The East German Economy: Central Economic Planning


Figure 1.--Here we see what looks like a new Trabbi in 1960. The East German auto manufacturer Sachsenring Automobilwerke Zwickau (VEB) produced the Trabant. VEB produced nearly 3.1 million Trabbis over 30 years with very limited changes. It is commonly high on the list of the world's worst cars. And East Germans normally had to wait an increduible 15 years for delivery. As a result the Trabbi is virtually the only car ever made that was worth more used. (East Germans buying used Trabbis did not have to wait 15 years. Besides the plain styling, the most destinctive feature was the smoke belching, jarring two-stroke engine. Countless jokes swirled around the Trabbi. (Example: How do you doublecthe value of a Trabbi? Abswer: Fill it with gas.) The Trabbi is perhaps the best know exaple of the failings of socialist central planning and state ownership. A German reader tells us that that VEB was efficent becaused it produced aow-cost car. This is simply untrue, when measured in terms like hours worked to pau for it, the Trabbi was a very expensive car indeed. Despite the Trabbis multiple failings, the Trabbi had some advantages. The simplicity of the vehicle meant that many owners could repair it an keep it running. The average Trabbi had an amazing life of 28 years. And this symbol of East German failure proved of all things a freedom chariot for thousands of East Germans who packed up their Trabbis and headed to the West and freedom after Czechoslovakia opened its border.

The East German Government slavishly followed the Soviet template. It was what the Sovuets demnded. They developed Five-year Plans to efficently produced goods. East German Communuists following the Soviet model introduced central planning to the economy. Actually this was not a massive shift. The NAZI economy was highly regulated and had their own version of the Soviet Five Year Plan -- in the NAZI case a Four Year Plan overseen by Reich Marshal Göring. On paper, central planning seems to make a lot of sense. Theoretically, central planners could maximize the utilization of available resources. And the result could thus benefit the entire nation rather than individuals. The central problems with central planners is first, the complexity of an economy and second that political factors commonly outweigh economic factors which result in an inefficent use of resources. In a capitalist system, producers have to satisfy consumer demamd. This ensures that quality products or at least proucts consumers want are manufactured. In a centrally planned economy, producers have to please beaureacrats not consumers. And beaureacrats are more concerned about pleasing their superiors rather than consumers. Easily calculted production numbers rather than hard to quantify product quality was often what central planners looked at. In addition central planners do not have to compete-they were a vast monopoly, the inly game in town. Thus the powerful incentive to inovation and product quality is lacking in centraly planed economies. Nor or resources used very effectively. Resources are assigned with little accounting. As a result, not infrequently the value of the inputs (msterial and labor) exceed the value of the goods manufactured. The DDR pursued Soviet central planning more slavishy than some other Eastern European satellites. The Soviets were particularly concerned that the Germans toe the line. And East Germans officials seeing what was happening in Poland were not about to liberalize. The Soviets allowed a degree of liberalixation in Czechoslovakia which became known as the Prague Spring. The same was true in Hungary. But there ould be no Berlin Spring. [Jefferies, p. 2.] The East Germans did a better job of central planning than other East European sattelites or even the Soviets, but the results were in sharp contrast to those achieved in the dymamic capitalist economy of the West.

Soviet Template

The East German Government slavishly followed the Soviet template. It was what the Sovuets demnded. They developed Five-year Plans to efficently produced goods. East German Communuists following the Soviet model introduced central planning to the economy.

NAZI Economy

Actually this was not a massive shift. The NAZI economy was highly regulated and had their own version of the Soviet Five Year Plan -- in the NAZI case a Four Year Plan overseen by Reich Marshal Göring.

Theory

On paper, central planning seems to make a lot of sense. Theoretically, central planners could maximize the utilization of available resources. And the result could thus benefit the entire nation rather than individuals.

Problems

The central problems with central planners is first, the complexity of an economy and second that political factors commonly outweigh economic factors which result in an inefficent use of resources. In a centrally planned economy, producers have to please beaureacrats not consumers. And beaureacrats are more concerned about pleasing their superiors rather than consumers. Easily calculted production numbers rather than hard to quantify product quality was often what central planners looked at. In addition central planners do not have to compete-they were a vast monopoly, the only game in town. Thus the powerful incentive to inovation and product quality is lacking in centraly planed economies. Nor or resources used very effectively. Resources are assigned with little accounting. As a result, not infrequently the value of the inputs (msterial and labor) exceed the value of the goods manufactured.

Capitalist Economies

In a capitalist system, producers have to satisfy consumer deamd. This ensures that quality products or at least proucts consumers want are manufactured. And there is a self correcting firce. Inefficent companies go bankrupt in aprocess known as creative destruction. Efficent companies prosper. This process does not fubction in a Communist. Rather inefficent compnies because they are owned by the state never go bankrupt. The only impact is that because they are so inefficent thy can not afford to pay workers much and living standards as a result are only amall fraction of thise achievd in capitalist economies.

