INDUSTRIAL INVESTMENT IN EAST GERMANY SINCE WORLD WAR II

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• Document Creation Date: December 27, 2016
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• Sequence Number: 1
• Publication Date: August 1, 1960
• Content Type: REPORT

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?1-ctitET,
N? 3
ECONOMIC INTELLIGENCE REPORT
INDUSTRIAL INVESTMENT IN EAST GERMANY
SINCE WORLD WAR II
CIA/RR ER 60-20
August 1960
CENTRAL INTELLIGENCE AGENCY
OFFICE OF RESEARCH AND REPORTS
ciktET,
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WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
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I
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SECRET
ECONOMIC INTELLIGENCE REPORT
INDUSTRIAL INVESTMENT IN EAST GERMANY
SINCE WORLD WAR II
CIA/RR ER 60-20
CENTRAL INTELLIGENCE AGENCY
OFFICE OF RESEARCH AND REPORTS
SECRET
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FOREWORD
The purpose of this report is to review the role of industrial
investment in the reconstruction and development of the East German
economy since World War II. Investment policy during this period has
been designed to achieve a variety of objectives. A number of changes
in policy have taken place as a result of physical limitations and
shifts in political objectives. This report traces the direction and
the magnitude of the changes in investment, and it assesses the extent
to whch investment policy has aided in the achievement of specific
objectives. Finally, the role of investment in economic planning for
the future is reviewed, and an analysis is made of the prospect for
fulfilling the investment plans.
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CONTENTS
Page
Summary and Conclusions 1
I.
Early Postwar Years (19)-i-5-50)
First Five Year Plan (1951-55)
A. Plans
B. Plan Fulfillment
3
6
7
III.
Second Five Year Plan (1956-60)
13
A.
Plans
13
B.
Plan Fulfillment, 1956-58
15
1. General
15
2. Basic Materials and Power Industries
17
3. Metalworking and Construction Industries . . .
22
4. Consumer Industries
25
V.
Seven Year Plan (1959-65)
27
A.
Plans
27
B.
Prospects for Plan Fulfillment
31
Appendixes
Appendix A. East German Investment Accounting 37
Appendix B. Glossary 39
43
Appendix C. Methodology
Appendix D. Comparison of the Official or "State" Invest-
ment Series with the Gross Investment Series
for Centralized Industry
51
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Tables
1. Gross Fixed Capital Investment in the Main Installations
in Centralized Industry and Construction in East
Germany, 1951-55
Page
8
2. Percentage Distribution of Gross Fixed Capital Invest-
ment in the Main Installations in Centralized Indus-
try and Construction in East Germany, 1951-53 and
1954-55 10
3. Gross Fixed Capital Investment in East Germany,
1956-59 16
4. Indexes of Investment in Industrial Fixed Capital in
East Germany, 1957-58 17
5. Gross Production in Selected Industrial Groups in East
Germany, 1958 and 1965 Plan 28
6. Average Annual Rates of Growth of Income and Production
in East Germany, 1956-60 Plan, 1956-58, and 1959-65
Plan 30
7. Planned Fixed Capital Investment in East Germany, by
Branch of Industry, 1959-65 32
8. State Investment in Centralized and Local Industry and
Construction in East Germany, 1950-55 14-3
9. Indexes of State Investment in Centralized Industry and
Construction in East Germany, 1951-55 45
10. Estimating Coefficients for the Distribution of State
Investment in East Germany Among Individual Years, by
Industrial Group, 1952-55 45
11. State Investment in Centralized Industry and Construc-
tion in East Germany, by Industrial Group, 1950-55 ? ? 47
12. Alternative Industrial Investment Series for Centralized
Industry and Construction in East Germany, 1951-55 . . 52
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INDUSTRIAL INVESTMENT IN EAST GERMANY SINCE WORLD WAR II*
Summary and Conclusions
Industrial investment** in East Germany was relatively small dur-
ing the years immediately following World War II. In 1948, however,
the Soviet policy of exploitation was relaxed somewhat, and a program
of rebuilding the East German economy along the lines of the Soviet
economy was begun. This program emphasized heavy industry, and only a
relatively small share of resources was. allocated to consumer indus-
tries. The rate of accumulation during the First Five Year Plan
(1951-55) was about 12.1 percent, which was considerabiy less than the
25 percent that is usually considered to be correct in Soviet theory.
The rate of investment in industrial fixed capital appears to have been
correspondingly low. Soviet exploitation limited East German produc-
tion of investment goods, largely because of plant dismantling, the
taking orlarge quantities of currently produced equipment as repara-
tions, and the transfer of some East German plants to Soviet ownership.
A large proportion of the investment expenditures in East Germany be-
tween the end of World War II and 1953 was used in the expansion of the
iron and steel and heavy machine-building industries, the products of
which had been obtained largely in the area that is now West Germany
before World War II.
The economic "new course" announced in 1953 resulted in a relative
shift in investment allocation in 1954 and 1955 toward the consumer
industries. This move was accompanied, however, by a large absolute
shift toward the basic materials industries and both a relative and an
absolute decline in investment allocation to the metalworking indus-
tries. Within the basic materials industries, the emphasis in invest-
ment was shifted from the iron and steel industry to the coal and power
industries. These changes in investment allocation resulted primarily
from factors other than the concern for consumer needs that gave rise
to the new course. The cessation of reparations to the USSR relieved
the pressure on East Germany to expand production of heavy machinery at
the rate previously necessary. The decreased rate of investment in
ferrous metallurgy reflected the improved supply of steel in the Soviet
Bloc, and the increased investments in the coal and power branches of
industry reflected the needs of other expanding industries.
* The estimates and conclusions in this report represent the best
judgment of this Office as of 15 July 1960.
** For a discussion of investment accounting, see Appendix A, and for
definitions of terms, see Appendix B.
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Changes that have occurred in the East German industrial invest-
ment program since 1956 appear to be the result of two sets of circum-
stances, as follows: (1) the cessation of Soviet exploitation of the .
East German economy and (2) a more rational evaluation of economic
realities than prevailed in the past.
The priorities for industrial investment that were established in
the revised Second Five Year Plan (1956-60) indicate a recognition of
the need for considerably greater development of the coal and power
industries. These industries were allocated more than one-half of the
total amount of industrial investment for 1956-60. Metalworking was
reemphasized, but production was to be shifted from heavy, steel-
intensive lines of machinery to those lines with relatively large in-
puts of highly skilled labor. These and other measures are designed
to increase the returns from a given amount of investment and produc-
tive activity through a better use of the international division of
labor than prevailed during the First Five Year Plan.
