Eastern Germany’s Incorporation into the Federal Republic

Abstract

The complete set of social and economic institutions, norms and values of the West German system of coordinated market economy (‘Soziale Marktwirtschaft’) was transferred to Eastern Germany. This denied the former GDR the opportunity to develop home-grown economic institutions like other Central and Eastern European states. With persistent high unemployment of 20 per cent, despite huge financial transfers from West to East, it is an open question whether this transition process will prove successful. This chapter investigates whether the highly developed West German system of market economy was suitable for transfer to a former socialist economy, or whether the actors involved (managers and entrepreneurs) failed in applying the new institutions. Generally, actors play a key role in handling new rules and norms within a given structural framework. The special case of the GDR indicates how managers were shaped by the conditions prevailing in state-run industry and how this influenced their ability to master the problems of the new economic system in which they found themselves after 1989. Furthermore, the huge problems of the Eastern German economy weaken the economic strength of Western Germany. They undermine the ‘Rhine Mode’ and reinforce the shift towards its neo-liberal Anglo-Saxon counterpart.