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The Economic Rebuilding of the East under Fire (June 28, 2004)

Against the backdrop of an intensive discussion about the economic future of the new Länder, the Gesprächskreis Ost [Roundtable East] recommended a change of course. According to its suggestions, money should no longer be used solely to build infrastructure, but rather to advance economic enterprises, research, and economic clusters. The Gesprächskreis Ost saw the rebuilding of the East as part of a reform policy for all of Germany. The group’s thirteen members came from the spheres of politics, business, and science; the federal government had charged them with analyzing the policy of subsidies in the economic rebuilding of the East.

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Course Correction in the Economic Buildup of the East

Summary in Theses

(1) Since unification, great progress has been made in the economic buildup of the New Länder. Hard work and large financial transfers by the West German federal states for the economic rebuilding of the East have made this possible. The considerably increased material living standard in the East, the extensively expanded or newly built infrastructure, and the external appearance of cities and villages show what has been accomplished.

(2) At the same time, an extreme deindustrialization took place in the years after the Wende, and this was accompanied by a collapse in industry-related research. And despite comprehensive support, it was not possible to achieve self-sustaining economic development in the new federal states. This is demonstrated most dramatically by the average unemployment rate, which is catastrophically high, by the stagnation – for several years now – of added value at only around 60% of the added value in the West, and by the continuous outmigration, especially of highly productive individuals. An adjustment of the added value in the East to an average of 90% of that in the West by 2020 would mean above-average real growth of 4-5% in the East: an unlikely “economic miracle” that reveals the gravity, but also the challenge, of the economic buildup of the East.

(3) A stagnating East with a high need for transfer payments is a great threat to the future development of all of Germany. Evidently, the goal of a self-sustaining economy in the East cannot be attained by following the present course. That is why the economic rebuilding of the East must emphatically stand at the center of political action. A course correction in the economic buildup of the East is necessary.

(4) The federal government is putting the further buildup of infrastructure at the center of its strategy for the economic rebuilding of the East. But the manufacturing sector, especially industry, with the accompaniment of a comprehensive research landscape and corresponding education and training, should stand at the heart of the strategy for the economic rebuilding of the East. For these are the indispensable foundations of self-sustaining economic development. By contrast, the infrastructure in the East is already largely competitive. There is very little that needs to be added to build up competitive enterprises.

The course correction must therefore take place through

– a shift in focus from infrastructure to the buildup of business enterprises and a supportive research landscape to accompany them;
– a transition from across-the-board [growth] promotion to an emphatic concentration on growth clusters;
– a transition from start-up subsidies to more long-term, revenue-supporting measures, both for newly arrived businesses, and for existing ones (which are generally too small, financially too weak, and not yet sufficiently rooted in the market).

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