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German capitalism: a stumbling giant

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Martin Suchanek analyses the deepening problems at the heart of Europe’s strongest economy.

Two and a half years after capitalist re-unification, Germany is in recession. The German bourgeoisie is faced with an escalating budget deficit, a decrease in industrial output and increasing disillusionment with Kohl’s coalition government.

But these problems are not simply due to the costs of unification with the ex-DDR. The underlying causes of Germany’s problems have been maturing for more than a decade as the economic and political structures adopted to stabilise West Germany in the 1940s have turned more and more into the major obstacles to the continuation of the German “economic miracle”.

The 1981/82 recession alerted the German bourgeoisie to the fact that their former advantages, and the policies that went with them, could no longer be relied upon. In that year, GDP shrank by 1%, unemployment reached 7.6 %1 and retail price inflation reached 4.4%. But it was the growth in the public sector deficit that proved decisive in forcing a change of policy direction.

The Bundesbank and the Free Democrats (FDP) came out openly against Schmidt’s Keynesian policies—effectively digging a grave for the Social Democrats (SPD) for the next decade—and Kohl became chancellor in the 1982.

The “Change of Direction” announced by Kohl initiated policies similar to those of Reagan in the US: taxes were to be reduced to stimulate investment; the federal budget deficit was to be reduced by cutting expenditures and selling state industrial assets; business was to be freed from unnecessary regulations and the rigidities in the structure of pay awards and the limits on working time were to be removed.

This policy enjoyed mixed success. Taxes were reduced, and the rate of increase of the state budget deficit was cut from the mid 1980s to 1990.2 Additionally, German exports grew strongly throughout the 1980s. The rate of growth in exports outstripped the rate of growth in national output. Throughout the 1980s, Germany’s share of world trade increased. In 1988, and again in 1990, it became the single largest exporter in the world.

However, these figures obscure a most important development in Germany’s foreign trade, a development that underlines the fact that her present problems are not the result simply of re-unification. In 1989, Germany had the following trade balances with other states (in billions of DM):

Partner Exports Imports Balance
EC 352,668 258,660 + 94,008
Other Europe 117,872 79,357 + 38,515
“Socialist” States 29,306 25,143 + 4,163
Non-European 78,421 80,694 - 2,273
United States 46,624 38,265 + 8,359
Developing States 61,761 62,285 -0,524
OPEC-states 16,402 12,360 +4,024

German exports had grown absolutely but had become ever more concentrated within Europe, in particular the EC. Whilst German exports to other EC countries were only 39.9% of total exports in 1972, they were already 47.7% in 19853 and 60.8% in 1989. Moreover, this supremacy/dependency in Europe was achieved primarily by greater market access (in particular after 1986 with Spain and Portugal joining the EC) and a dramatic fall in oil prices from 1985 to 1986.4

Germany’s export success was based on competitive advantages over other West European economies rather than over its major rivals in the world market. Hence, easy victories could be scored in Europe, but they were achieved in such a protected environment that they only postponed addressing the underlying problems of declining global competitiveness.

Compared with the US, Germany was already losing ground by the end of the 1980s. Whilst the period between 1982 and 1985 saw a significant trade surplus with the US (the main source of German trade surplus in that period), this changed in the second half of the decade.

One reason was the devaluation of the US dollar, which made German exports more expensive and US-imports cheaper, but this is not the whole story. More important were the productivity gains of US industry in the late 1980s. One recent study concludes:

“According to OECD figures, the USA regained export market shares which they lost between 1981 and 1985 by the beginning of 1989. Accordingly the losses between 1981 and 1985 accounted for 1.8% of the US GDP, whilst the gains of market share since 1985 total 1.9%.”5

If we look at the figures for industrial productivity then we see that, “industrial labour productivity grew stronger in the US (3.4% in average per year between 1979 and 1985) than in West Germany (3.1% in average).”6 Furthermore, US unit labour costs are estimated to be 15% below the German level.7 This is less the result of productivity increases than of a reduction of real wages and social benefits after 1975 and longer working hours in US industry under Reagan. All in all, the US capitalists were far more successful than the German in increasing their rate of profit by raising the rate of exploitation.

However, a relative failure with regard to productivity increases does not tell the whole story. The very structure and composition of the German economy indicates some strengths but more weaknesses compared to the USA and Japan. In the 1980s, some 40% of the West German workforce was employed in manufacturing and construction, 5% in agriculture, energy and mining, 20% in services and 20% by the state.

The single biggest factor is thus manufacturing and construction.8 In 1989, the industrial workforce in West Germany was concentrated in five main sectors—motor vehicles, machine building, chemicals, engineering, electronics and iron and steel.

