THE PENNSYLVANIA STATE UNIVERSITY

SCHREYER HONORS COLLEGE

DEPARTMENT OF HISTORY

Walled In: The East German Economy Under Walter Ulbricht

JASON CHERRY SPRING 2021

A thesis submitted in partial fulfillment of the requirements for baccalaureate degrees in History and Supply Chain & Information Systems with honors in History

Reviewed and approved* by the following:

Tobias Brinkmann Professor of Jewish Studies and History Thesis Supervisor

Cathleen Cahill Professor of History Honors Adviser

* Electronic approvals are on file. i

ABSTRACT

This thesis explores the economic policies pursued by Walter Ulbricht as leader of the

German Democratic Republic between 1949 and his downfall in 1970. The success of these policies was mixed. Ultimately, the GDR economy was constrained because it was built on the

Soviet economic model. The war-related destruction of critical infrastructure and industrial assets as well as a lack of resources constituted formidable obstacles. Meanwhile, in West

Germany and other Western European countries, U.S. Marshall Plan aid provided crucial support for the rebuilding effort. The Soviets prevented the GDR and its other satellite states from getting access to Marshall Plan support. It would be difficult to overstate the extent of the large-scale, structural challenges which Ulbricht and the GDR faced. This thesis shows that the GDR regime overcame formidable obstacles rebuilding its economy, albeit at a high price for its citizens. ii

TABLE OF CONTENTS

LIST OF FIGURES ...... iii

ACKNOWLEDGEMENTS ...... iv

Introduction ...... 1

An Overview of the German Democratic Republic’s Economy ...... 6

Politics, Party, and Planning ...... 6 Early GDR Industrial Policy ...... 10

From Crisis to Crisis: June 1953 to August 1961 ...... 19

Worker Uprising of June 1953 ...... 19 The New Course ...... 21 Fifteen Years of Agriculture Policy ...... 28

The 1960s: A Comprehensive Economic Analysis ...... 34

New Economic System of 1963 ...... 35 The Berlin Wall Opens a New Chapter ...... 43 Death of the NES and Recentralization...... 46

Epilogue ...... 51

Conclusion ...... 54

BIBLIOGRAPHY ...... 57

iii

LIST OF FIGURES

Figure 1: German Democratic Republic “Bezirke” (Districts) ...... 5

Figure 2: State Bodies Responsible for Planning and Decision-Making in the GDR ...... 8

Figure 3: Growth in Production of Pig Iron and Steel, 1950-53 ...... 12

Figure 4: Indices of Industrial Output in the GDR ...... 14

Figure 5: Young Men Throw Stones at Soviet Tanks on Leipziger Platz in Berlin during the Workers' Uprising (June 17, 1953) ...... 21

Figure 6: Working and Nonworking Persons per 100 Inhabitants ...... 25

Figure 7: Percentage of Women in Employed Labor Force ...... 26

Figure 8: Number of Emigrants Leaving the GDR, 1949-1965 ...... 27

Figure 9: East German Foreign Trade (In million Valuta-Mark)...... 43

Figure 10: Construction of the Berlin Wall, August 13, 1961...... 45

Figure 11: Actual vs. Planned Output, Investment, & Consumption...... 49

iv

ACKNOWLEDGEMENTS

Dr. Brinkmann, for his role as my thesis supervisor. Dr. Brinkmann’s support and expertise was invaluable during the research and writing processes.

Dr. Cahill, for her role as my honors advisor. Dr. Cahill’s guidance and encouragement throughout the duration of this project has been incredible.

1

Introduction

May 8, 1945, holds in important place in both German and European history as the day

Nazi Germany surrendered to the Allied forces, bringing an end to World War II. Six days earlier, when Soviet troops secured Berlin, a German communist returned to the decimated and defeated city from his wartime refuge in the Soviet Union – a homecoming that shaped German history for more than twenty years. That man was Walter Ulbricht; a rising German communist functionary during the 1920s and 1930s. In Soviet exile Ulbricht found the good graces of Stalin and his ruthless political apparatus. Unlike other leading German communists, he survived the many political purges in the Soviet Union. In 1945 Stalin dispatched Ulbricht to Germany as the leader of a small group of party functionaries. They encountered a dire scene; the capital city was nearly levelled. The infrastructure was damaged in many parts of the country. There was no functioning municipal government in Berlin at the time, and it was Ulbricht’s job to organize one. Ulbricht quickly took charge in Berlin and established a viable administration – a testament to his political will and organizational talents.

On May 7 and 8, 1945, the Third Reich surrendered to the Allied forces, which effectively put an end to the World War II, leaving in its wake a battered Europe and defeated

Germany. Though Allied occupation of Germany had been discussed at the Yalta Conference in

February 1945, the administrative details and even the exact borders of the occupation zones had not been determined. After the fall of Berlin, the Allied Control Council representing the United

States, Britain, France, and the Soviet Union assumed governmental authority of Germany. The

Potsdam Conference, held in July and August of the same year, officially established four zones 2 of occupation and recognized Soviet Military Administration jurisdiction in Germany west of the

Oder-Neisse rivers (see figure 1). The city of Berlin was placed under the control of the Allies and divided into four sectors. In addition to occupation, the Potsdam resolutions explicitly permitted the dismantling of German industrial installations as a form of reparation payment to the Allies. Initially, the Allies pursued a common policy with regards to the German question, one focused on denazification and demilitarization – presumably in hopes of the eventual restoration of a sovereign German state.1

In the Soviet zone, domestic politics consolidated around antifascist political parties and were closely monitored by Soviet officials reporting to Stalin. In April 1946, under strong pressure from Moscow, the two major left-wing political parties in eastern Germany, the Social

Democratic Party of Germany and the Communist Party of Germany, merged to form the

Socialist Unity Party (Sozialistische Einheitspartei Deutschlands or SED). When the SED was formed, the Communists quickly gained the upper hand over the Social Democrats and dominated the party. Ulbricht, a trusted and loyal ally of Stalin, was elected as one of two vice- chairmen of the SED. Stalin’s support gave Ulbricht a dominant position in the party and by the fall of 1947 it was clear Ulbricht was the de facto leader of the SED. At the party’s Second

Congress in September 1947, Ulbricht delivered an address in which he claimed that the SED was to become a “Party of a new Type.” This phrase worried some Social Democrats in the SED

– and for good reason; Ulbricht was referring to the SED becoming a party of the Leninist type.

In 1948, the SED’s executive committee officially embraced Leninism and accepted assistance from the Communist Party of the Soviet Union. What followed was the transformation of the

1 Mary Fulbrook, A History of Germany 1918 - 2014: The Divided Nation (London: Wiley Blackwell, 2015), 113– 140. 3 party’s structure into one that resembled Soviet-style politics. Once the SED was “Sovietized,”

Walter Ulbricht became the General Secretary of the newly formed Politbüro (the party’s leadership council) – a position which resembled that which Stalin held in the Soviet Union.2

The beginning of the Cold War in late 1947 marked the end of attempts by the Soviets and their Western allies to find a common solution for postwar Germany. In March 1948, the

United States, Britain, and France agreed to unite the three western zones of occupation and establish a West German state. The Soviet Union responded by leaving the Allied Control

Council and announced its intentions to create an East German state. Stalin desired an East

German state which resembled the Soviet model and would be controlled by the SED. On

October 7, 1949, a provisional government was formed and the establishment of the German

Democratic Republic (GDR) was proclaimed. As party leader, Ulbricht received almost dictatorial powers. Both German states did not recognize each other. The official names German

Democratic Republic and Federal Republic of Germany reflect the aspiration of both governments to represent the true postwar German state.3

Ulbricht’s career as leader of the German Democratic Republic would last over twenty years, from 1949-1971. In hindsight, this was the period when the new state faced formidable economic challenges. Ulbricht desired to develop the East German economy into that of a major industrial power and one that was competitive with that of its western counterpart. One cannot accurately judge the success or failure of the GDR economy under Ulbricht without first understanding the true magnitude of challenges that he and his cadres faced.

2 Ibid., 119, 139. 3 Ibid. 4 The GDR covered an area of 46,600 square miles, which was approximately one fourth that of the German Reich at the start of World War II. Its territory includes the old German provinces of Mecklenburg, Brandenburg, Sachsen-Anhalt, Saxony, and Thuringia. In addition to being much smaller geographically than West Germany, the GDR had little industry (much of it destroyed) and few resources. Before the war, the area that became the GDR produced less than three percent of the total hard coal output of the Third Reich, less than one percent of its coke, and less than five percent of its iron ore.4 This area also lacked vital fuel sources such as oil and coal. Apart from large deposits of lignite, which this thesis will address, the East Germany economy depended on energy imports. The East German economy was actually fairly well- balanced before the war. In 1939, the area that became the GDR contained twenty-two percent of the total German population, produced twenty-four percent of total German industrial output, and twenty-six percent of the aggregate agricultural output.5 Yet after 1945, the East German economy encountered serious problems because it was cut off from essential resources and lost access to markets in the West.

The war-related destruction of the critical infrastructure and industrial assets as well as the lack of resources constituted formidable obstacles for rebuilding the economy. Meanwhile, in

West Germany and other Western European countries, U.S. Marshall Plan aid provided crucial support as economies were rebuilding. The Soviets prevented the GDR and the other satellite states from getting access to Marshall Plan support. It would be difficult to overstate the extent to which Ulbricht and the GDR faced large-scale, structural challenges while at a significant resource disadvantage to the West. This thesis will explore the economic policies pursued by

4 Sima Lieberman, The Growth of European Mixed Economies: 1945-1970. (Cambridge, MA: Schenkman,1977), 121. 5 Ibid., 122. 5 Walter Ulbricht over the course of his career. It attempts to appropriately highlight what successes were achieved, while showing that ultimately the GDR economy remained constrained because it was built on the Soviet economic model.

Figure 1: German Democratic Republic “Bezirke” (Districts) Source: Keefe, ed., East Germany: a country study

6

An Overview of the German Democratic Republic’s Economy

Politics, Party, and Planning

The SED under Ulbricht’s leadership committed the GDR to the Soviet model of a centrally planned command economy from the country’s founding in 1949 until its dissolution forty years later. As such, the administrative and political features of the East German state were deeply intertwined with the country’s economy. In a free-market, capitalist system private actors take economic decisions based on market forces such as supply and demand. In a command economy these influences are barred. Economic decisions are left in the hands of one centralized authority – the state. It is this relationship that makes it difficult for one to study the economic development of the GDR without at least a cursory understanding of the country’s political structure and central planning apparatus.

