Guinnane on Sleifer, _Planning Ahead and Falling Behind: The East German Economy in Comparison with West Germany, 1936-2002_

[eh.net-review at eh.net]

Published by EH.NET (January 2008)

Jaap Sleifer, _Planning Ahead and Falling Behind: The East German 
Economy in Comparison with West Germany, 1936-2002_. Berlin: Akademie 
Verlag, 2006. 239 pp. ¤70 (hardcover), ISBN: 978-3-05-004201-X.

Reviewed for EH.NET by Timothy W. Guinnane, Department of Economics, 
Yale University.


This study originated in a doctoral dissertation accepted at the 
University of Groningen. The subject is at once thankless, difficult, 
and important: Sleifer wants to describe the former East Germany's 
economic performance, primarily in comparison to West Germany's, and 
to explain why the East German economy collapsed in the 1980s. This 
topic's importance should be obvious. Sadly, some still romanticize 
the East German regime and others like it, overlooking their casual 
brutality in an effort to score points against whatever they dislike 
about the advanced capitalist economies of our day. Even those who do 
not take this view recognize that some of the differences between 
East and West German societies could be viewed as a trade-off. West 
Germans had greater political freedom, but many East Germans had 
somewhat greater personal economic security. How much did East 
Germans give up, in purely material terms, to achieve whatever "good 
things" their economy delivered? For Germany today, the economic 
performance of the former East Germany remains a central issue 
informing economic policy. To understate the matter a great deal, 
absorbing East Germany into the Federal Republic has proven much more 
difficult than anyone imagined. Some reasons for this have nothing to 
do with history; starting with the famous decision to treat the East 
German Mark as equal in value to the old West German Deutsche Mark, 
the Federal Republic's leaders have proven themselves distressingly 
creative in finding new economic policy mistakes to make. But part of 
the problem has to do with the economy the East German regime left 
behind.

Sleifer faces two distinct sets of problems in carrying out his 
analysis. One of the book's great strengths is the clarity with which 
he explains these challenges. The first has to do with the data. The 
East and West German regimes quickly adopted different ways of 
classifying industries and reporting production results. A scholar 
comparing the economic performance of Iowa to its colder neighbor 
Minnesota, or less exciting neighbor Nebraska, could draw on data 
series generated under consistent definitions. Not so for someone 
comparing the two Germanies. More worrying, there is good reason to 
suspect the East German regime of deliberately falsifying data about 
economic performance. At some level these data problems are familiar 
to economic historians; someone trying to estimate the GNP of the 
North American colonies in the eighteenth century might envy Sleifer 
his sources. The greater problem is conceptual, and arises out of the 
different economic systems in the two Germanies. The construction of 
national output and income by counting quantities and weighting them 
by prices can be grounded in clear ideas about the meaning of prices 
in this economic system. Prices in East Germany were not formed in 
the same way and do not correspond to the same analytical categories. 
Sleifer carefully explains the several ways the East German 
bureaucracy reckoned prices. They all amount to variants on the cost 
of production, and bear no necessary relationship to the price that 
would have cleared the relevant markets, had they existed. An 
additional challenge, the treatment of quality, is more familiar. 
East Germany produced the Trabant, West Germany, the Beetle and its 
successors. Despite the puzzling nostalgia for the Trabant, at a 
relative price of 1:1, few would opt for the Trabant. This is the 
same problem, conceptually, as the challenge faced by the improvement 
in Volkswagen products over time, and the lack quality improvement in 
East German products.

Much of Sleifer's discussion focuses on unpacking the various reasons 
for the East German performance, and he explores a number of 
interesting hypotheses that draw on a strong comparative perspective. 
But his broad temporal overview tells much of the story. In 1936, 
product per capita in what would become East and West Germany was 
about the same. By 1950, East German product per capita was about 56 
percent of West German. The deterioration to 1950 reflects, 
primarily, lack of capital inputs. One might expect as much, given 
the Soviet policy of reparations extraction. Following this period 
one would expect a Solow-type catching up. But between 1950 and 1980, 
the East German economy fell even further behind. This period's 
divergence reflects the deterioration of labor productivity in the 
East. Had it not been for a relative increase in working hours per 
person in the East, the per-capita output differences would have 
gotten even larger. In the last decade of its existence, the East 
German economy simply collapsed.