East Germany abandoned the revised Second Five Year Plan in early
1959 and adopted a Seven Year Plan (1959-65). The Seven Year Plan
indicates the continuation of the East German trend toward recognition
of the economies of international specialization. There is recogni-
tion, also, of limits to industrial expansion imposed by the exist-
e2i. of dissident elements in the labor force.
the labor force will decline by 500,000 workers between 1958 and
1965.
Under the new plan, gross industrial production is to increase by
an average annual rate of 9.4 percent compared with the 6.7 percent
planned during 1956-60 and the 8.3 percent achieved during 1956-58.
The metalworking industries are to increase gross production by
11.7 percent annually to 1965 and the chemical industry by 10.9 per-
cent annually. These are the two major priority groups for invest-
ment in industry, and they are to account for approximately 60 percent
of the increase in gross industrial production during 1958-65. The
metalworking industries alone are to account for 41.7 percent of the
increase. The gross production of the metalworking industries in 1965
is to be 39.8 billion DME,* which is 117 percent greater than produc-
tion in 1958.
State industrial investment in East Germany is planned to total
60.2 billion DME during 1959-65, which is 58 percent of the planned
* Deutsche Mark East (East German marks). Unless otherwise indicated,
DME values throughout this report are expressed in current DME and may
be converted to US dollars at the rate of 1 DME to US $0.25 to $0.35.
This rate of exchange, however, does not necessarily reflect the dollar
value.
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total state investment. The average annual investment in industry is
to be 8.6 billion DME, or 87 percent more than the average annual in-
vestment during 1956-58.
The largest share of state industrial investment, 20.2 percent, is
allocated to the electric power industry. The allocation to the coal
industry is approximately 15.1 percent in the Seven Year Plan compared
with more than 30 percent in the revised 1956-60 Plan. A substantial
increase is planned in investment in the chemical industry, which will
receive 18.1 percent of the amount allocated to industrial investment.
The metallurgical industry is allocated a smaller share of indus-
trial investment than in previous years. Under agreements concluded
with the USSR in 1958, East Germany will receive considerably larger
imports of Soviet metals and metallurgical coke.
A petroleum pipeline is to be built from the USSR to East Germany.
Crude oil supplied through this pipeline will constitute an important
chemical raw material that will be the basis for expansion of the plas-
tics and synthetic fiber industries.
In spite of the large expansion planned in the metalworking indus-
tries, only about 12.4 percent of the industrial investment funds for
1959-65 are planned to be allocated to them. The impressive increase
in production by the metalworking industries is to be achieved with a
minimum of investment and in spite of the tightening labor supply. In
addition, the export commitments of the metalworking industries will
remain high, and important changes are taking place in the product mix
of these industries. In view of these factors, the fulfillment of
plans for the metalworking industries appears doubtful. If these
plans are not fulfilled, the over-all industrial investment plan prob-
ably will not be fulfilled.
I. Early Postwar Years (1945-50)
It has been estimated that war damage and Soviet dismantling of
industrial plants during 1945-48 reduced the capacity of East German
industry to less than 50 percent of the level existing before World
War II. 1/* Until mid-1948 the dominant Soviet economic policy in
East Germany was the exploitation of the economy for the benefit of
the USSR. This exploitation was accomplished through the dismantling
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of plants, the taking of huge reparations from current production, the
transfer to Soviet ownership of about 200 East German enterprises
(Sowjetische Aktiengesellschaften SAG's), and other means. In the
face of these Soviet exactions, it was virtually impossible for the
East German economy to regain the prewar level of production.
A shift in Soviet policy took place in 1948. The dismantling of
East German plants was stopped, and a policy of rebuilding the economy
along the lines of the Soviet economy was initiated.* It was evident
by the time of the Two Year Plan (1949-50) that several changes in in-
vestment policy were necessary in order to achieve that objective.
First, a reconstruction program had to be undertaken to recoup the
losses of fixed capital from war damage and the dismantling of plants.
Second, new lines of production had to be introduced in order to de-
velop new sources of commodities previously obtained from West Ger-
many. Third, the remodeling of the economy along Soviet lines re-
quired emphasis on the development of heavy industry and the relative
neglect of consumer industries.
Before World War II the economy of the region now comprising East
Germany was complementary to that of West Germany. The value of the
goods sold by each area to the other approximately balanced. East
Germany traded its surplus of such items as precision, optical, and
light industrial equipment; textiles; and lignite for West Germany's
surplus of heavy machinery, iron and steel, bearings, and the like.
After the war the barriers to trade between the two areas resulting
from the differing economic policies of the occupying powers led to a
sharp reduction in trade between them.
The denial of West German steel to East Germany resulted in some
of the most acute problems that East Germany has encountered in its
postwar development. East Germany has few deposits of iron ore and
hard coal for steelmaking. About 90 percent of the German steel was
produced in the western area in 1936, and approximately 60 percent of
the iron and steel requirements of the area that is now East Germany
was brought in from elsewhere, primarily from the western area. Dur-
ing the first half of 1948, imports of iron and steel (expressed at
an annual rate) from West Germany had declined to only 7 percent of
the level in 1936. ?./
* An economy of the Soviet type has the following characteristics:
(1) public ownership of most of the means of production; (2) deter-
mination of economic goals by a central authority; and (3) emphasis
on strengthening the national economy by preferential investment in
producer goods industries, thus leading to a steady rise in the
national product.
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War dsmage to iron and steel plants was slight, but Soviet dis-
mantling reduced the capacity of the industry to approximately 20 per-
cent of its prewar level. 2/ Following the reversal of Soviet economic
policy in East Germany in mid-1948, a program to expand the iron and
steel industry was initiated. Given the Soviet demands for large quan-
tities of heavy machinery, the requirements of East Germany and the
other European Satellites for machinery, and the great difficulty in
obtaining adequate supplies from either Soviet Bloc or Western coun-
tries during this period, East Germany had little choice but to restore
and develop some iron and steel capacity within its own borders. A
major emphasis of the Two Year Plan was on the reconstruction of dis-
mantled iron and steel plants. The USSR returned three rolling mills
to East Germany in 1949, and the latter country obtained other equip-
ment, including one rolling mill, from West Germany./1/ By the end
of the Two Year Plan the capacity of the East German iron and steel
industry was largely restored to its prewar level.
