JOHN GARLAND

The GDR’s Strategy for “Intensification”

During the 1981-85 plan period, “intensely extended reproduction” became the decisive factor underlying East German strategy for raising performance levels and ensuring sustained economic growth. In the second half of the 198Os, the GDR is entering “the new stage of its economic strategy for comprehensive intensification.“’ While progress during the first half of the decade was based on increasing output and labor productivity while simultaneously reducing energy and material consumption and using fixed assets to greater advantage, the present stage of the intensification drive calls for new, additional measures aimed at “perfecting” management, planning, and cost accounting,2 and for technological breakthroughs and in-house rationalization measures (e.g., through the application of micro-electronics) to modernize products and production processes throughout all industry.3

This issue of Studies in Comparative Communism explores the concept, evolution, imple- mentation, and prospects of the GDR’s strategy of intensification. The authors- Manfred Melzer, Arthur Stahnke, Doris Cornelsen, Jochen Bethkenhagen, and Irwin Collier-are all highly respected experts on the East German economy. In aggregate, they present here a broadly definitive statement on the economic strategy of the Eastern bloc’s leading economic performer.

To be sure, the mtensification drive per se is not a new theme of East German economic strategy. ,4s early as 1959 the GDR had identified increased labor produc- tivity as the “main economic task,” and the acceleration of technological change as the major means of accomplishing it. 4 In 1963 Ulbricht proclaimed that the goals of the “New Economic System ” included the raising of labor productivity through techno- logical progress, the reduction of costs of production while increasing its quality, and the reduction of consumption of material and financial inputs through rationalization measures.” Certainly the increased efforts today to induce a mentality among enterprise

1. See: Dtrektive des. XI. Parteitages der SED nun Fiinfahrplanfiir die Entwicklung der Volkswirtschaft dm DDR in den Jahren 1986 bis 1990, (Berlin: Dietz Verlag, 1986), pp. 13-14. The XI Party Congress took place in Berlin

(East) during April 17-2 1, 1986.

2. “Accounting” has been added to the classical duo “management and planning” with an equal rank

since 1983, and is now oriented towards cost-benefit analysis, greater efficiency, and the achievement of

resource-saving production processes. The role of profit has been upgraded as a measurement of the rational utilization of resources arld as an incentive for increased efficiency.

3. According to Brada and Mont&, among East European countries the GDR was the first to propose a

strategy of giving special priority in the allocation of investments to the so-called “structure-determining

tasks,” i.e., to those product lines most likely to be carriers of technological progress throughout all of

industry. See: Josef C. Brada and John Michael Mont&, “Industrial Policy in Eastern Europe: A Three-

Country Comparison,” ./ournal ofCo@aratiw Economics, 8:4 (December 1984), pp. 377-429. Here: p. 379.

4. See: Raymond Bentley, Technological Change in the German Democratrc Republic (London: Westview Press, 1984), pp. 59 ff.

5. See: Karl C. Thalheim, “Das Wirtschaftssystem der DDR in der Fiinfjahrplanperiode 1981-1985: Kontinuitat oder Wandel?,” m Die Wirtschaft der DDR am Ende do Fiinzahrplanperiode (Berlin: Forschungsstelle fiir Gesamtdeutsche Wirtschaftliche und Soziale Fragen, 1985), pp. 9-38. Here: pp. 1 l-12.

Sx~u~es IN COMPARATIVE COMMUNISM, Vol.. XX, No. 1, SPRING; 1987, 3-7

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4 S~UUIES IN COMPARATIVE COMMUNISM

managers geared more to intensification tasks are not due fully to external disturbances,

but at least in part to unsatisfactory progress along these lines in the preceding 25 years.

Against this background, the self-congratulatory tone of Honecker’s address to the

XI Party Congress in April of 1986 is notable. Perhaps either genuine gains in produc-

tivity have occurred during the first half of the eighties, or one perceives that some ofthe

technological breakthroughs hoped for in the GDR are imminent. However, there is

clearly insufficient data made available to unambiguously verify that the production

function of the GDR has indeed shifted upward as a result of the recent intensification

drive.6 One is struck, nevertheless, by the direction of the measures recently introduced.

New Planning and Steering Mechanisms

Melzer’s analysis of the new planning and steering mechanisms in the GDR reveals the

broad scope and evolutionary nature of the intensification measures introduced so far.

Indeed, the “perfecting” of the system has entailed a flood of new planning coefficients,

directives, and improved management techniques. The system of plan indicators has

been adapted specifically to foster the pursuit of intensification objectives, and the

economic levers have been clearly geared to cost-reducing rationalization.

