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Technology Transfer in Eastern Germany Bellows, David 1998

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Introduction point of this chain of events is the successful transfer of technology to the East, it is critical On April 5, 1995, German Chancellor for the country to provide the conditions that Helmut Kohl proclaimed, "Since German encourage such transfer to take place. reunification, we have .. . created modern indus In this paper, I will explain the process and tries with internationally competitive jobs in the conditions necessary for technology trans the Eastern part of Germany .... Through finance fer. I will use Japan's technology policies after and technology transfer, we have markedly World War II as a model of successful technol increased the productivity of the Eastern ogy transfer by which to measure Germany's detailing the effects that German economy." ("C02 Levels," p. 29) As the current progress. After leader of a unified Germany, Kohl boldly made the lack of technology transfer has had on the this statement, attempting to show that during Eastern German economy, I will analyze the the five years after the Berlin Wall collapsed, obstacles that are hindering this transfer. The technology transfer has successfully increased most significant of these barriers deal with the productivity in Eastern Germany. However, mindset of the German people, the education Eastern Germans have yet to experience the and training system in the Eastern sector, and standard of living that their counterparts in the the financial and political battles between large West enjoy. Although Chancellor Kohl is proud and small companies. In addition, I will address of the progress Germany has made in rebuild the positive and negative effects of the work of ing a once divided country, there is still an the Treuhand, or privatization agency. Finally, extraordinary economic gap between the two I will recommend improvements for overcom sectors. With an increase in the diffusion of ing technology transfer problems in Germany technology from West to East, productivity and and hastening the economic recovery in its employment should rise, thereby raising the Eastern sector. standard of living in the East. Since the focal

21 Defining Technology Transfer Absorptive capacity is defined as the abil ity of the receiver to understand and use the Before examining Eastern Germany's dif technology that is being transferred. (Schlie, ficulties associated with technology transfer, it p. 80) Firms that have a high absorptive capac is first necessary to understand the key ele ity are made up of workers who are willing to ments of technology and how it is transferred. accept organizational change and exist in an Technology can be simply defined as "the environment that is fit for the new technology. knowledge and means to do something." The (Cervantes) Moreover, it is easier for the receiv movement of this technology from one entity er environment to adapt to the new technolo to another, as well as the understanding of how gy when it is similar to the source environment. to apply it effectively, is technology transfer. Ideally, the easiest way to transfer technology This transfer is more than the mere movement is to recruit technologically qualified personnel of goods and equipment from one site to anoth from the source to join the receiver and bring er, because the physical object that is being pro their technology with them. (Schlie, pp. 77,79) duced is the product of technology and not the Applying the principles of technology technology itself. Technology transfer consists transfer to the situation in Germany, the obvi of a sequence of steps. Specifically, the tech ous technology sources are Western German nology is developed by the source in one envi firms that are able to provide modern, efficient ronment and is then sent to the receiver in a technology and training to ailing Eastern firms. different environment by means of a linking Since Eastern Germany is still suffering from mechanism. Successful technology transfer low productivity levels, it is clear that not implies that the technology is accepted and enough transfer has occurred to create a sus used by the receiver. (Schlie, pp. 75-77) tainable economy. More Western German If the transfer is successful, the impact it enterprises must move eastward so that they has on firms can be extremely positive. In fact, become fully integrated with their Eastern the ability to gain access to and utilize tech counterparts, thereby facilitating technology nology and knowledge is essential for improv transfer and vocational training. (Carlin) ing the performance of enterprises. The extent However, the lack of a linking mechanism, or to which technology and knowledge are gener means of transfer, between the two portions of ated and diffused in an economy typically con Germany is preventing the eastward develop trols a country's degree of innovation and eco ment of Western German enterprises. As a nomic performance and consequently its result, the country remains segregated and comparative advantage. Furthermore, innova behaves as if the Wall was never torn down. tive companies and industries that use advanced technologies have succeeded in attaining above The Japanese Model and the German average productivity and employment growth. Comparison