Another priority program of the early postwar years was the re-
tooling of the East German metalworking industries for production of
heavy industrial equipment. Before the war the area now comprising
East Germany specialized in production of light machinery. Little
heavy machinery was produced, largely because of the poor iron and
steel resources and the small size of the domestic market.
Reorientation of the East German metalworking industries after the
war resulted in increased emphasis on heavy machine building. The
development of heavy industry in both East Germany and the other Euro-
pean Satellites, together with Soviet reparations demands, created a
market for heavy equipment that did not exist in the 1930's. At the
same time, traditional prewar sources of heavy machinery in the West
were cut off. The facilities available for heavy machine building
were reduced drastically by dismantling and by conversion to SAG's.
After the end of the dismantling in 1948 the capacity of the industry
was reduced to about 35 percent of the level in 1936. Approximately
80 to 90 percent of production in 1947 came from SAG's. 2/
Planned, centrally directed reconstruction and development of the
East German metalworking industries did not begin until the Two Year
Plan. More than 90 percent of the metalworking investment was allo-
cated to the heavy machine-building industry. Of the allocations to
heavy machine building, the machine tool branch received more than one-
half. Machine tools and equipment for mining and metallurgy
accounted for approximately 90 percent of production in the heavy
machine-building industry during 1946-50. //
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II. First Five Year Plan (1951-55)
A. Plans
The East German First Five Year Plan (1951-55) envisioned a
total fixed capital investment of 28.6 billion DME* during 1951-55.
The share of investment in industrial fixed capital was planned to
amount to 15.4 billion DME, or approximately 54 percent of the total.
The First Five Year Plan continued the emphasis on heavy industry
that began in the early postwar years. Gross industrial production
was to increase by 1955 to 192 percent of the level in 1950. The
greatest increases in production were to be achieved in the machine-
building and metallurgical industries, which were of critical im-
portance in the further development of the economy. Y
The postwar reconstruction was nearing completion in East
Germany in 1951. It was still possible, in some branches of indus-
try, to achieve substantial increases in production with relatively
small investment. The Soviet occupation authorities allowed such
rapid expansion to occur only in those industries that were important
to their objectives. The major economic objectives were (1) to ex-
tract large amounts of East German production in the form of repara-
tions and (2) to continue the building of a socialist economy on the
Soviet model. Although these two objectives conflicted to some ex-
tent, together they served the Soviet purpose of securing large eco-
nomic gains for the USSR at the expense of the East German economy.
The early postwar policy of obtaining capital reparations through dis-
mantling suffered from a number of weaknesses. For example, (1) an
existing plant could be added to the Soviet economy only once, whereas
if it were operating in East Germany, its products could flow to the
USSR for a number of years, and (2) old plants could produce capital
goods more productive than their own fixed capital, and these goods
could be sent to the USSR. The building of an economy of the Soviet
type required large investment in heavy industry. With the achieve-
ment of increased capacity in heavy industry, the large pool of
skilled German labor could be put to work producing capital goods for
the Soviet economy.
The economic objectives of the Soviet occupation authorities
during the First Five Year Plan made it difficult for a large percent-
age of the East German gross national product (GNP) to be devoted to
investment in fixed capital. Reparations were a drain on production
of capital goods, and the necessary export of machinery further pre-
vented East Germany from acquiring much-needed capital goods for its
own industry.
* Not including capital repairs.
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B. Plan Fulfillment
Actual gross fixed capital investment in East Germany during
1951-55, including capital repairs, is estimated to have been approxi-
mately 15.4 million DME. That figure represents a substantial under-
fulfillment of the plan, for the plan figure, which happened also to
be 15.4 million DME, did not include capital repairs, and investment
costs rose during the period. Actual gross fixed capital investment
in industry amounted to approximately 47 percent of gross fixed capi-
tal investment in the whole economy (including capital repairs) com-
pared with a planned share of about 55 to 60 percent.
Table 1* presents data on gross fixed capital investment in
the main installations in centralized industry and construction
during 1951-55, which totaled 10.9 billion DME. The major industrial
groups** shared in the total as follows: the basic materials indus-
tries, 69.0 percent; the metalworking industries, 17.7 percent; light
industry, 6.6 percent; the food industry, 4.4 percent; and the con-
struction industry, 2.3 percent. Of the individual industrial minis-
tries, the Ministry of Coal and Power received the largest investment
allocation, about 32.0 percent of the total in centralized industry.
The Ministry of Mining and Metallurgy received the second largest
allocation, about 22.4 percent of the total.
Trends shown by the annual investment figures in Table 1 may
be misleading if used without reservation. The use of current prices
gives the series an upward bias because investment costs rose during
1951-55, possibly by one-third. Also, the number of enterprises
covered by the data appears to have been broadened by the inclusion in
1954 and 1955 of former SAG's. One result of that accounting change
is the increase of about one-third between 1953 and 1954 in the totals
given in Table 1. The official, or "state," investment series indi-
cates a decline of approximately 11 percent in fixed capital invest-
ment in centralized industry during 1951-55.***
In spite of imperfections, the data in Table 1 indicate the
shifts in industrial investment policy that occurred during and
following 1953. In 1953 the East German authorities announced a new
course in their economic policies. The new policies were designed to
counter the adverse effects of the severe measures that were passed
during 1952 for the purpose of "building socialism." One of the im-
portant objectives stated for the new course was a decrease in invest-
ment in heavy industry and an increase in production of consumer goods.
Table 1 follows on p. 8.
** For definitions of industries, see Appendix B.
xxx For the official, or "state," investment series and a discussion
of differences between it and the series in Table 1, see Appendix D
and Table 12, p. 52, below.
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Table 1
Gross Fixed Capital 'Investment in the Main Installations
in Centralized Industry and Construction in East Germany 2/
1951-55
Million Current DME
Industrial Ministry or Group
1951
1952
1953
1954 b/
1955
Total
12/ 1951-55
Totals c/
Basic materials industries
Of which:
1,445
1,938
2,101
gjtcL
2,633
10,922
892
1,316
2/ 1,141.3 sl/
2i25)4 d/
1,832
11 7,537 cl/
Ministry of Coal and
Power
262
546
470
1,070
1,142
3,490
Ministry of Mining and
Metallurgy
407
489
648
582
318
2,444
Ministry of the
Chemical Industry
223
280
287
369
335
1,494
Metalworking industries
355
409
404
419
346
1,933
Light industry
755
88
115
205
229
717
Food industry
77
7
-7
71
170
482
Construction industry
75
59
4-3-
7
?