These industries are the core of German capitalism. They are associated with large enterprises like VW, Mercedes-Benz, MAN, Bayer, BASF, Höchst, Thyssen, Siemens. All these are highly export orientated. They have to think and plan in terms of the world market.

Amongst these, the motor vehicle industry is the single biggest sector. More than half a million German workers are employed in car manufacturing directly and millions work in industries dependent on orders from Volkswagen, Opel, Mercedes and BMW. However, if we look at the state of the European and German car industries, major problems are looming on the horizon.

Whilst Germany’s car industry was still the most productive at the beginning of the 1990s with France at about 91% of Germany, Italy at 74% and Britain at 61%, they were about 50% behind Japanese productivity levels.

Amongst the German car producers, Volkswagen is not only by far the biggest but usually also the most competitive. In fact, the company can be taken as a microcosm of the German economy as a whole.

The company made impressive investments in the EC and Eastern Europe in recent years (Seat and Skoda). In the 1980s, it benefited from a large and expanding European market and increased its EC market share and, after unification, it enjoyed a sales boom in East Germany.

In that period, Volkswagen’s—and Germany’s—structural weaknesses were hidden by favourable market conditions. However, behind VW’s European success lay the closure of its last US plant in the mid-Eighties and a decline of US sales to 0.7% of the market by 1991. With the increase of Japanese competition, and a contracting market resulting from international and domestic recession, the giant became vulnerable.

High unit labour costs are only one part of the story of Volkswagen’s problems. The other, equally important, one was the company’s inability to match its rivals’ success in cutting the turnover time of capital through the application of new production processes and in improving the efficiency of their communiciation networks.

The problem is reflected in the unusually large size of the company’s plants, in particular in Wolfsburg which has a yearly output of more than 600, 000 vehicles. This plant is three times bigger than the most productive plants. Whilst other companies have reduced storage costs by “just-in-time” production, Volkswagen has not. Nor does this size of plant enable the introduction of “lean production” methods which are able to produce slightly modified models for particular market segments.

All this together results in the dilemma that Volkswagen needs to utilise around 90% of its production capacity in order to generate a profit.9 Volkswagen’s increasing problems have already led to part time work in some of its West German plants and to plans for tens of thousands of redundancies and the replacement of the long-standing General Director, O. Hahn.

Other sectors of German industry are not in a much better state. Large and important parts of the machine building industry are composed of small and middle enterprises with up to 1000 employes—owned by the German “Mittelstand”, the classic petit-bourgeoisie:

“There are hundreds of smallish engineering firms run by autocratic bosses who know their business to the last millimetre and pfennig. Their goods are ultra-modern and computer-guided. They cost the earth, look beautiful, arrive on time and are impeccably serviced. The snag is competitors from Asia are making cheaper equipment almost as good.”10

Even the giants in engineering, like Siemens, are facing increasing problems. Its semi-conductor and computer divisions are chronically loss-making. This generally reflects the relative lack of total (private and governmental) investment in research and development (R&D) in Germany throughout the 1980s.

From the standpoint of the long term interests of German capitalism, the R&D policy of the Kohl adminstration has been a catastrophe.11 Whilst total R&D expenditure amounts to about the same percentage of GDP as in Japan or the US, it is lagging far behind in absolute terms. In 1990, the US total expenditure was estimated at DM 365 billion and Japan’s at DM 144 billion, Germany only reached DM66 billion.12

German research performed well in spheres like biotechnology and medical research and to a lesser extent in small robotic tool machinery and in electronics, but this could not compensate for the lost ground in such important areas as cellular communications, microtechnology and computers.

This is reflected in the structure of exports . As soon as we look at the export of goods where R&D amounts to more than 8.5% of costs, Germany ceases to be the world’s leading exporter.

In 1989, the US led with 27.8% share of world exports (in particular because of arms exports), followed by Japan (18.3%) and only then Germany (14.4%). Moreover, Japan is still increasing its share at a rapid rate.13

This was the case despite the fact that the R&D expenditure of companies like Siemens, Daimler-Benz, Bayer and Höchst ranked amongst the top in European enterprises and the attempt of the German banks to stimulate R&D by issuing cheaper credit.14

The real obstacle for increasing German research and development has been the federal structure of Germany. Until recently, Germany did not have a national research budget at all (but only at Länder level). Even now, it is still small and the fact that every Land controls its own expenditure in this area means that plans for a nationally coordinated R&D programme with significant resources more or less inevitably shatter on the rocks of regionall interests.

