ABSTRACT
This chapter provides an objective account of how the economic system of the German Democratic Republic (GDR) actually operates. Its industrial past, resource endowment and demographic features need to be looked at briefly in order to understand the changes which have occurred in economic policy since the end of the Second World War. The GDR is a world-ranking industrial country, with the highest standard of living in the socialist bloc. The problem faced by the Socialist Unity Party (SED), however, is the tendency of consumers to compare their living standards not with their poorer socialist neighbours, but with the West, especially the more affluent Federal Republic. The Soviet Union has a natural interest in the economic diversification to be found within Comecon. The GDR's relative economic success has attracted particular attention. In May 1985 Gorbachev praised the GDR's endeavours to reach international standards in production and in June 1985 what he called 'inter-industry associations'.