TT
a. 2/. Data cover only investment in main installations (Hauptanlagen), including capital repairs.
b. Probably including investment in enterprises not reported under' centralized industry in 1951-53, primarily the former
SAG's
c. Totals are derived from unrounded data and may not agree with the sums of the rounded components.
d. Data for 1953-55 include the Main Administration of Pharmaceuticals and the State Geological Commission in addition to
the Ministries of Coal and Power, Mining and Metallurgy, and the Chemical Industry.
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The extent of the actual changes in investment allocation after an-
nouncement of the new course is shown by the percentage distributions
in Table 2.* The distributions in this table indicate a substantial
shift in investment allocation during 1954-55 toward both the consumer
(light and food) industries and the basic materials industries. The
basic materials industries, which received approximately 67 percent of
the gross investment allocated to centralized industry during 1951-53,
increased their share to nearly 72 percent during 1954-55. The con-
sumer industries, which received 9.5 percent of the gross investments
during 1951-53, increased their share to 12.4 percent during 1954-55.
The distribution of the gross investment shows the very large shifts
in allocation away from the metallurgical and metalworking industries.
The metallurgical industry received 28.2 percent of the gross invest-
ment during 1951-53 and only 16.6 percent during 1954-55. The metal-
working industry was allocated 21.3 percent of the total during
1951-53 and only 14.1 percent during 1954-55. The coal and power
industry shows the largest absolute gain in gross investment between
1951-53 and 1954-55, from 23.3 percent to 40.7 percent.
Thus, as official-news sources stated, it is true that the con-
sumer industries received a larger share of industrial investment funds
after the new course than previously. There was a corresponding de-
cline in the share of heavy industry in investment. However, signifi-
cantly greater shifts in investment allocation occurred within heavy
industry during 1954-55 -- changes that were primarily the result of
forces other than the new course. The cessation of reparations re-
lieved the pressure on East Germany to expand its heavy machine-
building industry at the rate previously necessary. Improvement in
the steel supply of the Soviet Bloc and increased emphasis on an inter-
national division of labor within the Bloc allowed East Germany to de-
crease the uneconomic investment in ferrous metallurgy. The increased
investment in the coal and power branches of industry was necessary
because of imbalances in the program for industrial development. Al-
though these branches received substantial investment in 1951-53, the
over-all demand for their products was less than that of any other
heavy industry.
During the First Five Year Plan the rate of accumulation was
12.1 percent (based on data expressed in current prices) in East Ger-
many.** This rate is far below the rate of 25 percent usually con-
sidered to be correct in Soviet theory. During the same period the
other European Satellites and the USSR claimed rates of accumulation
closely approximating 25 percent of national income. Similarly the
* Table 2 follows on p. 10.
** For the method used in computing this figure, see Appendix C.
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ratio of gross fixed capital investment to national income appears
to have been substantially lower in East Germany than in the other
Satellites.
Table 2
Percentage Distribution of Gross Fixed Capital Investment
in the Main Installations in Centralized Industry and Construction
in East Germany 2,./
1951-53 and 1954-55
Percent
Industrial Ministry or Group
1951-53
1954-55
Total 12/
100.0
100.0
Basic materials industries
66.6
71.5
Ministry of Coal and Power
23.3
40.7
Ministry of Mining and
Metallurgy
28.2
16.6
Ministry of the Chemical
Industry
14.4
12.9
Other
0.7
1.3
Metalworking industries
21.3
14.1
Light industry
5.1
777
Food industry
4.4
Construction industry
TIT
2.1
a. Based on Table 1, p. 8, above.
b. Totals are derived from unrounded data and may not
sums of the rounded components.
agree with the
The low rate of investment was the result of drains on the
supply of investment goods produced by the metalworking industries.
The drains were in two forms: uncompensated deliveries to the USSR
and the Soviet occupation forces and exports of equipment that were
necessary in order for East Germany to obtain vital foodstuffs and
raw materials.
The metalworking industries (which produce most of the fixed
capital goods) accounted for 58 percent of the exports during
1951-55. 12/ This percentage does not include reparations, a large
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part of which were products of the metalworking industries. The share
of metalworking in the employment of those economic sectors producing
exportable goods* in the same period was about 27 percent. 11/
Uneconomic allocation of investment resources, as well as the
low rate of investment, was a feature of East German industrial de-
velopment during 1951-55. The prime example of uneconomic allocation
was the attempt to develop the steel industry with a seriously inade-
quate supply of domestic raw materials. The decision to develop the
steel industry resulted from a combination of economic, political, and
ideological considerations. The traditional West German sources of
steel supply were cut off just at a time when the Eastern European
countries, which were short of steel, were pushing their ambitious
plans for industrial development.
Simultaneously the East Germans found it necessary to develop
the steel-intensive branches within the metalworking industry. This
action was necessary to satisfy the following three new market areas:
(1) the Soviet demand for heavy machinery in the form of reparations,
(2) the machinery requirements of the European Satellites for their
own development programs, and (3) the domestic requirements to support
the development of an economy of the Soviet type. The labor-intensive
branches of the machine-building industry that produce equipment for
consumer industries (those branches in which East Germany specialized
before World War II) were left relatively undeveloped, because of the
reorientation toward the markets of the Soviet Bloc.
Electric power capacity has been the most critical bottleneck
in the postwar years. East Germany has a concentration of industries
that use electric power intensively. Before the division of Germany,
bituminous coal and heavy equipment for production of electric power
were secured by the eastern area from the western area. After the
division of Germany, some of the electric power installations had to
be converted to brown coal, which resulted in a loss of capacity. The
most modern electric powerplants were dismantled and sent to the USSR
immediately after the war, and equipment was difficult to secure for
the old plants that remained. Although production of electric power
equipment was developed rapidly, until 1953 most of the equipment was
taken by the USSR as reparations.
East Germany has large reserves of brown coal, which is the
primary source of energy for production of electric power and is an
important raw material for the large chemical industry. War damage
and dismantling reduced the brown coal industry to about 60 percent
* Including industry, handicrafts that produce goods, agriculture,
and forestry.