All political and governmental power in the GDR was in the hands of a single party, the

Socialist Unity of Party of Germany. At every level of government there existed an interlocking relationship between the SED and the relevant administrative apparatus. Administrative power was concentrated heavily in the executive branch; the Volkskammer (People’s Chamber), East

Germany’s unicameral legislature, served mostly as a rubberstamp body with very little effective power. The executive branch of the East German government consisted of two main bodies: the

State Council (Staatsrat) and the Council of Ministers (Ministerrat). The State Council was created in 1960 and served as the nominal head of state; the Council of Ministers was the 7 executive decision-making body. 6 Appointed by the Council of Ministers was a thirteen-person body called the Presidium which passed down the important policy directives at the executive level. Reporting to the Council of Ministers were ministries which exercised direct control over the East German economy. There were seven industrial ministries (basic materials, ore mining & metallurgy, chemicals, electrotechnical & electronics, heavy machinery & equipment, processing machinery & vehicles, and light industry) and five non-industrial ministries (culture, health, education, material economics, and agriculture) which in total reached just about the entire economy. It was the responsibility of these ministries to carry-out the relevant industry or sector goals set forth by the Presidium and the Council of Ministers. These ministries operated on the national level, in the districts (Bezirke), and locally. They were responsible for the practical implementation of economic plans.

One of the most vital aspects of the East German state was the single-party rule. The

SED, or rather its top functionaries, had unchecked governing power. Three main organizational units represented the party: the Central Committee, the Politbüro, and the Secretariat. The

Central Committee, the Party’s main organ, was a quasi-parliament that included the Politburo and Secretariat, as well as some other party organs. It met only a few times a year, usually to espouse the party’s most recent platform. The Politbüro – a quasi-government – consisted of fifteen to twenty members and was responsible for most of the important routine work in the

SED. Party leadership and overall administration was in the hands of the Secretariat, which consisted of 10 “secretaries”, led by the First Secretary who doubled as General Secretary of the

Central Committee and was the effective party leader. For the entire period which will be

6 Martin Schnitzer. East and West Germany: A Comparative Economic Analysis (New York: Praeger, 1972), 195. 8 discussed in this thesis, the SED was under the leadership of Walter Ulbricht, who served as

General Secretary from 1950 until 1971.

Figure 2: State Bodies Responsible for Planning and Decision-Making in the GDR

Because the GDR employed a typical socialist economy with a high concentration of state-owned enterprises, nearly every economic decision, ranging from how much output a 9 particular enterprise should produce to where a specific industry should be geographically located, was made by Walter Ulbricht and the SED superstructure described above. These economic decisions were implemented at the enterprise-level as part of larger economic plans which were created at the discretion of Ulbricht and SED leadership. Broadly, these plans defined the party’s economic objectives for the GDR and how to achieve them.

There were four state apparatus involved with the creation of economic plans in the

GDR, with responsibilities that spanned policy direction (Councils of Ministers), implementation and supervision (State Planning Commission or Staatliche Plankommission), price setting (the

Office for Prices or Amt für Preise), and data collection and analysis (State Central Statistics

Administration or Staatliche Zentral Statistische Verwaltung). All of these government bodies were centralized under the authority of national SED leadership and in total represent the economic policy-making mechanism of the GDR. The basic enterprise-level economic decisions alluded to earlier, which include how much firms ought to produce, what price firms ought to charge, how many employees a particular enterprise ought to hire, etc., were predetermined in these economic plans and completely sheltered from naturally-occurring market forces. One critical feature of a centrally-planned economy is that these forces, which in every economy are extremely dynamic, are not allowed to reinform enterprise-level decisions in real-time as they are in a market economy. Only when the state artificially changes its prescription for enterprises can these forces exert an influence on economic decisions.

All plans assumed the basic condition that ownership of industrial assets belonged to the state. This was a fair assumption; at the close of the 1960s, almost eighty percent of GDR net product contributed by the industrial sector was from state-owned enterprises, compared to just 10 under six percent from private enterprises.7 Economic plans in the GDR went beyond a purely functional role in that they also served strategic purposes, such as increasing Gross National

Product, spurring investment, and developing international trade-relations. While there were many different types of economic plans (physical output plans, financial plans, etc.), the most relevant and influential plans were those known as medium-term plans which developed targets and goals to be accomplished over a five to seven-year period. As will become evident later, these plans were susceptible to revision and replacement, and in their entirety represent a more fluid policy-making process than one may initially observe.

Early GDR Industrial Policy

During the first half of the 1950s, Walter Ulbricht and SED planners focused the GDR’s economic goals on the development of critical infrastructure and the production capacity in heavy industrial sectors. Many of these industries had relied on imports from the West prior to the partition of Germany and were completely devasted following World War II. The economic policies pursued throughout the first portion of the decade were done so largely at the expense of light industry and consumer products; Ulbricht’s SED, undoubtedly motivated by the losses incurred from the war, deliberately and aggressively focused development efforts on heavy industry as consumer products and foodstuffs fell behind sufficient levels of production. Even at the close of the 1950s, despite significant economic gains, West Germans had access to a far greater range of high-quality consumer products and enjoyed a much better standard of living than their counterparts in the GDR.

7 Staatliche Zentralverwaltung für Statistik, Statistisches Taschenbuch 1971 (East Berlin: Staatsverlag der DDR, 1971), 27. 11 The profound emphasis the SED would consistently place on heavy industry throughout the 1950s became immediately evident in the Two-Year Plan for 1949 and 1950. The plan called for an eighty-one percent increase in total East German output and specifically directed capital investments to benefit the raw materials, energy, machinery, and transport industries.8 This strategy was cemented into GDR policy under the control of Walter Ulbricht in 1950 with the introduction of the first Five Year Plan, which outlined East German economic goals for the years 1951 to 1955. The plan’s main objective was to double industrial production from pre-war levels by 1955. Many of the SED’s policies during this time were focused on eliminating what party leaders called the “existing imbalance”, referring to the disparity in industrial capacity caused by the partition of Germany.9 One example of this motivation can be seen in Ulbricht’s focus on the energy sector, which represented a concerted effort to rebuild the power and fuel industries, a task still to be completed in the eastern zone following World War II. The first Five

Year Plan aimed to increase output in the power industry by seventy-seven percent between 1950 and 1955.10 Efforts to restore the East German power industry included the restoration of damaged infrastructure as well as the construction of new facilities.

Among the most ambitious goals set forth in the first Five Year Plan was a 139 percent production increase in precision engineering and optics, 137 percent increase in metallurgical output, and a 121 percent increase in machine building.11 Each of these sectors represented

8 Lieberman. The Growth of European Mixed Economies, 132. 9 SED literature referenced the ‘existing imbalances’ between East and West Germany in the official Five-Year Plan. “To provide a secure foundation for general industrial recovery, it is of foremost importance that the existing imbalances in industry be eliminated as follows…”. Protokoll des III. Parteitages der SED (20.-24. Juli 1950), East Berlin, 1951, 276. 10 Ibid., 278-80. 11 Ibid., 296-97. 12 important aspects of heavy industry and the corresponding growth objectives were a testament to the GDR’s aggressive focus on developing this area of the economy during the 1950s.

Industrial output – the plan’s primary focus – undeniably increased between 1950 and

1955. To fully understand the GDR’s development during this five-year period, it is necessary to mention the state of a few key industries which the SED inherited. Production of iron and steel – a pillar of heavy industry – had been severely hampered due to damage incurred during World

War II. In 1946, the area of the GDR produced just 104,000 tons of rolled steel, compared to

898,000 tons in 1936.12 Thus, the expanded investments made in the iron and steel industry led to rapid growth in production. Between 1950 and 1953, East German output of iron and steel increased by 220 and 117 percent, respectively.13 This rapid expansion was aided by the construction of new steel plants as well as the restoration of existing production facilities. Brand new steel foundries were constructed at Calbe an der Saale and Eisenhüttenstadt; pre-war facilities at Unterwellenborn, Brandenburg, Hennigsdorf, and Riesa were rebuilt and modernized.14

Figure 3: Growth in Production of Pig Iron and Steel, 1950-53

12 David Childs, East Germany. (New York: Praeger, 1969), 143. 13 Zehn Jahre Volkswirtschaft der DDR ([East]Berlin, Die Wirtschaft, 1959), 98. 14 Childs, East Germany, 144. 13 Concurrent with the reconstruction of the iron and steel industries was the development of the nation’s fuel supply. The area encompassed by the GDR had relatively little natural supply of hard coal, but was rather rich in lignite deposits. Though less efficient than hard coal or oil, lignite was developed into a major fuel source in East Germany during the 1950s, and by 1959 the Schwarze Pumpe complex at Cottbus was in operation as the largest lignite processing facility in the world. The construction of the Schwarze Pumpe complex represented a major success for the East German planners; through rather rapid innovation, the GDR economy developed a domestic fuel source which was reliable and independent of imports from the West.

In the broader campaign to increase East Germany’s heavy industry, the Schwarze Pumpe complex represented a significant achievement.

Although East Germany used different metrics than were standard in the West (Gross

Social Product instead of Gross Domestic Product, for example), the data reported by the state is still a valuable indicator of economic performance. According to East German data, from 1950 to

1955 metallurgy output increased by 114 percent, and total industrial output in the GDR experienced an increase of 189 percent.15 While some scholars have calculated this increase of total industrial output to be closer to ninety percent, the data shows a substantial increase regardless. East German planners were successful in their efforts to develop heavy industry and increase industrial output during this first five-year period, so as to become one step closer to eliminating the “existing imbalance” in industry and becoming a self-sufficient economy.

15 Statistisches Jahrbuch der DDR, 1955 (Berlin: Haufe, 1956), 125. 14

Figure 4: Indices of Industrial Output in the GDR

The significance of this accomplishment is all the more impressive when one considers the enormous disadvantage the GDR experienced due to the reparations collected by the Soviet

Union. The Soviet Union extracted an enormous number of resources from the East German economy as reparations following World War II; beyond monetary payments, the Soviets dismantled infrastructure in the GDR such as railroads and manufacturing plants. These reparations, combined with the shuttering of key imports from the West, are critical in understanding the challenges that Ulbricht and SED planners were trying to solve as well as the context in which their accomplishments and shortcomings took place16.

Extraction of valuable resources from the East German economy at the hands of the

Soviet Union began almost immediately following the official partition and drew from all facets of the economic system. In the summer of 1945 savings accounts held by Germans were confiscated by Soviet authorities, precious metals and all foreign currencies were demanded to be turned over; by October 1945 roughly twenty-five percent of the production capacity in the eastern occupation zone was dismantled, transported to the U.S.S.R., and reorganized as Soviet

16 Lieberman, Growth of European Mixed Economies, 124. 15 enterprises which operated for the benefit of the occupying power.17 Soviet extraction of economic resources in the occupation zone went well beyond monetary functions; physical infrastructure and even human capital (mostly skilled laborers) were forcibly relocated to the

U.S.S.R and integrated into the Soviet economy. The Soviet Union extracted the most productive and valuable economic assets in the eastern zone. It would be hard to overstate the damage that the Soviet zone incurred during the years prior to the creation of an East German state in 1949.