Yet the importance of state aid for research in this area is crucial today—be it the Japanese MITI or the US military expenditure which stimulates this process. Even the highly developed fusion of industrial and banking capital—German finance capital—cannot substitute for government directed programmes.15

Of the three major capitalist economies Germany is the most dependent upon the performance of its industrial manufacturing base. It cannot easily compensate for a decline here by the rewards reaped from a huge portfolio of overseas direct and indirect investments or the prowess of its financial sector (outside Europe).

And yet the pace of European integration is not moving fast enough to compensate for the weaknesses of its federal state structure, nor is its manufacturing base meeting the challenges thrown down by industrial developments in Asia and the USA.

German unification was in essence a political decision, one which would brook no economic doubts about its eventual impact on German capitalism.

For the sake of the strategic long term interests of German finance capital, Kohl and his government were able to force aside the more cautious and short term interests of the Bundesbank and senior government advisers and go for monetary and economic unification and, then the unification of the two German states, as rapidly as possible.

The fast track to recapitalisation and unification was clearly dictated by political considerations. Finance minister Waigel expressed this quite clearly on 13 June 1991: “In the second half of this century, the chance to achieve German unification only existed for a few weeks and months. The chance had to be taken and we took it. We have taken it by creating facts, by the currency union—against all practical and theoretical advice.”16

Against the reformists in the SPD and the cautious members of the Bundesbank he was right. If they wanted capitalist reunification, they had to take the chance, they had to destroy the degenerated workers’ state when the chance was offered and they had to do it quickly, to “create facts”.

In such a situation, any second thoughts would have allowed Germany’s rival imperialists and the Moscow bureaucracy to step in and obstruct the achievement of a historic goal of the bourgeoisie.

At first it even seemed that unification would be an undisguised economic blessing. Order books were full, business prospered. West German GDP grew 4% in 1989, 5% in 1990 and 3.6% in 1991.17 Unemployment fell to 6.6% in 1990 and wages rose faster than prices. All the weaknesses of German capitalism, which were apparent by the end of the 1980s, were temporarily disguised by a consumer boom.

Nevertheless, it was not long before capitalist unification brought to the surface the structural weaknesses accumulated in the 1980s. But for all its problems German capitalism cannot go back to business as usual and must find a new way forward.

An entire change in the structure of German capital, in German political life, that is, in the balance of class forces, is necessary to overcome the weaknesses of German capitalism.

The most pressing issue is the escalating budget deficit. The “integration” of the East made the budget deficit rise dramatically. East Germany will be a tremendous financial burden throughout the decade. To date, about DM 400 bn of the federal budget has gone into the East. 18

The rapid rate of budget growth (not yet its absolute level) causes concern for German bourgeois politicians. Total public deficit was DM 924 bn in 1989, DM 1048 Bn in 1990 and reached DM 1183 bn at the end of 1991. It is estimated to have reached DM 1311bn by the end of 1992.19

This huge bill for unification only emphasises that profitability and productivity has to be restored if German capitalism is to benefit from unification rather than be dragged down by it. Kohl has staked his political future (and his coalition’s election hopes in 1994) on the success of a new “solidarity pact” to pay for unification.

The propaganda suggests that the cost will fall equitably upon all sectors of German society. The pact aims at cutting DM 20bn a year by 1995 from federal spending and also raising taxes.

But the ambitions of the pact do not go anywhere near solving the problems faced by German capitalism. On its own terms it will only reduce an expected DM110 bn budget deficit by DM20 bn in 1995.

What cannot be negotiated away will (in due course) have to be taken forcibly, above all, from the pockets of the working class. To reduce the burden of taxation on industry can in part be addressed by reducing welfare and lowering taxes, but it must above all else raise profitability.

In order to increase their profits they intend to raise the rate of exploitation in both absolute and relative terms, that is to say by cutting wages and lengthening the working day on the one hand, and by introducing labour-saving technology and production techniques on the other.

The bosses’ new and more aggressive approach was signalled last year in the dispute that culminated in the big public sector strike led by the public sector union, ÖTV.

This strike, over pay, was symptomatic. The government had the opportunity to give the right signals to the private sector where unit labour costs are amongst the highest in the world.20 Part of the “solidarity pact”, which Kohl is working out with the unions and the opposition SPD, involves limiting nominal wage rises to about 2.5% in the next year and possibly beyond. On this front, the unions have already shown their willingness to make a deal with the bosses.

The engineering union, IG Metall, for example, has already struck a deal with the engineering and car vehicle producers to have only 3.3% wage increases for the last nine months of 1993.21

However, Kohl’s “pact” is meeting obstacles. The unions want to stick to the agreement on wages parity between East and West by 1994. If that measure were carried out, the reduction of wages in the public sector would be more or less cancelled out. The private employers would have to be forced to stick to any such general wage settlement between unions and employers’ associations.