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of its wartime capacity. The SAG's had about one-third of the re-
maining capacity until 1952. Production of mining equipment increased
rapidly in the early 1950's, but a substantial part of this production
was exported commercially or as reparations.
The magnitude of the shift of investment toward the coal and
electric power industries is indicated by the following tabulation
showing investment changes in these branches and in the total centra-
lized industry after the new course.* By 1955, state investment in the
Industrial Group
Total centralized
industry
Centralized electric
power industry
Centralized coal
industry
Ratio of
Average Annual Investment During 1954-55
to Average Annual Investment During 1951-53
1.08
2.62
1.88
centralized brown coal industry amounted to 21 percent of the total
in centralized industry. 12/
Throughout the First Five Year Plan, industrial investment was
used to promote the nationalization and centralization of industry.
Only about 4 percent of state investment in industry was directed
toward local state industry, and the amount of investment in private
and cooperative industry also was quite small in spite of the fact
that private and cooperative enterprises accounted for an average of
about 20 percent of industrial gross production and employment in the
period.
During the plan period, substantial increases in industrial
production were achieved -- increases that were to a large extent the
result of bringing into production underutilized labor and capital
assets existing at the start of the plan period. These increases were
the result of the long-range investment program only to a limited
degree. Moreover, maintenance and replacement of fixed capital were
neglected to such an extent that the quality of East German production
deteriorated, thus putting in jeopardy the country's export markets
and its future economic growth.
* Computed from data in Appendix C.
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III. Second Five Year Plan (1956-60)
A. Plans
The first official version of the Second Five Year Plan in
East Germany was published in the spring of 1956. The plan provided
for increasing the national income by 45 percent above the level of
1955. The rate of accumulation of capital was to rise to twice that
of 1955. Investment in fixed capital was to total 54.6 billion DME*
(exclusive of capital repairs). 13./ Emphasis in the investment pro-
gram was to center on the mechanization and automatization of produc-
tion processes and the replacement of obsolete equipment. The share
of investment in equipment planned for 1956-60 was to be 52 percent
of state investment compared with 42 percent planned for 1951-55, and
the share of investment in construction was to decline from 51 per-
cent in 1951-55 to 43 percent in 1956-60. Thus investment in equip-
ment would increase by 167 percent compared with an increase of only
76 percent for investment in construction.
The need for increased emphasis on equipment in the investment
program was evident because of the widespread obsolescence of the stock
of industrial equipment. A combination of circumstances has contrib-
uted to the situation, among which are the following:
1. There was a continuing necessity to export a large
share of the products of the metalworking industries in order to
secure essential industrial raw materials and consumer goods. In
1955, for example, the distribution of foreign trade was as follows:
Industrial Group
Percent
Share
of Total Imports
Share
of Total Exports
Total
100
100
Basic materials industries
38
29
Metalworking industries
5
60
Light and food industries,
agriculture, and forestry
57
11
2. Political as well as economic pressures have affected
the composition of the export trade in equipment. Much of the
* All value figures in this report for the Second Five Year Plan are
stated in terms of 1955 prices.
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equipment needed in East Germany for such critical industries as
electric power and chemicals, for instance, has been exported to the
USSR.
3. Shortages of iron, steel, and nonferrous metals led
to the diversion of resources to the development of high-cost metal-
lurgical plants during the First Five Year Plan. Nevertheless, many
of the types and qualities of metals required by the metalworking
industry remain in short supply.
4. Shortages of highly skilled manpower, largely caused
by defections to the West, hampered the development of new designs
for equipment and limited the efficiency of the industry.
5. Unrealistic optimism on the part of the East German
political leaders led to expectations of large increases in production
in critical industries such as coal and power, without sufficient in-
vestment.
The Second Five Year Plan was adopted over the objections of
some of the East German planning officials. During the remainder of
1956 it became apparent that the original plan was too optimistic.
Increases in production had been forecast in the expectation that
gains in the productivity of capital and labor would continue at the
high rates experienced during 1951-55, but these increases were im-
possible to achieve. The disruption in trade caused by the Polish
and Hungarian revolts of 1956 made even greater the gap between the
plans and the probable achievements.
During 1957, extensive revisions of the Second Five Year Plan
were developed. A final, less ambitious plan was published in Decem-
ber 1957. In this revised plan the 1960 goal for gross industrial
production was reduced from 155 percent of the level in 1955 to
138 percent. Total fixed capital investments were planned to be
55 billion DME, including capital repairs and maintenance of fixed
capital. This figure is not comparable with the 54.6 billion DME
in the original version of the plan, because capital repairs and
maintenance were not included in investment at the time of the origi-
nal version. In comparable terms the final version of the investment
plan represented a reduction of 15 to 20 percent from the original
plan.
The revised investment plan was divided as follows: 41.7 bil-
lion DME in state investment, 9.5 billion DME from enterprise funds
and credits, and 3.8 billion DME in defense investment. Of state in-
vestment, 53 percent -- that is, 22.1 billion DME -- was allocated to
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industry.* 1.V Industrial investment was to be concentrated largely
in the coal and power industries, which were to receive about one-
half of the total industrial investment. The following planned in-
vestments were announced for major branches of centralized industry:
Activity Billion DME
Chemicals 2.3
Metalworking 2.6
Coal and power 11.3
Coal
Power
6.9
4.4
The revision of the Second Five Year Plan involved a shift in
the allocation by branch of industry and by type of investment as well
as a reduction in the total. Allocation to investment in industry was
reduced by a greater percentage than were total allocations to invest-
ment. Housing investment was planned to increase by nearly one-fourth.
The revised investment plan allocated more investment funds for con-
struction and less for machinery than had the original plan. This
shift on emphasis is indicated by the following tabulation showing each
of the two plans for gross production in 1960 relative to actual gross
production in 1955:
Index (1955 = 100)
Metalworking
Construction
Original Second Five Year Plan for 1960
175
12/
155
16/
Revised Second Five Year Plan for 1960
153
12/
162
1.,/
There was also an upward revision of planned exports of machinery.
B. Plan Fulfillment, 1956-58
1. General
During 1958, certain goals for the Third Five Year Plan
(1961-65) were announced by the East German authorities. In early
* "State" investment, presumably, is here taken to include capital
repairs.
