chapter  3
12 Pages

PRIVATIZATION IN EAST GERMANY

WithDieter Bös

However different the ways of counting the cases of privatization, it can be stated that no other country has ever privatized so many industrial enterprises in so short a time. (Recall the date of the German unification: 3 October 1990!) It is hoped that at the end of 1992, only 2,500 East German industrial firms will still be fully or partially owned by the government. It is also thought that at the end of 1993, no East German industrial enterprises in public ownership will be left which could be candidates for an immediate privatization.3 (Privatizing small shops, restaurants or hotels is comparatively easy in East Germany, as in any other former communist country.4)

The agency in charge of privatization is the Treuhandanstalt (THA). Originally founded by the Government of the German Democratic (GDR) in December 1989, it was further restructured in June 1990. The activities of THA depend on the viability of their ‘client’ firms: 1 privatizing firms which could be viable in a market environment, 2 governmental restructuring of firms to make them viable, or 3 liquidating firms which are non-viable. Such a catalogue can be meaningful only if precise definitions of the relevant terms are given. With respect to the viability of a firm, an oftenquoted definition was given by Akerlof and his group in Berkeley in their empirical study on East German industrial enterprises.5 They obtained

cost data, previously used for GDR planning, which they adjusted to the present situation by:

1 removing all profits, interest and depreciation in excess of repairs necessary for current operation, and

2 taking account of changes in the tax structure, in the cost of imported intermediate inputs, and in wages.