Audio Review by

Day, P. (2003) In Business: Fixing Germany. London BBC
Broadcast: Friday, 10th October 2003

Peter Day is a radio presenter who has worked for the BBC since 1974 and has been moderating his own program “In Business” since 1988, providing weekly reviews of business developments in Britain and worldwide.
“Fixing Germany” is a roughly thirty-minute-long broadcast reporting the changes in Germany’s economy brought about by the reunification with the formerly Socialist German Democratic Republic in 1990. While thirteen years had passed between this historical event and the recording of the BBC report, Day finds Eastern Germany as a region with both its economic characteristics and the people’s mentalities differing significantly from the rest of the country.
Traveling through Germany, Day looks at different regions in both Eastern and Western where he samples the attitudes of locals and interviews specialists relating to him the problems Germany is facing, where these originate and how they believe them to need to be tackled.
I will begin this review with a short historical overview, touching upon the backgrounds that lead to the economic development of the German Democratic Republic.
Following the Second World War, the German territory had been occupied by the victorious Allied Forces, which divided the former Third Reich into 4 distinct zones. The Western forces, USA, Britain and France agreed on common standpoints and eventually united their occupied zones to one economic area that became the Federal Republic of Germany.
However, tensions and disagreements with the Soviet Union, that feared American dominance in Germany, lead to the foundation of the German Democratic Republic shortly after the union of the Western zones, thereby creating a division of the German nation that was not ended before the collapse of the Soviet Union and the following emancipation of the Warsaw Pact states.
Oriented by the Socialist ideology, the economy of the German Democratic Republic was subject to strict central planning by the dominating Socialist Unity Party, stimulating growth after the war in order to pay reparations, yet inhibiting the development of an effective demand-driven economy in the long run. A majority of the means of production were state-owned and smaller enterprises collectivized in order to fulfill 5-year economic plans.
In his report “Fixing Germany”, Day begins by stressing the importance of a strong German economy for the rest of Europe, explaining that Europe’s economy has traditionally been coupled to the performance of the German based on its shear size. He quickly learns, however, that Germany’s growth in the standard of living has stalled in recent years, caused by strains put upon the economy due to the high cost of the reunification. During the spectacular performance of the German economy in the 1970s, an all-encompassing social security system was put in place that is now in trouble due to the reunification.
Chief economist Dieter Walter of Deutsche Bank and Finance Director Dieter Trüxis of Heraeus point to the problems the present German social security system is facing due to an increased population, high unemployment and relatively low productivity in the East when compared to the West. According to Walter, living standards were aligned to Western levels too quickly.
Added social security costs to be paid by employers in order to stabilize the system in turn hamper the companies’ ability to invest and grow within Germany, causing many firms to expand outside of the country.
Federal Health Minister Klaus-Theo Schröder explains the necessity of the Social-Democratic government’s actions to bring about the criticized reforms, calling for a required change of the mentality of Germans who are “used to making minimal contributions” while having enjoyed the comforts of the system. He emphasizes that concessions need to be made in order to secure a prosperous future for Germany, which is troubled by its recent past.
It becomes clear that Germany is facing major challenges and conflicts if it is to reform while sustaining previous growth rates- Reinhard Zinkann, Managing Director of Miele explains that problems to bring about necessary change of the existing social security system and working patterns are also caused by the traditionally strong position of trade unions that are unwilling to recognize Germany’s need to be reform if it wants to remain competitive.
Margaret Heckel, deputy editor of Financial Times Deutschland credits the costs of absorbing Eastern Germany for having caused the issues of the social security system that is now the concern of both government and corporations alike. Her opinions is supported by Alexander Mackat, Chief Executive at Fritzsch & Mackat advertising agency, who predicts many further years of payments to East Germany as necessary in order to fix the mistakes initially having been made, such as the ones mentioned by Walter.
Day also makes the discovery that the mentality of Eastern Germans is in many ways different from the West Germans as a result of the long division between these people. While this has such minor implications as a yearning for familiar products from the German Democratic Republic, its major effects were noticeable during a strike initiated by a strong Western trade union that strived to improve working hours for East Germans. While it seemed to make perfect sense from an equality standpoint, it made careful Eastern German workers concerned that shorter working hours would in the long run endanger their jobs, causing the strike to collapse.
I believe this report to give an interesting picture of the division that still exists in Germany, both economically and in the minds of people. Yet I believe that pressures to treat the Eastern Germans just like their fellow countrymen after the reunification are underestimated. Several interviewees in the report stress that current issues are caused by aligning the Eastern German standards of living and social security too quickly to Western standards, while neither the economy nor the social security systems in place were accurately prepared to absorb such a burden. Nevertheless, I believe that it should be taken into account the relief to have achieved reunification and the inferring initial demands of the public to fully reunify the two countries into one nation with equal treatment.
Furthermore, demographic statistics indicate that overaging of the population was a phenomena occurring in Western Germany even before reunification, and was thus making the social security system unsustainable even if reunification had never taken place. Nevertheless, the report shows that it clearly put even more strains on a system that was already in trouble and might have even more dramatic implications for the German economy in the following years.
For more information on German Economic Integration, have a look at the following journal I found on Google Books:
Burda, Hunt (2002). From Reunification to Economic Integration – Productivity and the Labor Market in Eastern Germany. Brookings Papers on Economic Activity