This, however, requires significant investment in intangibles on the part of these companies, The economic problems faced by Japan such as undertaking research and development, after World War II are similar to what Eastern obtaining external sources of technology, and Germany is facing today. Mter losing the war, improving managerial skills. (Cervantes) Japan's primary objective was to rebuild its Although technology transfer has been economy. Leaders realized that this could only associated with boosting productivity, its suc be achieved by facilitating the development of cess faces many challenges. Barriers of all industry through the transfer of Western tech types, including social, political, economic, and nology and the search for recent scientific and cultural, often stand in the way. In addition, technological advances. Indeed, Japan trans the transfer is appropriate only if the new tech ferred technology worth $10 billion from the nology gives the receiver an advantage over its United States during the 1950s and 1960s. The competition, the technology is compatible and country's leaders understood that progress not too complex for the receiver's capabilities, required incorporating state-of-the-art tech and the timing is appropriate. (Johnson) nology and the newest equipment in their fac-

22 tories. In order to teach its citizens how to uti West has grown. Japan certainly did not have lize this innovative technology, Japan also this difficulty. Westerners typically view invested in training and education. To this day, Easterners as lazy workers who want the gov the government continues to be active in tech ernment to take care of them, while Easterners nological innovation by establishing engineer do not believe that Westerners truly understand ing schools at the university level and sending the struggle they are experiencing. students abroad for study in science and tech Furthermore, the Eastern Germans continual nology. In primary and secondary schools, there ly face difficulties with the rigid German bank is a strong emphasis on science so that the pre ing system; smaller firms in Eastern Germany college population is considered to be techno have not had an opportunity to build up solid logically "literate." As a percentage of the pop reputations with banks, making it difficult for ulation, Japan confers more engineering degrees entrepreneurs to get capital to finance tech today than the United States does; over 77,000 nology projects. Generally only the large com degrees are awarded annually, which is 0.062 panies, which have much more economic and percent of the population compared to 0.053 political muscle, can acquire the financing to percent in the United States. (Batarseh) undertake projects; the absence of small busi If Eastern Germany is to follow the exam ness financing has contributed to the delay in ple of Japan, it must first overcome several bar technology transfer. In addition, the training riers. While the two countries have many sim and education system must be updated to ilarities, Germany's path to complete economic accommodate new technology. Under social recovery through the diffusion of technology ism, since advanced technology was not neces will take more time than did Japan's because its sary, few people knew how to deal with it. absorptive capacity is lower than Japan's. Because of the absence of such technology, a Although factories and infrastructure were lev proper training system was never created. eled during the war in both countries, Japan did One of the few organizations in Germany not have to work through the environmental, that was able to surmount these technology social, economic, and political problems left by transfer barriers was the Treuhand agency. It decades of communist rule that Eastern had the task of selling the state-owned busi Germany is now dealing with. Mter more than nesses to private buyers willing to make invest forty years of environmental decay because of ments in upgrading technology. Although the the absence of stringent environmental poli cost to the German government has been large, cies, significant outlays must now be spent on the effect of this organization's work looks cleanup. For example, in the Eastern German promising in the long run and is a potential state of Saxony-Anhalt, the American company bright spot in the arduous process of convert Dow Chemical took over the German enterprise ing Eastern Germany's economy. Buna in an attempt to save part of the chemi cal industry. Dow Chemical converted Buna's Impact of the Lack of Technology facilities into a modern factory producing plas Transfer tics and basic chemicals, but at a cost of DM 10 billion of state aid to pay for environmental The lack of technology transfer has had cleanup and new investment. Because of this disastrous effects on Eastern Germany. large subsidy, only 3,000 of the original30,000 Productivity has remained low, the level of workers were retrained and kept, amounting to exports has been sagging, and unemployment a cleanup cost of DM 3 million per job. ("The has soared. Although productivity has increased Eagle's Embrace") since 1990, it was still only half that of Western The German government also has to deal Germany in 1995, while labor costs were 25 per with a population that is generally unwilling to cent higher. (Carlin) Furthermore, in 1995 the accept new ideas, thereby impeding technolo new German states produced only 60 percent gy acceptance and transfer. Mter living under of what they consumed and invested, causing different regimes with completely different the Western sector of the country to make lifestyles, resentment between the East and annual financial transfers to the East in the