These have been increasingly broken in the last two years, particularly in East Germany. This point is of particular importance for the union bureaucracy because, if enterprise wage deals increased significantly, this would undermine the union bureaucracy´s power base.

The most important battle on the wages front, however, is the question of reduction of the “social wage”. The central attack here has been on the fundamental principles of the health service and has been agreed between the government coalition and the SPD.22

This “reform” means that an increasing part of the cost of medicine has to be met by the patient. Equally, a larger part of the bill for hospital beds has to be paid during the first two weeks in hospital. This is intended to save between DM2 and DM 4 bn in 1993. About DM9 bn is to be “saved” by reduction in spending on new equipment. For the hospitals there will be guidelines on how much patients with certain illnesses should cost.

Hospitals which are not able to meet these targets will simply make losses and, if unable to minimise them would face bankruptcy. By this measure, another DM5 to DM9 bn is to be “saved”.

Additionally, some employers are also demanding that the whole of the contribution that they make to the health service should be cancelled—which would effectively knock out the foundations of the German social insurance system which has been in force since the days of Bismarck.

The length of the working day is set to be a source of renewed conflict too. In a series of strikes in the mid-1980s the unions enforced the lowering of the average working week in West Germany to 37 and in some cases 35 hours. In the former GDR, the working week is already 40 hours.

Now, Western employers are also demanding an increase in the working week throughout the country—without wage increases, of course. At the same time, raising of the retirement age has been suggested repeatedly.

Whilst reductions in total working class income and extensions of the working day or week will be vital components of any overall strategy for the West German bosses, they are unlikely to be enough to close the gap between German productivity and that of its main rivals.

More important will be a systematic restructuring of the workforce and production methods. In the immediate future, this will take the form of the introduction of Japanese work practices such as production teams. These increase the average skill-level of the workforce and, therefore, the value produced in a given period of production.

We can also expect a change in the overall structure of the workforce including a sharp reduction in “white-collar” jobs both as a result of technological changes and because production teams are expected to require less supervision. Alongside such changes in work practices, there will also have to be technological changes, especially the introduction of flexible computerisation to reduce storage costs and speed up the turnover of capital.

The first affects of this capitalist offensive will take the form of mass redundancies. In the public sector, these will be intended to cut the budget deficit, which is causing high interest rates, and to release funds for capital investment. In the private sector, nearly all major companies are planning redundancies. The Association of German Motor Vehicle Producers has announced 200,000 job losses in the next few years—about a third of the total number of employed in this sector.23

Mercedes-Benz will reduce its workforce by 25,000 in this year alone. Here, most of the job losses will be amongst salaried staff as the company cuts its large administrative staff and rationalises its sales and distribution system. In the steel industry, at least 25,000 jobs will go within the next few years. Likewise, in shipbuilding, mining and chemical industries.

The reduction of subsidies in agriculture will also mean the end for many farmers and, thereby, add to the army of unemployed from that side. In the state sector, nearly 100,000 sackings have been announced for the rail. The postal service also intends to reduce its workforce by between 20,000 and 30,000.

Given that many of these redundancies will lead to further job losses in related sectors, it is clear that what is planned is a major restructuring of German capital itself and, therefore, of the German working class. Such a transformation could not be carried through without a dramatic shift in the balance of forces within German society towards the bourgeoisie.

That is why the central features of the post-war compromise between the classes are now under attack. At the heart of the system lies the institution of Mitbestimmung (Co-Determination), which gives half the seats on the supervisory boards of major companies to representatives of the workforces.

The Factory Councils, from which these representatives are drawn, are very distant indeed from the militant, even revolutionary, organisations from which they are descended. By law, they cannot call strikes or take any action prejudicial to the company’s interests but, equally enshrined in law, they can veto decisions and they are under pressure from the workers who elect them.

Such bodies cannot possibly continue “business as usual” in the face of the drastic paring down of entire industries which German capital needs. Similarly, the German trade unions, industrial unions which bring together the workforces of each of the industrial sectors in a single union, despite their ingrained pro-capitalist attitudes, remain very well-organised obstacles to any plans to bring wages and working conditions down to the level of, say, the USA.

Having witnessed the social conflicts caused in Britain by the Tory offensive, and having also seen that even the victories gained at such a cost have not solved British capital’s fundamental problems, the German bourgeoisie is having difficulty adopting an effective and unified strategy and this finds expression in the political indecision that has characterised the Bonn government for a year and more.

