Colonisation of the former DDR?

Colonisation of the former DDR?
Kolonialiserung der DDR

I have been struggling with the proposal that the former DDR regions (Land is close to the un-English word Land, so we can refer to the five new Länder as the 5NL) were pressed into a colonial status by the new, expanded, Federal Republic, after 1990. This is the thesis of a 1995 book edited by Vilmar and Dümcke.
The simple reason for this classification is that, out of 8.5 million (steady) jobs in the 5 NL as at 1990, 3.7 million had been cut, lost, got rid of, by 1994. It is not credible that an autonomous country would have accepted a process like this, so the proposed answer is that the territory of the DDR had, once the DDR ceased to exist to protect them, been subject to a government which did not regard them as citizens.
The de-industrialisation was supervised by the Treuhand. When the DDR was abolished, it owned almost the entire economy. Its holdings were transferred into the hands of the Treuhand (“public trustees”). This was like a government, except that it was not run by elected officials, and that its managers were almost entirely interested in financial results. It originally had about half the economy, so 4 million jobs.
Before the Wall came down, the DDR had had low wage rates and its own currency. This had an exchange rate, on the open market, but to translate east German wages into the new D-Mark would have been to make them rather poor people. The conversion rate, when the east-Mark was got rid of, raised wage levels by a factor of roughly four. Employers were obliged, complying with existing and legally binding job contracts, to pay wages at this level. This almost instantly made their products too expensive to sell. This step had nothing to do with market values at all. The logical consequence would been to close down all the East German producers, since their prices were uncompetitive.
The DDR economy had been running down for ten years or so before 1990. The reason for this gross failure of leadership are complex. It was the outcome of a network of their failings, and very hard to fix. The quality of the plant, in east German factories, was so poor that it was logical, as a next step, to close all the factories down.
West Germany had factories covering the whole spectrum of goods and found it quite easy to expand their output by 20%, to satisfy the new lands. Farming was one of the sectors where this didn’t apply – along with service sectors, like teachers. The logical next step was to close down all the east German factories.
The DDR economy had been the specialist manufacturing region for the artificial Warsaw Pact system. All the other communist-satellite countries bought their goods in large quantities, so that the DDR was an industrial export economy. After 1990, the new countries rejected the Warsaw Pact ordering of things. They wanted to buy on world markets, and in fact were quite resistant to buying East German goods on the old pattern. But also, they were short of hard currency. And also, the new D-mark pricing made the goods deeply unattractive. So, the stable DDR export market vanished. The logical next step was to close down all the factories which had produced for export.
The DDR had no interest for packaging or marketing. In the old world, there was a permanent shortage of almost all consumer goods, so people would buy whatever was available. Its goods were deeply unattractive. (Cameras are the big exception to this.) By 1991, they also had the stigma of the old communist world, something which by now was the most unfashionable thing in the whole world. So, the Trabant car ran quite well, but nobody who had the choice would buy it. The logical step was to close down all the factories which produced consumer goods as clunky as the Trabant, and to replace the product with West German cars, etc., which customers actually wanted to buy.
One of the primary policy goals of the DDR was to avoid unemployment, and the Party could tell works managers exactly what to do. So the managers had no interest in raising productivity by shortening pay-rolls. When the Wall fell, DDR concerns were mostly over-manned to an incredible degree. One effect of this was that nobody really got paid very much. But, once wages floated to something like a West German level, getting rid of most of the staff was a logical step even in the firms which stayed open and made a success of it.
The DDR did not have a financial sector as such. It had five-year plans. None of its factories, or concerns, had organic relationships with a financial institute. West Germany had plenty of banks, and savings, but the mutual trust needed for a long and delicate campaign of travelling, through losses and job cuts, towards a shining quarterly profit, was simply not there. The pipe leading from the accumulated savings of many people, to saving the jobs which they relied on for wages, did not exist. The relationship between concerns and banks was critically weak. The usual remedies were not going to be applied. Local managers couldn't even put a loan application together. “Trust me and I will repay you in five years’ time.” That works better if the borrower and the banker went to school or university together, or have an experience of shared success.
Some people were willing to invest in uncertain eastern German concerns. But that capital supply was finite. You could perhaps have privatised the whole lot over 20 years, but trying to do it over 3 years destroyed the sales price. In a model where you either sold the firms or closed them down, the pace of the plan was fatal.