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1959, however, that plan was abandoned and a Seven Year Plan, covering
the years 1959-65, replaced it. Thus the latter part of the Second
Five Year Plan also was canceled. This section discusses the indus-
trial development of East Germany during 1956-58, using the 1960 goals
of the revised Second Five Year Plan for comparison, although those
goals may in some instances have been revised in the new Seven Year
Plan.
It is not possible to compare the data on plan fulfill-
ment precisely with the plan data on East German investment because
the plan data are stated in 1955 prices and the fulfillment data are
in current prices. The data on gross fixed capital investment in
the economy and in industry are shown in Table 3.
Table 3
Gross Fixed Capital Investment in East Germany 2./
1956-59
Billion Current DME
Sector of Investment
1956
1957
1958
1959
Total gross fixed capital investment
Of which:
State industry and construction
10.0
4.o
10.7
4.5
12.3
5.3
14.0
N.A .
The data in Table 3 indicate that the revised investment
plan for 1956-60 probably will be substantially fulfilled, both for
total gross fixed capital investment and for investment in state in-
dustry. Few data are available on which to base an estimate of the
fulfillment of investment plans for the various branches of industry.
Detailed information exists only for centralized industry in 1956.
Actual gross fixed capital investment (including capital repairs) in
industry in East Germany in 1956 was as follows 12/:
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Activity
Billion DME
Total
2:2*
Coal and power
1.2
Mining and metallurgy
o.4
Chemicals
0.3
Metalworking
o.4
Light industry
0.3
Food industry
0.2
Construction
0.2
2. Basic Materials and Power Industries
Plan fulfillment reports for 1957 and 1958 have given
only percentaEe increases for industrial investment and data for only
the priority branches of coal and power and chemicals. The increases
in 1957 and 1958 pertaining to industry are shown in Table 4.
Table 4
Indexes of Investment
in Industrial Fixed Capital
in East Germany
1957-58
Preceding Year = 100
Activity
1957 2/
1958 12/
Total
109
118
Coal and power
121
115
Chemicals
113
118
a. Ly. State investment in centralized indus-
try only.
b. D.2. Gross investment in state industry only,
excluding long-term credits.
* The total is derived from unrounded data and does not agree with
the sum of the rounded components.
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Neither the coal and power nor the chemical branches of
industry have been meeting investment plans. Also, production has
been lagging behind the plan, but the percentage of underfulfillment
does not appear to have been as great as that for investment. The
necessity to export power and mining machinery in order to insure
adequate supplies of food and raw materials and to meet the demands
of the USSR is responsible, in large part, for difficulties of East
Germany in expanding the coal and power industries. The long time-
lag between investment and the start of production in these indus-
tries, in conjunction with the underfulfillment of the investment
plans through 1958, suggests the conclusion that the 1960 goals for
production will not be reached.
In February 1958 the USSR and East Germany signed an agree-
ment that involves an increase in production of chemicals. The USSR
agreed to grant East Germany 300 million DME in the form of goods and
credits in an investment program to increase production of plastics
and synthetic fibers. This investment program is to be completed in
1961, and repayment to the USSR is to be made with products of the
plants involved.
The chemical industry is the largest consumer of electric
power in East Germany, consuming approximately one-third of the total
in 1956 and 1957. In addition, it consumes a substantial quantity of
brown coal as a raw material. Production of electric power, also,
consumes large quantities of brown coal. Consequently, the large in-
creases in chemical production increase the demand on the existing
facilities of the coal and power industries.
Continuing difficulties in increasing production and capa-
city of the electric power industry are the legacy of policies pursued
during 1945-53. The politically motivated emphasis on development of
the iron and steel industry caused smaller investment allocations to
be made to coal and power. Although the East Germans began developing
the capacity for production of power equipment in the early postwar
years, the necessary export of a large portion of this equipment, pri-
marily to the USSR, left a large gap between domestic requirements and
the supply available for domestic investment. It is estimated that
about 47 percent of the generators* produced during 1956-58 and about
49 percent of the turbines* produced in that period were exported.**
Such increases in production of power as have been achieved were the
result of the increased intensity of use of the existing fixed capital
as well as of a program of replacement with modern equipment and con-
struction of new units.
Measured in terms of productive capacity.
50X1
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The revised Second Five Year Plan in East Germany envi-
sioned an increase in electric power capacity of 2,600 megawatts. 22/
Fulfillment during 1956-58 was as follows:
Additions to Capacity
Year (Megawatts)
Total 980
1956 295 .21.1-/
1957 330 4/
1958 355 2_/
A check on the degree of underfulfillment of the invest-
ment plan for electric power is afforded by a coefficient given in
late 1957 by an East German newspaper. 21/
each kilowatt of new electric power capacity in East Germany requires
investment funds amounting to about 1,000 DME. It is assumed that
this figure refers to complete, balanced fixed capital for production
of electric power.* On that basis, the investment in facilities for
production of power that were installed during 1956-58 would total
approximately 980 million DME, or slightly more than 22 percent of
the 4.4 billion DME planned for investment in 1956-60.
The coal industry is one of the most important branches of
industry in East Germany. The area is extremely rich in reserves of
brown coal but is poor in reserves of hard coal. The brown coal indus-
try is the basis for much of East Germany's important chemical indus-
try, inasmuch as brown coal is a chemical raw material and also is the
major source of fuel for the electric power industry. In 1956 and 1957,
raw brown coal and its products were the fuel used for 88 percent of
the power produced in East Germany. 21E.31/ The electric power industry
consumed 32 percent of the raw brown coal produced in 1957,** and the
chemical industry consumed 15 percent. 22/ According to the revised
Second Five Year Plan, new mines with an annual capacity of 80 mil-
lion tons of raw brown coal were to be brought into production by 1960.
These facilities were to replace exhausted mines as well as to expand
capacity of the coal industry. Investment in the centralized brown
coal industry in 1957 (constituting more than 99 percent of the brown
coal industry) amounted to 24 percent of that in all centralized indus-
try. 22/
* It is impossible to determine whether or not the figure of 1,000
DME is meant to include distribution facilities.
** Including the raw brown coal equivalent of brown coal products
used by the power industry.
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Investment in the mining and metallurgical industries*
was planned to increase little, if at all, during the Second Five
Year Plan. The original plan called for a 5-year investment of
2.96 billion DME (including capital repairs) for the Ministry of Min-
ing and Metallurgy, 21/ an increase of only 21 percent above the ful-
fillment in the First Five Year Plan. The planned increase in gross
production of mining and metallurgy was 50 percent in the original
plan and 26 percent in the revised plan. It is probable that planned
investment was cut back by at least as large a percentage as produc-
tion.
