Published by EH.NET (April 2011)

Andr? Steiner, The Plans That Failed: An Economic History of the GDR. (Translated from German by Ewald Osers.) New York: Berghahn Books, 2010. xiii + 228 pp. $60 (hardback), ISBN: 978-1-84545-748-8.

Reviewed for EH.Net by Maria Polyakova, Department of Economics, M.I.T.

In 1945, the Third Reich unconditionally surrendered to the Allied forces of Great Britain, France, the United States and the Soviet Union. The Allies occupied Germany in the same year, splitting the country and its capital into four Zones of Occupation. The northeastern part of modern Germany became the Soviet Occupation Zone governed by the Soviet Military Administration. In 1949, four years after the end of the War, the Socialist Unity Party of Germany (SED) proclaimed the foundation of the German Democratic Republic (GDR), also known as East Germany, in place of the Soviet Zone. The political history of East Germany has had a number of academic and broad audience publications devoted to it. Detailed analysis of its economic history, on the other hand, has been surprisingly scarce in comparison.

Andr? Steiner, Research Director for the Department of Economic and Social History at the Center for Contemporary History Potsdam (ZZF) and professor of economic and social history at the University of Potsdam, attempts to reduce this gap. The study is meant primarily to provide an analytical summary of the existing research on the topic (both by Steiner himself and other scholars) and accomplishes its goal well.? In about 200 pages of condensed prose, Steiner presents a detailed, yet concise, overview of the key economic decisions and policies — and their consequences — that characterized the socialist German state from 1945 to 1990. In his account, Steiner relies on a number of primary and secondary sources that include published collections of documents, archival materials, and scholarly writings. Among these sources are diverse protocols from the political discussions of the time, contemporary legal and regulatory publications, as well as analytical books and articles written in the midst of the historical developments.

Steiner?s main questions are ?why things happened the way they happened and, above all, what alternatives were available and why they were not chosen? (p. 1) as well as ?how was it possible … that the system survived for forty years? (p. 7). Steiner rightfully claims that, just by observing the end result of the economic development in the GDR, we cannot be confident that the system of the centrally planned economy, in and of itself, was the key reason for the failure of East Germany.? To get closer to the heart of the matters, Steiner lays out the details of the economic development of the GDR in six chapters. In each chapter, he considers both the political economy of the policies and the daily experience of the GDR?s population during different ?political caesuras? (p. 8) of the GDR?s economic history. The hard work of organizing and explaining the often chaotic and controversial economic events (as well as their academic accounts) in East Germany, allows Steiner to conclude that, indeed, ?the crucial negative element was the planned-economy system? (p. 1). This conclusion will hardly surprise the readers familiar with East German history. The merit of the book, however, lies in its well-structured account of the events and the relevant primary sources. These serve to convince readers of the non-dogmatic objectivity of the book?s conclusion.??

Steiner devotes the first two chapters of the book to the discussion of the immediate post-war situation in the Soviet Zone and the first five years of the GDR?s existence. Steiner shows that the area of the Soviet Occupation was highly industrialized and produced a sizeable agricultural surplus. Its industry, however, critically depended on the supplies of raw materials from the Western territories — a fact that would later cause much trouble for the GDR?s government.? Steiner provides evidence that the Zone?s wartime destruction was lower than in its Western neighbor and should not have been inhibitive for the economic reconstruction.? The controversial attempts to nationalize agriculture, restore the production of consumer goods, and, at the same time, develop heavy industry, as instructed by the Soviet Union, were, however, inhibitive.

The Soviet dismantling of plants and the reorganization of the industrial structures had a severe effect on the capacities of the GDR?s industry. The book further accounts for the complications that the GDR?s new political leadership faced in trying to restart production and stabilize employment, monetary exchange, and the supply of consumer goods and food.? Harvest failures and the collectivization reforms of agriculture resulted in severe food shortages.? Dismantling, reparations and incentive mismatch in the manufacturing resulted in the escape of more than 4,000 producers to the West, while the remaining ones struggled to provide desirable quantity and quality. The difficult situation led to the strike of June 17, 1953 that was forcefully resolved with Soviet tanks.

