Poverty
This Sunday will be the 19th anniversary of the fall of the Berlin Wall – one of the greatest victories for freedom in contemporary history, and a powerful reminder that huge advances in liberty can be made under the most adverse conditions.

But the fall of the wall also reminds us that liberty must never be taken for granted. Recent surveys have shown that socialist values are becoming more popular in East Germany, a development that would have been unimaginable in the euphoria of the reunification period.

Nearly three quarters of East Germans believe that socialism is a “good idea” which has just been “poorly implemented to date”. Only a third feels confident about the market economy, while 81% believe that the federal government ought to do more for ‘social justice’ and the same proportion believe that key industries should be run by the government.

Part of this dramatic shift can certainly be attributed to the mistakes that have been made during the economic transformation.

Firstly, in the privatisation process, there was no equivalent to Margaret Thatcher’s policy to encourage private ownership in the UK. Modified adaptations of the right-to-buy legislation and the sale of shares to the employees of newly privatised enterprises would have given East Germans a stake in the newly emerging market economy.

Secondly, the Bonn government abused the currency as a tool for wealth transfer. The East German Mark was exchanged for West German Marks at a rate of 1:1, while black market rates were between 4:1 and 5:1. As a result, wages rose faster than productivity, causing a wave of bankruptcies and widespread unemployment.

Thirdly, the intricate labour law, red tape, social insurance and tax system of West Germany were simply imposed on the East. As a result the expected take-off of the East German economy never happened. The gap was filled by transfer payments from the West, which continue to this day.

But most importantly, the advocates of a free economy totally underestimated the power of ideas. They thought that the failure of socialism was just too blatantly obvious and that capitalism would be appreciated simply because it “works”. So they withdrew from the intellectual battle.

This was a fatal mistake. Liberty must be constantly defended in its own right. People will not embrace liberal values simply because a Volkswagen is a nicer car than a Trabant.

Kristian-Niemitz-2012_0.jpg

Head of Health and Welfare

Dr Kristian Niemietz joined the IEA in 2008 as Poverty Research Fellow, becoming its Senior Research Fellow in 2013 and Head of Health and Welfare in 2015. Kristian is also a Fellow of the Age Endeavour Fellowship. He studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). In 2013, he completed a PhD in Political Economy at King’s College London. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and at King's College London, where he taught Economics throughout his postgraduate studies. He is a regular contributor to various journals in the UK, Germany and Switzerland.

6 thoughts on “Nineteen years after the fall of the Berlin Wall, socialism is thriving in East Germany”

  1. Posted 22/11/2008 at 14:10 | Permalink

    It’s not only in Germany. Thriving to personal economic success in new – market circumstances is compared to what was before… Efforts one does to prosper in transition economies usually fundamentally shakes people. They are not secured as before, work much more goal concentrated, feeling their lifes at risk, all the time. The idea is to combine both planning elements in welfare and capitalistic society allowing competition leading to better in everything (as F.D.Roosevelt did in 1930s).

  2. Posted 22/11/2008 at 14:10 | Permalink

    It’s not only in Germany. Thriving to personal economic success in new – market circumstances is compared to what was before… Efforts one does to prosper in transition economies usually fundamentally shakes people. They are not secured as before, work much more goal concentrated, feeling their lifes at risk, all the time. The idea is to combine both planning elements in welfare and capitalistic society allowing competition leading to better in everything (as F.D.Roosevelt did in 1930s).

  3. Posted 24/11/2008 at 11:06 | Permalink

    Hi R.T.,

    The idea is to combine both planning elements in welfare and capitalistic society.

    That’s precisely what East Germany already has: a combination of a market and a state-run economy. People don’t seem to like it, according to the surveys I quote from.

  4. Posted 24/11/2008 at 11:06 | Permalink

    Hi R.T.,

    The idea is to combine both planning elements in welfare and capitalistic society.

    That’s precisely what East Germany already has: a combination of a market and a state-run economy. People don’t seem to like it, according to the surveys I quote from.

  5. Posted 25/11/2008 at 12:59 | Permalink

    Planning elements is social welfare which was absent before Roosevelt. Capital has ruined the markets before 1930s. Forced by communism in Russia and same kind of a danger in Europe, ffter appropriate corrections free industrial world has flourished. It is the same momentum now: world needs changes to be developed and adopted, forced by peoples poverty knocking the door.

  6. Posted 25/11/2008 at 12:59 | Permalink

    Planning elements is social welfare which was absent before Roosevelt. Capital has ruined the markets before 1930s. Forced by communism in Russia and same kind of a danger in Europe, ffter appropriate corrections free industrial world has flourished. It is the same momentum now: world needs changes to be developed and adopted, forced by peoples poverty knocking the door.

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