This is the background for the course which the Treuhand followed. An early evaluation was that, of all the businesses (Betriebe) which they controlled, one third could be privatised quickly, one third needed rehabilitation (“Sanierung”) before being privatised, and one third offered such problems that a buyer was unlikely to be found. The preferred method was management buy out (MBO also in German terminology). However, veterans of a communist economy were not always equipped to thrive in a market economy where you had to make a profit and where low-quality goods were not going to find buyers. A lot of the buy-outs failed witin a few years.
It is unusual for a large region to be quite without local specialised products. It is very surprising that the DDR turned out to be like this in 1990. Part of the background is the effective reaction of German industrialists to expropriation by the Soviet occupying regime, in 1945 and for a few years afterwards. We can see that the firm Zeiss of Jena was expropriated, but that there was a Zeiss concern which started up in West Germany, and that this or similar processes removed the status of the optical industry as a specialism of the east, exporting to all other parts of Germany (and other countries, too). My speculation is that, after D-Day, at latest, industrialists faced the idea of a deluge. They were concerned to rescue what could be rescued to re-start in a post-deluge world, with extensive devastation. My guess is that this involved making copies of technical drawings and hiding these documents, in fire-proof stores, in several places. This may be a fantasy, or may explain how families could re-start expropriated concerns out of reach of the Red Army (and the “democratic republic”), and re-create the inherited businesses. Rapidly, after 1945, wage levels in the West rose above those in the east. Because the border was still open, skilled workers could migrate out of the Soviet sector, and in practice the former bosses could re-create entire factories to replace the ones which they no longer owned. This drain of skilled workers was a major factor in the early history of the DDR. The BRD developed, in this way or in some other way, a full-spectrum industrial economy, which had no need of East German products in 1990 (or rather, was in competition with them). So the 5 NL had no market-leader industries in 1990. They were absolutely vulnerable. The firms of the west could just expand production by 20% and satisfy the new demands of the eastern consumers, without developing new sectors. The “new lands” could thus lose their whole manufacturing sector in a short time. This process of 1990-4 had been prepared by neglected processes of 1945-51 (or maybe even earlier – in 1944, perhaps).

Zeiss, of Jena in the east of Germany, began making lenses, but expanded into cameras when they came along. The Eastern Zeiss looked like a very successful east German concern. But, after 1990 they were subject to West German law, and according to that law they did not own either their patents or their brand name. The Western firm of Zeiss owned those. Zeiss-East was in a difficult position. The Western Zeiss took over the “socialised concern” Jena-Zeiss after 1990.
The Dresden camera VEB, Pentacon, (a merger of several firms) had sold a lot of cameras prior to 1990 – my father owned one (a Pentax, I think), and many people in Britain owned one. It was a source of great surprise that they didn’t thrive after the end of the DDR. Wii says “Liquidation began on October 2, 1990 (one day before official reunification), and production ceased on June 30, 1991. By then it had shed nearly three thousand employees to retain a total of 3331 - the next day all but 232 were laid off.” I don’t know why it failed, but I do know that a lot of their cameras had Carl Zeiss (East) lenses. Wiki also says that someone (who?) estimatetd that Pentacon had 6,000 employees but could have produced the goods with only 1,000. Digital photography was about to take over that sector, and the east was strikingly weak at IT. The Dresden firm was in no position to grow into a digital age. Something similar applied to the print industry. East Germany had impressive printing firms, with a long history. But, in the 1980s and 1990s, digital typesetting and printing was taking over rather rapidly. Firms with powerful IT skills took over the market, and the DDR's lag in anything to do with integrated components was a fatal handicap. The sector was doomed to shed large numbers of jobs, and in fact entire firms. But the rapid liquidation of Pentacon is still a puzzle to me.

