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Privatization and Deindustrialization in East Germany

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  • Carlin, Wendy

Abstract

The transition in East Germany has been characterized by an extremely rapid privatization of state-owned enterprises and by an equally rapid process of deindustrialization. The great majority of East German SOEs have been privatized and are now genuine capitalist firms with an owner with the incentive and the power to change management behaviour. Meanwhile East Germany has been deindustrialized with employment in mining and manufacturing falling to one quarter of its pre-unification level. This paper argues that the government imposed an inconsistent policy toward employment on the privatization agency, the Treuhand. Although required to take account of the shadow price of labour in the privatization negotiations (where employment subsidies were offered to prospective purchasers), the Treuhand engaged in large-scale labour shedding prior to privatization (using the market wage). Although costly from the perspective of the economy as a whole, the Treuhand had little choice given its mandate to privatize rapidly. Finding buyers for Treuhand enterprises has required single-minded focus on the issue of corporate governance and the matching of assets to management capabilities through the policy of selling to `competent outsiders' diverted attention from the possibility that such a policy would not guarantee the retention of a minimal core of industrial activity. Late in the day, the Treuhand recognized that greater use had to be made of economies of scale in management and control to achieve the forward-looking restructuring of its remaining portfolio. It was necessary to create new institutions.

Suggested Citation

  • Carlin, Wendy, 1993. "Privatization and Deindustrialization in East Germany," CEPR Discussion Papers 892, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:892
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    References listed on IDEAS

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    1. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 857-880.
    2. Venables, Anthony J, 1996. "Equilibrium Locations of Vertically Linked Industries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 341-359, May.
    3. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    4. repec:hhs:iuiwop:430 is not listed on IDEAS
    5. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
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    Citations

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    Cited by:

    1. Cassell, Mark K., 1996. "The Treuhandanstalt, privatization and the role of the courts," Discussion Papers, Research Unit: Economic Change and Employment FS I 96-316, Social Science Research Center Berlin (WZB).

    More about this item

    Keywords

    Deindustrialization; East Germany; Privatization; Treuhandanstalt;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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