There are varying accounts of when exactly East Germany was relieved of reparation payments to the Soviet Union, though many suggest that the program was not ended in full until

1954 following Stalin’s death a year earlier. However, even before the official establishment of the GDR in 1949, it is estimated that reparations and occupation costs totaled twenty-five percent of East Germany’s domestic product.18 The burden of reparation payments was so severe during the post-war years that the eastern zone experienced significant shortages in almost every sector of the economy.19 These shortages were perhaps most serious in foodstuffs and other agricultural products where the economic damage was profoundly human. A 1947 article published in the newspaper Tribüne highlighted the worsening health of young workers in East Germany:

“We demanded that the enterprises conduct a medical investigation of its young

workers. We came to the conclusion that the enterprise youth is not gaining but losing

weight and that the overwhelming portion of youths are considerably underweight.” 20

17 David Childs, The GDR: Moscow’s German Ally (London: George Allen & Unwin, 1983), 13. 18 Ian Jefferies, “The GDR in Historical and International Perspective,” in: The East German Economy, ed. Ian Jeffries and Manfred Melzer (New York: Croom Helm, 1987), 5. 19 Jeffery Kopstein, “Chipping Away at the State: Workers’ Resistance and the Demise of the East Germany,” World Politics 48, no. 3 (1996): 397. 20 Ibid. 16 Malnutrition, though maybe the most poignant, was certainly only one of many post-war phenomena emblematic of the dire situation which the GDR faced at the start of the 1950s and the immense hurdles which Ulbricht and the SED sought to overcome in the first Five-Year Plan

While examining economic development through the lens of the first Five-Year Plan is helpful, it does not allow one to fully understand the complete agenda of the SED. It is clear that though the government drafted and adopted an official five-year plan in 1950, many other economic plans and policies of varying scale and scope were at play in the GDR, which created a complex system of centrally-planned economic mechanisms, all interlaced with the political motives of the SED.21 A major key to understanding the economic policies of the GDR during the first post-war decade lay in this complexity of plans and politics.

In July 1952, the SED Party Conference ended with a renewed loyalty to Stalinist policies and Soviet ideology, in which party leadership formally announced the “planned construction of socialism” in the GDR. The SED’s commitment to socialism in East Germany was inextricably linked to its approach towards economic policy, and what followed was a focus on breaking resistance by ‘capitalists’ and large landowners, renewed efforts for collectivizing agriculture, and the destruction of private business and free markets.22

The 1952 announcement resulted in a doubling-down on the development of heavy industry and an organized collectivization campaign in agriculture. As discussed earlier, heavy industry was able to grow considerably in the GDR between 1950 and 1955. As capital investments and SED policy immensely favored heavy industry, it is evident they chose to do so

21 Arthur A. Stahnke, “The Economy,” in: East Germany: A Country Study, ed. Eugene K. Keefe, (Washington, D.C.: American University, 1982), 114. 22 Mike Dennis. The Rise and Fall of the German Democratic Republic, 1945-1990. (Harlow, England: Longman, 2000), 58. 17 at the expense of light industry; it follows, then, that the production of consumer goods stagnated or even declined during this period. It is estimated that between 1951 and 1953, sixty percent of the growth in centrally-planned industry took place in mining, iron and steel, and energy, compared to just two percent in light industry.23 East Germans had access to a far narrower range of consumer goods. This dichotomy – the expansion of heavy industrial sectors at the expense of consumer markets and living standards more broadly – was a hallmark of the East German economic story throughout the 1950s. As one would assume in an economy with faltering consumer markets, the average East German worker especially experienced the harmful consequences of this economic strategy.

An important theme of this thesis is that an economy is much more than heavy industry, and though the GDR was wise to develop that aspect of its economy, such a policy-set that was pursued concurrent with the neglect of light industry, consumer goods, and living standards proved to cause Ulbricht and the SED more than a few headaches. Not only were the sectors of light industry (mainly those responsible for consumer goods) ignored and deprived of the aggressive investment which heavy industry received, but the SED explicitly directed resources away from and actively exacerbated the deteriorating living conditions of most workers. Cuts were made to social programs across the board. For example, a monthly stipend for single mothers was eliminated and food ration cards were withdrawn for non-party members among others. Prices for basic food products were increased while wages trended down and bonuses were reduced. By June 1953, almost a year after the “planned construction of socialism” was announced, supply shortages plagued the East German economy. Such shortfalls became more than obvious to consumers. Goods such as shoes, paper, and clothes were all produced at

23 Ibid., 61. 18 suboptimal levels; sugar, fruit, vegetables, potatoes, and butter, among other food products were also in short supply by 1953.24 Price increases for jam and honey, products used primarily and extensively by the low-paid working class families, drew particular ire from the East German population.25 Simply speaking, the GDR’s working class was left behind in the early 1950s and the disparity in living standards between East and West Germany increased.

24 Ibid., 62. 25 Vladimir Semyonov and Pavel Yudin “On the Events of 17-19 June 1953 in Berlin and the GDR and Certain Conclusions from these Events” (June 24, 1953). German History in Documents and Images, German Historical Institute, https://germanhistorydocs.ghi-dc.org (Accessed 31 March 2021). 19 From Crisis to Crisis: June 1953 to August 1961

Worker Uprising of June 1953

In early June 1953, Walter Ulbricht travelled to Moscow where the new Soviet leadership, Stalin’s successors, directed him to abandon many of the radical polices he had been enacting in the GDR. Ulbricht obliged, and many harsh policies towards the middle class and farmers were slated to be rescinded. There was one issue, however, that Ulbricht would not budge; a ten percent increase in industrial work norms, essentially production quotas for factory workers, was announced the previous May and was there to stay. When considered in conjunction with various price increases of late, this norm increase resulted in a thirty-three percent decrease in relative compensation – and further enflamed growing discontent amongst

East German workers.26

On the afternoon of June 16, 1953, a group of construction workers in East Berlin laid down their tools and protested the SED’s failure to eliminate harsh policies towards workers – such as the norm increase. On the morning of June 17, the protests spread throughout much of the GDR, and almost half a million workers went on strike. In a clear rebuke of Ulbricht and his administration’s policies thus far, hundreds of thousands of protesting workers paralyzed the

SED and East German state on that infamous afternoon. Had it not been it not for the Soviet tanks that eventually warded off the protesters, Ulbricht’s position in East Germany very well may have been in jeopardy. A Soviet memo published on the events of June 17 reveals a great deal about the events that transpired:

26 Kopstein, “Chipping Away at the State”: 36. 20 At about 7 o’clock in the morning of 17 June, in East Berlin and in many cities in

the western and southern parts of GDR, there took place simultaneous mass strikes that

turned into demonstrations, which in a number of cities / Berlin, Magdeburg, Görlitz, and

others/, in turn began riots… While our [Soviet Union] forces were not undertaking any

active steps to stop the unrest, the demonstrators were able to resist the people’s and the

barracks-based police, which created a threat of a takeover of government buildings and

other important places by the insurgents… In view of the unrest that had taken place in

Berlin, in the morning of June 17 the city committee of SED showed confusion. The city

committee showed practically no leadership to the regional committees… Due to these

reasons, the control of the situation in the city was essentially passed to the hands of

Soviet organs.27

As the Soviet report alluded to, the June 17 uprising evolved into much more than a simple worker strike. As the protests grew, calls for wage increases turned into political demands for free elections and unification with the West.28 There was deep discontent with not only specific labor policies, but also the administration and its hardline communist positions. It is safe to say that Ulbricht’s career was saved by the Soviet tanks that quelled the uprising. Ulbricht also appeared to fear his own working class during these events, too, as his administration found an unspoken agreement with the working class: output could rise so long as work norms stayed low and wages remained high.

The worker uprising of June 17, 1953 represented a major setback for Ulbricht’s economic vision. As he pushed heavy industry to achieve maximum possible growth,

27 Vladimir Semyonov and Pavel Yudin “On the Events of 17-19 June 1953 in Berlin and the GDR. 28 Kopstein, “Chipping Away at the State.” 21 Ulbricht’s failure to address the needs of the working class and implement policies which benefitted consumers became an obstacle to progress.

Figure 5: Young Men Throw Stones at Soviet Tanks on Leipziger Platz in Berlin during the Workers' Uprising (June 17, 1953)

Source: German Historical in Documents and Images, German Historical Institute, Photographer Unknown.

The New Course

The widespread unrest and discontent which manifested itself in the uprising of June 17,

1953 prompted SED leaders to revisit some of the economic objectives put forth by the first Five

Year Plan of 1950. On July 26, 1953, the SED announced its commitment to a “New Course” in its approach to economic policy. The New Course revised the emphasis on heavy industry and industrial output and placed a new focus on the development of consumer markets and output of food products. According to the New Course released by the Central Committee of the SED, production in heavy industry was to increase by five and a half to six percent in 1953, compared 22 to the thirteen percent called for in the first Five Year Plan. Light industry for the same year was to increase by ten percent rather than the seven percent stated in the earlier plan. For the years

1954 and 1955, growth in the production of consumer goods was doubled from the five percent slated in the first Five Year Plan. The food, beverage, and tobacco industries specifically were to undergo increased production capacities along with expanded construction of new housing.

There were limits, however, to how far the SED would retreat from its focus on heavy industry.

In Ulbricht’s mind it was heavy industry – not consumer goods – that would transform the GDR into an internationally-relevant industrial economy. The New Course made clear that no restrictions were to affect the investments made in the energy, coal, and transportation industries.

The SED’s New Course was born out of pressure from East German workers tired of tolerating stagnant wages, decreased purchasing power, and limited choice in consumer goods of poor quality.29

Though the average consumer in the GDR did not experience any significant economic gains in the 1950s, heavy industry and industrial output continued to grow at impressive rates during the second half of the decade. There were many factors which contributed to this growth in industrial output, but it would be a mistake to give all of the credit to the SED’s economic plans. Stalin’s death in 1953 brought an end to the dogmatic focus on economic isolation in the pursuit of self-sufficient production gripping the Soviet bloc until then. Competitive production spelled out in trade agreements were formed amongst the Eastern bloc countries including the

Soviet Union, Bulgaria, Czechoslovakia, Hungary, Poland, Romania, and Albania – organized

29 From a Resolution passed by the Central Committee of the Socialist Unity Party: The “New Course” and the Party’s Objectives (July 26, 1953), Dokumente der Sozialistischen Einheitspartei Deutschlands [Documents of the Socialist Unity Party of Germany], vol. IV. Berlin, 1954, p. 458–461; reprinted in: DDR: Geschichte und Bestandsaufnahme [GDR], ed. Ernst Deuerlein, (Munich: dtv, 1966), 140-141. Translated by Adam Blauhut. 23 through the Council of Mutual Economic Assistance.30 Additionally, reparation payments to

Moscow effectively ended in 1954, relieving the East German economy of nearly a decade of

Soviet extraction following the end of World War II. Under these conditions, industrial output in the GDR increased by seventy-five percent between 1955 and 1963.31 As one will come to find, the majority of this growth took place prior to 1960, as the transition into the new decade proved a difficult time for the GDR.