When the Treuhand itself was wound up, it had a deficit of 275 billion D-marks. So, even after selling businesses off for many billions, they had spent that much either patching up or closing down the others. They had started off by owning the east German economy, effectively, so that figure is also a count of how much the West spent to refloat the East. To build a solution which would have “rehabilitated” so much that you didn’t shed 3.7 million jobs would have cost a multiple of that. To sum up, the solution chosen was to pay, federally, all the welfare costs for the new unemployed, but not also to pay for re-equipping all those rusting factories. Money always poured from West to East (and still is, given the higher unemployment in the eastern five Lands). In the early 90s, East Germany was a capitalist country without capital. Can we define the East German economy as being worth minus 275 billion D-marks? That seems a bit superficial, but it is hard to escape the implciations of that negative. If there was more wealth, where did it go?
The argument for a collusive exploitation of the east is quite weak, but also depends on a belief in certain decisions which would have been secret and deniable if they were actually taken. Proving them out of existence is virtually impossible. Proving them into existence – almost as much. Obviously, Western manufacturers stood to benefit from potential competitors disappearing, but they were not the sources of finance, and the argument that they could prevail on banks, and the federal government itself, to act against their own interests and withhold necessary (and profitable) loans is strained and wholly unproven. The Treuhand most probably aimed to reduce its own deficit, first and foremost. They sold off “legacy” firms to anybody who would put the money up. Of course, buying a loss-making firm is always a specialised decision.
Another question is why nobody foresaw the economic collapse of the 5 NL before it happened. This is a trick question. For example, Beatrix Fautz reports Regine Hildebrandt, the minister for social affairs of the post-Communist but pre-unification government of Lothar de Maiziere, as predicting mass unemployment if the market-shock policies were followed. Some people knew that the local industries were uncompetitive and needed years of subsidy and tariff protection. The date is 21/6/1990. De Maiziere was told that he was going to impoverish the population of the country he was ruling, but proceeded to sign off the abolition of that country (and the end of his responsibility for a disaster). The relationship of his eastern CDU party to the federal CDU looks like a colonial situation of dependence, and fear of independent action.
De Maiziere didn’t really have a mandate, and didn’t really have a party with a relationship of trust with the electorate. The electorate did indeed want re-unification, as fast as possible. Democracy hadn't really started up yet. If we think of a country which has a dictatorship that crushes every other kind of political activity or discussion, the country goes into a deep-freeze. Then something external comes along which wipes out the dictatorship, prevents the “ruling class” nurtured by it from any kind of political activity. They troop into the deep-freeze. At this point you have a country with no government. It is utterly vulnerable. That situation may not last very long. But, for that interval, it was like being a colony – no government of its own. And the damage was done between 1990 and 1994, during the lifetime of the Treuhand. It is embarrassing to think of Hildebrandt, and however many other people foresaw that the 5 New Lands would de-industrialise in a simplistically market/ competitive regime. There was no pipe by which their knowledge could be connected to a more social economic policy.

One “scare” process which didn’t happen was the compensation of the expropriated. The arrival of the Red Army saw very wide-scale dispossession of the upper class, for example of landed estates, houses, factories, shares. Such people set great store by their possessions, and their stake in the Cold War, which lasted up to 1990 in the end, was to reclaim their rightful possessions from the Bolshevik horde. That applied not only to the 5 New Lands, but also to the areas, such as East Prussia or Silesia, which had once been German but which were Polish after 1945 or 1946. They had high-powered lawyers and detailed inventories. This was a big argument against re-unification. However, even the CDU party didn’t take all this seriously by 1990. The really angry people had died off (I don't mean to be unkind). The seizures didn’t happen, although I believe compensation was paid in certain cases. People regained their houses, where still standing, and coul charge rent to the exising tenants. But this was a country full of post-war blocks of flats.
Eastern Germany was not an overseas territory, was not ethnically different from the “dominant” country, has a population entitled to vote, and has benefited from large, one-sided, flows of welfare payments from the “dominant” country. None of this applies to genuine colonies, obviously. To sum up, putting the 5 “new lands” into the category of colony is imprecise, and raises debating issues which are tiring and finally stop being productive. Putting them in a category of “the former communist countries of eastern Europe trying to develop into market economies” is more natural and more productive.
The feeling of many inhabitants of the 5 NL, three decades later, about the re-unification process, was that they had been relegated to second-class status, and that the federal government was quite happy for them to fail in life. This disaffection is now being expressed by votes for disaffected, anti-liberal, right-wing parties – previously the NPD and now the AfD. The distrust in the Republic and its major parties echoes the initial disillusion with the re-unification process in 1990-94.

I thought earlier that the East German opposition had been very impractical in not foreseeing how their country could transition to a democratic state without everyone losing their job. I thought they were hypnotised by Marxism, and by quasi-Marxist critiques of Marxism. But that is not fair. Really, the groups which wanted a protected economy, with a slower transition to closer ties with West Germany, stood in the (pre-unification) election of 1990 and only got 5% of the vote. The east German voters were seduced by certain ideas of the West, put over by unrefined images and unsubtle media, and gave their trust to the West. The West then sent people to abolish the 3.7 million jobs we mentioned. A more painstaking and successful process was possible, but did not suit the CDU government and the West German business community, the only two groups who really had a say in those pivotal four years.
Vilmar and Dümcke, eds., Kolonialiserung der DDR Norbert Pötzl, Der Treuhand-Komplex.