Question

What can we learn about institutions comparing the growth rates between East and West Germany?

Answer 1

Socialism, the idea that the needs of the workers are best met by collectivizing the means of production .A system in which factories, banks and even housing are nationalized requires a planned economy, as a substitute for capitalist competition. However, central planning proved inadequate to satisfy the individual demands of the people . Ultimately the entire scheme collapsed; socialism in Germany failed as it did everywhere else. That's why it's odd to see socialism returning to German mainstream politics in 2019.

Before the Third Reich, the East German economy had 103% of West Germany 's national income per capita, compared to just 31% in 1991. This is the case with an economy that was relatively wealthy but lost in a relatively short time Based on official national product statistics, East German growth rates were very impressive. The actual result was not at all that good though.

A school-child 's attention can not miss the contrast between the two Berlins. West Berlin, though an island within East Germany, is an integral part of and shares the prosperity of West German economy. The two parts of the city were impartial to destruction through bombing. In West Berlin reconstruction is virtually complete.

West Berlin 's main thoroughfares are nearly filled with prosperous-looking automotive traffic, there is much evidence of the German make of automobiles, big and small. The West Berlin department stores are temptingly displayed with wearing apparel, other personal effects, and a variety of household equipment.

The distinction between the two Berlins the principal reason lies in the divergent political structures. The people being the same, there is no difference between the residents of the two parts of the city in talent, technological skills and aspirations.

The efforts of free men in West Berlin are spontaneous and self-directed, under the urge to go ahead. In East Berlin effort is centrally directed by Communist planners The contrast in prosperity is convincing proof of the superiority of the forces of freedom over centralised planning.

The bottom line is that the economic conditions in West Germany and East Germany differed dramatically because one had good policies (West Germany scored routinely in the top 10 for economic freedom between 1950 and 1975) and one suffered from socialism. These numbers should be very compelling as traditional economic theory holds that revenues should converge in countries. However, in the real world that only happens if governments don't build too many barriers to development.