Kurt Huebner (UBC) comments on Twenty Years of German Unification: "What's in the box?"

What's in the box? Kurt Huebner, University of British Columbia

When the second Unification Treaty came into effect on October 3 1990, the political and socio-economic unification of Germany eventually was put on a track of institutional convergence that already started with the Economic and Social Unification from July of the same year that included the introduction of the Deutschmark. The former East was supposed to adjust to the social, political and economic institutions of the West in order to become the smaller outfit of Model Germany. The German case differs in many respects from transition and transformation processes in other former Communist countries. It is unique in the sense that the former German Democratic Republic is the only country out of this group that was integrated into a already existing (and highly successful) democratic capitalist market economy.

In terms of alleviating the social burden of transformation this feature was extremely helpful. Despite tremendous sectoral changes that came with huge numbers of job losses, GDP per capita and more so household incomes in the East moved from less then 50 % of the West average up to 74 respectively 83 % until 2008. Even though huge net transfers from West to East through the German Unity Fund and Solidarity Pact I and II as well as through a bunch of further infrastructure programs, often co-financed with the EU, did not generate 'blooming landscapes' and new jobs it is a historical fact that those transfers but definitely helped to avoid the depth and breadth of social costs that occurred in other parts of former Central Europe.

The early debates on the economic effects of the particular modalities of unification pointed towards the possibility that the Eastern Länder become the Mezzogiorno of Germany: Structural underdevelopment as path of the future. From today's perspective such a scenario of despair reads like an ill-analyzed exaggeration - despite all the structural problems of the East. Travelling through the East would show attractive cities and villages that lost all their grayish Soviet appeal, showcase modern manufacturing firms, well-established universities and first class communication and transportation systems. Some economic hot spots in the East are more advanced then many economic-geographic zones in the West.

However, the reference to a Mezzogiorno process of development still holds some particles of truth. Twenty years later, unemployment is on average still higher in the East then in the West; labor productivity per hour is still significantly lower in the East; debt levels per capita exceed those in the West; and wages are subdued in comparison to the West. It is no surprise then that the East still has net emigration, which in combination with strong declines in fertility rates produces a dark scenario for the future economic pathway of East Germany - in particular in light of the fact that the tax base for the Länder as well as for communities will continue to shrink. Research on comparative convergence processes make me repeat earlier pessimistic arguments regarding the economic future of the East. Economic research came up with the idea that a convergence speed of 2% gives a reasonable time frame for sustainable and tenable catch-up processes. In the East-West convergence process between the mid-1990s and 2008 convergence speed in regards to GDP per capita and unemployment rates was on average about 1%. If this trend would stay constant it would need additional 49 years until the gap is closed to zero.

Let me stress that this is a purely calculation exercise resting on the - bold - assumption that the main drivers of those processes stay put in both parts of Germany. Future economic processes will not exactly follow such a scenario. The experience of the last twenty years shows, though, that even a moderate catch-up process is more time-consuming, expensive and complicated then the political class until today is willing to admit. In times of a fundamentally changing global economy and a new division of labor on the global and also on the European level, the next twenty years of catch-up may become even more difficult.

Kurt Hübner holds the Chair for German and European Studies at the Institute for European Studies at UBC; he also holds the Jean Monnet Chair for European Integration and Global Political Economy