Winners and wastelands: the Wall's economic legacy

Businessman Ulrich Weitz leans forward and produces a graph showing a 10-fold increase in his company’s turnover in the last 15 years.

“We’ll end this year with a profit,” he says, a picture capturing the fall of the Berlin Wall hanging behind him in his office in the historic eastern German city of Weimar.

Weitz’s business is a success story—one of a clutch of technology firms in the East whose growth since reunification in 1990 has helped the region narrow the gap with the West.

Twenty years after the fall of the Wall, much of the eastern economy has cast off the shackles of its Communist past, thanks to more than €1-trillion in state transfers from the West which have helped drive a wholesale restructuring.

Productivity has almost doubled since 1991 and economic output per inhabitant climbed last year to about 69% of the level in western Germany, up from 33% back in 1991.

The changes have come at a price. Whereas the German Democratic Republic (GDR) boasted full employment, vast swathes of the East now suffer stubbornly high unemployment, running at 11,8%. It is 6,6% in the West.

Many of the stinking, smoke-belching chemicals factories of the south so beloved of communist propagandists have shut down.
The air is cleaner but traditional jobs have gone for ever.

Many young people are leaving the region, meaning companies will face a shortage of skilled labour in the coming years. The East’s population has declined by about two million since 1990.

“There are flourishing landscapes and there are a lot of wastelands,” said Udo Ludwig, an expert on the East at the IWH economic think tank.

The government is aiming for the eastern states to catch up with the poorest western states by the end of 2019 when the “Solidarity Pact”, a package of special aid, will end.

In 2006-08 alone, eastern states received €45-billion in subsidies for investment in the economy and infrastructure.

Subsidy pay-off
The East is finding its feet. In a report entitled East On The Up, Deutsche Bank economists said they expected the region to suffer less from the global economic downturn than the West as it is less industrialised and export-reliant.

None of Germany’s blue-chip DAX firms are based in the East.

“The East German economy no longer has an overriding reliance on economic development [aid], but instead is supported by increasingly independent small- and medium-sized firms, and by a few islands of big industrial production,” they added.

Many such successful eastern firms have morphed out of enterprises that existed under the GDR. In Jena, stock market-listed high-tech engineering group Jenoptik evolved out of conglomerate VEB Zeiss Jena.

In Weimar, 20 workers at a former GDR research institute teamed up with west German multinational engineering group Glatt in 1991 to found Glatt Ingenieurtechnik, which now employs 120 people. The deal gave the researchers new opportunities.

“The world suddenly opened up for us,” recalls Karlheinz Ruempler, now business development manager at the company.

Weitz bought his firm, IBU-tec, a high-technology materials manufacturer, in 2001 when it was almost bankrupt after the state axed subsidies it had depended on for a decade. He turned the company around but also credits those subsidies for some of the firm’s success.

“We still resort to things today that were generated back then,” he says.

One of the biggest challenges Weitz has faced in building up his business is recruiting the highly skilled workers he needs to work in areas like nanotechnology—a process that allows the production of high-grade materials.

He has had to attract people from western Germany.

“I don’t think you can make it as a technology company with just workers from eastern Germany,” says Weitz, who was born in Weimar but grew up abroad as the son of a diplomat, before studying in West Berlin.

“You have to know and understand the mindset of your customers ... A lot of people here can’t speak English, and that closes the route to the international market.”

He says he would have had a tougher time attracting talent if his company was not based in Weimar, a university city and Unesco world heritage site: “Weimar helps hugely.”

Skills shortage
Both Weimar and Jena, home to Jenoptik, are in Thuringia, the eastern German state with the lowest unemployment rate, at 10,1%. In Berlin, joblessness is running at 13,6%.

Bleak prospects for many young people in less successful eastern towns and cities mean they leave the region.

“Each year, around one percent of the population between 18 and 29 years of age disappears,” said Harald Uhlig, economics professor at the University of Chicago.

IWH economist Ludwig said the key to eastern Germany’s economic future lay simply in educating its young people.

“Three things are important: firstly education, secondly education, and thirdly education,” he said.

Deutsche Bank’s economists agreed, writing in their report that the eastern states need to help young people find jobs.

The biggest dangers facing the region in the medium term stem from discontent with life in the East leading to a drift away, they wrote, adding: “Unhappy citizens are not good for economic development.”

Weimar taxi driver Dirk Richter (40) thinks the government should do more to help young people find work but that many easterners his age expected too much when the Wall fell. He said life can be tough and he sometimes only earns €2 an hour.

“Despite everything, I’m happy,” he added. “If people kept their feet on the ground, they’d be fine.”—Reuters

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