by Hidemi Tatsumiya Goma


Soviet-type command economy emerged through out the East European bloc during 1948-1953. At the end of WWII, many East European countries including East Germany (Soviet Occupation Zone), started to rebuild their countries from the damages caused by the war. During the reconstruction period, the soviet-type planning in the EE countries emphasized its expansion in production through rapid industrialization. Although the constitution of the German Democratic Republic in 1949 permitted the existence of property rights, private ownership of productive assets, much of the property had already been expropriated by the German Communist administrators under Soviet patronage during the occupation rule in the German east-bloc. Great industrial expansion took place in Germany beginning in the 1950's. The labor force played an important role in the Soviet-type industrialization period. Industrialization was thought as the only road to rapid economic growth and a necessity for the consolidation of Communist power. Thus the industrial workers, not the farmers, were the backbone of the regime.(1) This paper will discuss the allocation, organization and productivity of labor and government control of the pseudo labor market in East Germany in the 1950's under the Soviet-type command system.


Although Stalinist collectivization of agriculture was launched, Soviet interest in East Germany lied more in the expansion of the industrial sector. Until 1953, East Germany had heavy reparation payments due to the allied countries (including the USSR) (2). The Soviet Union wanted to industrialize East Germany while it was under its occupation to pay off the reparation. During the first two years, no less than 25% of the gain realized by the regime from the industrial production had to be earmarked to cover the costs of reparations and maintenance of Russian troops in East Germany (3).

Expansion of collective farming led to the abandonment of land by farmers who fled to West Germany. East Germany experienced heavy drain on population through emigration to the West. This amounted to about quarter of a million a year or three times East Germany's net natural increase of population (4). Thus, while population increased from 16.7 million (1939) to 17.1 million (1962) in East Germany, the agricultural sector did not show any rapid growth.(5) The percentage contribution of agriculture and industry to national product was(6)

Agriculture16% 11%
Industry 49%75%

The decrease of the share of agricultural production by 5% and the increase in the share of industrial production by 25% shows clearly the impact of the Soviet-type industrialization policy.


By the mid 1950's East Germany shifted her labor force from the agricultural sector to the industrial sector.  (7)

East Germany's labor allocation 1956
Agriculture IndustryConstruction

Government policy was to expand the labor force and employ the majority in the industrial sector. Under the Soviet-type central planning system, the goal was not to maximize profit. Wages were not directly related to marginal product of labor. Central planners did not force people to work in specific sections of the industry. Workers were permitted to choose their jobs (8). The divorce of the contribution of the worker to the national product from the payments made to him or her gave central planners much flexibility in the allocation of labor (9). This helped to eliminate unemployment. East Germany had the highest share of economically active population among the countries of Eastern Europe. It was due to the effective allocation of labor. (10)

Economically active population 1956
East GermanyPolandCzechoslovakia



Economic planning in East Germany generally followed the Soviet system. The structure of the economic institutions and the allocation of economic resources were determined by political leadership. Strategic decision as to economic policy were the prerogative of the party leadership, particular the Politburo and the secretariat. Both short and long range plans were discussed first within the party and ratified by the Central Committee before implemented by government ministries and local government bodies (11). The central planning commission allocated investment, distributed scarce resources, administered trade, managed plants and mines, and set prices and wages in the labor and goods markets. (12).

Conditions of workers:

According to Marxist's theory, no conflict should arise between employers and the employees or between consumers and producers when production belongs collectively to the nation. Labor and wage policies brought full employment to the economy. Each enterprise received an employment plan which determined the number of workers and their wage rates.

Under the soviet-type economy, production was determined by the national plan, but this plan did not respond to consumers' preferences. By 1953 East Germany showed overall growth of production but this did not help to increase real wages. Low wages held purchasing power down, and consumers could only choose from a very limited selection of goods. Inefficiencies in the central planing system frequently resulted I failure to produce the targeted amount. The system also failed to adjust output of goods to changes in consumer tastes. Thus unwanted goods were continuously being produced while the demand for preferred goods remained unmet. (13)

Government control of pseudo labor market:

Inefficiences in the Soviet-type system contributed to the emergence of three types of markets in East Germany, namely

(i) the free market, (ii) the private market, and (iii) the black market. The black market was a pathological manifestation of malfunctioning of planning, but improved methods of planning gradually put it out of existence. (14)

In the mid 1950's a severe suppressed inflation hit the economy. not only the total purchasing power of consumers exceeded the aggregate supply of consumer goods but virtually all types of goods were in short supply. Whatever was available in the market were purchased. Consumer preference could have been totally ignored since there were shortages of all goods. Suppressed inflation encouraged black market operations which redistributed income and withdrew certain individuals from the state's productive machine.(15)

Not until the early 1960's, the Soviet-type economies came up with a policy to reach equilibrium in the retail market. Consumer's demand and producer's supply were balanced by accumulated inventories to guarantee continuous supply of goods to the households.