Ulbricht and the SED would come to find that the first five-year plan was unlike many others in that it was the only plan fully completed over the course of the next two decades. In

1955, Ulbricht and the SED passed another five-year plan which essentially maintained the objectives of the original. The plan never completed its full course, however, as the pressure to compete with the West on consumer products was increasing and undoubtedly a major factor in the SED’s decision to annul the plan in 1958. At the Fifth Congress of the SED in July 1958, the party adopted their “main economic task”: to catch up and surpass West Germany in the per capita production of major foodstuffs and consumers goods by 1961 and in labor productivity by

1965. Ulbricht and senior SED leadership believed that high labor productivity through specialization of trade and large economies of scale would be the GDR’s ticket to international relevance on industrial terms. In the words of Walter Ulbricht,

The economy of the German Democratic Republic is to develop in such a manner in the

next few years that the superiority of the socialist social order of the GDR over the rule of

imperialist forces in the Bonn state is unequivocally proven, and, as a result, the per capita

30 Lieberman, Growth of European Mixed Economies, 276. 31 Ibid. 24 consumption of our working population of all important foodstuffs and consumer goods reaches

and surpasses the per capita consumption of the entire population of West Germany.32

One promise made by the SED in the Main Economic Task which was new for East

German workers was the increased production of what are known as “consumer durables”: refrigerators, vacuum cleaners, washing machines, motorcycles, automobiles, and televisions.

Significant efforts to increase production of these items were started months before Ulbricht’s announcement of the Main Economic Task and were among what the SED considered “most important” consumer goods.33 Another unique aspect to the Main Economic Task of 1958 was that Ulbricht specifically mentioned surpassing West Germany in consumption of the consumer goods, broadening the scope beyond purely production as many of the previous economic plans stayed within. Rapidly expanding consumption proved to be a quantifiably more difficult problem for Ulbricht’s SED to solve than production increases had been.

Undeniably the biggest trend in East Germany working against the SED’s Main

Economic Task of 1958 was continual labor shortages, brought about by an increasing elderly demographic and a decreasing population. The open border with West Germany via Berlin presented a constant issue for Ulbricht; East German workers displeased with their conditions had the choice to emigrate to West Germany. The total East German population decreased by roughly 700,000 between 1955 and 1963, from 17.8 million to 17.1 million; during the same time, the non-working age population (children and pensioners) increased from 6.5 million to 7.4 million.34 Not only did the pool of available labor shrink in the 1950s, but the number of

32 Protokoll der Verhandlungen, 68. 33 Mark Landsman, Dictatorship and Demand: The Politics of Consumerism in East Germany (Cambridge, Harvard University Press: 2005), 180. 34 G.D.R., Statistisches Jahrbuch der Deutschen Demokratischen Republik [abbreviated as S.J.D.D.R.] 1967 (Berlin: Staatsverlag der DDR, 1967), 498-499; Lieberman, Growth of Mixed European Economies, 274. 25 dependents and those whom draw resources from the economy grew at a faster pace. This meant continuous labor shortages throughout which the SED attempted to reconstruct and expand its economy.

Figure 6: Working and Nonworking Persons per 100 Inhabitants As a response to these demographics, women became much more active in the labor force as the rising demand for labor continued to plague employers. The percentage of women in the East German workforce rose from thirty-six percent in 1939 to forty-six percent in 1962, which highlights how profound the labor shortage was and the threat that the SED (correctly) believed it posed to economic development.35 Despite the increase of women in the workforce, it appears that the rapid industrial growth that occurred during the 1950s absorbed almost all the available labor; the number of East Germans in the labor force stopped increasing in 1961 and by

1965 there were fewer people employed than in 1959.

35 S.J.D.D.R., (1967), 65; S.J.D.D.R., (1970) 59; see also Lieberman, Growth of Mixed European Economies, 275. 26

Figure 7: Percentage of Women in Employed Labor Force Emigration of East Germans to the West was perhaps the most persistent and biting problem for the GDR economy throughout the 1950s. Such profound emigration was possible due to the porous boundaries in Berlin which allowed for the relatively unrestricted movement of people. Trends in the number of emigrants fleeing the GDR tended to follow those of economic prosperity; in 1953, the year of the June 17 worker uprising, emigration from East Germany reached its peak.36 The majority of emigrants were workers – many skilled – such as doctors, lawyers, and engineers. Most were also young, namely between the age of eighteen and twenty- five. There were many incentives for skilled workers to leave the GDR for West Germany, perhaps most profound was the ease of assimilation (same language, similar work culture, etc.) and the fact that sixty percent of emigrants were able to find gainful employment in West

Germany. For Ulbricht and the SED, the loss of this vitally productive demographic was a daunting challenge to overcome on their mission to surpass West Germany in consumer goods production and especially labor productivity. So long as the border in Berlin remained open, it

36 Presse und Informationsamt, Deutsche Politik 1962. Tätigkeitsbericht der Bundesregierung (Bonn, Presse und Informationsamt 1963), 348. 27 increasingly became evident to SED planners that the GDR was not going to advance its economy to a level on par with the West.

Figure 8: Number of Emigrants Leaving the GDR, 1949-1965

The growth of the 1950s did not continue into the next decade. In 1959, the whole East

German economy grew by an impressive eleven percent; in 1960, that number dropped to six percent. The poor growth rate of 1960 was mostly likely a result of the renewed surge in emigrants fleeing the GDR for West Germany due to the aggressive collectivization campaign intensified by the SED. This was part of a larger trend; in 1961, the GDR economy grew at four percent and industrial production at just two percent.

The East Germany economy was severely struggling in 1960 and 1961. The situation was made worse by a poor harvest at a time when agriculture in the GDR was in turmoil as a result of the SED’s brutal collectivization campaign. Collectivization, beyond driving East German workers to the West, also slowed the provisions of foodstuffs. The SED’s actions in the countryside during 1960 deserves further exploration as both an economically damaging campaign and a grotesque abuse of human rights.

28 Fifteen Years of Agriculture Policy

Agricultural policy was inextricably linked to the economic story of the GDR. As we will explore in this section and again in a later section, there are essentially two eras that define East

German agriculture under the leadership of Walter Ulbricht. The first era can be called pre- collectivization (or pre-1960) which will be discussed in this section and was characterized by a long series of reforms; the second era begins in 1960 when the majority of the GDR’s agriculture was collectivized and large farms operated as state-owned enterprises. As we saw during the period of First Five Year Plan (1951-1955), agricultural production – which represents the availability and quality of foodstuffs for East German workers – was severely inefficient and inadequate. In a later section, we will come to find that during the post-collectivization era state- owned farming cooperatives were able to produce agricultural goods in a much more efficient and scalable manner.

As with much of the East German story, the origins of agricultural reform began with the

Soviet Union. In 1945 the Soviets oversaw a land reform that divided large farms owned by

Prussian aristocrats, the so-called “Junker” estates, into many smaller landholdings. The results of this reform were overwhelmingly negative, largely because unexperienced and unskilled farmers took over the management of inefficient small plots of farmland. The productivity of

East German farms declined sharply. Agricultural productivity was further hampered during these post-war years due to the dismantling of factories that produced vital farms supplies as well as the confiscation of crops and livestock by the Soviets.

Privately-held farms in the GDR received severe scrutiny under the auspices of the SED, which was growing increasingly more loyal to Stalin and was ideologically committed to Soviet policy. By 1948, the independent farmer in East Germany felt the immense regulatory authority 29 of the SED closing in. Private farms whose size ranged between 20 and 100 hectares

(approximately 50 and 250 acres) were officially declared in possession of “kulaks”, a buzzword in Marxist orthodoxy referring to wealthier peasants and ‘large’ land holders which serve capitalist rather than socialist objectives, i.e. an “enemy” which must be eliminated.37 Thus, farmers who fit this description were subject to intense intervention and regulation by the East

German authorities. SED agricultural policy diverted crops and livestock from consumer markets towards state-run functions. This intervention combined with low prices fixed by the planners and high taxation placed on private farms forced many of these farmers mentioned above into bankruptcy. Under the umbrella of economic reconstruction, East German policy concerning agriculture from 1949 to 1952 directly targeted privately owned farms of 20 to 100 hectares through specific production quotas and mandated deliveries to the state.38

It is with this understanding of the SED’s attitude towards private farms in the administration’s economic policy that one must confront the harsh reality of agricultural collectivization in the GDR – perhaps one of the most disastrous facets of East German economic reconstruction. Though never popular or massively successful, collectivization in the

Democratic Republic was marketed under the guise of benign intentions, when in reality the purported voluntary nature of the policy in the early years was the only benign aspect of it.

Formal collectivization in the GDR began in 1952 with the creation of farm cooperatives known as LPGs or Landwirtschaftliche Produktionsgenossenschaften (agricultural production associations). Though marketed as optional, SED policies favored the cooperatives in every way in an attempt to subtly force more farmers to participate. Despite these nefarious conditions for

37 Lieberman, Growth of European Mixed Economies, 135. 38 Ibid., 136. 30 private famers the majority opted to remain on their independent farms. Amid the tough regulation by the SED and increasing pressure to join the farm cooperative, many farmers in the

GDR chose to leave their farms and emigrate. This wave of emigration was so profound that by the spring of 1953, roughly forty percent of so-called “large landowners” had absconded to the

West.39 The result of this organized targeting of ‘wealthy’ farmers was the creation of a massively inefficient and underutilized segment of the East German economy. Behind them the fleeing farmers left over 500,000 hectares (roughly 1.2 million acres) of perfectly productive farmland vacant and idle.40

The SED’s policies towards farmers in the first half of the 1950s must be placed within the larger context of overall economic reconstruction, which leads one back the objectives of the first Five Year Plan. A major component of the Five-Year Plan of 1950, and of East German planning more generally, was an intense focus on the use and distribution of farmland in the

GDR. Language used in the SED’s Five-Year Plan echoed Soviet bloc dogma of self-sufficiency and state-mandated yield quotas. For the years 1951 to 1955 for which the Five-Year Plan covered, the GDR was to reach agricultural production levels which would be sufficient for the demands of the state using “[mainly] the republic’s own resources”.41 As one will come to find,

SED policy towards agriculture was both thoroughly Stalinist and largely counterproductive towards the Democratic Republic’s economic recovery.

