To What Extent And In What Ways Did Communism Transform East Germany

To what extent and in what ways did Communism transform the GDR?

Agriculture, Industry and the Command Economy

Aim AO1a & AO1b to support the sources work through knowledge and understanding of the historical context.

During the interwar years, the territory that became East Germany was profoundly dependent on external economic ties. In the mid-1930s, it shipped almost half of its total production to the other parts of Germany. In return it obtained a slightly larger percentage share of its total economic needs from other parts of Germany. This domestic trade featured sales of agricultural products textiles products of light industry, such as cameras, typewriters, and optical equipment and purchases of industrial goods and equipment. In addition, a substantial share of the production from the area was shipped abroad in those years, and additional goods were received in return.

After it became the Soviet Zone of Germany it could no longer rely on its former system of internal and external trading, the Soviet Zone of Occupation had to be restructured and made more self-sufficient through the construction of basic industry. Such an economic strategy was also dictated by the Stalinist pronouncement that the newly established people`s democracies in Eastern Europe were to replicate the Soviet economic strategy, which emphasized heavy industry and a trade denial policy bordering on autarky (economic self-sufficiency). For East Germany, this meant building iron and steel plants and increasing the country`s capacity to produce chemicals and heavy machinery regardless of the cost such a strategy imposed on living standards.

The reorientation and restructuring of the East German economy would have been difficult in any case. The substantial reparations costs that the Soviet un ion imposed on its occupation zone, and later on East Germany, made the process even more difficult. Payments continued into the early 1950s, ending only with the death of Stalin. According to Western estimates, these payments amounted to about 25 percent of total East German production through 1953.

Reconstruction was complicated by the massive effort to introduce socialism that began almost immediately after the war. In October 1945, the Soviet Military Administration in Germany ordered the confiscation of all properties belonging to former Nazis and their sympathizers. The measure affected properties of the great German banking concerns and about 10,000 other enterprises. In 1946 the first phase of agrarian (farming) reform began it involved redistribution of all landholdings over 100 hectares, as well as lands owned by former Nazi activists, and affected about one-third of all land in agricultural production. Agricultural labourers, poor farmers, and Germans recently resettled from the "lost territories" in Eastern Europe received about two-thirds of this confiscated land, and the remainder was converted into state farms.

The public reaction to reparations and land reform, though muted, was mixed. Reparations costs could hardly have been well received by the impoverished population, whatever their political views. Dispossession of the ex-Nazis and large landowners may have been popular with many, including those who received parcels of land but many individuals who were dispossessed fled to the West with their much needed expertise, if not their movable resources. In addition, dividing the land into small units (the plots averaged about eight hectares) was unlikely to lead to the institution of efficient farming methods, although initially the level of mechanization in agriculture was so low that the matter was of little significance.

By 1950 the results of the state`s cautious steps toward the socializing of both industry and agriculture were already discernible. Near the end of 1950, about 66 percent of all industry, 40 percent of the construction enterprises, and 30 percent of the domestic trades were already state owned. In 1952, six years after the land had been distributed to the poorer agricultural population, collectivization of agriculture began in earnest. By 1960 about 85 percent of the land had been collectivized.

What is a Command Economy?

East Germany had a centrally planned economy (CPE), imposed on it by the Soviet un ion in the late 1940s. Here the state establishes production targets and prices and allocates resources in a comprehensive plan or set of plans. The means of production are almost entirely state owned. In 1985, for example, state-owned enterprises or collectives earned 96.7 percent of total net national income.

Advocates of CPEs consider this organizational form to have important advantages. First, the government can harness the economy to serve the political and economic objectives of the leadership. Consumer demand, for example, can be restrained in favour of greater investment in basic industry or channelled into desired patterns, such as reliance on public transportation rather than on private automobiles. Second, CPEs can maximize the use of all available resources. Under CPEs, neither unemployment nor idle plants should exist and the economy should develop in a stable manner, unimpeded by inflation or recession. Third, CPEs can serve social rather than individual ends under such a system, the leadership can distribute rewards, whether wages or perquisites, according to the social value of the service performed, not according to the vagaries of supply and demand on an open market.

So – What is bad about this idea?

