Question

When German unification occurred in 1990, the West German laws and monetary system were imposed on the east by treaty. The Truehandstalt (Federal Privatizing Trust) was created as a trust to hold all the shares of East German enterprises and became the major mechanism through which privatization was undertaken. (i) Carefully explain the advantage that East Germany gained over other Eastern European socialist economies in developing democratic-capitalistic institutions. (ii) The Truehand is also overseeing a fundamental change of the industrial base of the east. Describe the key issues that are the focus of changing the East German industrial base.

Answer 1

(i)

East Germany also had experienced an economic miracle of sorts. Unlike the opposite Soviet-style states of eastern Europe, East Germany had been a part of a complicated capitalism before the war, which gave it a substantial advantage in reconstruction.

Even though it had emerged from war II and therefore the postwar Soviet demolitions economically ravaged, its surviving industrial infrastructure, inherited skills, and high level of scientific and technical education enabled it to develop the economy and to advance the quality of living to A level markedly above those of most other socialist countries, though living standards were still well below those of western Europe.

East Germany became the principal supplier of advanced industrial equipment to the communist countries, though it became apparent after unification that it produced poor quality goods and caused environmental devastation.

East Germany had a command economy, during which virtually all decisions were made by the governing Communist Party , the Socialist Unity Party (SED). The system of designing was inflexible and eventually caused ruinous economic conditions.

Power, influence, and private connections (Beziehungen, or “vitamin B”) drove economic decisions, and every one groups, including trade unions, were expected to collaborate to realize the SED’s economic objectives.

(ii)

The Treuhand trust was created within the summer of 1990 to require control of previously state-owned East German companies waiting in line to be integrated into the new unified nation. Their number totalled 12,000, and collectively they employed four million people. Such are the figures which will forever be related to the Treuhand agency, but behind them there are human dramas, stories of success and a dramatic plan to turn a economy inside out.

Monetary and social union put the worth of the East and West currencies on an equivalent level overnight, although the latter was worth fourfold the maximum amount . It meant their products were overpriced and unpopular with consumers, which successively ultimately led to vast-scale bankruptcy and company closures. Within a really few months, the gross national product within the East had fallen by one third.

Despite serious efforts to sell companies, the economic situation in eastern Germany made it impossible to seek out buyers. the sole way the Treuhand agency could off-load the huge state holding companies that dotted the landscape was to sell them at subsidized prices.

Although their campaign to save lots of their livelihoods had enough vigor to succeed in beyond the boundaries of the newly unified country, what had been the foremost important mine of its kind within the GDR, had already been condemned to closure. The miners were retrained or made redundant. Some were even employed to demolish the place that they had worked for therefore long. thereupon job done, there was nothing left but anger and resignation.

It was not only in Bischofferode that the Treuhand was the main target of East German resentment, but that, says social scientist Wolfgang Seibel, was always getting to be the case. The agency was the sacrificial lamb of economic reunification.

The role of the Treuhandanstalt in restructuring the previous Kombinat are often summarized as follows:
Spinning off the foundries from Baukema AG (this has involved the Treuhand taking up the losses of the foundries directly and undertaking closer monitoring of Gisag)

Restructuring Gisag AG by separating out the foundry activities from the opposite Gisag enterprises (e.g., foundry plant construction)

1)Evaluating the prices of closure

2)In conjunction with management, identifying buyers for the individual foundries

3)Securing the retention of foundries in Leipzig (this involved separate negotiation with potential purchasers for every foundry

4)Seeking to influence Bund, findel; and native government to contribute to the prices of pursuing (the higher-cost choice to the Treuhand) on the grounds that its social cost is lower once account is taken of the utilization , regional, and industrial implications

5)Winding up the remaining activities of Gisag through a liquidation team.