In the third chapter, Steiner discusses the economic situation during the second decade after the end of the War. He characterizes this period as a time that experienced rapid growth from the post-war production level. At the same time, there were consumption shortages, severe underinvestment into the production of consumer goods and big waves of emigration to the West. It was also a period of further deep structural changes in all sectors of the economy. Steiner emphasizes the dependency of the young German state upon the Soviet command and its struggle of keeping up with its Western neighbor, which by this time clearly offered a much more attractive environment for the consumers and firms of the East. The chapter culminates with the request of the East German government to the Soviet Union to allow for the construction of the Berlin Wall to shut off emigration from the country.

Although the official justification for the construction of the Wall was political, Steiner argues that the real reason (and the one that East German policy-makers stressed in their internal discussions) was economic. In the next two chapters, Steiner discusses how the forceful hold of the population and firms within the country allowed the GDR?s government to pursue the economic reforms it desired. The SED still advertised that the goal of the GDR was to ?overtake? the living standards of the Western neighbor, but now it didn?t have to worry about the extensive emigration that was the consequence of the obvious failures in the past. Over the course of these two decades, the GDR?s government implemented an array of reforms that tied it closer to the Eastern bloc and were supposed to convince its citizens of the merits of the socialist system. Steiner argues that the reforms of the ?New Economic System?? and the ?Overtake without Catching Up? programs were often undermined by structural inconsistencies that followed the attempt ?to simulate market mechanisms without, however, introducing the foundations of a market economy? (p. 111).? The standard of living and the industrial output showed improvement in the sixties and seventies.? Consumer demand continued to be dictated by the government, however, rather than by the consumers themselves. That is, there was no way for the economy to signal its needs to the planners.
Lastly, Steiner discusses another big problem, namely the indebtedness of the different parts of the system and its reliance on support from the Soviet Union. The country was severely indebted to both the East and the West. Within the country, companies relied heavily on subsidies from the state. East German exports were not competitive and the economy was not self-sustainable, relying to a considerable extent on the imports. The political events of the following decades led to a termination of the credit line from the West. At this point, as Steiner skillfully puts it ?reality caught up with the GDR: it was in an indebtedness trap? (p. 142). The last decade before the fall of the Berlin Wall saw the country struggling with debt, rising prices for raw material imports, the growing demands of the population, shortages, declining investments and productivity and, finally, renewed emigration to the West. The economic crisis and the dramatic changes in the political circumstances in the Eastern bloc eventually led to the fall of the Wall and the GDR in 1989.

As Steiner sums up, ?the socialist economic system?s immanent incapacity to produce structural and technological or innovatory change was the decisive cause of the GDR?s economic weakness in its final decade? (p. 193)

The 2004 German edition of the book with the original title Von Plan zu Plan: Eine Wirtschaftsgeschichte der DDR became a popular read in Germany. This is, of course, not surprising, given the low number of good systematic accounts of economic life in East Germany and the slowly fading heritage of the GDR?s economy and society in modern Germany. The audience for the English translation of the book might be harder to define. While it is unlikely to arouse a lot of interest among the non-German casual readers, it is at the same time too general for specialized researchers of East Germany?s economic history, who would probably prefer to use the German edition anyway. On the other hand, it would provide an excellent introduction for students and researchers who are just starting their work in the area of East Germany?s history, or for the researchers of state-owned enterprises and planned economies, who are interested in an overview of the historical precedent. Furthermore, Steiner?s bibliography presents an impressive scholarly reference to a large subset of primary and secondary sources that are available on the topic.

Maria Polyakova is a graduate student at the Department of Economics of the Massachusetts Institute of Technology.? One of her current research projects concerns the organization of the German industry in the first decade after World War II.

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