The fact that the “solidarity pact” has not pleased any sector of business and finds its most ardent supporter in the head of the IG Metal trade union federation speaks volumes for this growing crisis of leadership within the German bourgeoisie. German capital has not had to generate the kind of determined leadership, in either the political or the economic sphere, that can impose the will of the dominant sectors of capital on the weaker ones.

The leading bourgeois parties, the Christian Democrats, the Christian Social Union and the Free Democrats24 have built themselves as “People’s Parties” and, although obviously dominated by the big bourgeois interests, are not well-suited ideologically to leading fierce attacks either on the great masses of the industrial working class or, indeed, on the interests of their smaller and provincial petty-bourgeois members. The CSU, for example, could not survive as a serious political force if it allowed a significant reduction in the subsidies paid to small-scale Bavarian farmers.

During the recent crises of the European Exchange Rate Mechanism, much has been made of the centrality and steadfastness of the German Bundesbank. Yet this institution, too, is a part of German capital’s problems.

Established when fear of the development of a strong and centralised German state was a major determinant of policy, the Bundesbank is controlled by a Central Council of eighteeen directors. Eleven of these are appointed by the Laender governments, only the minority of seven are appointed by the Federal government.

Consequently, the famous conservatism of its monetary policy owes at least as much to its inward and provincial orientation as to any theoretical considerations. The bank was opposed to rapid German re-unification and has consistently opposed initiatives such as the European Monetary Union, and central elements of the Maastricht Treaty, which have reflected the concerns of the more externally oriented central government and big industry.

The hostility of the Bundesbank to European integration and the opening up of the East European markets is a further indication of its potential for obstructing the plans of the biggest industrial companies, and their friends in the banks.

At the present time, although the high interest rates imposed by the Bundesbank are a spur to firms and the public sector to cut costs, they are also an important limitation on investment and economic stimulation, not only within Germany but, very importantly for the big exporters, right across the length and breadth of Europe as a whole.

German capital’s inability to continue to prosper within the straitjacket imposed on it by the Allies after the war is also visible in the constitutional sphere. Having finally rid itself of the Allies’ controls over Berlin and, for example, their limitations on over-flying rights, the German bourgeoisie has turned its attention to the restrictions on its military sovereignty written into its state constitution. “Humanitarian” interventions in Cambodia and Somalia, perhaps to be followed by Bosnia, Serbia, Montenegro, have been the chosen means of establishing precedents for “out of area” military expeditions.

But there can be little doubt that more directly war-like exercises are already on the agenda as Germany prepares to “shoulder her responsibilities” in policing the world. The now operative Franco-German army corps25 is another way in which German imperialism approaches by stealth and behind protective cover its new imperial responsibilities and ambitions.

However, the German capitalist class will only succeed in its aims if it succeeds in creating a leadership capable and willing to push through such a policy consciously, to overcome the divisions within the bourgeois camp. Most importantly, however, such a policy will face one of the biggest and best organised proletariats in the world.

And in this battleground of class struggle, where the fate of German imperialism will be decided, the German bourgeoisie will rouse a sleeping giant: the German proletariat.

The basis of the German economic miracle

Contrary to bourgeois myths, the German economy was not rebuilt “from scratch” after the war. On the contrary, despite defeat and the division of the country, the German bourgeoisie inherited two extremely important legacies from the Nazi-period.

The first of these was a newly-modernised industrial base and the second was the low wages and long hours imposed on German workers by the Nazi victory in 1933.

A surprisingly high proportion of German industry survived the war intact, “The decline in industrial output since mid 1944 was not the result of the destruction of industrial assets but of a paralysis of the transport system by air raids.”1

Furthermore, the bulk of this industry was new because of the installation of new technology after 1942 to replace the workforce which had been drafted into the army.2

Equally, the low wages enforced in Nazi Germany, and the extension of the working week, were kept in place after the breakdown of the fascist regime. Wages did not reach 1938 levels again until 1956.

However, to take full advantage of this, the bourgeois regime itself had first to be secured. After the defeat in the war, the German army disintegrated and working class sentiment was strongly anti-capitalist because of the support given to the Nazis.

The hope that “socialism” could now be established was very strong among the proletarian masses and the rank and file of the Social Democratic Party (SPD) and the Communist Party (KPD). Both parties were represented within the “Anti-Fascist Commissions” and the “Factory Councils” that were spontaneously set up all over Germany as the war came to an end.3

In the early years after the war, the strategy of the occupying imperialist powers centred on three principle objectives, to demobilise such working class organisations, to re-establish a functioning capitalist economy and to ensure a structural limitation on the power of their former enemy, the German bourgeoise.

