Transformation and privatisation in a planned economy -

Transformation and privatisation in a planned economy -

Experiences of Prof. Dr. Gehrmann, Consultant to the German Trust Institution 1991-1996.

 

 

Sven Horak, December 1st, 2009

Institute of East Asian Studies, IN-EAST (www.in-east.de)

 

 Prof. Dr. Gehrmann is a distinguished German expert in transformation, restructuring and privatisation processes. He is Director of the Steinbeis Institute for Global Consulting & Government and Renewable Energies & Technology of the Steinbeis University Berlin. He has been a consultant to several international authorities, such as the UN in Geneva and New York, EU, OECD, UNESCO as well as to various Governments and Ministries in Europe and the Middle East. 

In the 1980s he has been a member of the German delegation of the “Soviet-German Social Science Task Force” as part of the Helsinki Conference (CSCE). In the 1990s he was a consultant to the German Trust Institution (German: Treuhandanstalt) where he was engaged with privatisation and transformation processes during the German reunification process.

 

Which role did the German Trust Institution (GTI) play in the reunification process in Germany?

 

Well, the GTI was established in order to privatise state-owned firms of the German Democratic Republic, commonly referred to as people-owned enterprises and to ensure competitiveness. A ministry is not allowed to do this kind of work and likely does not possess all the necessary resources. For such a special task a special authority had to be established. Similar as in 2002 the Federal Financial Supervisory Authority (German: Bundesanstalt für Finanzdienstleistungsaufsicht) was founded in Germany in order to watch international financial intertwinements better. The GTI has managed billions of funds that ministries are not allowed to do.

 

On which industries did you focus in particular?

 

These were numerous. Just to name a few, for example enterprises of the Industrial Association for Vehicle Construction in Thuringia, the textile plant Elsterwerk in Plauen, Jena Pharm, where I was part of the supervisory board that produced the birth-control pill and steroids. In Dresden I worked with the Saechsisches Serum Werk which produces vaccine and was sold to GlaxoSmithKline in 2008.  

 

You had the chance to experience the situation of enterprises in East Germany right after the Berlin wall fell, just in the very early phase of the reunification process. What were the characteristics of these enterprises? How was the mood of the employees?

 

Initially, they were highly demotivated, angry with and frustrated by the former socialist system. Actually, I haven’t met one person who defended the former system. Just imagine, people weren’t doing financially well in the early 90s. They had not much to do during working hours because not enough materials were available to ensure a constant workflow. For example screws were missing during the production process or other minor but important parts, as a consequence the production had to be interrupted.

 

So, people were quite positive and not hostile to the concept of market economy?

 

Yes, they were happy to work and to achieve something. On the other side, they were not used to an efficient eight hour working day plus one hour break in the early days. That was new and to many of them a new experience. However, generally they did a good job because they were enthusiastic about the fact that things preceded.

 

How was the success of privatising the enterprises in the long run? Did the government give financial support in the beginning?

 

No, not at all. I made a tragic experience I would like to share. In 1993 I went to Elsterberg to a textile plant with 1800 employees that I have already mentioned before, in order to support the privatisation. That picture was fascinating, such as in an old Charlie Chaplin movie, excuse me for overstating here a bit. There were 200 – 300 spinning and weaving machines that we know in West Germany only from the museum, that were making a terrible noise, but they were running perfectly. People in the GDR were very creative and skilled. I saw an old machine of that plant that was repaired with aptitude and sensitiveness and it was running although it was maybe 80 to 100 years old. However, in order to stay competitive in the textile industry, the old machines were exchanged by fully automated spinning machines of a newer generation. As a result, we produced with 200 employees 30% more than with 1800 employees before. One may think this is a great result, but do not forget the other employees that became jobless. It was the duty of the GTI staff to inform the vast majority of the employees of that plant that there would not be use for many of them in the enterprise anymore. That was one of the saddest moments I have experienced. Imagine a region that is characteristically quite provincial and labour mobility is low. At the same time the risk is high that many very skilled workers will not find a job anymore. And this is what finally became true in the case of this company.

 

What happened to the workers who became unemployed? Did anyone take care of them?

 

Well, as the GTI task was to focus on privatisation and efficiency of enterprises there was no space to accommodate these challenges. In the particular case that I have just mentioned, I remember that the unemployed were given occupational retraining two or three years later. But imagine the early 1990s during the reunification, at that time there were not enough official funds available to cover all demands for occupational retraining, nor were enough trainers available that were willing to move to that region. The official German agencies were pretty overloaded with all these demands. However, at that time I was a Professor at an East German University and I was asked if my team and I would teach for example cost calculation to a selected group of people, and so we did. But that certainly could only be provided to a limited amount of people. However, the transformation from a planned economy to an efficient market let economy have a deep impact and led to a reduction of required staff in general. Accordingly, many have become dispensable in their jobs.

 

If you look back on the early reunification phase, what could have been improved?   

 

There was no alternative in my opinion. Obviously, it could have been done slower and better planned in advance but this was not possible under the given circumstances. The unification as such happened too fast. A gradual unification conducted step by step would have been the better option, but in reality this is difficult to achieve. A transformation to efficient processes, likely in most cases, leads to the reduction of employees under a formerly planned economy. That means a huge challenge to the social and financial systems of the affected states.         

 

Prof. Dr. Gehrmann, thank you for the interview.