East German agricultural policy during the first Five-Year Plan largely failed. The plan called for a fifty-seven percent increase in agricultural output, but only reported an increase of

39 Kopstein. The Politics of Economic Decline, 35. 40 Ibid. 41 Protokoll des III. Parteitages der SED (20.-24. Juli 1950) ([East] Berlin, SED, 1951), 278-80. 31 forty-four percent (which was probably overstated, anyway).42 Many East German would have also questioned this number, as many citizens had access to a subpar range of food products. In fact, most of the goals stated in the Five-Year Plan were not reached, and farm yields in the

Democratic Republic stayed well below those in West Germany. A tepid attempt at collectivization in 1952 was largely unsuccessful and saw very low participation in the first half of the 1950s; the majority of farmland in the Democratic Republic in 1955 remained privately owned. Compared to objectives regarding industrial output, the agricultural policies pursued by the SED during the first Five-Year Plan were largely unable to realize substantial success in terms of growth. Ulbricht’s attempt at collectivizing agriculture during the First Five-Year Plan was also unsuccessful. In 1955 the percentage of gross social product (a GDR metric comparable to gross domestic product) contributed by nationalized enterprises in agriculture was twenty-five percent, compared to almost seventy-nine percent in the industrial sector.43 SED agricultural policy in the first Five-Year Plan systemically targeted ‘large’ farmers on private land until there was nearly no plausible incentive for them to remain in the GDR.

Throughout the remainder of the 1950s, GDR agriculture remained inefficient and the

SED collectivization efforts were not successful; roughly half of GDR farms in 1959 remained under private ownership. By the end of 1959, after nearly seven years of low participation in the farm cooperative campaign, the SED made agricultural collectivization one of its top priorities.

What followed was a rather brutal campaign of propaganda and coercion. In February 1960 a group of industrial workers, ‘professional agitators’, secret police and activists, all selected by the SED, were sent to the Mecklenburg farmland with very clear directives to coerce reluctant

42 Lieberman, The Growth of European Mixed Economies, 137. 43 S.J.D.D.R., 1967, 37. 32 farmers to join SED cooperatives.44 The campaign was quickly extended throughout the GDR, and with it the worst traits of socialism were revealed. Farmers were blackmailed, threatened, and lied to until they would submit to signing the cooperative agreement. Public embarrassment was a common tactic used against farmers, and when this was not successful farmers were threatened with imprisonment. The extent to which the SED agitators went to collectivize the farmland was brutally forceful and inhumane. By April 14, 1960, 250,000 farmers had been forced to sign their farms away to the cooperatives; thousands sold their farms and retired, many emigrated to West Germany, and perhaps most disturbing, some committed suicide.45 In the pursuit of completing the reconstruction of the East German economy, the SED showed its full authoritative nature in the collectivization campaign which ended in 1961. A blatant disregard for the dignity of the farmers was shown and the human impacts were disastrous. After 1961 the vast majority of farms in the GDR were collectivized and under the administration of the SED.

In the following years agricultural output slowly rose, most likely due to the economies of scale which the SED was only able to achieve through coercion and intimidation. Collectivization of agricultural, a decade long process which concluded in 1961, was perhaps the most cynical and harmful policy pursued by the SED in reconstructing the East German economy and helps explain the poor economic condition the GDR was in at the being the of the 1960s.

At the close of the 1950s – roughly a decade after the founding of the GDR as the East

German state – several observations are clear. Soviet occupation and reparation costs in the immediate post-war years undeniably impeded the economic reconstruction which the SED would begin in 1949. The Soviets interfered with and in many cases outright destroyed much of

44 John Dornberg, The Other Germany (New York: Doubleday, 1968), 187. 45 Ibid., 187. 33 the GDR’s already severely damaged infrastructure and industrial capacity. Though political unrest caused the SED to change course in 1953 and focus more resources on consumer markets and light industry, the years 1949 to 1961 showed an obsession among the East German planners on the reconstruction and development of heavy industry and production capacities. Consumers in the GDR were largely left behind while substantial gains were made in industrial output.

Higher living standards in West Germany siphoned skilled workers and exacerbated and an already dwindling labor force.

34

The 1960s: A Comprehensive Economic Analysis

The sixties were off to a rough start for the GDR, as plant investments stagnated, production and instalments of the new industrial capacity were delayed, and raw materials were in short supply. East Germany experienced a significant economic contraction between 1960 and 1963 along with the rest of Eastern Europe. The recession was felt even harder in the GDR due to the coetaneous constraints placed on the East German economy by a shrinking population and declining productivity. It is estimated that the GDR reached its labor ceiling between 1960-

1961, a point at which new labor became almost non-existent. This phenomenon was quite harmful to the East German economy; industrial production was now solely dependent on changes in labor productivity (which was slowly declining during the period 1960-1963) since production increases through a larger workforce were no longer an option. During these years the gap between labor productivity and wages was increasing, rendering enterprises less efficient and over-burdened. The situation in East Germany during the earlier 1960s was extremely poor, even among its Eastern bloc neighbors; the GDR’s rate of expansion during 1961-64 was slowest of all CMEA countries except Czechoslovakia.46

The erection of the Berlin Wall in August of 1961 was a clear sign that Ulbricht and SED leadership no longer believed they could retain its working-age population through the promise of better consumer goods and a higher standard of living. As one may recall, this “promise” was formalized in policy through the SED’s Main Economic Task adopted in 1958. Within two years of the adoption of this task, it became clear that the East German economy was not in a position

46 David Granick, Enterprise Guidance in Eastern Europe: A Comparison of Four Socialist Countries (Princeton: Princeton University Press, 1975), 145. 35 to match West Germany’s average living standard. By 1961, only two years into a seven-year economic plan, Ulbricht (with the blessing of the Soviet leadership) decided to stop the flow of emigration by force with the construction of a heavily armed physical barrier. This all but represented defeat of the SED’s economic planning of recent years, and Ulbricht retreated behind the wall to devise a new set of planning with some aggressive reforms in mind.

New Economic System of 1963

By 1962, Walter Ulbricht and his team of central planners had begun to experiment with policies that elevated the role of “indirect steering”. There were two main functions of economic plans that planners relied on – direct steering, which were the compulsory quotas and prices mandated by the plan, and indirect steering, which used enterprise-level performance indicators such as financial reports, profits, and investments, as economic levers to spur growth and increase efficiency. This turn to enterprise-level economic levers, which in sum represented decentralization in which the planners ceded some decision-making to enterprises, was undoubtedly influenced by a broader conversation happening amongst economist at the time.

Fritz Behrens and Arne Benary were East German economists whose work during the late 1950s argued for a less centralized economic decision-making process – and were ridiculed and shunned by none other than Walter Ulbricht in 1957.47 Around the same time that Ulbricht began to experiment with these ideas, a paper by Soviet economist Evsei Liberman was widely distributed amongst Eastern European economist and governments. Liberman echoed the arguments for the introduction of economic levers in central plans, specifically enterprise profit

47 Jonathon R. Zatlin, The Currency of Socialism: Money and Political Culture in East Germany, (New York: Cambridge University Press, 2007), 48. 36 as a tool for containing costs. Liberman’s article, published in September 1962 and supported by the Soviet Union, undoubtedly validated Ulbricht’s pivot towards a less centralized economic decision-making process. Michael Keren characterized the Liberman proposals and Ulbricht’s response to them in the following way:

The essence of the Liberman proposals has been to give the enterprise freedom of operation,

within a centrally determined plan, on whose fulfilment bonus payments will depend. The size of

the bonus, on the other hand, is to depend on profitability, i.e., on the proportion of profits to

productive assets. The debt of the NES reformers to the Liberman discussion has two facets: the

very fact that of the Liberman discussion was seen as a green light for reforms in the GDR, and

many details of the GDR reforms mirrored specific Liberman proposals. However, Liberman’s

primary interest was micro-economic, in the most restrictive sense of the term. He could allow

himself not to be bogged down with problems of the interrelationships between enterprises and

the coordination which they entail, and he was not at all concerned with problems of macro-

economic balance. The GDR reformers could not disregard these problems and therefore had to

go beyond Liberman.48

These reforms became national policy at the sixth SED Congress in January 1963 with the introduction of the New Economic System (NES). The NES represented the first and most profound reform of its kind among command economies in Eastern Europe; with it, Ulbricht sought to maintain a consistent growth level that was sustainable. With the introduction of the

NES, planners sought “rationalization” within the East German economy: improved economic levers such as prices and incentive structures (cost & profit), coupled with more responsive

48 Michael Keren, “The New Economic System in the GDR: An Obituary,” Soviet Studies 24, no. 24 (April 1973): 556. 37 planning and structuring. Another component of the reforms was to increase the number of large production units to promote specialization and economies of scales; in other words, to increase industry concentration.49 To better understand the totality of the NES, it is important to note four objectives that were given priority. (1) The development of new industrial goods and technology was given particular emphasis in the NES. Although the benefits of consumption of these new products within the GDR were certainly noteworthy, the largest economic upside to this objective was the partial-monopoly to be capitalized on with trade to other Eastern European countries. (2) The production of quality products that meets the demands of both industry and consumers was an important component of the NES, if for no other reason than to direct state planning towards the goal of increasing the standard of living and the GDR’s competitive stance towards the West. (3) Efficiency in the deployment of resources, which now included economic rather than strictly engineering efficiency, was stressed through specialization of individual factories. (4) The consistency of economic growth was prioritized over the speed of growth so as to avoid the growth crisis and labor productivity issues the GDR economy experienced from

1960-1963. 50 In totality, Ulbricht thought of the NES as the pinnacle of socialist economic planning and the GDR’s path towards increased competition with the West. Ulbricht, in his own words, described the NES in the following way:

With the new economic system…, we are creating, based on the economic laws of socialism, the

fundamental economic systems of socialism in the German Democratic Republic. It is the

economic system of a highly developed socialist industrial state with intensive modern

agriculture. It is the economic system of a socialist state that has essentially mastered the

49 Roy Vogt. “The Course of Economic Reforms in East Germany: An Interpretation”. Canadian Slavonic Papers 18, no. 2 (1976): 169. 50 Granick, Enterprise Guidance in Eastern Europe, 144-146. 38 unheard-of burdens imposed by the imperialist past, especially by the fascist world and the

division of the country.” 51

It is important to note, as Ian Jeffries and Manfred Melzer did in 1987, that the decentralizing push represented in the NES did not usher in market socialism. In the same period

Hungary initiated reforms that became known as Goulash Communism. The GDR never went that far.52 Rather, NES was a means for the SED to achieve state goals for the East German economy, simply with heightened importance of tools such as indirect steering with economic levers. In fact, some areas of the plan actually increased the reach of state planners, as was the case with the goal of developing new industrial products and new technology. Ulbricht and the

SED planners viewed this objective as best pursued through “extreme centralization”; a coordinated approach from the top, they believed, would best be able to command resources for high priority projects and see through the development from start to finish more competently than individual attempts.53 As Philip Byrson has noted:

A key ingredient in the socialist recipe for reform is ‘scale superstition’ – the belief that

concentration of industry automatically implies benefits of large-scale production and

more dynamic technological performance… This belief was strong enough to overrule

the reformist desire to encourage competition. It was in part responsible for the

establishment of industrial associations and the integration of state-owned enterprises

51 Walter Ulbricht, Zum Neuen Ökonomischen System der Planung und Leitung [On the New Economic System of Planning and Management] (Berlin, 1966), 668-76. 52 Market socialism was practiced in Yugoslavia, pre-1968 Czechoslovakia, and post-1956 Hungary; see: Ian Jefferies and Manfred Melzer, “The New Economic System of Planning and Management 1963-70 and Recentralization in the 1970s,” in The East German Economy, eds. Ian Jefferies, Manfred Melzer and Eleonore Breuning (New York: Croom Helm, 1987), 27. 53 Granick, Enterprise Guidance in Eastern Europe, 145. 39 throughout East Europe in spite of classical Marxist hatred of the renowned ‘exploitative

and imperialistic tendencies of monopoly.’54

One of the methods in which the SED sought this concentration of industry was through institutions called VVBs (Vereinigungen Volkseigener Betriebe: associations of people’s owned enterprises). VVBs had operated in the GDR for almost fifteen years prior to the NES in 1963.

