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 Bundesl?nder’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 europ?ische Geburtenr?ckgang: ?berblick, Erkl?rungen und Stand der Forschung.” K?lner Vortr?ge 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.