By 1948, of course, this led to the creation of a distinct “Western” zone, later to become the Federal Republic.

Within that zone, the success of the Allies in achieving their objectives included their utilisation of the returning bureaucrats of the labour movement. By supporting the establishment of the DGB (West German equivalent of the TUC) and the demobilisation of all radical organisations through the SPD, the Allies ensured that the immediate threat of expropriation and workers’ control was removed.

At the same time, however, they also used the organised labour movement to limit the powers of the German bourgeoisie by recognising the rights of (bureaucratised) Factory Councils. Similarly, while Marshall Aid was used to re-integrate the economy, the threat of a re-emergent powerful bourgeoisie was limited by strengthening the powers of the Länder, the provincial states of Germany, as against the Federal Government itself.4

This balance of forces between the working class and the bourgeoisie was the background to the development of strongly class-collaborationist politics within the major parties and the trade unions. In industry, this was symbolised by the creation of the system of Mitbestimmung (Co-Determination) which gave workers’ representatives a statutory role in the supervisory boards of major companies, beginning with the heavy industries of coal and steel.

By these means, relative class peace, collaboration by the factory councils and trade unions in serving the “interests of the enterprise”, was achieved.

The basis for the success of this form of class collaboration being successful was a high level of capital accumulation based on the high profit rates made possible by the combination of infrastructural renewal, new investment, and the high rates of exploitation inherited from the Nazi past and later supplemented by the influx of refugees from the East. This led to a steady improvement in Germany’s position on the world market until the end of the 1970’s.

German finance capital

The major German companies are closely interconnected with the banks, in particular with the “big three”: Deutsche Bank, Dresdner Bank and Kommerzbank. A look at the shares that these banks hold in the major German enterprises illustrates this:

This alone makes the economic power of the major banks obvious. Their senior managers and directors are usually on the supervisory boards of the major industrial groups—just as many of the leading industrialists are on the leading bodies of the banks and insurance companies. Nevertheless, such a concentrated and highly centralised command structure for imperialist capital could not prevent the accumulation process from developing and deepening its contradictions.

As Marx explains in Capital, capitalist development, the accumulation of capital, leads to a tendential fall in the rate of profit. Whilst it is difficult to translate bourgeois statistics into this category, approximations are possible so that we can get an indicator for this. If we look at the literature on this subject in the last decades, ie authors who try to analyse the German economy in Marxist terms, we can clearly see that virtually all of them observe the same trend: the rate of profit is falling.2

For example, Mandel and Wolf calculate that it fell from an average 10.5% between 1960-1971 to around 3.7% at the beginning of the 1980s and remained around that level.

Mandel and Wolf demonstrate that the main reason for the fall in profit rate has been the increase in investment. Gross investment has approximately doubled in the course of the 1980s and net investment by about 80%. But due to the falling productivity of this investment the profit rate has stagnated. Indeed, it has caused the big multinationals to to triple the size of their speculative investments in the money markets, rather than in manufacturing or services.3

Furthermore, this declining investment seems to be a feature of all branches of German industry. Generally, the rate of capital return is bigger in the smaller companies. In the 1980s, enterprises with 50 to 99 employees performed best with a rate of return of 10%, companies with between 100 and 999 employees had between 8 and 8.8%, whilst enterprises with more than 1000 employees only achieved some 5%.

This, however, did not lead to higher rates of capital investment in the smaller companies because, while rates of return were higher, the absolute sums involved remained inadequate.

From the standpoint of the biggest capitalists, the problem was concisely put by Siemens’ Chief Executive, “We earn too little; a 2.5% return on sales is too little.”4 The problem of a low rate of return, which already existed in the period of expansion of the economy, is a hundred times more burning for the capitalists in periods of recession.
Firm Major Bank All Bank 1

Voting Shares Voting Shares

Siemens 32.5% 79.8%
Daimler-Benz 61.7% 69.3%
Volkswagen 8.0% 19.5%
Bayer 54.5% 95.8%
BASF 51.7% 96.6%
Höchst 63.5% 98.3%
Thyssen 32.6% 59.1%
Average (with 24 other firms) 45.4% 82.7%
Destruction of a workers’ state

Between 1990 and 1992 two thirds of East German industry was destroyed under the supervision of the state agency set up to oversee privatisation—the Treuhand:

“East German industry has now been to a large extent destroyed and cannot be rebuilt. . . If the workers were now to conduct a belated but successful struggle they could perhaps save about a third of the previously existing plant. Only 750, 000 people are working full time in industry and trade; a quarter of the number two years ago.”1

Agricultural production too shrank to nearly half the 1989 level by mid-1992. In 1989, about 9.6 million were employed in the East German economy. Only three years later 4 million are unemployed, not fully employed or no longer appear on the East German labour market (pensioners, migrants to the West, women forced to become housewives).