They originated as management bodies in the late 1940s and then transitioned into primarily administrative units in 1952. The groundwork for the VVBs that played a role in the 1963 reforms was completed when in the late 1950s “chief administrations” were reorganized into these horizontal associations.55

VVBs were intermediary institutions between state ministries and individual enterprises in a specific industry or sector. The VVBs were not primarily involved in the production activities of enterprises but were rather administrative organs, and as such, their responsibilities included plan negotiations and distributing relevant targets to individual enterprises, as well as leading cost reduction initiatives and directing product research efforts. As a result of the reforms, in 1964, VVBs were transitioned to a khozraschyot, or cost accounting basis, in order to align them with the monetary economic levers that would be used as indirect steering during the

NES. Under this cost-accounting system, VVB’s had the power to originate their own balance sheets of resources and production. Previously, individual enterprises reported directly to the relevant state bodies, despite being under the administrative control of the VVBs. Now the

VVB’s took over this role from the state bodies and inherited financial control over the specific enterprises within a respective VVB.

54 Phillip J. Bryson, “Socialist International Economics – An East European Model of Trade, Decentralization, and Growth,” Weltwirtschaftliches Archiv 111 (1975): 141. 55 Jeffries and Melzer, “The New Economic System of Planning and Management 1963-70 and Recentralization in the 1970s,” 28. 40 Now that it is clear that the NES did not bring about a form of market socialism and was dynamic in its effects on total centralization (increasing industrial concentration yet decentralizing the decision-making process), it is worthwhile to examine the details of how exactly the NES altered the economic decision-making process in the GDR. As mentioned earlier, economic behavior in the GDR was influenced by the state both directly and indirectly; during the NES, indirect steering reached the pinnacle of its importance in East German planning. Although compulsory quotas and benchmarks still covered core production activities such as output, sales, fixed capital, and the wage fund, such plan indicators reduced in number during the NES. However, the availability for independent decision-making was increased through incentives and indirect guidance. The economic functions which were decentralized from state plans included investment, product mix, input selection, configuration and management of the workforce, contracts, and foreign trade.56 The NES also introduced new economic levers, such as net profit (gross profit minus capital expenses), which was intended to aid in measuring and improving enterprise performance, as well as increase the incentive structure for enterprise-led investments. One example that highlights the constraints which these decisions were still under would have been the construction of a new plant. For example, the construction of a new manufacturing plant would be directed by a central governing body, but the ancillary investments associated with such a decision was to be indirectly steered by economic levers such as net profit deductions and the access to and cost of credit.

56 Ibid., 29. With regard to foreign trade, enterprises were able to enter short-term contracts that were not specified in the plan so long as the arrangement did not hinder other trade obligations that were included in the plan. Individual enterprises were also able to acquire foreign currency credits to finance imports if they could prove that future output would increase or if they exceeded export plans or were able to save foreign currency granted to them in the plan. 41 There were essentially two dynamic forces at work in the NES; one which increased state control over the economy through the concentration of state-owned enterprises into VVBs, and one which relegated some of the more routine financial and monetary decisions to the lower rungs of the planning systems (primarily the VVB level, in some cases to the enterprise level) and away from the central state apparatus. An essential prerequisite for the success of this decentralized decision-making process – and indeed a prerequisite for the success of indirect steering more broadly – was an accurate array of efficient prices. It has long been understood that obtaining and disseminating accurate prices in an efficient manner is one of the largest sources of inefficiencies in command economies. In an attempt to combat this problem, the SED introduced a number of price reforms during the NES. The first reform of the pricing system was initiated in 1963 and sought to replace the current arrangement which largely based prices on those of 1944. Such an inaccurate basis for prices, especially in a country that was as industrialized as the GDR was in 1963, led to immense waste of raw materials and slowed technical progress. The new price system revaluated the industry gross fixed capital stock on the basis of 1962 prices.57 More accurate prices allowed certain economic levers, such as profit and capacity for investment, to more meaningfully influence enterprise behavior. Between 1964-

1967, the GDR economy experience three price reforms, culminating in a system broadly based on predicted 1967 prices. Although not perfect (as fixed prices can never be), these new price systems did improve the decision-making process via more accurate information upon which enterprises and VVBs were able to act. The price reforms that accompanied the NES from 1963 until its abandonment in late-1970 were an essential component of the SED’s economic policy during this era.

57 Ibid., 30. 42 The reforms of the New Economic System did not loosen the state’s control over foreign trade. Ulbricht’s view of foreign trade in the East German economy expanded well beyond simply the country’s need to import raw materials. He envisioned international trade to be the means by which the GDR would achieve a “technological revolution” where the most efficient machinery was imported.58 In addition to importing efficient industrial machinery, Ulbricht sought to expand foreign trade through East German exports. Although the NES did not abolish the state’s monopoly over foreign trade, there were several policies that gave greater opportunity for enterprises to benefit from foreign exchange. These policies primarily targeted enterprises which produced exportable goods. Sima Lieberman summarized the two most powerful enterprise incentives related to foreign trade during the NES era in the following way:

Any enterprise whose exports surpassed the planned volume or value was allowed to

retain half of the above-target foreign exchange it had earned and could utilize this

exchange for commodity imports. Also, any enterprise which through changed methods

of production could reduce its demand for imported raw materials was to be entitled to

retain half of the foreign exchange thereby saved and could utilize this exchange for the

import of improved equipment. 59

58 Lieberman, The Growth of European Mixed Economies, 282. 59 Ibid., 282. 43

Figure 9: East German Foreign Trade (In million Valuta-Mark) This incentive structure clearly mirrored the relationship that imports and exports had with the

East German economy during the NES era. In order to compensate for its poor endowment of raw materials, the GDR depended on foreign trade to import these materials; however, to import raw materials on such a large scale, East Germany had to export on an equally large scale.

Between 1960 and 1970, there were only three years during which the GDR recorded a negative trade balance. As figure 10 shows, trade with western industrial nations grew the fastest between

1960 and 1970. This trend was indicative of Ulbricht’s commitment to import the most advanced technology (machinery, etc.), which was found in the capitalist West.

The Berlin Wall Opens a New Chapter

Until 1961, Berlin represented a direct challenge to Ulbricht’s vision for East Germany.

Although a hundred miles inside the GDR territory, the city remained under joint Allied occupation and was an anomaly in that considerably free movement was allowed. The loose 44 borders between East and West Berlin acted as a point of escape for East Germans seeking a higher standard of living in the West. Between 1945 and 1961, approximately two and a half million East Germans fled Ulbricht’s GDR through this loophole in Berlin. The majority of emigrants were educated professionals and skilled workers, making this trend all the more threatening to the East German economy. During the summer of 1961, emigration numbers reached such a level that there were thousands of East Germans fleeing to West Germany via

Berlin every day. Ulbricht himself was intimately aware of the challenge that Berlin presented to the GDR. At the Warsaw Pact meeting in Moscow during the spring of 1961, Ulbricht addressed the issue:

In this political and economic struggle against our republic, West Berlin plays the role of

the channel with whose help this trade in people is practiced, and through which also

food and other materials flow out of our republic. West Berlin is therefore a big hole in

the middle of our republic, which costs us more than a billion marks each year.60

Committed to the Stalinist polices driving the exodus, Ulbricht sought to undertake the serious task of sealing the “escape hatch” in Berlin. With the blessing of Khrushchev in Moscow, on

Sunday, August 13, 1961, a barbed-wire barrier divided Berlin in half. Within weeks the barbed- wire fence turned into a cement wall. The Wall represented all of the worst impulses of

Ulbricht’s regime; lined with watchtowers and heavily fortified, guards were ordered to shoot to kill.

The Berlin Wall was a direct response to the bleeding of skilled labor to the West and worsening economic performance. As the SED sought to raise the standard of the living for East

60 Ulbricht mentioned “this trade in people,” referring to a talking point in East German propaganda which claimed that West was engaged in “people-trafficking” by luring or even kidnappings GDR citizens to the West. See: Frederick Taylor, The Berlin Wall: A World Divided, 1961-1989 (New York: HarperCollins, 2006), 126. 45 Germans at the beginning of the 1960s, closing the border in Berlin and fortifying the inner

German border was an integral piece of the SED’s plans for the new economy. The regime effectively locked up its population. The immediate effects of the Wall’s construction cannot be understated. Some 60,000 commuters in East-Berlin were barred from going to their workplace overnight and without warning. The Wall did have its intended effect of bringing emigration to a halt in hopes of developing a productive economy delivering superior consumer goods. The lingering problem of mass emigration was no longer an issue for East German planners.

Figure 10: Construction of the Berlin Wall, August 13, 1961. Source: German History in Documents and Images.

46 Death of the NES and Recentralization

In reality, the reforms outlined in the NES were not fully implemented into the East

German economy until 1966-1967. There were a series of additional reforms within the framework of the NES introduced in 1968-1969, most impactful of which was the policy of

“planning according to structure-determining tasks”. As one may recall, one of the central objectives of the NES was to lighten the burden on the central planning apparatus by relegating fairly routine decision-making to the enterprise and VVB level. The upper echelon of the SED planning bureaucracy wished to focus more on long-term planning and strategic initiatives for development; however, specific functions of the economy were kept under strict state control at the direction of Ulbricht and other party leaders. Structure-determining tasks were introduced in

1968 to help central planners guide key investment decisions they did not wish to relinquish to the enterprise. This policy introduced a new form of priority planning in which priority was given to a subjective array of products; those which were believed to advance technical progress in the economy, and those that were able to be efficiently and profitably exported.61

Centralized long-range planning was implemented for all products deemed “structure- determining” between 1968 and 1969. Plans for these products included research and development, investment, and production – spanning the entire economic lifecycle of such outputs. In addition to comprehensive, long-term plans, structure-determining tasks were given priority within product supply chains, especially in the procurement of investment goods and intermediate inputs. The policy of planning according to structure-determining tasks was very real; the semi-annual fulfilment report from 1970 shows that the overwhelming majority of

61 Keren, “The New Economic System”: 574. 47 structure-determining investments were fulfilled, and on time.62 One of the major issues with the model of priority planning, however, was the neglect of intermediate products such as nuts and bolts, castings, fittings, and hydraulic parts. Planners sought to combat this imbalance through the organization of structure-determining enterprises throughout the supply chain into combines.

