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GDR Economics Minister Günter Mittag Explains the Failure of the Planned Economy (1991)

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Since the need to constantly raise the standard of living was considered an incontrovertible axiom, loans were taken out to bridge any supply bottlenecks that emerged. At the same time, the goods that were purchased this way raised the standards that the population came to expect. For the most part, these goods were sold for the same low and largely subsidized prices as GDR goods. This occurred under the term “basic needs.” While this term originally referred mostly to basic food items, more and more products started falling into this category, until it finally encompassed virtually everything that was sold. Even cars were sometimes subsidized, although a totally different price level developed under the table.

By constantly emphasizing that prices for basic necessities, energy, and rent had to remain stable – this basic principle was anchored in the resolutions of the Central Committee – it was almost impossible to reflect the true cost of goods in retail prices. Since the supply itself, relative to growing demand levels, did not improve significantly, the “Policy of the Principle Task” was de facto limited to the rigid maintenance of virtually all retail prices for any sort of item.

Thus the policy lost all dynamism, although the idea behind it was correct. It became increasingly independent of developments in productivity and also restricted the effectiveness of the performance principle. It fostered an unjustified feeling of entitlement. This had very negative psychological effects. Complaints about the insufficient range of available goods were countered with the argument of the “second pay envelope,” which consisted of the average per capita sum of the subsidies as calculated on the basis of the consumption of goods. Yet that was no help when a worker went shopping and tried to purchase something with his earned wages only to be confronted with a shortage of goods; at best, it was good as an argument at rallies.

[ . . . ]

In the 1980s at the latest, as the burdens were piling up, it would have been necessary and feasible to initiate a radical redirection of public consumption. That would have included a reduction of the exaggerated expenditures for defense and security, but also for public buildings, as well as a reduction of public expenses. Here, the reaction was too little too late. These questions should have been posed in a more fundamental way. I do not absolve myself from this responsibility.

[ . . . ]

Source: Günter Mittag, Um jeden Preis. Im Spannungsfeld zweier Systeme [At Any Price. In the Field of Conflict between Two Systems]. Berlin, 1991, pp. 58-64.

Translation: Allison Brown

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