East Germany - Economy

Economy

The East German economy began poorly because of the devastation caused by the war, the loss of so many young soldiers, the disruption of business and transportation, the presence of so many refugees, and finally reparations owed to the USSR. The Red Army dismantled and transported to Russia the infrastructure and industrial plants of the Soviet Zone of Occupation. By the early 1950s, the reparations were paid in agricultural and industrial products; and Lower Silesia, with its coal mines and Szczecin, an important natural port, were given to Poland by the decision of Stalin.

The socialist centrally planned economy of the German Democratic Republic was like that of the USSR. In 1950, the GDR joined the COMECON trade bloc. In 1985, collective (state) enterprises earned 96.7% of the net national income. To ensure stable prices for goods and services, the state paid 80% of basic supply costs. The estimated 1984 per capita income was $9,800 ($21,000 in 2008 dollars). In 1976, the average annual growth of the GDP was approximately five percent. This made East German economy the richest in all of the Soviet Bloc until 1990 after the Communist collapse in the country.

Notable East German exports were photographic cameras, under the Praktica brand; automobiles under the Trabant, Wartburg, and the IFA brands; hunting rifles, sextants, and wristwatches.

Until the 1960s, East Germans endured shortages of basic foodstuffs such as sugar and coffee. East Germans with friends or relatives in the West (or any access to a hard currency) and the necessary Staatsbank foreign currency account, could afford Western products and export-quality East German products via Intershop. Consumer goods also were available, by post, from the Danish Jauerfood, and Genex companies.

The government used money and prices as political devices, providing highly subsidised prices for a wide range of basic goods and services, in what was known as "the second pay packet". The economic results were highly negative, and created an increasing differential with the prosperity in West Germany. At the production level, artificial prices made for an inefficient, backward system of semi-barter and resource-hoarding. For the consumer, it led to the substitution of GDR money with time, barter, and hard-currencies. Ironically, the socialist economy became steadily more dependent on financial infusions from hard-currency loans from West Germany. East Germans, meanwhile, came to see their soft-currency as worthless relative to the Deutsche Mark (DM).