Trying to Make Two Germanys Work as One


April 18, 1991|By WILLIAM PFAFF

PARIS. — Germany is in very serious trouble because of the Kohl government's decisions last year on economic unification of the two halves of the country.

By converting East-marks to Deutschemarks, the government produced immediate delight for East German voters, who found their savings could buy them West German cars and luxury goods.

But that act also, at a stroke, ruined what remained of East German industry. It was an error of political opportunism. Now another error appears being made for reasons of ideology.

All of Eastern Europe, and not just East Germany, has possessed only one real asset for surviving competition with the Western economic world. It is that the East is a low-wage producer, admittedly of low-technology and low-value-added goods, salable on other markets chiefly because of their cost advantage.

Mr. Kohl wiped out that advantage for East Germany. It is now a high-cost producer. Hence production is ceasing.

Wage costs are high, and East German company debt, formerly denominated in an unconvertible currency of low value, has become high-value Deutschemark debt.

Since it is all but totally impossible for an East German enterprise to compete with West German manufacturers in quality or productivity, it closes. The Treuhandanstalt, the agency responsible for disposing of East German industry, is charged to sell these companies off.

They have thus far managed to sell 1,000 firms, 100 to foreigners. There is not much left that is worth buying. Plant is obsolete and work-forces lack modern technical training as well as modern tools and equipment.

If a Western company wants to set up in the East it usually is better off buying open-field sites, building a modern factory, and training a young work-force to its standards.

But when costs in the East offer no decisive advantage over costs in the West, and there is mounting unemployment, which means social tension and drastically falling buying-power in the East, why bother?

There were two constructive strategies possible in East Germany, either of which would have avoided unemployment on the scale now emerging. One was to keep the region economically segregated and protected for the time being, so that until it could exploit its advantage as a low-cost producer while attempting to develop a more competitive industry.

This is what the other East European countries are compelled to do. It is a demeaning role; it accepts the fact of exploitation by more prosperous and efficient economies. The Polish or Czech worker acknowledges that he has no chance of earning what a worker earns for comparable work in German or French industry. On the other hand this strategy possesses immediate economic logic and offers the promise of something better to come.

An alternative course would have been massive government subsidy to modernize industry and reconstruct infrastructure in the East. This would have been the policy of a government with a tradition of state industrial interventionism. But the German government is doctrinally committed to free-market solutions, and the decentralized nature of German government also tends to preclude such a course.

It is a doctrinal commitment now under increasing challenge outside Germany. It was not private enterprise that gave West Germany its industrial infrastructure in the late 1950s and 1950s. The importance of public investment has been neglected in recent years. However, the era of Reaganism-Thatcherism is passing; the correlations between public investment and national economic performance are becoming more evident.

Germany is making a heavy infrastructure investment in the East, but there is no equivalent investment in industry itself, which is expected to renew or re-create itself wholly by private initiative.

Without a cost advantage, no incentive exists for it to do so; indeed the means do not exist unless private capital from West Germany or abroad is injected, and what is the motive for that? In most cases, no motive exists. Hence the soaring rate of unemployment in East Germany, carrying with it a threat to German political stability and moderation obvious to all.

East Germany is gravely ill as a consequence of 45 years of Marxist doctrine and practice, but treatment of the malady with the doctrine of untempered laissez-faire gives no sign of succeeding. In the meantime social tension mounts.

William Pfaff is a syndicated columnist.

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