Commentary: Why East Is Still East, And West Is Still West

By capitalist standards, Barbara Lassig should be enjoying the new East Germany. A 42-year-old mother of three, she now owns the Dresden apartment building where she and her family have lived since the socialist era. She operates her own sign-making and advertising business. She's a member of the city council. A rower who once tried out for the Olympics, she has traveled to competitions as far away as Australia. Life is good, right?

Not the way Lassig tells it. Business has slumped, and she has cut her staff to two from five a year ago. She worries about paying the mortgage on her home. She waxes nostalgic about her job under the old system, in which she taught sports to kindergarten students--a job the new government isn't willing to fund. Housing was scarce but cheap, and there were no mortgages to worry about. "The state gave us a lot," she says, sitting amid empty desks at her business.

The fall of the Berlin Wall was the one joyous political event in a grim century for Germany. Yet the tasks taken on after the Wall fell are far from finished: Germany remains a nation of two unequal parts. How the country corrects that inequity will determine how strong its economy is in the next century. If Germany succeeds, then all of Europe will benefit.

"THEY LIED." A decade after the Iron Curtain's collapse, there's still widespread discontent over the results. A recent poll by the Emnid Institute found only 16% of East Germans feel solidarity with citizens in the West. The Eastern unemployment rate of 17.2% is twice that of Western Germany. Despite gains, per capita gross domestic product is still 56% of the West's. The ambivalence about the new order is summed up in a popular saying: "They lied to us for 40 years about socialism. How could we know they were telling the truth about capitalism?"

Meanwhile, West Germans are tired of subsidizing East Germany--subsidies that come to as much as $560 billion. This year alone, aid to East Germany will cost taxpayers $22 billion. West Germans gripe that the "Ossies" don't want to work.

The poisonous feelings are affecting politics. One measure of the disillusionment in the East: recent election gains by the PDS, a relabeled version of the communist Socialist Unity Party that ruled East Germany--the Volks who built the Berlin Wall in the first place.

These are big blocks to a happy resolution of German's deep difficulties. But before things can get better, it might help if both sides put things in perspective, set aside the bitterness, and worked on the next stage of unification.

Let's start with the Wessies. Yes, they have been generous to their relatives in the East. But they shouldn't forget the part they played in multiplying the East's problems. Soon after unification, Western labor unions demanded and got high-wage pacts for their Eastern comrades. It was an act of solidarity, they claimed. But in fact, the unions wanted to prevent creation of a low-wage zone inside Germany. As a result, many East German workers were priced out of the market. And when Western companies built factories in the East, they used as many machines and as few workers as possible, contributing to unemployment.

Western Germans also got something far bigger than wage parity from the East. East Germans, by peacefully overthrowing a repressive government and clearing the way for reunification, performed an enormous service for their Western cousins. West Germans should keep that in mind when they gripe about subsidies.

Attitudes in East Germany could do with a reality check, too. Those tempted to idealize the socialist past should take a closer look around them--at the new Opels and Fords on the road, the restored buildings, the new opportunities. East Germany is a better place 10 years after the fall of the Wall. Per capita income has risen to $16,223 last year from $9,184 in 1991.

And though the old communist regime offered total job security, even a person collecting unemployment benefits today makes more than a worker in the former German Democratic Republic. True, housing was dirt-cheap in old East Germany. But at least the federal government has renovated half of East Germany's housing since 1989 and built 600,000 new homes. Cities such as Dresden are regaining a measure of their prewar splendor after massive restoration. "For most people, things are better," concedes Lothar Bisky, national chairman of the PDS.

Some East Germans are learning to thrive in the new era. Viola Winkler, a former kindergarten teacher, started a software and business-consulting company called Saxonia Systeme in 1992, hoping someday to employ 20 people. Now the red-headed 41-year old employs 100 and plans an initial public offering next year. "You have to learn the new rules of the game," she says.

FIGHTING RIGIDITY. East Germans don't have to accept all the rules of West German capitalism. Saxony Prime Minister Kurt Biedenkopf has attracted investment by fighting the rigidity that hobbles business in the West. More flexible wage contracts link pay to profitability. Local officials team up to speed approval of new projects. "Saxony has tried very hard to be uncomplicated. It never would have happened in the West," says Harald Eggers, senior vice-president for manufacturing at Infineon Technologies, a Siemens semiconductor unit with a new plant near Dresden.

If German officials could take their clues from Saxony, they might find it easier to reach agreement with the unions in East Germany to set realistic wages and even give workers stock in compensation for lower pay. Giving companies incentives to hire in East Germany could provide a big payoff. Already, after billions in investment, East Germany's road and telecom networks are first-rate. With more flexibility on wages, East Germany could offer companies the cost advantages of the Czech Republic with Germany's stability and technology.

Some say East Germany is already on the way. "We've reached bottom and can start to build a new economy," says Manfred Gentz, chief financial officer at DaimlerChrysler, which plans to build its new Vaneo minivan in the East. Growth in the East German states slowed to 2.0% last year, compared with 2.8% in the West, as construction industry subsidies dried up. But manufacturing, which provides more permanent work, is growing at more than 9.8%, nearly double the rate in the West. "The dynamic for Germany will soon come from the East," says Kajo Schommer, Saxony's Economics Minister. The alternative is pretty scary: another decade of joblessness, massive aid, and discontent. It's time instead to give individual initiative a chance to set East Germany free.

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