the former German Democratic Republic (GDR) following unification, with a specific focus on the role of the Treuhandanstalt. It evaluates the dilemma between rapid market-based privatization and the need for industrial restructuring to prevent social and economic collapse.
- The structural legacy of the centrally planned East German economy.
- The political and economic mandate of the Treuhandanstalt.
- The transition from rapid "shock" privatization to active restructuring programs.
- The socio-economic impacts of the privatization process on the East German labor market.
- An assessment of the Treuhand’s performance and the effectiveness of the "Management KG" concept.
Excerpt from the Book
The Treuhandanstalt
The Trust Agency for the People’s Property was founded on 1 March 1990 by the last communist government of the GDR under Hans Modrow. At that point its task was actually more to “rescue parts of the old economic system than to transform the economy” by privatizing it (Volkhart 1993, p. 142). For this rescue mission, almost the entire Volksvermoegen of the GDR was transferred to the THA, making it the “world’s largest holding company”. Its property consisted of more than 300 industrial conglomerates, 8,000 public enterprises, 30,000 small shops, restaurants, hotels and service firms, 2.3 million ha of arable land, 1.9 million ha of forest, and the assets of former GDR parties, mass organizations and the army. Together this accounted for nearly 90 percent of the GDR’s productive capacity, 57 percent of the land area and up to half its labor force. (Lange and Pugh 1998, p. 57).
On 17 June 1990, the newly elected democratic government of Lothar de Maizère amended the Treuhand Act to emphasize the THA’s mandate for restructuring the economy of the GDR through the privatization of its assets. This decision was preceded by a fierce debate led by the former Minister of Economic Affairs in the Modrow government, Christa Luft, who feared that an emphasis on privatization would result in a sell out of the GDR Volksvermoegen to the detriment of the Eastern German population (Kruesselberg 1994, pp. 287-288).
Summary of Chapters
Introduction: This section outlines the economic disparities between East and West Germany post-unification and introduces the critical debate surrounding the privatization of state enterprises.
German Unification and Economic Transformation: This chapter analyzes the structural weaknesses of the former GDR economy and the immense economic shock caused by the integration into the West German market model.
Privatization: The chapter explores the theoretical rationale for privatization as a means to foster efficiency and democratic stability, while highlighting the political dilemma of equitable distribution versus economic restructuring.
The Treuhandanstalt: This chapter details the establishment and mandate of the Treuhandanstalt, serving as the central agency for managing and privatizing state-owned property.
Phase 1 – Rapid privatization: This section covers the initial strategy of quick divestment, corporate unbundling, and the challenges posed by property right claims.
Phase 2 – Active restructuring: This section describes the shift toward proactive industrial policy, increased government intervention, and the implementation of the "Management KG" concept to stabilize essential employers.
Assessing Privatization under the Treuhand: The final chapter provides a critical review of the Treuhand’s performance, weighing the achievements in investment and job guarantees against the high costs and social consequences.
Keywords
German Unification, Treuhandanstalt, Privatization, East Germany, Economic Transformation, GDR, Restructuring, Industrial Policy, Labor Market, Market Economy, Soziale Marktwirtschaft, Volkseigene Betriebe, Aufbau Ost, Economic Efficiency, Deindustrialization.
Frequently Asked Questions
What is the core focus of this research?
The research explores the economic transformation of East Germany following unification, focusing specifically on how the Treuhandanstalt managed the privatization of former state-owned enterprises.
What were the main objectives of the privatization process?
The primary objectives were to transition the East German economy to a market-based system, improve efficiency through private ownership, and facilitate the entry of new entrepreneurs while managing the social impact on employment.
What was the main research question or dilemma addressed?
The paper addresses the dilemma of balancing the need for rapid, efficient privatization with the social and political necessity of restructuring companies to protect jobs and the regional industrial base.
Which methodology does the author use?
The author uses a historical and economic analysis approach, drawing on academic literature, official reports, and statistical data to evaluate the policies and outcomes of the Treuhandanstalt.
What is covered in the main body of the text?
The main body covers the initial economic conditions of the GDR, the establishment of the Treuhand, the two-phase approach (rapid privatization vs. active restructuring), and a final assessment of the overall impact.
Which keywords best describe the content?
Key terms include German Unification, Treuhandanstalt, Privatization, Economic Transformation, Industrial Policy, and Restructuring.
What was the function of the "Management KG"?
The Management KG was an innovative concept where teams of experienced managers were employed to supervise the restructuring of large, "hard-to-privatize" firms, allowing them to remain operational while the Treuhand retained ownership.
Why did the Treuhand eventually shift from rapid sales to active restructuring?
The shift occurred because the initial phase of rapid privatization led to severe economic decline and rising unemployment, forcing the agency to take a more proactive role in preserving industrial cores rather than simply liquidating assets.
- Quote paper
- Patrick Avato (Author), 2005, Economic Efficiency and Political Constraints - The Dilemma of Privatization in Eastern Germany, Munich, GRIN Verlag, https://www.grin.com/document/39207