Growth Rate:

In the East European countries under the Soviet-type system, industrial expansion started after their reconstruction period. East Germany was one of the latest country to begin industrialization since the war severely damaged its economy. It was asserted in the Soviet-type economies that the growth of labor productivity should exceed the rise in real wages. From 1950-1965, labor productivity per person and the percentage increase in real wages were as follows: (17)

 East GermanyPolandCzechoslovakia
labor productivity195% 130%  115%
real wages268% 50% 45%

In the early stages of industrialization, increase in wage rates should be lower than in labor productivity rate to increase rate of accumulation. In the later stages of industrialization after the highest rate of production was achieved, growth of labor productivity should become proportional to the increase in wages. East Germany was an exception in this general trend since the wages in the early 1950's were dramatically depressed. As stated earlier, during the Soviet occupation, East Germany had to provide extra resources for the Soviet Union to help reconstruct the postwar economy and to pay heavy reparations to the allies. Thus wages were very low in the beginning of the industrialization period.


Under socialism, high rates of growth in production were to be achieved through rapid industrialization process. Although industrialization in East German began late compared to the other EE countries, by 1950's she showed great increase in the rate of growth. From 1960's East Germany had the highest GNP per capita among all the EE countries under the central planning. Her labor productivity, though, still lied below the West European standards. To what extent was the Soviet-type command economy successful ? In any kind of economic system there are strength and weaknesses. The hierarchical planning system and administration made adaptations to the modern development difficult. Economic decisions made under the influence of the Communist Party and the government were in conflict with economic rationality and the welfare of the people. Centralized management system set targets to according to the interests of enterprises, but did not bring satisfaction to the workers. Especially in East Germany, despite the rapid growth of production, wages did not show proportional increase. Under the Soviet-type economy, shortages of housing, low access to public utilities, limited personal freedom and luxury, brought consumers to an inferior position. The Soviet-type system was not interested in maximizing economic welfare. The people were only guaranteed employment and a well developed social security system. Their consumption power and standard of living were never satisfactory. After the fall of the communism and the breakdown of the Berlin wall, the failure of the Soviet-type command economy has been widely accepted in East Germany.


  • 1. Wellisz, Stanislaw. The economics of the Soviet-bloc. McGraw-Hill Inc. New York, 1964. pg.21

  • 2. Ashby Turner Jr, Henry. The Two Germanies since 1945. Yale Univ. Press. London, 1987 pg.111

  • 3. Ashby Turner Jr, Henry. pg.111

  • 4. Zauberman, Alfred. Industrial Progress in Poland, Czechoslovakia and East Germany 1937-1962. Oxford Univ.Press. London, 1964 pg.71

  • 5. Zauberman, Alfred pg.71

  • 6. Zauberman, Alfred pg.59

  • 7. Zauberman, Alfred pg.60

  • 8. Wellisz, Stanislaw pg.57

  • 9. Wellisz, Stanislaw pg.59

  • 10. Zauberman, Alfred pg.72

  • 11. Krisch, Henry. The German Democratic Republic. Westview Press. Colorado 1985. pg.93

  • 12. Ashby,Turner. pg.110

  • 13. Ashby,Turner. Pg.112

  • 14. Wellisz, Stanislaw pg.3

  • 15. Wellisz, Stanislaw pg.85

  • 16. Zauberman, Alfred pg.108

  • 17. Wellisz, Stanislaw pg.111



  • Wellisz, Stanislaw. The economics of the Soviet-bloc. McGraw-Hill Inc.New York, 1964

  • Ashby Turner Jr, Henry. The Two Germanies since 1945. Yale Univ.Press.London, 1987

  • Zauberman, Alfred. Industrial Progress in Poland, Czechoslovakia and East Germany 1937-1962. Oxford Univ.Press. London, 1964

  • Wilczynski, J. The economics of Socialism. George Allen and Unwin Ltd. Oxford, 1970





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

This website contains the following sections:

General  Economics:

Economic Systems:

Money and Banking:

Past students:

Czech Republic

Kyn’s Publications

 American education

free hit counters
Nutrisystem Diet Coupons