ORGANIZATIONAL STRUCTURE   

The Structure of Command Economy
in East German
y

by Stephen Cincotta

East Germany may have been the most successful of all of the socialist bloc countries at handling the command economy. Under the command economy, Eastern Germany became a world ranking industrial power. As well it had the highest standard of living of any country in the socialist bloc. The problem however was the tendency of the East German peoples to compare themselves not with other command economy countries, but with the much more affluent economy, and the higher standard of living of the peoples of West Germany.

While the command economy has faced many types of reforms in almost all of the socialist countries, the reforms in East Germany have always bee relatively minor. This is due partially to the relative economic success of the East German economy compared to the rest of the socialist countries. Furthermore the ever-pervading power of the Soviet Union was always present in East Germany. Countries such as Hungary enjoyed much less Soviet presence due to its relatively smaller strategic positioning as compared to East Germany. The Warsaw Pact invasion also quickly dashed any thoughts of such radical political and economic reform as took place in Czechoslovakia during the "Prague Spring" of 1968. The East German reforms of the 1960’s were much more modest than in Hungary or Czechoslovakia, and were encompassed in the NES (New Economic System). However even this relatively mild reform was ended in 1970 with the Recentralization.

The organization of the command economy in East Germany basically remained constant throughout all the reforms until its end came, around the time of the fall of the Berlin wall. The way I shall describe it is at its latest point before its demise. Although it must be remembered that this really isn’t that much different then the economy in East Germany at any point under the command system. Under this command system most of the real decision making power was exercised by the Socialist Unity Party or the SED. This was in the form of the Politburo of the SED, which headed the organization and consisted of 22 full members. Under the Politburo was the Central Committee of the SED along with the State Council of the SED and the SED congress. Congress was technically the supreme party organ, which voted on decisions, yet in reality the decisions were already made and congress approved the decisions that it was supposed to. After the SED came the governmental organization, which consisted of the People’s Chamber Committees and the Council of Ministers. The People’s Chamber Committees consist of members of many different organizations and parties, and its main purpose, though given the look of a parliament, is to have members be convinced of SED policies and to act as liaisons between their own party members and the SED. As well as the People’s Chamber, there was also The Council of Ministers. The job of The Council of Ministers was to, in accordance with the recommendations of the SED, deal with the macro-economic policy goals. This meant the considerations of, major investment projects, structural planning, and basic questions of foreign trade policy. The Council of Ministers would then force its decisions upon the economic hierarchy of control. All of the organizations in this system were very closely related, politics and economics came together much more so than under a capitalist society, and all decisions were filtered down from the SED, whose members could be considered the head central planners under the traditional command economy.

The economic organization consisted of four basic hierarchies. These were The State Planning Commission, the eleven industrial ministries, the nationally owned combine (which did not come about until 1979 and was a reform in hopes of creating a more efficient economy), and the nationally owned enterprise. The State Planning Commission’s role was to make the plans of The Council of Ministers concrete. This was done by drawing out estimated goals and the costs of implementation. As well it was the job of the Planning Commission to guide the industries in their implementations of these plans. The eleven industrial ministries would exercise control over their specific sector and disaggregate the plans of the Ministry to each specific producer under their control. The nationally owned combine and the nationally owned enterprise implemented the plans of the Ministry. The difference is that the combine was a combination both horizontally and vertically of enterprises, to keep uniform management throughout and hopefully reduce inefficiencies. The combine cut down greatly on the power of the nationally owned enterprise.

The performance of the command economy in East Germany, and in all of the socialist countries, never reached the loft goals that were promised. Though the command economy performed relatively better in East Germany than in any other socialist country, it still never performed as well as the free market system in West Germany. This created many problems for the socialist parties that tried to claim the superiority of their party. Especially because the East Germans seemed much more concerned about their standard of living compared to the West Germans and not so much compared to other socialist countries. Because of the level of dissatisfaction at the higher standard of living enjoyed by the West Germans there were reforms made to the command economy, which existed in East Germany. Yet as was previously stated, these reforms were not great due to the overwhelming Soviet presence in East Germany.

The first reform took place between 1963 and 1970 and was known as the New Economic System or the NES. The system tried to correct problems that existed in East Germany because of the usual problems faced b command economies (especially those that were industrially advanced). The NES was not a form of market socialism as took place in Hungary or Czechoslovakia around that time. Rather it was an economic system, which attempted to reach state goals more effectively via traditional command planning, and the use of indirect economic levers. This would include the use of levers such as taxes. The NES failed at its attempts to help the East German economy overtake the West German economy and was eventually scrapped in 1970. Next came the Recentralization, which shifted economic planning back as to how it had been before the NES in 1963. This system however, also failed to solve the problems before the NES and as well the problems created by the NES. Entering into the 1980’s East Germany’s economy had fallen well behind the free market economy of West Germany it had once sought to overtake. The economic reform strategy of the 1980’s was developed in order to solve these problems. The basis of this strategy was to take advantage of the benefits of the socialist system while creating more labor productivity, a greater dynamism of social production, a scientific-technical revolution, and a higher quality of products.

Although the East German economy worked better under the socialist system than any other command economy in the socialist bloc, one needs look only, at their neighbors to the west to see its overall performance. With all of the reforms that were attempted the command economy was never close to rivaling the free market economy of the west. The East German economy lagged behind the West German economy in efficiency, quality of products, variety of products, and basic quality of life it provided. The final results are indisputable by any theorist or propagandist. Despite its good intentions, the command economy was always an inferior economy.

Works Cited

  • Jeffries, I. & Melzer, M. The East German Economy, (1-51). Croom Helm Ltd, Provident House 1987.

 

 

 

 

OK Economics was designed and it is maintained by Oldrich Kyn.
To send me a message, please use one of the following addresses:

okyn@bu.edu --- okyn@verizon.net

This website contains the following sections:

General  Economics:

http://econc10.bu.edu/GENEC/Default.htm

Economic Systems:  

http://econc10.bu.edu/economic_systems/economics_system_frame.htm

Money and Banking:

http://econc10.bu.edu/Ec341_money/ec341_frame.htm

Past students:

http://econc10.bu.edu/okyn/OKpers/okyn_pub_frame.htm

Czech Republic

http://econc10.bu.edu/Czech_rep/czech_rep.htm

Kyn’s Publications

http://econc10.bu.edu/okyn/OKpers/okyn_pub_frame.htm

 American education

http://econc10.bu.edu/DECAMEDU/Decline/decline.htm

free hit counters
Nutrisystem Diet Coupons