(1/4) (by /u/flesh_eating_turtle)
Throughout its 41 year existence, the German Democratic Republic (GDR) found itself constantly at the center of the Cold War. The Berlin Wall, set up to divide East Berlin from FRG-controlled West Berlin, quickly became the most famous symbol of the conflict. Despite this, most people (including most socialists) know relatively little about this nation; how its economy functioned, what kind of life did it give its people, etc. However, in the light of recent studies finding that 57% of East Germans feel that life was better under socialism (see sources below), many people have grown more curious about this particular country. As such, in this post we will go over various aspects of the GDR in detail.
All sources are listed at the bottom. I will indicate which source I am using whenever I quote from one.
Historical Background and Starting Conditions (WWII and Pre-War Era)
World War II left Germany a shadow of its former self. Cities had been leveled, and the economy had been utterly devastated. East Germany in particular was at a serious disadvantage; it had always been far less industrialized than Western Germany, and as such, it had depended largely upon the West for its economic needs. According the US Federal Research Division’s study of East Germany:
Before World War II, the area that later became East Germany was not well developed industrially. Because this area lacked raw materials, heavy industry was generally located in other parts of the German state. Compounding the problems for the newly created East German state in 1949 was the massive destruction during World War II of the industrial plant that had existed there and the subsequent Soviet dismantling and removal of factories and equipment that had survived the war. […] During the interwar years, the territory that is now East Germany was profoundly dependent on external economic ties. In the mid-1930’s, it shipped almost half of its total production to the other parts of Germany… This domestic trade featured sales of agricultural products; textiles; products of light industry, such as cameras, typewriters, and optical equipment; and purchases of industrial goods and equipment.
In other words, East Germany depended totally on the West for its heavy industrial needs, and paid for these needs by selling its agricultural and light industrial products. However, after the war, this balance between East and West was thrown off. According to the US Federal Research Division:
Major dislocations occurred after World War II, when Germany was divided into two sections, one part dominated by the Soviet Union, and the other by the Western Allies.
Because it could no longer rely on its former system of internal and external trading, the Soviet Zone of Occupation had to be restructured and made more self-sufficient through the construction of basic industry.
This was no small feat for the fledgling GDR, especially seeing as it received virtually no large-scale economic aid from the USSR (which was too busy rebuilding itself after WWII to worry about pumping money into East Germany). In addition, the GDR had to pay heavy reparations to the USSR for the damage caused during WWII. This acted as a major obstacle to development. According to The East German Economy, 1945-2010, published by the German Historical Institute, direct and indirect reparations paid by East Germany between 1946 and 1953 amounted to $14 billion in 1938 prices. Another statement on this is found in the US Federal Research Division’s study:
The reorientation and restructuring of the East German economy would have been difficult in any case. The substantial reparations costs that the Soviet Union imposed on its occupied zone, and later on East Germany, made the process even more difficult. Payments continued into the early 1950’s, ending only with the death of Stalin. According to Western estimates, these payments amounted to about 25 percent of total East German production through 1953.
This is in direct contrast to the West, which received large aid investments from the United States as part of the Marshall Plan, as well as lucrative trade relationships with the developed nations. Now, let us examine how the GDR developed in spite of these factors.
Economic Growth and Industrial Development
Despite all of the aforementioned significant disadvantages, the East German economy managed to overcome its difficulties and develop at an impressively rapid rate. This is especially true in terms of heavy industry. According to the US Federal Research Division:
During the 1950’s, East Germany made significant economic progress, at least as indicated by the gross figures. By 1960 investment had grown by a factor of about 4.5, while gross industrial production had increased by a factor of about 2.9. Within that broad category of industrial production, the basic sectors, such as machinery and transport equipment, grew especially rapidly, while the consumer sectors such as textiles lagged behind.
Despite the priority given to heavy industry, consumption also increased steadily during this period:
Consumption grew significantly in the first years, although from a very low base, and showed respectable growth rates over the entire decade.
At the end of the 1950’s, some analysts feared an economic crisis in the East, spurred by the “brain drain” from East to West; however, this did not occur, and the East German economy continued to grow impressively in the 1960’s. The US Federal Research Division reports:
As the 1950’s ended, pessimism about the future seemed rather appropriate. Surprisingly, however, after the construction of the Berlin Wall and several years of consolidation and realignment, East Germany entered a period of impressive economic growth that produced clear benefits for the people. For the years 1966-1970, GDP and national income grew at average annual rates of 6.3 and 5.2 percent, respectively. Simultaneously, investment grew at an average annual rate of 10.7 percent, retail trade at 4.6 percent, and real per capita income at 4.2 percent.
This growth continued on through the next decade:
As of 1970, growth rates in the various sectors of the economy did not differ greatly from those of a decade earlier… Production reached about 140 to 150 percent of the levels of a decade earlier… The growth rates in production resulted in substantial increases in personal consumption… throughout the 1970’s the East German economy as a whole enjoyed relatively strong and stable growth. In 1971, First Secretary Honecker declared the “raising of the material and cultural living standard” of the population to be a “principal task” of the economy; private consumption grew at an average annual rate of 4.8 percent from 1971 to 1975 and 4.0 percent from 1976 to 1980… The 1976-1980 Five Year Plan achieved an average annual growth rate of 4.1 percent.
The 1980’s saw some economic difficulties for the GDR as Western banks clamped down on credit for the East and the USSR reduced oil deliveries by ten percent. This led to a period of slow growth as the GDR rushed to step up exports; despite this, the economy did manage to pull through and deliver impressive growth results during this period (though it did fall short of the plan). The US Federal Research Division reports:
The 1981-1985 plan period proved to be a difficult time for the East German economy… However, by the end of the period the economy had chalked up a respectable overall performance, with an average annual growth rate of 4.5 percent (the plan target had been 5.1 percent).
The overall impacts of the industrialization strategy of the GDR were extremely positive. As the US Federal Research Division reported in 1988:
Industry is the dominant sector of the East German economy, and is the principal basis for the relatively high standard of living. East Germany ranks among the world’s top industrial nations, and in the Comecon it ranks second only to the Soviet Union.
Overall, the socialist system in the GDR managed to industrialize the nation at a rapid rate, enabling the country to sustain itself without constant infusions from the West. It did this despite numerous aforementioned disadvantages, a feat which should be celebrated.
Increases in Living Standards
The socialist system in the GDR did not only succeed in rapidly developing the nation; it also provided a steadily increasing quality of life for the people. The US Federal Research Division reports:
The East German standard of living has improved greatly since 1949 [when the GDR was established]. Most observers, both East and West, agree that in the 1980’s East Germans enjoyed the highest standard of living in Eastern Europe. Major improvements occurred, especially after 1971, when the Honecker regime announced its commitment to fulfilling the “principal task” of the economy, which was defined as the enhancement of the material and cultural well-being of all citizens.
This focus on increasing quality of life for all citizens, rather than providing profit for the capitalist class, is a unique feature of the socialist system, which provided steadily improving living standards. The US Federal Research Division states:
Since the inception of the regime, the monthly earned income of the average East German has increased steadily in terms of effective purchasing power. According to the 1986 East German statistical yearbook, the average monthly income for workers in the socialized sector of the economy increased from 311 GDR marks in 1950 to 555 GDR marks in 1960, 755 GDR marks in 1970, and 1,130 GDR marks in 1985. Because most consumer prices had been stable during this time, the 1985 figure represented a better-than-threefold increase over the past thirty-five years.