Geographical Review of Japan Vol. 70 (Ser. B), No. 2, 74-82, 1997 Areal Structure of Economy in East Germany after the Unification of Germany Hiroshi SASAKI Institute of Geoscience, University of Tsukuba, Tsukuba 305-8571, Japan Abstract: Unification of Germany has put East Germany in the position of being a laboratory, a good example of area) changes in the world. At the time of unification the share of East Germany in the whole German GDP was only 7.2% in 1991, but owing to large transfers for East Germany and to the foreign investments, it became 10.9% in 1995. Unification of the currency brought a favorable exchange rate (1:1) for East German, but it caused a weakening of the competitive power of East German industries on the world market. All state owned properties and enterprises were put under the control of Treuhandanstalt, which reprivatised, privatised or sold them to West German or foreign companies. Many profitable enterprises were bought as "fillet" by West German big companies and the rest as "fat and bone" by foreign companies, among which French, USA and British dominated. The areal structure of economy in East Germany was worked out by some geographers during the age of DDR (German Democratic Republic), but none have yet tried, because the time is not sufficient since the unification of Germany. The contrast between "Industrial South and Agricultural North" is very clear and rooted in natural conditions and in a long history. Five such economic regions may be distinguishable: agro-industrial region along Baltic coast, agricultural region on low land in the Middle, mining and industrial region in the South, Sachsen=Thuringen industrial region, and Berlin. Key words: unification of currency, Treuhandanstalt, foreign investment, transfers for East Germany (Comunist Economic Conference=SEV). Gigan Introduction tic industrial units known as Kombinat, which Walter Ulbricht called "socialistic Konzern", The transformation processes of former so consisted of 15-30 enterprises and employed cialistic countries were main themes in IGU about 20,000 workers. Konbinat Roboton, a Congress in Amsterdam in 1996. The aim of computer maker, had 68,000 workers. this report is to look back at the economic situation in East Germany, the former DDR= Economic Unification of East Deutsche Demokratische Republik, and to dis Germany with West Germany cuss the areal structure of its economy after the unification of Germany on 3rd Oct. 1990. Unification of currency Economic Situation of East Germany On the 1st of July 1990 unification of cur Directly after Unification rency was completed. The Federal Bank of Germany asserted the exchange of one East Under the socialistic economic system, all Mark into half a Deutsche Mark, but it was means of production were under the control of decided 1:1 for political reasons. West German state or cooperation (VEB=Volkseigener Be politicians were all anxious about the big popu trieb or LPG=Landwirtschaftliche Produktions lation inflow from East to West, because during - genossenschaft). As a socialistic country, DDR four months from October 1989 to January endeavored to attain Autarkie (self-sufficient 1990, 0.3 million people moved from East to economy) and traded among COMECON West. The real exchange rate had been 1:4, so Areal Structure of Economy in East Germany 75 the East Mark was in reality raised 400%. That 0.63 million (39% of 1991) in 1994. The largest benefited the private life of East German people, decrease rate was experienced by the iron, tex but has forced the enterprises in East Germany tile and machine industries. Only the automo to loose competitive power on the world bile industry has improved production: from 3.9 market. Mrd. (billion=a thousand millions) DM 1991 to 5.8 Mrd. DM 1992. Big investments were made: Destruction of economy in East Germany in Eisenach by Opel, in Mosel bei Zwickau by Destruction of COMECON and the cancella VW = Volkswagen, in Ludwigsfelde bei Berlin tion order by West German enterprises have by Mercedes-Benz. One of the large obstacles to forced East German exports abruptly to cease. investment in East Germany was the com The number of unemployed amounted to plexity of landownership. Three times ex 910,000 and Kurzarbeiter (short time worker) to propriations were carried out, by the Nazis, the 1.6 million. Discharge of military service and Occuping army of the Soviet Union and DDR. administration workers of DDR generated Transfers for East Germany major unemployment amounting to 2.5 million less than one year after unification. The rate of Transfers of public capital from West Germa unemployment in East Germany was 10.3% ny to East Germany amounted to 1,043 Mrd. (6.3% in West Germany) in 1991, 14.8% (6.6) in DM in the 7 years from 1991 to 1997, which is 1992, 15.8% (8.2) in 1993, 16.0% (9.2) in 1994 as large as the Japanese general account of the and 14.0% (9.3) in 1995. national budget in 1997 (Table 1). The share of The profitable exchange rate (1:1) of cur East Germany in the whole German GDP (gross rency enabled East Germans to buy western domestic product) was only 7.2%. So the feder new and used cars, and in a few years after al government had to invest more than 120 unification the former East German national Mrd. DM a year into East Germany. 