Sleifer is extremely pessimistic about East Germany's future. The 
first few years after its incorporation into West Germany saw rapid 
growth in the East, mostly because of huge infusions of capital. But 
the eastern economy quickly exhausted the possibilities for this kind 
of growth, and has lagged ever-further behind the West ever since. 
Sleifer doubts the eastern Bundesländer's ability ever to catch up. 
The details underlying this story indicate the dimensions of the 
problem and support his pessimism. Much of the labor-productivity 
problem reflects relatively poor East German performance in 
agriculture, for example. A simple way to remedy this situation would 
be to aggressively shift resources out of agriculture. But any 
observer of West German agricultural policy -- that is, of EU policy 
-- will quickly conclude that hope for East Germany, if there is any, 
lies elsewhere.

Sleifer's analysis is strongest on comparing performances of sectors 
and over time. He devotes less attention here to the broader 
questions of why East German economic policy was so bad. The research 
presented here can be viewed as the first step in what one hopes is a 
longer research agenda. We still do not know how much of the East 
German performance reflects ideological blinders, the dictates of the 
Comintern (that is, Soviet) demands to produce goods for which East 
Germany had no comparative advantage, or, as many suspect, the 
increasing alienation of the workforce from their political masters. 
Sleifer and others will no doubt continue to explore these questions. 
He has done others the great service of publishing the data 
underlying his analysis, and the material presented here will form an 
important basis for all future discussions.

The book has one defect that would have been easy to fix. Most native 
English speakers are comfortable with the varieties of English spoken 
and written around the world. British people complain about 
Americanisms, Americans constantly abuse precision without knowing 
it, South Asians do their best to turn the language into something 
quite different, and a new "Euro-English" charms us all with its 
importation of French grammar. But none of this constitutes an excuse 
for publishing a book with as many plain grammatical and other errors 
as in this work. I know from personal experience how hard it is to 
write in a foreign language; after lots of effort and lots of 
checking by native speakers, the result still often sounds like a 
twelve year-old.[1] Native speakers of what is turning into the 
standard language of scholarship have to be understanding of the 
effort non-native speakers must make. But many sentences in this book 
required a second or third read even to understand. (For example: "we 
should appease with the fact that price data are not ideal" p. 34.). 
Either Sleifer or his publisher should have insisted on copy-editing 
by a native speaker. The result would have been a clarity that would 
do full justice to the substance contained here.

Note:
1. This is the consensus view. One reader claimed it sounds more like 
a seven year-old. Timothy W. Guinnane, "Der europäische 
Geburtenrückgang: Überblick, Erklärungen und Stand der Forschung." 
_Kölner Vorträge zur Sozial- und Wirtschaftsgeschichte_, 2006, pp. 
249-73.


Timothy W. Guinnane is the Philip Golden Bartlett Professor of 
Economic History in the Department of Economics at Yale University. 
His recent publications include "Putting the Corporation in its 
Place" (with Ron Harris, Naomi Lamoreaux, and Jean-Laurent Rosenthal) 
in _Enterprise and Society_ 8(3): 687-729, 2007; and "Regions and 
Time in the European Fertility Transition: Problems in the Princeton 
Project's Statistical Methodology" (with John C. Brown) in _Economic 
History Review_ 60(3): 574-95, 2007.

Copyright (c) 2008 by EH.Net. All rights reserved. This work may be 
copied for non-profit educational uses if proper credit is given to 
the author and the list. For other permission, please contact the 
EH.Net Administrator (administrator at eh.net; Telephone: 513-529-2229). 
Published by EH.Net (January 2008). All EH.Net reviews are archived 
at http://www.eh.net/BookReview.