Firstly, given the complexities of economic processes, any plan must be a simplification of reality. Individuals and factories can be given directives or targets, but in carrying out the plan they may seek shortcuts to meet the targets. This might include, for example, ignoring quality standards, or using resources wastefully. Secondly, CPEs have build-in obstacles to innovation and efficiency in production managers of factories, frequently having limited discretionary authority, see as their first priority a strict fulfillment of the plan targets rather than, for example, development of new techniques or diversification of products. Thirdly, the system of allocating goods and services in CPEs is thought to be inefficient. Most of the total mix of products is distributed according to the plan, with the aid of a rationing mechanism known as the System of Material Balances. But since no one can predict perfectly the actual needs of the country and its people, some factories made too many goods and others too few. The managers with surpluses are hesitant to admit they have them. Managers prefer to hoard whatever they have and then to make informal trades when they are in need and can find someone else whose requirements complement their own. Finally, detractors argue that in CPEs prices do not reflect the real value of available resources, goods, or services. In market economies, prices, which are based on cost considerations, allow a cost to be worked out by the market and supply and demand. In CPEs, prices are determined administratively, and the criteria the state uses to establish them are sometimes unrelated to costs. Prices often vary significantly from the actual social or economic value of the products for which they have been set and are not a valid basis for comparing the relative value of two or more products to society.

The ultimate directing force in the Eat German economy, as in every aspect of its society, was the Socialist Unity Party of Germany (Sozialistische Einheitspartei Deutschlands__SED), and particularly its top leadership.

At the top was the Politburo and its Council of Ministers who received specialist advice from the State Planning Commission. Between them they would develop the plans and the targets for each ministry and sector of the economy.

The private sector of the economy was small but not entirely insignificant in the GDR. This included private farmers and gardeners independent craftsmen, wholesalers, and retailers and individuals employed in so-called free-lance activities (artist, writers, and others). Although self-employed, such individuals are strictly regulated by the state. There were others who engage in private economic activity on the side. The best known and most important examples are families on collective farms who also cultivated private plots and sold their produce on the side.

During the 1950s, East Germany made significant economic progress, at least as indicated by the gross figures. By 1960 investment had grown by a factor of about 4.5, while gross industrial production had increased by a factor of 2.9. Within that broad category of industrial production, the basic sectors, such as machinery and transport equipment, grew especially rapidly, while the consumer sectors such as textiles lagged behind.

In the 1950s, the size, composition, and distribution of the labour force also underwent significant change. Although during that decade the population declined by 1.2 million, the number employed actually increased by about 500,000, a development caused by an increase of over 650,000 in the number of working women. In the same period, the percentage of the total labour force employed in industry increased by about 7 percent (to 36 percent of the total), while agricultural labour dropped from 28 to 22 percent of the labour force.

Central planning and the command economy produced a series of economic plans for growth and recovery. The first was The New Course of 1953, followed in 1958 by the Seven Year Plan this resulted in respectable growth rates in the East German economy but in 1955 and again in 1960, downturns were recorded, in the latter year partly because of popular resistance to further steps toward the full collectivization of agriculture. Disruptions in agriculture and the migration of East Germans to the West, which reached a high point at the beginning of 1961, helped to produce a general crisis in the economy, as reflected in almost all the economic data for the early 1960s.

During the 1960s, collectivization of agriculture continued. The number of people employed grew steadily, although marginally, by about 80,000, despite a net population decrease of more than 100,000 and an increase in the percentage of the population either too old or too young to be part of the labour force. By the end of the 1960s, the percentage of women in the work force had reached 48.3 percent. However there was a continued drop in the relative size of the agricultural labour force, which went from 17 percent of the total employed in 1960 to about 12 percent a decade later.

This same period also saw the establishment and subsequent dismantling of significant economic reforms. The SED leadership instituted the New Economic System (NES), as the reforms came to be known, at its Sixth Party Congress held in 1963. The theoretical basis of the NES drew upon the ideas of the reform- minded Soviet economist Evsei Liberman. Specifically, East Germans who advocated reform argued that existing procedures placed too much emphasis on numbers (the "tonnage" ideology) at the expense of efficiency, that the distorted pricing system caused excessive waste and improper decision making, and that innovation was being stifled because enterprises had neither the incentive nor the autonomy necessary to introduce progressive changes. The NES substantially decentralized authority, giving a degree of power to factories. Prices were altered and made more flexible and thus more rational, while enterprises were given much greater control over their investment and other funds.

These reforms did not last long as the reforms led to unacceptably high investment need and conflicted with the policies of central planning. Politically, the leadership may have simply been uncomfortable with the trend toward decentralization