To encourage the more rational utilization of labor one has raised its cost (i.e.,

through the new “contribution for social funds” payroll tax), encouraged the intra-

sectoral shift of workers to more productive tasks, and begun retraining programs. To

foster greater efficiency in the use of material inputs one has replaced gross measures

(e.g., “industrial commodity production” and “basic materials costs per 100 Marks of

commodity production”) by net measures (e.g., “net production” and “net profit”).

Moreover, a plethora of norms and normatives has been introduced to reduce the

consumption of specific materials. To increase the productivity of existing capital stock

one has substantially increased the amount of shift work, introduced new process tech-

nologies, and given much greater attention than before to the proper maintenance of

equipment. The new investment policy aims at increasing capital productivity by the

prolonged use, rationalization, and modernization of existing capital stock. Thus, new

investment as such is reserved for critical sectors and for projects using modern

technology, and incentives encourage the prompt bringing on stream of those new plant

made available.

During the second half of the eighties, the major objective of the GDR appears to be

the solidification of the gains already achieved through institutionalizing the intensifica-

tion tasks already introduced. This is to be done by emphasis on “key technologies” to

spearhead further innovation; the concept of “highly refined production;” improved

efficiency planning (specifically geared to export performance as well as to intensifica-

tion tasks); and a revaluation of capital stock in order to be able reasonably to compare

the efficiency, productivity, general profitability, and intensification progress of

different capital investments and processes.

In Melzer’s view, the new planning and steering mechanisms are generally quite

compatible with the overall intensification strategy, but they are rather cautiously

framed, not always internally consistent, and disappointing in their failure to provide

6. See: Phillip J. Bryson, “GDR E conomic Planning and Social Policy in the 198Os,” in Irwin L. Collier, Jr. (ed), Proceedings. Workshop on fhe GDR Economy (Washington, DC: American Institute for Contemporary German Studies, 1986), pp. 25-52. Here: p. 46. The proceedings are to be published in Compnratiue Economic Shdies (forthcoming).

The GDR’s Strategy for “Intenszfication ” 5

genuinely effective incentives for innovation and increased efficiency. Also, the restrictive investment policy hinders the necessary structural changes, retards techno- logical innovation, and, by delaying the scrapping of obsolete plant, substantially increases maintenance costs. Moreover, to Melzer the intensification drive itself will be neither complete nor fully successful in the absence of comprehensive price reforms, for until such reforms are undertaken, one simply has no reliable basis on which to judge efficiency or productivity.

The Kombinate

Stahnke’s analysis of the Kombinat reform focuses on the key structural unit assigned the responsibility for implementing the intensification-oriented strategy of the 1980s. The structural reorganization was aimed at increased specialization, concentration, and cooperation among producing units. Greater concentration was to yield greater functional economies, avoid duplication of effort, prevent suboptimization (i.e., optimization at the producing unit rather than at the branch level), improve the alloca- tion of factor inputs, induce greater communications efficiency, and simplify the tasks of planning, steering, and control at the ministerial level. Specialization opportunities (including in the areas of foreign trade, research and development, and “in-house rationalization investments”) would derive directly from this concentration, as clearly would also the improvement of horizontal links between production units within the Kombinat. All these perceived advantages of the Kombinat formation are compatible with the overriding strategy of intensification.

Stahnke suggests, however, that the Kombinate might have been given too much power, not only vis-a-vis the producing units, but vis-a-vis the superior organs as well. He also doubts the appropriateness of the organizational uniformity so far introduced; suggests that the prospects for successfully performing the intensification tasks vary considerably between sectors; notes the continued, dysfunctional neglect of horizontal linkages; emphasizes the inevitable constraints placed on genuinely innovative initiatives; and questions the factory-level motivational impact of Kombinate.

Just as the implementation of the intensification strategy rests in the hands of the Kombinate, so too, it must be recognized, do the new, intensification-oriented planning and steering mechanisms constrain the behavior of the Kombinate. The hope is, that the substantial internal leeway will facilitate the achievement of intensification tasks imposed by the center. Stahnke poses the question of whether the externally imposed constraints might, to the contrary, impede precisely those desired improvements sought through the formation of the Kombinate in the first place. In his words, “It remains to be seen if structural modifications with a basically unchanged economic system of central planning will be sufficient to bring about the climate of innovation upon which comprehensive intensification must ultimately be based.”

The Larger Context of the Intensification Strategy

The reader will be generally familiar with the need for intensification in Eastern Europe. It is a particularly pressing need in the GDK, which for long has had relatively little scope for the structural transformation of industry, given its high degree of industrialization (although its pie-1945 specialization did leave it room for structural transformation in the early years).

6 STUDIES IN COMPARATIVE COMMUNISM

Cornelsen places the intensification strategy in this larger context of overall economic

performance, and also against the background of external developments. Even during

the seventies, we are told, the leveling of the growth of the labor force made unavailable

that extensive source of economic growth. To be sure, during the five-year plan period

1981-85, there was a net addition to the workforce of some 200,000 employees.