23 amounts of approximately 40 percent of the Embrace") Eastern Germans are probably too Eastern GDP. ("The Eagle's Embrace") These apprehensive about their region's economic amounts have also been rising; for example, net conditions to have children, or they are simply transfers to Eastern Germany as a percentage moving to more prosperous areas with more of Western German GOP was 4.0 percent in opportunities. Klaus-Dieter Schmidt of the 1991, and 4.5 percent in 1995. (Carlin) In com Economic Institute in Kiel explains that, since parison, aid given to West Germany via the it took West Germans more than forty years to Marshall Plan in the late 1940s averaged less recover from World War II, it would be impos than 2 percent of West Germany's annual out sible for Eastern Germans to catch up in only a put. To pay for this assistance, taxes have had few years. (Menke-Gluckert, "Berlin: East Looks to be raised, including the addition of a 7.5 per for Prosperity") These statistics could turn cent "solidarity surcharge" on the income tax. around in time, but only with the diffusion of There is no clear sign that these transfers will improved technology and know-how into the end soon. ("The Eagle's Embrace") Eastern German states. Another sign of Eastern Germany's depen dence on Western Germany is the fact that, Mindset and Motivation although 20 percent of the German population resides in Eastern Germany, in 1994 only about The fundamental psychological differences two percent of Germany's exports came from that exist between the two parts of Germany pre the Eastern sector. ("The Eagle's Embrace") sent significant obstacles to the successful tech Eastern German net imports of Western nology transfer from West to East. After sever German products were 61 percent of Eastern al decades of living under two completely Germany's GDP in 1994, indicating a very different systems, the people of Germany have strong reliance on Western German goods. The naturally grown apart. When two dissimilar Eastern German unemployment rate has countries that have been politically, socially, eco climbed from 11.2 percent in 1991 to 14.7 per nomically, and emotionally divided finally erase cent in 1995 (Carlin); but if workers in subsi the border that separates them, it can take a dized training schemes and early retirement long time for the newly unified country to inte programs are included in these figures, the rate grate all aspects of the two separate societies. would be as much as 25 percent. Working-age The initial euphoria of reunifying women, 80 percent of whom had jobs in East Germany has now disappeared. Few people pre Germany, have been hit the hardest. dicted that the reunification process would take Unemployment among women was 18.6 per this long. When the Wall fell, Chancellor Kohl cent in 1995, which was about twice the unem promised the people of Eastern Germany that ployment rate for men. ("The Eagle's Embrace") their standard of living would soon equal that Another indication of slow recovery is in of Western Germany; but that day is yet to the number of patent registrations in Germany come. The Ossis, or Eastern Germans, typical compared to that in Japan. In 1994 Chancellor ly view the Wessis, or Western Germans, as Kohl stated, "In microelectronics, the number arrogant, stubborn, and unforgiving people who of German patents between 1987 and 1992 have stolen companies and jobs away from the shrank from 289 to 181, while the Japanese reg Easterners. On the other hand, the Wessis gen istrations rose from 17,408 to 23,082." erally believe that the Ossis are unsophisticat (Atkinson) All these economic indicators show ed, lack self-confidence and experience, and are that, because of inadequate technology transfer always complaining. Life now is considered to to Eastern Germany, the region is suffering from be worse in the East according to 89 percent of a huge gap between productivity and wages, mas Eastern Germans surveyed in a 1996 poll. sive unemployment, and a lack of innovation. Moreover, 84 percent of Eastern Germans say Even the birth rate has declined - from that the government is doing too little to help. 1,400 per 100,000 in 1987 to 400 per 100,000 In contrast, the Western Germans are tired of in 1994- indicating insecurity on the part of financially supporting the people in the East Eastern German citizens. ("The Eagle's and believe that the East has an excessive