Investment in 1956 and 1957 totaled approximately 800 mil-
lion to 850 million DME. 2/ Most of the current investment in fer-
rous metallurgy is for the maintenance and increase of crude and fin-
ished steel capacity. It was anticipated that about 20 percent of
the 1958-60 investment would be spent for new facilities, 46 percent
for completion and improvement of existing facilities, and 34 percent
for maintenance. .a3./ Of particular importance is the development of
capacity for production of high-quality sheets and alloy steels for
the programs for production of chemical and other equipment. The
Doehlen ("8 Mai 1945") Alloy Steel Works is the site of most of the
expansion of alloy steel capacity.
The pig iron capacity of East Germany in 1957 was about
1.9 million metric tons.** No investments for new blast furnaces were
planned for the Second Five Year Plan period.
The only major addition to steelmaking capacity since 1955
is 150,000 tons per year of open-hearth capacity at the Brandenburg
Steel Works. The total steelmaking capacity of the industry (excluding
foundries) in 1957 was 3.3 million tons. Additional capacities ex-
pected to be added through 1960 are limited to 160,000 tons of elec-
tric furnace capacity. Of that amount, 110,000 tons of capacity are
to be completed at the Doehlen Alloy Steel Works. 3ji/ It was planned
to install six new rolling mills in East Germany by the end of 1960.
These mills are mainly for production of hot and cold rolled strip
and sheets, and the total investment cost was estimated to be approxi-
mately 82 million DME. It is not known to what extent these plans
have been fulfilled.
East Germany produces several nonferrous metals and non-
metallic minerals. With the exception of potash and uranium, the
major products of this group are insufficient to meet domestic require-
ments. There is little information about investment plans or
* Including ferrous and nonferrous metallurgy and all mining except
coal mining.
** Tonnages are given in metric tons throughout this report.
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fulfillment in these branches of industry. The distribution of gross
investment in the original Second Five Year Plan for the Ministry of
Mining and Metallurgy was as follows
Activity
Percent
Total
100.0
Ferrous metallurgy
39.6
Nonferrous metallurgy*
16.0
Metallic ore mining
17.8
Potash and nonmetallic mining
22.9
Other
3.7
a distribution of 50X1
investment for the nonferrous metals branches (including mining)
approximately as follows
Branch
Percent
Total
100
Copper
35
Lead
25
Aluminum and magnesium
24
Nickel
8
Other
8
Information is not available on the revised investment
plans or fulfillment for these branches. It is evident, however, from
the available information about cutbacks in production plans and under-
fulfillment of plans, that these branches shared in the reduction of
investment allocations to the mining and metallurgical industry.
The following are among the important investment projects
and objectives in the field of mining and metallurgy:
a. An increase in production of nickel from between
150 and 200 tons annually to about 2,000 tons, which probably will
cover domestic requirements.
* Excluding aluminum production of the Bitterfeld electrochemical
plant, which was under the Ministry of the Chemical Industry.
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b. Development of the Sangerhausen area as the major
copper-producing area in East Germany. Attempts will be made to re-
lieve the severe copper shortage by the substitution of aluminum for
copper as well as by the expansion of production of copper.
c. Reconstruction of the Lauta aluminum reduction
works to give that plant an annual capacity of 60,000 tons. The
estimated production of primary aluminum in 1957 is 35,000 tons and
that of secondary aluminum, 19,000 tons.
3. Metalworking and Construction Industries
The metalworking and construction industries together pro-
duce most of the commodities used in the East German program for in-
dustrial investment. An indication of the relative importance of
structures and equipment is given by the distribution of investment
expenditures in the main installations in centralized industry during
the First Five Year Plan, as follows a//:
Percent
Year
Structures
Equipment
Other*
1951
50
4o
lo
1952
44
43
13
1953
39
56
5
1954
32
65
3
1955
31
66
3
Equipment is relatively more important in industrial fixed capital
than in the fixed capital of the total economy. Equipment accounted
for only 41 percent of state investment in the economy during 1951-55. 2?../
The metalworking industry is a key industry in the East
German economy. It is the largest producer of goods for fixed capital
investment in domestic industry and is a major supplier of capital
goods to the USSR and other countries of the Sino-Soviet Bloc. The
metalworking industry in 1957 accounted for 30 percent of gross indus-
trial production and employed 36.5 percent of the industrial workers. 21
In spite of the large size of the metalworking industry, little has
been accomplished toward correcting the widespread obsolescence of the
fixed capital stock in other East German industries.
* Primarily expenditures for project planning.
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Current emphasis in the metalworking industry is on in-
creasing production largely through reorganization and through changes
in the product mix without extensive investments in new production
units. Investment during the next few years, however, will be concen-
trated in plants in instances where greater specialization requires
reconstruction of the plant. Priority also will be given to invest-
ment projects of short duration in order to realize increases in pro-
duction in as short a time as possible./12/
The product mix is being altered in favor of equipment re-
quiring relatively low metal inputs per unit of final value. This
shift is designed partly to aid in the modernization of some consumer
goods industries in East Germany but primarily to earn larger amounts
of foreign exchange through exports of equipment manufactured with a
smaller expenditure of scarce, high-cost metals.
the heavy machine-building industry gave the following average coef-
ficients for rolled steel inputs per million DME of gross production
in January 1958:
Type of Gross Production
Tons
Heavy industrial equipment
287
Equipment for consumer goods industries
87
Machine tools
92
50X1
although the metalworking industry as a 50X1
whole will increase its gross production by 53 percent during 1955-60,
production of machinery for consumer goods industries will increase
83 percent and for heavy industrial equipment, only 35 percent.
Within the heavy machine-building sector, emphasis is
still placed on some heavy industrial equipment required for priority
investment programs. Thus production of conveying and digging equip-
ment was planned to increase in 1960 to 275 percent of the level in
1955 and briquette plant equipment to 316 percent. Machine tools, the
most important class of labor-intensive investment goods, were slated
in 1960 for an increase in production of 296 percent of the level in
1955./12/ Machine tools are major export commodities, accounting for
40 percent of the exports of heavy machinery in 1957. L13../
Information on the fulfillment of investment plans for the
metalworking industry through 1958 is not available. The plans for
gross production, however, appear to have been fulfilled through 1958.
