The Partition of Germany: The Economic Effect of German Division

Hello , this Seminar Paper that was presented on our major class. This papers aims to understand and evaluate the impact of partition in Germany to its economic sector. I know you will know a lot F interesting things with this article.

The Partition of Germany: The Economic Effect Germany Division



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Europe, from both East and West were devastated by the two major world wars. The European economy, as well as the world economy, registered the slowest growth in its modern history. The infrastructure, the economy, and the people were greatly devastated, to the point that survival itself was in doubt for the first years following the wars. However, Europe was able to recover from the devastation, and this recovery differs from different parts of the continent. The economic situation in Europe had been different; the gap between the Central and Eastern Europe, and the Western Europe is quite evident. The ratio in GDP between the two changed in the short period of time. But in spite of the generally slow economic growth, some important modern structural changes did occur in Europe, especially in the West. Western Europe showed strong economic recovery in the years following the war. The West had a consistent economic system, and was able to cope up and face the challenges that arise. While in Central and Eastern Europe, the advances in industrial capability were balance by repression from the communist system. Thus, leads to economic stagnation and decline during the last quarter of the twentieth century.

Superpower Nations Divide Germany

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In the case of Germany, since they had lose the war and was very devastated, the allied victories: the US, Britain, France and Soviet Union, had divided the German territory among the four of them and occupied the area. They keep the German people apart from one another depending on the place where they live. In addition, the allied victories also inspire the regionalist sentiment of the previous local German political tradition which intensifies the division of the weakened unity of the country. Clearly, the allied victory and post-war occupation, and multiple restorations of "other Germany" had been the factors that contributed for the division of Germany.

The United States, Great Britain, and France joined forces with the Soviet Union against the Axis Powers. After they defeated the Nazi Germany, each of the victorious nations occupied a part of the country. The allies found themselves at disagreement over their vision for post-war Europe. The Soviet Union sought to surround itself with obedient communist nations, including a weakened Germany. While the Western Powers wanted to promote liberal marketing economies. The deteriorated relations of the allied countries resulted to the creation of the Berlin Wall on August 13, 1961, a virtually insurmountable barrier in Berlin which literally divides the East Germany from the West Germany. The wall became an intimidating symbol of the Cold War era, a symbol of an unworkable system, economic decline, surveillance and oppression, and totalitarianism. With this partition, the German Democratic Republic (GDR) was created in the East Germany, which is under supervision of the Soviet Union, and is a socialist government. On the other hand, the West Germany created the Federal Republic of Germany (FRG), which is supervised and under control of the three powers, the US, Britain and France. This rule formed a democratic government in the West. The division leads for both economies from East and West to share the same challenges after the war but had different responses.

East Germany Economy

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​In the East Germany, the authority of the GDR, being a socialist government, abolished private properties and every trace of capitalism throughout the area. The socialist state hoped to be able to demonstrate the superiority of the socialist system, and to successfully contend with the capitalist west. Following the Soviet model, the economy in the East Germany was changed into a state-controlled, centrally planned production and distribution system by 1948. The Soviet satellite countries restricted Western trade and movement. Heavy industries were built up in the East on large scale in order to reach the production goals. However, the Soviet Union extracted resources from the East as war reparations. This leads to the chronic shortage of raw materials, making its planned economy even less competitive from the West. The decline of the production began in the early1960s. Although there were solutions that were provided to lift up the economic situation, production still decline even further. Clearly, it is quite evident to many East Germans that their “planned economy” had failed to compete the economic struggle with the capitalist west.

Life in Eastern Germany



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​Life in East Germany passed under the watchful eye of the Stasi- the secret police whose wire taps and informers monitored citizens for any hint of disloyalty. There is a stable mass surveillance on social capital and economic performance. From the population, spies were recruited, who secretly collect information about individuals in their own social network. The spies were responsible for the surveillance of the society’s everyday life in order to provide valuable information that complemented the Stasi’s knowledge of the population and helped create an overall picture about anti-socialist and dissident movements. In the economic aspect, spy density had a negative effect on labor income. The strict policies in the East prompted the people to transfer to the West. By 1961, about 3.5 million people nearly 20% of the East German population had left, including many young professionals. To prevent further losses, the authority of the GDP, close the border and allowed no one to pass. The wall stabilized East Germany’s economy by preventing its workforce from leaving. Nonetheless, the spy density drives the tremendous population decline, and nearly 5000 people in total had managed to flee East Germany from 1961-1989. Self-employment rates and the number of patents per capita are significantly lower in higher-spying areas.

West Germany's Economic Crisis



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​On the other hand, West Germany had undergone a disproportionate loss of market access, particularly on the regions close to the border. The people, who used to live in the areas where the wall was constructed, moved away from the border out of a belief that these places would be particularly susceptible of any armed conflict that might happen. These areas close to the border experienced a disproportionate amount of war-related damage which had prevented the post-war development. The border regions lost their trading partners which they could previously interact at low transport cost. The division resulted to the sharp decline in economy and population growth in the areas located near the border in the western side.