24 dependence on the government. They assert Germans might look to the West's apprentice that, instead of expecting more help from the ship system. Through the West German "dual West, Eastern Germans should learn how to system of education" that combines on-the-job function in a market economy. (Beck, p. S6) training with public schooling, about 75 per Interestingly, two-thirds of Germans liv cent of students between the ages of 15 and 25 ing in the East consider themselves to be "East have apprenticeships. Typically, apprenticeship German" as opposed to German. (Beck, p. S6) training starts between the ages of 16 and 19 Also, according to a 1994 survey of Eastern and lasts three to four years. Mter a specified German attitudes by market researchers Peter period of time, students take a standardized Dietrich and Uta Freising, only 8 people out of exam that tests their theoretical and practical 200 interviewed said that democracy was a "pos knowledge. If an apprentice passes, he/she itive change." They see Western Germans as receives a skilled worker's certificate. (Petrosky, very competitive, self-involved, and always con p. 60) In effect, businesses and students make cerned with getting ahead. Many Eastern investments in each other; the firm spends Germans even remain loyal to Eastern German money to develop the apprentice's practical products that were sold prior to reunification; skills, while the apprentice invests time to learn they do not seem to want to give up their old these skills while being paid a low wage. Both style of living. (Talbot, p.12) sides also take chances. The apprentice risks If there is still such an emotional division being used solely as cheap labor and may be between the people and such negative stereotypes denied the opportunity to develop worthwhile abound, how can Easterners welcome the tech job skills, and the firm risks training an appren nology of the West? If improved technology is tice only to perhaps later lose the trained work simply viewed as an extension of the Western er to another firm. (Culpepper, p. 1) dominance in the Eastern region, can the The apprentice system has had remarkable Easterners accept this new technology from peo success in Western Germany, but the majority ple they see as overbearing and unforgiving? of Eastern German firms cannot afford to invest Some Western German managers believe that the in long-term training programs. For most East has the wrong attitude regarding new tech companies in Eastern Germany, a semi-trained nology. After not seeing much new technology employee with limited experience is more valu for forty years, it is understandably difficult for able than an unskilled youngster who still many, especially the older population, to change attends school several days of the work week their way of thinking and to embrace new tech and does not directly contribute to the produc nology that will improve the quality and reduce tivity of the company. (Sy-Quia, pp. 55-56) the cost of manufactured products. It may take Since many young people cannot receive another generation before a united Germany can the training they need, many are migrating to work together toward technological innovation. Western Germany. According to Rainer Ortleb, the German Minister for Education in 1992, as Education and Training many as 200,000 Eastern German students have migrated to the West for training. Further For technology transfer to be successful, more, 446,000 Germans who still live in the the receiver must have technological expertise. East travel to the West to work. (Sy-Quia, Even though a skilled workforce exists in Eastern pp. 56-57) Eastern Germany is losing man Germany, workers do not know how to operate power and brainpower. Technology transfer will the newest and most cost efficient technology; not take place if there is no one left in Eastern rather they are familiar with obsolete, inefficient Germany capable of receiving it. machinery and techniques that they have been using for decades. Experienced managers and Access to Capital and the Success of executives from Western Germany or other parts Large Companies of Europe are needed to train and manage work ers in new technologies. (Sy-Quia, p. 55) Another barrier to technology transfer that To further promote job training, Eastern Eastern Germans are facing is the fact that

25 entrepreneurs in the region have not had a cient plant replaced the original one. The com chance to build up reputations with the banks pany's net profits for the first six months of in the relatively short time since reunification. 1996 increased almost 150 percent to $189 mil As a result, banks typically do not finance tech lion. ("Costly Saxon Klaxons ... ") In yet anoth nology projects in Eastern Germany. According er case, the semiconductor giant Siemens was to Peter Kramer, the president of Europe's 500, given tax breaks as an incentive to build its new an organization of the European Union's fastest facility in Dresden in 1996. The subsidies paid developing small- and medium-sized companies, for 40 to 50 percent of the DM 2. 7 billion cost "Owners of start-ups have virtually no access to and allowed Siemens to shift some of its chip bank loans. Once a company proves itself and production from low-wage Asia to high-wage may no longer need the money, banks line up to Eastern Germany. ("Is Eastern Germany Really give it money." (Bailon, p. 29) Whereas young Bouncing Back?") The infrastructure was entrepreneurs should be viewed as sources of replaced, and the local population now has the innovation, they are too often perceived as high benefit of a specialized semiconductor training risk, low-return gambles. Banks investing in center that Siemens built. This improvement Eastern Germany put most of their money in was made possible through direct financial building and road construction and in large assistance from Dresden city authorities, the companies, where investments are safe. ("Costly Saxon local government, and the European Saxon Klaxons ... ") However, more investment