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