All in all, the active workforce shrank by about 40% over these years. Whilst living standards on average are still above the GDR level, they are rapidly deteriorating because of reductions in subsidies and higher levels of inflation (14% in the East, 4% in the West).

The scale of this destruction is explained by the nature and result of the currency and monetary unification. On 1 July 1989, the Ost-Mark was exchanged at an average level of 1.8 : 1 against the D-Mark.2

Nevertheless, this meant that East German enterprises were still heavily indebted. The “German Institute for Economic Research” (DWI) calculates that a total debt burden of 170 billion Ost-Marks of all East German enterprises had been valued at DM 85 billion.

The debt burden of the East German enterprises had already been high compared to western enterprises because of the costs of social welfare provision which had been borne by the enterprises.

Furthermore, in a planned economy, debts of enterprises did not lead to closures and, because of the integrated character of the economy, there was no clear separation of state and enterprise.

Therefore, parts of the enterprises’ debts would have been calculated as state debt in a capitalist economy. With the currency and economic union, this link was effectively broken and the whole of the debt was thrown onto the enterprises themselves.

East German companies’ fixed property also had to be valued in D-Marks after unification. This valuation was made by reference to the West German property market which meant that the fixed assets of companies were massively devalued when expressed in D Marks.

Here the DWI estimates that a total value of 940 bn Ost-Mark was translated into only DM 230 bn. Naturally, the rate of debt to assets shot up as a consequence from 18% (the same rate as in the BRD) to 37%.3

The high indebtedness of the East German companies ensured that they were virtually unsellable—as long as the state (via the Treuhand) did not take over the debts, a measure which had been initially rejected as being at odds with a “market economy”.

Secondly, investment in the means of production, replacement of worn out machinery, only took place at a very low level, because the enterprises had to spend most of their profits (if they made any) in paying back the debt. In the end it was the Treuhand which paid the debts. 4

The government’s initial plan, to cover the costs of restructuring the East German economy mainly by income from privatisation, is obviously not worth the paper it was written on. In order to sell enterprises, debt write offs—supposedly alien to every market economy—proved necessary. The Treuhand had to take over. So far about 4,000 out of 8,000 companies have been sold.

However, there are still some 6,000 to 9,000 to sell because, parallel to privatisation, enterprises were divided into parts so that at least the more attractive could be sold.

This means that basically the “best cuts”, the most advanced and profitable firms, were handed over to private capital whilst the others remain in the hands of the state.

As yet, there is no light at the end of the tunnel for the economy of the eastern territories now it has firmly embraced the logic of the market. Investment in East German industry—be it in the old stock or in new plants—remains low.

Apart from some exceptions—like Opel and Volkswagen which bought the Trabant and Wartburg plants respectively—there is very little.

Often takeovers by West German capital are subsidised by the “free market state”: DM3.5 Bn for Carl Zeiss to take over Carl Zeiss Jena, DM6.2 Bn for the Western shipbuilders like Vulkan in Bremen to take over the East German shipyards—and, in that case, cut the workforce from 34,500 to 7,600.5

However, investment in the East has not picked up. About 60% is provided by the state and is mainly for infrastructure.

West German capital still plays a secondary role: “In 1991, DM 25 bn came from this source and DM 43.5 bn this year, only DM 8 bn and DM 18 bn respectively was invested in industry, creating some 70,000 jobs.”6

Furthermore, major companies like Mercedes Benz have reduced, or even cancelled, their investment plans in the East.

There are several reasons for the lack of investment: firstly, the still unresolved question of property rights; secondly, the question whether East Germany is the best place for capital investment at all (as compared with Eastern Europe); thirdly, the low level of productivity in East Germany (about 50% of Western levels), fourthly, a lack of a modern communications infrastructure.
1 Hans Jürgen Schulz, “The unification disaster”, in International Viewpoint 236, October 1992, p14

2 Small savings were exchanged at 1:1, larger sums and debts at 1:2.

3 Altvater, “Elmar, Die deutsche Währungsunion von 1990”, in Schulz and Volmer, 1992, p6.

4 Out of the DM 20.2 bn, that the Treuhand spent in 1991, DM 11.3 bn was spent on the interest of indebted enterprises. See ibid, p17

5 Lufthansa could take over the Checking-in System at the East Berlin Airport, Schönefeld, despite an alternative plan worked out by the factory council and the trade union which would have saved more jobs and nevertheless made a profit for the state. But it´s Lufthansa who—coincidentally—has a representative on the supervisory board of the Treuhand!

