The Economic Model of the German Democratic Republic

Socialist Centrally Planned Economy Based on that of the Soviet Union. State ownership of means of production. Central planning of all economic processes Nationalisation of industry Collectivisation of agriculture

Modernisation State Planning Commission created. Countrys first 5 Year Economic Plan introduced. Achievements – relatively productive, almost self sufficient, decrease in unemployment, wage increase, industry growth Problems – quantity rather that quality, lack of choice, inefficiency, sheer complexity and unrealistic goals of plan – Introduction of 7 Year Plan

New Economic System (NES) Late 1950s - economic growth slows Aimed to transform economy into dynamic and innovative system Decentralisation - Associations of People's Enterprises (Vereinigungen Volkseigener Betriebe) Fear that political decentralisation would follow

Economic System of Socialism – Planning partially recentralised Focus on technology sectors Problems – too much emphasis on certain sectors, price increases Failure to meet goals resulted in termination

The Main Task Higher standard of living in exchange for acceptance of SEDs leading force in society Achievements – more consumer goods, more housing, job security and stable prices, increased prosperity Ambitious programme exacerbated hard-currency debts Erich Honecker

World Economic Crisis Late 70s/ early 80s - Explosion of oil prices – GDR heavily dependant on fuel imports, no natural resources Economic recession Increasing international debts Efforts to increase production of exports required import of expensive equipment

To conclude… Centrally planned economies traditionally unsuccessful as can be seen in GDR model – inefficient, cannot detect consumer preferences, lack of incentives for innovation, lack or reward for hard work, infringes on individual freedom Some failing factors specific to GDR -No natural resources, traditional economic links to west severed. However… guaranteed employment & price stability, developed a competitive industrial nation, reasonable standard of living