However, projections indicate that the net addition will fall sharply, to 50,000, during

the 1986-90 plan period.7 Even this low figure does not take into consideration the

initially adverse employment impact of the new social policies aimed at fostering

population growth in the long run (such as providing the “baby-year” leave now also on

the occasion of the first child, and extending it to 18 months for the third and each

additional child).

At the beginning of the 198Os, capital, energy and material input factors similarly

became relatively less available. External imbalances vis-B-vis both the socialist and

capitalist areas necessitated a curtailment of imports and an expansion of exports, both

of which reduced domestic consumption and changed the conditions for further

economic growth. It became quite clear that future continued growth would depend

primarily on increasing factor productivity rather than on further quantitative increases

of the inputs per se.

The use of “key technologies” to restructure production processes, the further

processing of products to increase the value added, the lowering of the specific

consumption of production (especially of “economically important” energy sources

and raw materials), the replacement where possible of imports by domestic sources

(again, especially in regard to energy and raw materials), and the better utilization of

existing plant and equipment-all these are basic elements of the intensification

strategy, which in essence is aimed at greater efficiency in the use of labor, capital,

energy, and raw material inputs.

The Energy Sector

Bethkenhagen explores the interrelationship between the GDR’s energy policy and the

strategy for intensification. He finds inherent contradictions in the two-pronged

strategy of energy conservation and import substitution, given the relative inefficiency

of converting domestically available lignite. To be sure, one is talking here of real rather

than accounting costs, as Bethkenhagen explains, for the irrational pricing system of the

GDR encourages the substitution of domestically available lignite for the more efficient

(imported) energy sources. Still, a variety of administrative measures has been intro-

duced to foster energy savings. These include new consumption norms aimed at

rationalizing the use of energy, a number of basic structural adjustments in the

transport system, and very substantial increases in energy costs for industrial producers

(designed to encourage import substitution as well as to reduce energy consumption,

but lacking sufficient incentives to be genuinely effective). Overall, these measures have

contributed to significant savings in the use of energy. Bethkenhagen notes, however,

that such administrative measures, while effective in the short run given the very

inefficient starting conditions, might well be clearly insufficient in the IonR run without

eventual resort to genuinely effective economic levers or without reaching the scientific-

technological solutions on which so many hopes are based.

7. See: Deutsches Institut fiir Wirtschaftsforschung, “DDR-Wirtschaft 1986 bis 1990,” Wochenberlchl,

31:86 CJuly 31, 1986), pp. 391-396.

The GDR ‘s Strategy for “Interm~ication ” 7

General Prospects

The acute and lucid postscript by Collier appropriately congests the excellent contribu-

tions by Melzer, Stahnke, Cornelsen, and Bethkenhagen. His distinction between static

efficiency and dynamic efficiency goes to the very heart of the GDR’s dilemma, and his

concluding sentence expresses in very concrete terms the underlying reservations

implicit throughout this issue.

The overall economic performance of the GDR has been clearly superior to that of its

CMEA partners. It can boast of a higher standard of living, a far more highly

disciplined labor force, steadier growth, fewer shortages, less severe bottlenecks, and a

more competitive industry than found elsewhere in the bloc. Under these circumstances

the economic leadership is determined to “perfect” the system rather than reform it.

This is understandable. Yet one could argue that comparison to economic performance

elsewhere in the bloc falls short of the truly acid test.

Opting for changes of policy rather than of system, the GDR has been apparently

successful in the short run. But it is important to realize that the “intensification” drive

began under conditions of clearly excessive waste in the use of manpower, energy,

material inputs, and capital allocations. Under such conditions, administrative pressure

and moral suasion are sufficient to induce immediate improvements in industrial

consumption. I would argue in this regard that what the GDR has pursued so far is a

strategy of de-extensification rather than of intensification, a policy of restraint rather

than of dynamics, an aura of caution and austerity rather than of risk-taking and

aggressiveness. Discipline befits this centrally planned economy, but it is not necessarily

conducive to the technological progress or motivational drive on which genuine

intensification depends.

In other words, what one sees in the GDR today is the ‘ ‘ratchet principle” in reverse.

The forced lowering of industrial consumption has become a proxy for tauter output

plans. In the short run it works, given the blatant inefficiencies which exist. The GDR

has been able to force from above the uncovering of previously hidden reserves at the

micro level. The hoa.rding of capital, materials, and labor at the enterprise level will not

be so easy in future, and disguised unemployment will be unmasked. Yet the gains thus

achieved, though perhaps easy now to come by, are clearly “one-shot” adjustments and

not sustainable sources of future growth. The crucial question is whether, in fact, both

technological progress and increased worker motivation can be forced from above.