The post-war economic performance of East Germany
In the post-World War II period, right after Germany's capitulation, the control of the Reich was taken over by the four great victors of the war, namely the United States, Soviet Union, France and Great Britain. Germany was divided into four parts, and the eastern part came under the Soviet authority. Each occupation power assumed rule in its zone by 1945.
In 1949, this area of Soviet occupation was officially proclaimed as the German Democratic Republic, or East Germany. The German communist party obtained the ability to expand their socialist movements, derived from the principals of Marxist theory, as a result of the fact that the superior Soviet government supported their ideas strongly in the area of their domination.
Since the proclamation of East Germany and the introduction of the anti-fascist, socialist party after WWII, the East German nation started the rehabilitation of the severely damaged economy in an entirely different way than their neighboring West. Namely, they applied the Soviet type economy of the communists, intensely pressured by the Soviet government at that time, as noted earlier.
It is extremely extraordinary to see such a radical change in a country's economic system such as that of East Germany. This state was now ruled by the centrally planned economy (CPE), instead of being an free trade, open market economy. The CPE works under a collective system, meaning that the means of production are almost entirely state-owned. East German economists were well aware of the strengths and problems of their system, and thought they could deal with any kind of difficulties that might have appeared. They were confident that, if anything happened, The neighboring West would offer them support, and if not, the Soviets.
Because Germany could not rely on its former system of trading, both internally and externally, the Soviet Zone of Occupation had to be restructured and made more self-sufficient through the construction of basic industry.
However, the reconstruction of the state was made difficult by several reasons and did not develop as smoothly as they hoped. First, the Soviets imposed a massive amount of reparation cost, that continued until the death of Stalin in the early 1950s (1953). This made it harsh for them to invest in capital thus increasing their growth in the GDP. Secondly, in 1945, the Soviet Military Administration in Germany ordered the confiscation of all properties belonging to former Nazis and their sympathizers. Finally, East Germany was placed in an economic isolation, because of the fact that they did not get an international recognition from the Western world until the reunification that finally occurred in 1990.
As noted earlier, for East Germany, this economic isolation meant they had to produce goods from their own resources in order to support the necessity of the consumers. Therefore, a large amount of heavy industry was planted immediately after the communists took over. East Germany was in a developing stage during this time, which lasted throughout the fifties. Though, as an entirely devastated country from the war, it was not an easy task.
As the production of goods increased greatly in the early 1950s, the consumption of the consumers followed shortly after. Fluctuations were considerable from year to year, however.
High rates for the years 1954, 1955, and 1958 reflected consumption-oriented policies proclaimed in 1953 and 1958. East Germany even showed respectable rates in their GDP over the entire decade, although there was one recession that took place in 1955. Nonetheless, the 1950s was more or less a fruitful decade for the East Germans as they recovered and improved their standard of living rapidly. In fact, East Germany was then at the top of the socialist world both in economic development and performance.
As the growth in production capacity increased, it was supported by a considerable growth in the labor force section as well. Despite of the fact that the East German sector lost more than a million of its population, that fled to the West after the separation of the German Reich, the number of employees increased by half a million. This was partly due to the fact that women started to play a significant role in the participation among the labor force.
During the same period, there was a gradual change towards collectivization of the agriculture over the entire East German state. Many of the farmers who disagreed, because of the fact that all their yields would be required by the government to hand them over. More and more farmers abandoned their position and shifted towards the growing industry. Therefore, the agricultural labor force dropped significantly in the 1950s, and contributed to the growth in the industrial section, as noted earlier.
At the end of the 1950s, the collectivization became awfully severe, and the resistance became more intense. In the end of 1959 and the beginning of 1960, the number of farmers migrating to the West increased dramatically, and ultimately in 1961, it reached its climax. The result was a major recession that initiated the gradual downturn of the CPE.
Thus, as the 1950s came to an end, the pessimism about the future of East Germany seemed more appropriate for the population to consider than the optimistic side. It is clear, however, that the early start in the East German industrialization and the increase in the existence of a diligent labor force meant a successful jump start for the Germans in the early post-World War II period.
In overall, the condition of the economy during that period it is truly remarkable considering the circumstances under which it has developed. Imagine being a totally devastated country that is now ruled by the government that has long been the enemy for several decades. The former economic system is gone, and a collective system, that is entirely new to the population, has been applied. Its industrial capacity is low as well as international trading. Again, from this initiation point, I think it is an excellent performance, which we cannot compare with any of the socialist country in terms of presentation of the CPE.