Kombinate (Volkseigenes Kombinat: the nationally owned combine) were essentially an improvement of the VVB system discussed earlier. Many of the intermediate products neglected following the adoption of structure-determining tasks were produced by enterprises outside of the VVB, yet inextricably linked to the VVB. The Kombinat, a vertical and horizontal amalgamation of enterprises, was first significantly implemented in the GDR during 1968 and

1969 to complement the policy of planning according to structure-determining tasks.63 Seen as an improvement upon the VVB, the Kombinat outlasted the reforms of the NES and by the end of the 1970s was the basic production unit and main economic organ.

Despite the amendments made to the NES in 1968 and 1969, there were numerous reasons why SED leadership sought to abandon the New Economic System in the 1970s. Though the economy had rebounded from a poor start to the decade and grown steadily until the end of the 1960s, East Germany was marred with severe supply problems at the time when the reformed

NES was planned to be fully operational. As mentioned earlier, the neglect of non-priority sectors such as those that produced intermediary goods led to bottlenecks and shortages, which hindered the progress of priority sectors. Additionally, harsh winters in 1968-69 and 1969-70, followed by dry summers, further hindered progress and had a negative impact on power supply,

62 This report also noted that structure-determining tasks accounted for 50-80% of all investments in the chemical, electronics, electromechanics, and machine tool industries. (Neues Deutschland, 22 January 1971, 3). 63 Jeffries and Melzer, “The New Economic System of Planning and Management 1963-70 and Recentralization in the 1970s,” 29. 48 transport, agricultural production, construction, and water supply. There were several features of the NES itself that contributed to ending the reforms as well. The inefficiency of even the reformed prices was an important factor, as enterprises produced goods which were priced differently than those specified in the state plans. The reformed prices actually resulted in price increases, opposite of the intended effect, which impeded the efficacy of several of the economic levers mentioned above.64 Another reason the NES was ended in the earlier 1970s was the lack of clarity in the decentralization of the decision-making process between state organs, VVBs, and enterprises. Confusion amongst all levels of the economy with regards to whom retained which powers and duties contributed to the death of the NES. Banks in the GDR were also unprepared for their role in the NES; as the price reform mentioned above was not completed until 1967, many of the instruments provided by the NES were difficult for banks to utilize.

Similar to the banking industry, the construction industry was also unable to manage its new role in the economy. The increase in enterprise-level decision-making with regard to investments flooded the construction industry with work orders beyond its capacity. Simply, too many projects were started at once and progress faltered as a result. By 1970, Ulbricht’s SED was forced to reckon with its failed reforms introduced by the NES. As the supply system continued to fail, investment projects were delayed, and consumer goods experienced shortages, SED leadership began debating their next steps.

64 Ibid., 34. 49

Figure 11: Actual vs. Planned Output, Investment, & Consumption. Source: Keren, M. “The New Economic System in the GDR: An Obituary.” Soviet Studies 24, no. 4 (1973): 578.

For the year 1970, plan fulfilment was below expectation (see figure 11) and doubts of the future of NES began to multiply. At a Politbüro meeting in September 1970, changes to economic planning were made public and spelled the end of the NES.65 In order to overcome the shortages and investment issues, SED leadership decided to enact much stricter administrative control over the economy through the state’s central organs, and through such a decision the decentralization reforms of the NES were officially abandoned. The story of NES reveals a key insight with regards to the East German economy, and centrally planned economies more broadly. It is clear that any highly developed economic system which is centrally planned becomes exposed to a high risk of instability when that centrality is only partly loosened with reforms. As mentioned at the beginning of this thesis, the inability of prices to freely and flexibly reflect market conditions severely hinders an economy’s ability to fix the imbalances such as those experienced in East Germany during the NES. Although the NES helped stabilize growth

65 Keren, “The New Economic System”: 581. 50 during the latter half of the 1960s, the reforms never became “the fundamental economic systems of socialism in the German Democratic Republic” that Ulbricht had believed they would.

Despite Ulbricht’s NES reforms being abandoned in 1970, the average living standard of

East Germans did improve during the 1960s. Industrial growth and gains in labor productivity fueled the rise in economic conditions in the GDR - an achievement attained without the aid of

American dollars or western support. Ulbricht relished this fact and took a hardline position in opposition to growing calls for detente with West Germany. This issue would ultimately force

Ulbricht out of his position as first secretary of the SED in 1971, bringing to an end nearly twenty years of untainted party control. After Ulbricht, the SED re-established central control that had been relinquished during the NES and fell in line with Moscow’s decision to open relations with West Germany. 51 Epilogue

The Brandt administration’s Ostpolitik treaties of the early 1970s, which ended West

Germany’s policy of isolation towards the GDR, were received favorably in Moscow. In hindsight, Ulbricht’s reluctance to negotiate on the Ostpolitik treaties was perhaps the most profound indication that his time in power was coming to an end. In May 1971, Ulbricht was removed as first secretary of the SED and replaced by his lieutenant, Erich Honecker. Though he remained the nominal head of state until his death in 1973, Ulbricht lost his political influence.

Thus ended a twenty-year era in which his ideological will had reigned supreme.

At the Eighth Congress of the SED in June 1971, Honecker unveiled his economic strategy for the GDR. He emphasized the “scientific-technological revolution” that Ulbricht had coined during the NES era as a means to deliver a greater range of quality consumer goods and raise the living standard.66 Honecker’s goal, in his own words, was to raise the “material and cultural standard of living of the people on the basis of a rapid rate of development of Socialist production, in increasing effectiveness and scientific and technical progress, and in accelerating the rate of growth in labor productivity.”67

Growth rates across Eastern Europe slowed during the 1970s, in part because of the price shocks of 1973 and 1979. In 1973 the price of oil and other raw materials rose unexpectedly, which affected some of the GDR’s most crucial trading relationships. In 1975 the GDR relied on oil imports from the Soviet Union for twenty-seven percent of its energy. This figure rose in the following decade. The Soviet Union charged relatively high prices for oil. Thomas A. Baylis

66 Thomas A. Baylis, “Explaining the GDR’s Economic Strategy,” International Organization 40, no. 2, (1986): 377-8. 67 Erich Honecker, Report of the Central Committee to the Eighth Congress of the SED (Dresden, Verlag Zeit im Bild, 1971), 27. 52 (1986) calculated that “the discrepancy between the price increases for GDR imports and those for its exports … caused the GDR’s terms of trade to deteriorate by thirteen percent between

1972 and 1975.”68 A second oil price shock occurred in 1979, further exacerbating the GDR’s deteriorating economic position. Honecker responded by increasing exports to Western countries. All of these factors, combined with the ongoing recession during the 1970s, led

Honecker’s SED to finance the growing trade deficit and shrinking state budget through loans, particularly from West Germany.69 The West German government and federal bank,

Bundesbank, helped stabilize the GDR’s ability to repay its debts. West Germany extended support to avoid a potentially disastrous economic collapse of the GDR, in the wake of the

Soviet invasion of Afghanistan in 1979.

At the beginning of the 1980s, the GDR continued to face formidable economic challenges. Its debt to the West increased; imports were declining; exports were increasing; and consumer goods shortages were felt throughout the country. In hindsight, the East German economy was ill-equipped to successfully manage the adverse economic conditions that arose in the 1970s and worsened in the 1980s. The country grew more and more indebted, nearing bankruptcy. At the same time, popular discontent with subpar living standards, inadequate consumer goods and the growing ecological crisis was reaching new heights.

Popular discontent with the SED’s repressive nature and the poor economic conditions was even stronger amongst the East German youth. According to government polls, in 1985, fifty-one percent of apprentices identified ‘strongly’ with the GDR and forty-three with

68 Baylis, “Explaining the GDR’s Economic Strategy,” 394. 69 Hanns-Dieter Jacobensen, “The Foreign Trade and Payments of the GDR in a Changing World Economy”, in The East German Economy, eds. Ian Jefferies, Manfred Melzer and Eleonore Breuning (New York: Croom Helm, 1987), 258. 53 ‘reservations’; by 1988, only eighteen percent ‘strongly’ identified with the GDR, and fifty-four percent with ‘reservations.’70 Youth organizations staged demonstrations in cities throughout the

GDR and, when met with little to no force by the regime, grew more and more emboldened.

Meanwhile, Honecker, now leading a practically bankrupt country and quickly losing his authority, refused to adopt liberalizing reforms such as those passed in the Soviet Union in the late 1980s under the new leader Michael Gorbachev. From 1988 to 1989 the GDR economy was quite literally collapsing. In October 1989, hundreds of thousands of East Germans peacefully demonstrated and demanded democratic reforms. It was the most profound popular protest since the 1953 worker uprising. The SED political apparatus was faltering and did not know how to respond to the almost entirely peaceful demonstrators. It was becoming clear that the party had lost its authority. On November 9, 1989, the Berlin Wall came down when the regime allowed all East Germans to travel to West Berlin and West Germany without a visa. With the effective collapse of the Berlin Wall the experiment of an industrialized-Socialist German state had failed.

Honecker had been forced into retirement in October. His inept successor Egon Krenz lasted only a few weeks before he was replaced by a preliminary government that scheduled open and free elections in March 1990. East Germans had repudiated a ruthless regime that increasingly relied on political oppression and was unable to deliver an appropriate standard of living.

70 Taylor, The Berlin Wall: A World Divided, 1961-1989 (New York: HarperCollins, 2006), 405. 54 Conclusion

Ulbricht and East Germany achieved a rather impressive economic recovery following

World War II. Although modest compared to West Germany, when one accounts for the tremendous disadvantage the East faced, the GDR performance is still remarkable. The story of

East Germany’s economy under the leadership of Walter Ulbricht can be defined by a few distinct periods. The first era of the Ulbricht economy, 1949 to mid-1953, was defined by an intense focus on heavy industry and a rigid loyalty to the Soviet-model of a centrally planned economy. This focus was born out of Ulbricht’s desperate need to compensate for the vital imports shuttered from the GDR. As discussed in the first chapter, East Germany was able to significantly expand industrial production and rebuild its heavy industrial sectors. Following his

Leninist-Marxist ideology, Ulbricht aggressively invested in heavy industry at the expense of the citizens of East Germany. The standard of living in the GDR during this era of Ulbricht’s economy was dismal; food shortages were rampant and basic consumer goods were severely lacking. In just about every way, the average East German citizen was made worse off during this period.

The story of Ulbricht’s economy supports one of the simplest historical themes; there is a finite threshold of mistreatment a citizenry will tolerate before lashing out at their abusers.

Whatever the extent of the lashing out is, history has proven that the threshold in not infinite.