Commission. In addition, Dresdner Bank is needed to modernize manufacturing. loaned $330 million to Siemens. (Flaherty) The large companies can get the financ Large enterprises typically have much ing they need because they have been able to more lobbying power than smaller firms. build up a track record. For example, the Therefore, when the government creates new General Motors company Opel owns a plant in regulations, intricate bureaucratic processes, Eisenach that has succeeded because the com and arduous application procedures, the larger pany knew how to take risks. A large firm with companies are usually able to overcome these American support, Opel had the time to grow hurdles, but smaller companies have to strug into a leading car manufacturer. In 1992, Opel gle. (Wiesmann) In fact, according to Peter opened its plant in Eisenach to build its Corsa Kramer, the president of Europe's 500, "Small model, but it was not until1995 that it report and medium-sized companies often find them ed a profit for the first time. In fact, according selves victims of government indifference. For to a 1996 survey conducted by the Economic example, a small company in Germany that Intelligence Unit, Opel's plant is the most pro wants to build a new factory might have to wait ductive plant in Europe. In 1995, Opel's a year before it gets all the necessary approvals, Eisenach plant manufactured 71.9 cars per whereas a big company has to wait only six employee, an increase from 59.3 cars in 1994. weeks." Moreover, Kramer contends that high The second place competitor, Fiat, in Melfi, is tax rates create difficulties for small business significantly behind with 64.3 cars per employ es to accumulate the capital necessary for devel ee. Moreover, as of the end of 1996, production opment. A corporate tax rate of 66 percent in capabilities are still being built up, and the Germany causes cash-flow problems that will plant's system of lean production and efficien often destroy small enterprises or subject them cy enhancing techniques will serve as a model to takeovers. (Bailon, p. 29) for Opel's new facilities in Argentina, Poland, Since most banks are unwilling to provide Thailand, and China. (Menke-Gluckert, financial backing to young entrepreneurs, large "Eastern Efficiency") scale businesses are dominating the market Another success occurred in the south place. According to a 1996 report, much of eastern German town of Zwickau, once the Eastern German industry remains uncompeti home of an East German Trabant automobile tive in the world's markets. (Menke-Gluckert, plant. Sixty-eight percent of the factory's 4,000 "Eastern Efficiency") The reason is that compa jobs were saved by the German automobile nies like Opel and Siemens are obstructing entry giant Volkswagen, and a modern and more effi- into the marketplace by acquiring most of the

26 financing. Germany needs to encourage tech Treuhand and Its Impact on nological innovation by giving smaller compa Technology Transfer nies an opportunity to establish themselves. For Germany to succeed in accomplishing While many obstacles were impeding this task, more money must be invested in effective technology transfer in Eastern research and development centers that promote Germany, the Treuhandanstalt (or Treuhand both technology development and transfer to agency) was formed to overcome some of these small businesses. At the end of the 1980s, near problems by reorganizing and privatizing busi ly 3 percent of Germany's GOP was spent on nesses formerly owned by the government of research and development, but this number has East Germany. This agency was formed when fallen to below 2.3 percent in 1996. Germany passed the First Trusteeship Law on Fortunately, during that same year, the research March 1, 1990, and it held the belief that invest ministry announced plans to increase funding ment in technology was crucial in keeping com by 5 percent for the institutional research cen panies alive. Its aim was to sell some 12,000 ters Deutsche Forschungsgemeinschaft and the varied companies to buyers who planned to Max Planck Society, and 1.5 percent for the increase productivity potential by upgrading Fraunhofer Gesellschaft. (Blau) The govern technology and bringing the Eastern managers ment must provide still more incentives for into contact with Western managerial and tech these institutions of technology innovation in nical expertise. (von der Heyden) The Treuhand order to see an improvement in technology served as one of the few linking mechanisms for transfer. One of the leading organizations of technology transfer. applied research, the Fraunhofer Gesellschaft, The Treuhand operated from July 1990, operates 4 7 research establishments in when it was essentially the world's largest hold Germany and employs 4,250 scientists and ing company, to December 1994. Since its bud engineers. ("Fraunhofer Gesellschaft") The get was not controlled by the German parlia German government provides 30 percent of its ment, the agency enjoyed independence from income. (Lunsford) The institute's mission is the government. In order to prepare the 12,000 to improve the productivity and competitive companies for capitalism, the Treuhand ness of German manufacturers, to provide assis searched for suitable buyers who could bring tance to small- and medium-sized companies knowledge, technology, customers, and growth that cannot