Weber’s state paradigms lack integration with the outside world. To complete the picture one must add that the GDR was dependent on the USSR for its formation and continued existence. It is also clear that its economy was entwined in the international economy. The goal-rationality of economic success was therefore at the mercy of the international economy.
The GDR was a predominantly agricultural area, had few natural mineral resources and was dependent on the 60% of imports which took the form of these vital raw materials, and it needed to export enough to be able to pay. The GDR was also dependent on foreign trade because of its small population, which provided a poor internal market, and needed foreign markets in order to achieve economic growth
The stiffness and bureaucratic complexity that characterised the Volkswirtschaft made it difficult for planners to efficiently run the economy, leading to unprofitable business practice, a slowness in introducing technology and a lack of competetiveness with the West, a trading partner that steadily grew in importance throughout the 1970s and 1980s.
The Oil shocks of 1973-75 and 1979-81 allowed the GDR some scope to profit in the short-term, but the failure to restructure the economy in the same way that the West had done and stay reliant on cheap Soviet oil imports left it open to Soviet price increases. Investments in oil-reliant industries, were devalued overnight. The fall in the GDR’s hard currency earnings was shocking. By 1985, the drop in earnings was approximately $1.5 billion. The GDR had to now painfully restructure in the way that the West had already done in the mid-1970s. The gamble on cheap Soviet oil had been lost due to an unforeseeable shift in the international economy.
The only way out of this predicament was to stabilise itself with credits, keep re-investing and hope to increase exports to cover the debts. This plan ultimately failed and led to the GDR owing the West $8.6 billion in 1981, not including the FRG. In all, the debt to the West at that time probably exceeded $12 billion.
The 1980 Polish economic crisis made western creditors wary of lending to the Eastern Bloc. The SED was now faced with a very immediate and unforeseen ‘ceiling’ to the amount it could borrow and in order to regain credit worthiness, decided to use all
means available to balance exports. Because it was unable to increase production in order to export more, it had to take from the allowance made for internal GDR consumption and simultaneously import less. The result was a 15% rise in exports by 1983 with a 5.35 billion Valuta Mark trade surplus.
This was achieved at the expense of the GDR citizens, as goods meant for shops in the GDR were sent abroad instead. Because of restricted supply, prices invariably rose. The quality of life in the GDR dropped. Goods were simply not available in the shops, and there was frequently nothing to buy with the month’s wages. As a guide, the amount of disposable income put into savings rose from 2.2% in 1980 to 6.4% in 1988. By the beginning of 1990, this amounted to 30 billion Marks – a de facto debt of the state to its people.
Investment was neglected in favour of paying off the debts. In 1980, investment was 0.0% and by 1982, was spiralling downwards by 7% per year. Manpower was diverted to repair old and decaying machinery. The standards of finished goods relative to those of the non-communist world were dropping sharply.
The GDR’s surplus exports and foreign debt continued to fall and rise respectively. The sacrifices had clearly not paid off:-
|Year||Export Surplus ($ bn.)||Foreign Debt ($ bn.)|
The arrival of Perestroika (‘economic restructuring’) in the USSR put new pressure on the GDR. It was called upon to help boost the flagging Soviet economy with some of its newer technologies such as robotics and computer-aided design. The extra pressure and diversion of resources was not conveniently timed with the needs of the GDR economy.
So by the late 1980s, the GDR was stuck with a decaying, technologically retarded capital stock, collapsing transport network, an ocean of debt to the West and an inefficient industrial base and workforce. The much-celebrated subsidy of the consumer economy was all very well, but because there were no longer enough products available to sell in the shops, the standard of living was tumbling, whilst debt rocketed and much of this was due to external economic factors. The goal-rationality that the SED depended on failed under these stresses.