DDR Central Planning

The DDR pursued Soviet central planning more slavishy than some other Eastern European satellites. The Soviets were particularly concerned that the Germans toe the line. Thus reforms institutd in Yugoslavia and some other Eastern European countries were not possible in East Hermany. And East Germans officials seeing what was happening in Poland were not about to liberalize. The Soviets allowed a degree of liberalixation in Czechoslovakia which became known as the Prague Spring. The same was true in Hungary. But there ould be no Berlin Spring. [Jefferies, p. 2.] The East Germans did a better job of central planning than other East European sattelites or even the Soviets, but the results were in sharp contrast to those achieved in the dymamic capitalist economy of the West.

Policies

Authorities in West Germny launched major free market beginning with a currency reform. This led to Stalin attempting to drive the Wesrn Allies out of Berlin and to the German Economic Miracle. The East Germans responded with a two-year plan of economic reconstruction (January 2, 1949). The goal was to achieve 81 percent of the 1936 production level. To achieve this the plan was to cut 30 per cent off production costs which would allow state corporations to increase the general wage level 12-15 percent. The plan also involved increasing daily food ration from 1,500 to 2,000 calories.

Chronology

The Third Party Congress of the Socialist Unity Party of Germany (Sozialistische Einheitspartei Deutschlands—SED) convened with the purpose of launching a major industrial effort (July 1950). The industrial sector at the time emoloyed about 40 percent of the East German labor force. The Congress decided on additionl nationalization The result was the People's Enterprises (Volkseigene Betriebe—-VEB). The VEBs made up 75 percent of East Germany's industrial sector. The First Five Year Plan (1951–55) introduced Soviet-style centralized planning. It set production quotas for heavy industry with the desite to increase production and labor productivity. The problem was that yhe proncipal approach for increasing labor productivity was for workers to work harder. The result was to increase the flow of people to the West. The next big step was the Second SED Party Conference (in Communist Party terminology, a conference is less important than a congress) convened only 2 years later to futher refine the industrial economy (July 1952). It was a high-profile event with both delegates and German and foreign guests. The Conference adopted a new economic policy--"Planned Construction of Socialism". The plan was designed to strengthen the state-owned sector of the economy. Officials explained that they were going to implement the principles of uniform socialist planning and to use the economic laws of socialism systematically. One might have asked what they had been doing earlier. Communism never produced the results capitalism poduced in the West, but in fairness it was not because he East Germans did not work at it. Another impotant step followed the surprise demise of Sovit dictator Joseph Stalin (March 1953). This would lead to major changes The first was economic changes initiated by arch-Stalinist Premier Georgi Malenkov who many thought would replace Stalin (June 1953). He decided to reverse Stalin's heavy emphasis on heavy industry and to work on improving standards of living which meant shifting investments toward light industry and trade to increase the availability of consumer goods. The SED of course followed the shift in Moscow. The "Planned Construction of Socialism" in East Germany was replaced the New Course. The SED not only shifted emphasis from heavy industry to consumer goods, bit introduced a program for alleviating what were identifid as economic hardships. This meant a reduction of delivery quotas and taxes, some loans to private business, and increasing allocations of production material. The New Course did achieve some increases in pouction of consumer goods no changes were made on the demnds being made on wokers, namely high production quotas. And quotas were actually raised (1953) leading to worker uprisings in Berlin and other cities (June 1953). Strikes and demonstrations broke out in industrial centers. Workers demanded economic reformsto imprive the workplace. The Volkspolizei and the Soviet Red Army butally suppressed the unarmed worker uprisinga. The death toll is often put at some 100 demonstratos. Many more people were arrested and confind to concentration camps.

Industrial Quality

East Germany had beenaargely agricultural area befoe World War II. And despite Allied bombing and Soviet rparations, the East Germans built a substantial industrial plant. It became the most important industrial area in the Soviet Eastern European Empire. And it achieved productivity and quality levels above that of the Soviet Union. This was, however, not a high bar to exceed. East German products for the most part could not be sold in international markets. The quality was not high enough. The East Germans did export, but only within COMCON. Consumers thre did not have access to high qualty Western products. Consumers in the East were thankful for virtually any major consumer products. Even willing to order and pay for refrigerators, other applinces, cars, etc. a decade or more in advance. A wonderrful joke circulated describin a lady who ordered a refigerator and was told it would be 20 years before it could be delivered. The lady was not surprised and asked if it would be delivered in the afternoon. The clerk asked, "Madam, what possible difference could it make?" She replied, "Because the plumber is coming in the morning." Every important industrial nation is known for some of its major products. The Soviets and East Germans produced not one single impressive product that could be sold in the West. Probably the only East German product that a few Americans but virtually all Germans know about is the Trabant -- arguably the worst car ever manufactured. Thus while West Germany is known for the BMW, Mercedes, and Volkwagen, East Germany is known for the Trabant. In an irony of history, many East Germans used their polution-belching Trabbis to escape East Germany, creating th Trabbi Trail through Czechoslovaki and Hungary.

Sources

Jeffries, Ian. "International perspective," in Ian Jeffries and and Manfred Melzer, eds.. The East German Economy.







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Created: 6:32 AM 7/3/2010
Last updated: 8:45 AM 9/7/2017