support large enough development potential to these enterprises. People who were departments of their own, and to facilitate the willing to promise to continue the businesses, swift transfer of innovations. Among its eight to preserve as many jobs as economically pos fields of research are production technology, sible, and to invest additional money into the information and communication, process engi companies were given highest priority. In neering, and technical and economic studies. exchange, investors received generous subsi ("Fraunhofer Gesellschaft") Small German dies and loans from the federal and local gov businesses need institutions like the Fraunhofer ernments. Since the Treuhand agreed to pay Gesellschaft to provide them with the know investors to assume old debts and environ how they need. Financial support from the gov mental liabilities, the agency considered the ernment and from large companies will make market potential, environmental liabilities, innovation institutions more accessible to physical state of each plant, and financial state struggling companies. Even though the of each company. (von der Heyden) As Birgit German government has spent billions of dol Breuel, the president of the Treuhand, explained lars to unite the two German sectors, it should in a September 1992 interview: realize that still more funding to expand inno When an investor buys a company vation and research centers is critical in order from the Treuhand, he has to deliver to accelerate the revival of small- and medium a ... financing program. We want sized enterprises. these companies to be successful, so we help ... by ... taking over old debts

27 to some extent.... We always try to ing to improve; production has been growing at have several bidders for each compa a rate of 8.5 percent annually after falling 30 per ny on sale. Each has to deliver a cent in the two years after unification. (Gumbel) business plan, which includes figures Prior to the Treuhand's work, most factories in for investment, jobs, [and] financing. Eastern Germany were simply not equipped to And the bidder who becomes the be competitive. There was not enough state-of owner has his figures written into the-art technology, such as computer systems the contract. (Evans, pp. 179-80) and computer-aided design and manufacturing The Treuhand insisted on certain conditions for capabilities. Machines were outdated, and those future investment and employment, but it still purchased from the West generally served only had to privatize quickly since the crumbling as prototypes that had to be physically duplicat economy was growing worse as unemployment ed by Eastern German engineers. Moreover, increased. ("Farewell, Sweet Treuhand") because of the socialist system that they had lived Before it closed in December, 1994, the under for decades, Eastern German managers Treuhand managed to privatize over 8,000 com typically lacked contacts, supplier relationships, panies and secure jobs for 1.5 million people marketing skills, and the technical know-how (von der Heyden), leaving only approximately needed to compete in a market economy. Thus, 100 companies left to be sold or liquidated. according to Klaus-Dieter Schmidt of the Kiel ("Farewell, Sweet Treuhand") Most important Institute of World Economics, "The Treuhand ly, private investors committed themselves to was a buyer of management, technology, and spend more than $130 billion to revitalize the access to markets for its companies, rather than ailing Eastern German economy. (Gumbel) The an asset seller." ("Farewell, Sweet Treuhand") majority of large companies were sold to either A prime example of a Treuhand success Western German or other European investors story is EKO Stahl GmbH on the Polish border from the same industry, and many smaller com in Eisenhuttenstadt, or "Iron Works City." The panies were bought by their managers. The plant was a failure when it was operated by the final assessment of the Treuhand's effectiveness East German government because planners cannot be made, however, until the flow of sub neglected to build a hot rolling mill, which plays sidies stops and the investment promises of the a critical role in the steel production process. businesses' new owners are fulfilled. ("Farewell, This process was instead outsourced to Russia Sweet Treuhand") and West Germany at a cost that prevented EKO Because of the speed of privatization, the Stahl from ever turning a profit. Compounding Treuhand's policies have had some negative side this problem, the site of the plant near the Oder effects on the economy, but these effects were River was a poor choice since the river is not nav inevitable and should disappear in the long igable for heavy boatloads of steel, coal, or ore. term since they can essentially be considered With 12,000 workers, poor quality products, a "growing pains." Unemployment has increased; European market inundated with steel produc for example, of the 66,000 employees working ers, and the company losing money, this enter in the steel industry in 1990, only 10,000 were prise was an ideal candidate for liquidation. left at the end of 1994. (Gumbel) Some have Instead, the Treuhand took four years and spent argued that the Treuhand's political indepen $300 million to cover operating losses and dence and its goal to privatize as quickly as pos offered $100 million in loan guarantees to