For Ulbricht, this lesson became his reality with the Worker Uprising in June 1953. Completely overwhelmed by the violent protesters, Ulbricht’s SED was saved from a catastrophic break- down only due to the deployment of Soviet troops. The uprising was significant enough to affect the course of economic policy in the GDR, which brings us to the second era of the Ulbricht economy, mid-1953 to 1961. In the aftermath of the June 1953 Uprising, Ulbricht finally 55 acknowledged that consumer goods and living standards must be improved in the GDR.

Investment in light industry, food products, and consumer goods was increased during this era of the Ulbricht economy. It was also during this period which Ulbricht was explicit in his goals to match West Germany’s standard of living and labor productivity. These goals were never attained. As such, the defining trend of this period in Ulbricht’s economy was the bleeding of educated professionals and skilled laborers to West Germany. In 1961, when Ulbricht decided to seal the border in Berlin and shoot those that tried to flee, the East German economy was struggling. This infamous decision was indicative of the inability of Ulbricht to raise the standard of living to a level such that East Germans were not tempted to flee west.

The Berlin Wall represents a turning point. The 1960s was a period of experimentation and reform for Ulbricht and the GDR economy. Forced to reckon with the inefficiencies of a planned economy, reforms in the third and final era of the Ulbricht economy were focused on decentralizing the decision-making process and allowing enterprises to operate with more freedom. Major price reforms accompanied the NES so that the most accurate information as possible could inform economic decisions. As was discussed in chapter 3, even these reformed prices were massively inadequate in providing accurate and efficient information. By 1970 the

NES was abandoned, and policy was geared towards recentralization. This directly speaks to both the tepid nature with which the NES was introduced and the structural inability of the East

German economy to absorb small-scale liberalizing reforms.

At the time of Ulbricht’s death in 1973, East Germany had become a large industrial economy compared to what it once was. Yet, by the early 1980s the country was bankrupt and relied on loans from West Germany. By the end of the 1980s, the entire system collapsed on itself, putting an end to the forty-year German question. Despite the successful industrialization 56 and modest improvement in living standards during Ulbricht’s tenure, the planned economy which he so vehemently defended and spent his career developing was ultimately the cause of its own demise.

57 BIBLIOGRAPHY

Primary Sources (in chronological order):

Semyonov, Vladimir and Pavel Yudin “On the Events of 17-19 June 1953 in Berlin and the GDR and Certain Conclusions from these Events” (June 24, 1953); Fund 06, Opis 12a, Papka 5, Delo 301, Listy 1-51, Archive of Foreign Policy, Russian Federation (AVP RF), Moscow; document obtained and provided by Vladislav M. Zubok, National Security Archive; translated by Danny Rozas. Statistisches Jahrbuch der DDR, 1955. Berlin: Haufe, 1956. “Industrial Investment in East Germany Since World War II.” Central Intelligence Agency Office of Research and Reports. August 1960. “Beschluss des Ministerrates der Deutschen Demokratischen Republik” [“Resolution of the Council of Ministers of the German Democratic Republic”], Neues Deutschland, August 13, 1961; original German text reprinted in Jürgen Rühle and Gunter Holzweißig, eds., 13. August 1961 – Die Mauer von Berlin [13. August 1961 – The Berlin Wall]. Cologne, 1981, p. 95. “Abriegelung der DDR gegen den Westen” [“The GDR is Being Cordoned off from the West”], Neue Zürcher Zeitung, August 14, 1961, p. 1. Binder, David. “Speed-Up Pledged by East Germans.” New York Times (New York, NY), Sep. 7, 1961. “German Reds Set to Spur Economy.” New York Times (New York, NY), Oct. 14, 1961. “German Reds Blame U.S. For Shortages.” New York Times (New York, NY), Dec. 2, 1961. Presse und Informationsamt, Deutsche Politik 1962. Tätigkeitsbericht der Bundesregierung (Bonn, Presse und Informationsamt 1963). Walter Ulbricht, Zum Neuen Ökonomischen System der Planung und Leitung [On the New Economic System of Planning and Management]. Berlin, 1966, pp. 668-76. Translation: Allison Brown Walter Ulbricht’s Speech at the Rally Commemorating the 50th Anniversary of the November Revolution, October 25, 1968, Archiv der Gegenwart, vol. 5, pp. 4671-72. Translation: Allison Brown Werner Barm, “Die Parole Überholen, ohne Einzuholen” [“The Slogan: Overtaking without Catching Up”], Die Welt, no. 174 (July 30, 1970). Erich Honecker, Report of the Central Committee to the Eighth Congress of the SED (Dresden, Verlag Zeit im Bild, 1971).

Secondary Literature:

Apel, Hans. "East German Miracle?" Challenge 12, no. 2 (1963): 10-14. Baylis, Thomas A. “Explaining the GDR’s Economic Strategy,” International Organization 40, no. 2, (1986): 381-420. Dornberg, John. The Other Germany (New York: Doubleday, 1968). Fulbrook, Mary. A History of Germany 1918 - 2014: The Divided Nation. London: Wiley Blackwell, 2015. 58 Granick, David. Enterprise Guidance in Eastern Europe: A Comparison of Four Socialist Countries. Princeton: Princeton University Press, 1975. Keefe, Eugene K., ed. East Germany: a country study. Washington, D.C.: United States Government, 1982. Keren, Michael. “The New Economic System in the GDR: An Obituary.” Soviet Studies 24, no. 4 (1973): 554-587. Landsman, Mark. Dictatorship and Demand: The Politics of Consumerism in East Germany. Massachusetts: Harvard University Press, 2005. Lieberman, Sima. The Growth of European Mixed Economies 1945-1970. Cambridge, MA: Schenkman, 1977. MacGregor, Iain. Checkpoint Charlie: The Cold War, The Berlin Wall, and the Most Dangerous Place on Earth. New York: Scribner, 2019. Roskamp, Karl W. "East German Industrial Production 1958 to 1965." Weltwirtschaftliches Archiv 100 (1968): 306-19. Rueschemeyer, Marilyn and Christiane Lemke, eds. The Quality of Life in the German Democratic Republic: Changes and Developments in a State Socialist Society. New York: M.E. Sharpe, 1989. Schnitzer, Martin. East and West Germany: A Comparative Economic Analysis. New York: Praeger Publishers, 1972. Smith, Jean Edward. Germany Beyond the Wall: People, Politics, and Prosperity. Boston: Little, Brown and Company, 1967. Spangenberg, Sabine. The Institutionalised Transformation of the East German Economy. New York: Physica-Verlag, 1998. Szydlik, Marc. “Incomes in a Planned and a Market Economy: The Case of the German Democratic Republic and the ‘Former’ Federal Republic of Germany.” European Sociological Review 10, no. 3 (1994): 199-217. Taylor, Frederick. The Berlin Wall: A World Divided, 1961-1989. New York: HarperCollins, 2006. The East German Economy, eds. Ian Jefferies, Manfred Melzer and Eleonore Breuning (New York: Croom Helm, 1987). Vogt, Roy. “The Course of Economic Reforms in East Germany: An Interpretation.” Canadian Slavonic Papers 18, no. 2 (1976): 168-177 Von Beyme, Klaus and Hartmut Zimmerman. Policymaking in the German Democratic Republic. New York: St. Martin’s, 1984. Windolf, Paul. "The Transformation of the East German Economy." Polish Sociological Review, no. 124 (1998): 333-55. Zatlin, Jonathan R. The Currency of Socialism: Money and Political Culture in East Germany. New York: Cambridge University Press, 2007.

Academic Vita

JASON M. CHERRY

EDUCATION The Pennsylvania State University | Schreyer Honors College University Park, PA Smeal College of Business | Bachelor of Science in Supply Chain and Information Systems Class of 2021 College of Liberal Arts | Bachelor of Arts in History College of Liberal Arts | Minor in Economics ▪ Paterno Fellow – Honors program including advanced academic coursework, an undergraduate thesis, ethics study, and leadership/service commitment PROFESSIONAL EXPERIENCE Deloitte Consulting, LLP Harrisburg, PA • Incoming Government and Public Services Human Capital Analyst Sep. 2020 – Present • Government and Public Services Human Capital Summer Scholar Jul. 2020 – Jul. 2020 Arthur J. Gallagher & Co. Radnor, PA Benefits and HR Consulting | Intern Jun. 2019 – Aug. 2019 ▪ Presented capstone project analyzing Gallaher’s corporate Merger & Acquisition strategy, focusing on private equity competition in the acquisition space and how to compete with a clear message of culture and opportunity ▪ Developed sales toolkit outlining specific employer HR challenges within the nonprofit industry and suggested leveraging benefit offerings to offset the resource-sensitive structure of a nonprofit in order to attract top talent ▪ Analyzed employer census data using Excel VBA modeling to identify employee demographic distribution and recommended voluntary benefits to enhance the overall employee compensation offered by Gallagher clients ▪ Benchmarked medical claim data for companies with 500-1,500 employees to identify insurance-spend cost reduction opportunities including changing vendors, revising plan design, and covering gaps in care services Environmental Humanities Research Network (EHRN) University Park, PA Undergraduate Research Fellow Jan. 2019 – May 2019 ▪ Supported the creation of a multidisciplinary academic research network that fosters collaborative interactions between scholars across the university engaged in environment-related research from a humanities perspective ▪ Evaluated similar research network models and best practices at other institutions, identified 40+ faculty to invite as founding members of the EHRN, and identified potential research opportunities across the state Nittany Consulting Group University Park, PA Consultant Training Program | Graduate Sep. 2018 – Dec. 2018 ▪ Selected from over 100 students to participate in a comprehensive training program that prepares graduates for careers in the consulting industry such as strategy and operations, human capital, and financial advisory roles ▪ Strengthened core consulting skills through hands-on case study analysis with industry professionals ▪ Worked in teams of four to develop and present solutions to three business cases over the course of the semester LEADERSHIP EXPERIENCE TAMID Group University Park, PA Director of Consulting Dec. 2018 – May 2019 ▪ Increased member engagement through education on consulting best practices, analytical skills, recruiting insights, and proper project management techniques through weekly sessions and practical case study analysis ▪ Oversaw two consulting projects which included market research, industry analysis, and go-to-market strategy analysis for Israeli start-up companies in the healthcare information and data collection industries Project Manager Sep. 2018 – Dec. 2018

▪ Spearheaded a 4-person consulting team conducting industry research and market analysis within the student loan repayment space, specifically determining how to best leverage technology with institutional stakeholders ▪ Validated partnership channel strategy for student loan relief collaboration efforts between the client and various potential partners including universities and student-assistance offices by identifying shared objectives ▪ Created new and effective ways to communicate the client’s value proposition of helping students improve their financial health and eliminate their debt as efficiently and quickly as possible by conducting student surveys ADDITIONAL INFORMATION Interests: U.S. history, 19th Century philosophy, U.S. politics, Constitutional law, Ice hockey, stand-up comedy Community Service: Penn State Dance Marathon, Gift of Life House, Alex’s Lemonade Stand, Autism Speaks