75.6% of car Trabant: "Trabi" disappeared to be a classic that was carried by the federal budget. In such car. The wages of East German workers have infrastructure as waterways, railways and been fixed about 70-80% of that of West, but roads 19.3% of transferred capital was invested, industrial productivity in East Germany was but the largest (25.2%) portion was wasted for 30% in 1991 and 53% in 1994. The disparity social and unemployment insurance. between wages and productivity became so German magazine "Der Spiegel" criticized: large as to weaken the competitive power of Support from West Germany was not used for East German industries on the world market. the creation of infrastructure but wasted for the The number of industrial workers in East living costs of East German people. Germany decreased from 1.64 million in 1991 to In 5 years from 1991 to 95, 625 Mrd. DM was Table 1. Transfers for East Germany in Mrd. DM (BMWi Aufbau Ost 1997) 76 H. Sasaki invested into East Germany by private com Cockerill Sambre in January 1995. panies, in the service sector 39.6% (72% of In 1993 many West German companies began which was immobile agents), in the production to negotiate with Treuhandanstalt for favor sector 35.9% (52% of which was in manufactur able conditions of investment and employment ing industries). Industrial investments, al in East Germany. VW began to produce VW though earnestly desired, were only 19%, as Golf at Mosel, 7km north of Zwickau , by join large as transportation and telecommunication ing with IFA (East German Automobile sector. Kombinat). VW was to produce 1,200 cars a day, but gave up the plan, because of opposition Treuhandanstalt from the government of Niedersachsen , where Treuhandanstalt (national trust institution) the headquarter factory was located at was founded in 1990 to control the former state Wolfsburg. The Niedersachsen government owned properties and enterprises, and was the feared employment in Niedersachsen would world's biggest holding company in 1991, con decrease. trolling 13,781 state owned enterprises and The reduction of production of VW Golf in 10,652 small shops with 4 million workers. It Mosel brought Sachsen Automobil Werke (once has endeavored to privatise by selling them to produced Trabant until 1991) to a crisis, and it foreign and West German companies or by went into bankruptcy at the end of 1993 . Be reprivatizing (returning the socialized pro cause Sachsen Automobil Werke had VW Golf perties to former owners). Up to the dissolution under subcontract of VW, VW invested more in of Treuhandanstalt in December 1994, it foreign subsidiary companies; SEAT in Spain liquidated 3,525 enterprises, sold 2,679 enter and Skoda in Chez, rather than in East Germa prises to workers (Management Bayout=MBO), ny. VW's subsidiary company Audi was to 855 enterprises to foreign capital, and the rest have built an automobile engine factory near to West German companies. Magdeburg, Sachsen-Anhalt, but it changed the At the time of dissolution of Treuhandanstalt plan to build it at Gyor in the northwest of it had 275 Mr. DM debt and 100 enterprises left, Hungary, where they produced 200 engines a which could not be sold. Former gigantic enter day in August 1994, and planned to increase to prise group called Kombinat was broken up 2,000 engines a day. into small enterprises: "fillet" enterprises and Other examples are the case of kali ex "fat and bone" enterprises . It is said that such ploiting and shipbuilding enterprises of "fillet" enterprises as Interfl ug (former national Treuhandanstalt. A West German kali exploit air carrier of DDR), Carl Zeiss, Roboton (com ing company bought 4 kali enterprises from puter maker group of DDR) were sold to West Treuhandanstalt under the condition of closing German companies, and only "fat and bone" Bischofferode in the south of Harz massive enterprises were left to foreign capital. mountains, which had the largest deficit . Of Interflug was taken over by Lufthansa, Carl course the workers of Bischofferode resisted the Zeiss by the sister company Carl Zeiss liquidation of the enterprise with hunger strike . Oberkochen. After the reduction of workers But the labor union of West German company from 28,000 to 6,000, Roboton was broken also supported the attitude of company .