sible destroyed jobs and firms that could have investors who would close the plant's technolo been saved. According to a 1994 poll published gy gap. This lengthy and expensive search was in Suddeutsche Zeitung a Munich-based news necessary because, according to the Economics paper, 91 percent of Eastern Germans have a Ministry, technology used in the Eastern German low opinion of the Treuhand. ("Farewell, Sweet steel plants was at least a decade behind that in Treuhand") Western Germany. Eventually, Belgium's However, many others argue that the Cockerill Sambre SA invested $280 million to Treuhand's policies were needed in order to inte build a hot-strip mill, upgrade a blast furnace, grate new technology in the East. There are also and keep about 2,000 of the original12,000 jobs signs that the Eastern German economy is start-

28 in exchange for $610 million in subsidies. duced. Such a training system will produce a Although the company is still losing money, it more flexible workforce, leading naturally to an has used its loans to upgrade its facilities even increase in productivity. Third, banks must be further with more advanced technology, there willing to take more chances on young entre by raising the quality of its steel and increasing preneurs who are interested in technological productivity. It now sells sheet metal to innovation. Although entrepreneurs may be Mercedes and exports steel slabs to the United high-risk, if they are not given financial support States. Overall, this is an excellent example of from the banks, technological creativity will be the Treuhand's commitment to capital-intensive hampered and innovation is certain to fail. investments in the hopes of securing jobs and Germany might look to Silicon Valley for future investments by the new owners. (Gumbel) a model of technology transfer since this To use another example, the Treuhand has California region repaired its sluggish economy turned around the ESKA Group, a conglomer by defining new markets through innovation. ation of three fastener plants and a wire draw After becoming internationally recognized dur ing facility that supplies parts for the automo ing the 1970s as a world leader in the electron tive industry. This company was another ics industry, Silicon Valley's economy fell apart suitable candidate for liquidation since ESKA in the following decade. However, the region manufactured screws that could be bought recovered impressively by remembering that it from Eastern European countries at lower was cooperation and collective innovation that prices. The Treuhand hired an independent spurred its original success. Because of collab expert to determine the environmental cleanup oration among companies, Silicon Valley now costs of the wastewater and soil and a consul boasts one-third of the largest 100 technology tant from the fastener industry to evaluate the companies formed in the United States since plant and equipment. Even though the plant 1965, and its market value has risen by $25 bil was found to be run-down and filled with slow, lion between 1986 and 1990. Approximately undependable equipment, the Treuhand still 150,000 technology-related jobs were generat decided to look for investors. The ESKA plants ed between 1975 and 1990, and in 1990 its com were subsequently sold separately to investors panies exported electronics products worth with credible reputations and contacts in the more than $11 billion, which was almost one industry and who had agreed to certain invest third of the nation's total. (Saxenian) ment and employment levels. (von der Heyden) As a united country, both sectors of Germany urgently need to encourage such inven Outlook tiveness by promoting unified goals for technol ogy development and transfer. In summary, there Germany has many obstacles to overcome are several ways to speed up this process: the infu in its effort to bring its Eastern sector up to the sion of Western German companies in Eastern productivity and employment levels of its Germany, the sharing of technology and manu Western sector. First, Germans from both sec facturing concepts among firms, an overhaul of tors must put aside their preconceived opinions the Eastern German education and training sys of each other that were fostered by decades of tem to match that of the Western sector, an eas political and economic differences. Second, ing of strict banking policies so that banks are Eastern Germany needs to adopt the education willing to support young entrepreneurs, and an and training system of the Western sector. increase in financial support to innovation cen Financial support from both the government ters and institutes. The recommendations pre and large enterprises is necessary to compen sented here should result in the transfer of tech sate smaller businesses for the lost time appren nology that will increase productivity, enabling tices spend in the classroom, away from the Eastern German firms to compete more effec plant floor. With new technology being trans tively in the global marketplace. Otherwise, the ferred to Eastern Germany, the workforce must country will continue to be composed of two dif go through a continual training program that ferent cultures, having dissimilar economies and is updated each time new technology is intro- technological capabilities.

29 REFERENCES

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