​Although devastated from the war during the 1950s, the West Germany experienced an economic growth. The West German economy met all the powerful waves of export-led demand without serious inflationary strain, for the reason that, the US and its allies had poured money into West Germany for its reconstruction. The supply-side expansion started when the large number of unemployed, highly motivated and fairly well-educated individuals were expelled from eastern provinces and transferred to the west. The immigrants from the East supplemented the labor force throughout the 1950s. Also, the Federal Republic had started to recruit foreign laborers to keep the women out of the workforce and tied to traditional rules. It sustains the urgent need for labor in the West. Hence, West Germany’s return to the world market initiated a long chain of efficiency gains through capital formation and structural change; it gave the economy a miraculous appearance of economic growth.

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​Even so, the Federal Republic suffered from the major recession of 1966/7, when the economy faced a negative growth rates. It made the years from 1960s to the early 1970s a period of chronically tight labor-market conditions. The strong influx of foreign laborers or Gastarbeiter had been the reason of economic boom in the 1950s and also a big factor to the economic recession in the West Germany after the construction of the Berlin Wall. The foreign immigrants were the main source of laborer-supply elasticity before the border was created. With the wall’s existence, it closed off the influx of migration. The West German economy which once had the over-employment growth does not have a domestic labor reserves left over for exceptional boom periods. This ends the economic boom in the West, and the number of unemployment grew. West Germany gradually turned into a laggard in the international growth race, with the lowest GDP growth of the six largest industrialized countries. One way out of the economic impasse was European integration, which would expand the domestic market and to be able to elevate the economy. The European Economic Community in the 1960s helped the German industry to increase its trade with France, Italy and other countries which lift up its internal tariffs.

The Fall of Berlin Wall



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​On November 9, 1989, the Berlin Wall had fallen, and on October 3, 1990, was the official reunification of the East and West Germany. The Soviet Union fell soon after.

The fall of the wall made the economic situation in the East Germany even worse for it drained the workforce and made it harder for state enterprises to obtain supplies. The collapse of the central planning authority caused a fall in production, bringing about shortages which in turn led to increasing levels of emigration. However, the East Germany entered a monetary and economic union with the West Germany on July 1, 1990. The West transferred funds to the East, and economic reconstruction had taken place which resulted to a large new jobs, and modernization in infrastructure. On the other hand, the West Germany also had undergone a process of structural adjustment, which has involved the closing down of uncompetitive industries and high unemployment.

Conclusion



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​The East and West Germany obviously shared the same challenges after the war; both were devastated and can hardly recover. However, the two had different responses to the problems they had encounter due to the foreign occupation in the country. The East under the Soviet Union, who extracted its resources instead of helping it recover economically, experienced economic decline and stagnation. While the West, fortunately, had receive help from the Western allies and had been spared in any major economic crisis despite of its economic slowdown with the presence of the wall. After the reunification, the prior action was to redress Germany’s economic imbalances, to regain the economic prosperity of both East and West, and to equal the standard of living of the two. The transfer of funds from West to East spurred an economic boom in the Western Germany as well as in the former East. Nonetheless, it did not equal the living standards between the East and West, and the number of unemployment is still higher in the East. Clearly, the Berlin Wall created a gap between Eastern and Western Germany economically.

​Thank you so much for reading I hope you learn something !

Bibliographic Entry

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Zawilska-Florczuk, Marta & Ciechanowicz, Artur. One Country, Two Societies? Germany Twenty years after Reunification. Warsaw: OSW Studies, 2011.

Articles
Jarausch, Konrad, and Welsh, Helga. Volume 9 Two Germanies, 1961-1989, German History in Documents and Images, 2004. Retrieved from http://germanhistorydocs.ghi-dc.org/pdf/eng/ English%20Introduction %20November%2018%202004.pdf.
Lithcher, Andreas, Loffler, Max, & Siegloch, S Sebastian. The Economic Costs of Mass Surveillance: Insights from Stasi Spying in East Germany. University Of Mannheim, 2015. Retrieved from http://ftp.iza.org/dp9245.pdf.
Nichols, Anthony. Freedom with Responsibility: The Social Market Economy n Germany, 1918-1963. Oxford University, 1994. Retrieved from https://tianasac.files.wordpress.com/ 2014/10/freedom-with-responsibility-the-social-market-economy-in-germany-1918-1963.pdf.
YouTube.com/ Berlin Wall
Redding, Stephen, & Sturm, Daniel. The Costs of Remoteness: Evidence from German Division and Reunification. American Economic Review ,2005. Retrieved from http://e prints .lse.ac.uk/3691/1/costs_of_remoteness.pdf>