6 H. Jürgen Schulz, “The unification disaster”, op cit, p. 14
1 W R Smyser, “The Economy of United Germany” London 1992, p86

2 For various studies which reach the same conclusion see, Mandel and Wolf, “Cash, Crash & Crisis”, Hamburg 1989; Bischoff/Menard, “Weltmacht Deutschland”, Stefan Krüger, “Die EG in der Weltwirtschaft”, in Sozialismus 5/91; Altvater et al, “Vom Wirtschaftswunder zur Wirtschaftskrise”.

3 See “Monatsberichte der Deutschen Bundesbank”, 5/1992, S.16/19

4 Siemens’ Chief Executive, Heinrich von Pierer, in an interview with the Financial Times.

1 W. Abelshauser, Wirtschaft in Westdeutschland 1945-48, Stuttgart 1975, p117

2 “In this phase of the Second World War production processes like assembly line production, mass production with more standardisation and specialisation, which have been so important for the revival of capital accumulation in West Germany, were introduced.”Altvater, Hoffmann, Semmler, Vom Wirtschaftswunder zur Wirtschaftskrise, p76

3 See J. Kuczynski, “Die Lage der Arbeiter unter dem Kapitalismus”, vol 7a, Berlin (DDR), 1963, p386

4 These were artificial creations, but also reflect the belated creation of the German nation itself. Until 1928 there existed no German citizenship, but only citizenship of various states within the Republic.

1 Unemployment was 5.3% in 1981 and 3.7 % in 1980

2 By the end of the decade West Germany’s gross debt ratio accounted for some 42.7% of nominal GDP, lower than any other G-7 nation apart from Britain. See W R Smyser, “The Economy of United Germany”, London 1992, p120

3 “The export share of total GDP grew from 32.4% at the beginning of the 80s to 34.8% in 1989 and the trade surplus share of GDP grew from 2.3% to 6.3% in the same period.” See Bischoff and Menard, “Weltmacht Deutschland?”, Hamburg 1992, p106

4 Smyser, op cit, p197

5 See: A.S. Markovits and S Reich, “Deutschlands neues Gesicht: Über deutsche Hegemonie in Europa”, in Leviathan 1/92, p17

6 Bischoff and Menard, op cit, p61

7 ibid, p65

8 The percentage of the workforce employed in this sector is very high. In the US it only amounts to about 20%, in Britain, France, Italy and Spain to about 30%.

9 Financial Times “Survey of Germany”, 26 October 1992, p8

10 Economist Survey Germany, 23 May 1992, p14

11 The SPD ideologue Glotz offered German social-democracy as the better servant of capital’s strategic interests by putting a “coordinated research and development policy” at the top of his six point list “of demands on the CDU/CSU” for making a greater SPD-led coalition after the next elections. See, Glotz, “Die Krise des Parteienstaates”, in Frankfurter Hefte Nr. 6/1992, p510

12 Manager Magazin, September 1990, S166

13 Hans Jürgen Schulz, “Ihr Feld ist die Welt”, in Avanti Dec. 1992, p16

14 Smyser, op cit, p109

15 Nor has this been compensated by an adequate European research programme which could really take on the challenge of the US and Japan. See article in this issue on Europe.

16 Quoted from Bischoff and Menard, op cit, p15

17 Likewise, industrial production grew 4.9%, 5.3% and 3.0% respectively.

18 Approximately two thirds of the East´s GDP is now made up of Western grants, about DM 130 bn in 1991.

19 Michael Heine, “Alles im Griff?”, p73 in Werner Schulz, Ludger Volmer (Editors), Entwickeln statt Abwickeln, Berlin 1992 These figures include Federal, Länder, community and “German Unity Fund” deficits.

20 They run at about $17 an hour in Germany compared to $13 an hour in the USA.

21 In 1992 the IG Metall struck a wage settlement which led to a wage increase of about 5.5 % for one year, but also included a settlement for the rest of 1993 which was presented as a victory achieved by “responsible, but hard negotiations”.

22 This is also called the “Lahnsteincompromise”. After this deal between SPD and government, the SPD roled Länder and the DGB leadership also agreed to the reform, leaving the ÖTV alone in its opposition.

23 Financial Times, 28.10.92, p2

24 This is the small Liberal Party that traditionally holds the balance of power in coalitions.

25 This will be fully operational and up to strength (35, 000) by 1995 and is the embryo of any future EC army.

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