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The construction industry has constituted a major bottle-
neck in the investment program of East Germany for many years. The
industry has been inefficient because of inadequate mechanization and
low productivity of labor, dispersion of responsibility among many
jurisdictions, and shortages of construction materials.
During 1956-60, industrial construction is being concen-
trated to a large extent on the coal, power, and chemical industries.
Other priority areas are housing and agriculture. The planned gross
production of the construction industry for 1960 is 62 percent greater
than for 1955.1111/ Production of construction materials in 1960 is to
increase by a greater percentage (75 percent above the level in
1955)112/ than construction activity itself.
Gross production during 1956-58 has increased as follows:
Index (1955 = 100)
Activity
1956
1957
1958
Construction
111.9 LI-Y
124.5 L-1/
130.5
Building materials
105.7 )i2/
115.7 22/
129.4 21/
The average annual rates of increase since 1955 for both construction
and building materials have been slightly less than the average annual
rates required to meet the 1960 goals.
The old Ministry of Construction was abolished in 1958,
and it was replaced by the Ministry of the Construction Industry. The
new ministry is to have considerably greater responsibility for direc-
tion and control of building activities in East Germany than the old
ministry. Production and foreign trade in building materials are also
under the jurisdiction of the new ministry. 22/
According to the revised plan, investments in the construc-
tion and building materials industries during 1956-60 were to total
approximately 1.1 billion DME. The distribution was planned to be as
follows:
Industrial Group
Percent
Building materials industry
82
Construction industry
16
Other*
2
* Including design offices and training facilities.
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During 1958-60, approximately 85 percent of the planned investment in
the building materials industry was allocated to the expansion of capa-
city, whereas only 22 percent of the funds of the construction industry
were allocated to the expansion of capacity. 2a/ Gross investment in
the Ministry of Construction in 1956 totaled 157 million DME, which is
more than three times the average annual investment in the ministry
during 1951-55. The data on plan fulfillment are not available for
the years after 1956.
4. Consumer Industries
The consumer (light and food) industries have been the
most neglected group of industries in East Germany under the Communist
regime. These industries employed 39 percent of the total number of
industrial workers in 1950 and only 26 percent of the number added by
1955. 2L/ State investment in the centralized consumer industries dur-
ing 1951-55 amounted to only 11.8 percent of the total allocated to
centralized industry and construction. Data on the distribution of the
state investment to local industry are not available. If all such in-
vestment were allocated to the consumer industries, however, the in-
vestment for consumer industries in 1951-55 would, amount to only 15.5
percent of the total state investment in industry and construction.
Gross investment in the centralized light and food industry in 1954
and 1955 amounted to 12.4 percent of that in all centralized industry.
Such information as is available indicates that approximately this
same share is being allocated to the centralized light and food indus-
tries during 1956-60.
The share of major consumer industries in total industrial
employment in 1957 was as follows 22/:
Branch of Light Industry
Percent
Textiles (excluding knit goods)
10.1
Food
7.2
Clothing and knit goods
7.0
Other*
13.9
The planned production increases in consumer goods for
1960 are smaller, relative to 1955, than those in the basic materials
* Including the following: cellulose, paper, and paper products;
bookbinding; leather and leather products; footwear; felt and fur pro-
ducts; wood and furniture; musical instruments; cultural products; and
glass and ceramic products.
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and the metalworking industries. The East German leaders proclaimed
in July 1958 that the principal economic task of the country was to
overtake West Germany by 1961 inthe per capita consumption of food-
stuffs and of the most important industrial consumer goods, but there
does not appear to be any significant shift of resources away from
the priority heavy industries.
Although there appears to have been an increase in the
percentage of industrial investment funds allocated to the light and
food industries in 1954 and 1955, their stock of fixed capital has
been neglected throughout the postwar years. Most of the plants are
obsolete, and many have been kept in operating condition only by can-
nibalization of other facilities.
In light industry, as in other industries, East Germany
has suffered from a dearth of indigenous raw materials, because of the
division of Germany. Approximately 4o percent of the textile raw ma-
terials were imported up to 1957. The textile industry -- es-
pecially cotton textile capacity -- is being modernized and expanded
in the current period. By 1960 it is planned to add the following to
the facilities of the industry: 600,000 spindles, 6,000 automatic
looms, 5,000 motors, and an unspecified quantity of bleaching and
printing equipment. 22/ Cotton spinning capacity is especially short
in relation to weaving capacity. Cotton spinning facilities were re-
duced to a greater extent by Soviet postwar dismantlings than were
weaving facilities. 2Y Planned investment in the cotton textile in-
dustry for 1958 was 100 million DME. The plan called for the instal-
lation of 95,000 spindles in order to restore production of yarn to
the level in 1955, from which it had declined in 1956 and 1957. 22/
Information on the fulfillment of this plan is not available.
Investment in the clothing industry is being used with
two main objectives in view: to mechanize internal plant transporta-
tion and to increase the use of continuous flow production.
The East German paper industry suffers from a shortage of
raw materials and from obsolete equipment. About two-thirds of the
paper machinery in early 1957 was more than 50 years old, and more
than one-half of the prewar capacity was lost. The 1960 goal is to
add capacity for 220,000 tons of annual production of paper and card-
board.* This increase in capacity is to be achieved by the addition
of eight new paper machines with a total annual capacity of 180,000
tons and by reconstruction of existing facilities sufficient to add
4o,000 tons. LI The most important addition is to be a new plant at
Schwedt/Oder, which will be the largest in Europe. The investment in
* Production in 1955 was 651,000 tons.
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this plant will amount to about 100 million DME, and by 1960 or 1961
the daily capacity will reach 200 tons of newsprint and 100 tons of
cardboard. L2./
Investment in the wood-processing industry is being di-
rected largely toward the development of wood substitutes to be used
in the manufacture of furniture. The industry since 1954 has been
developing pressed fiberboard made of straw, reeds, and wood shav-
ings. La/ Seven new plants for the construction of these products are
to be built by 1961. L/
Investment in the centralized food industry in 1956
amounted to 150 million DME, which was 36 percent of the gross invest-
ment in the centralized consumer industries and approximately 5 per-
cent of the total investment in centralized industry. L5./ According
to the revised plan for 1956-60, the primary investment activity in
the food industry is to be the reconstruction and improvement of fa-
cilities for processing sugar and vegetable oil and margarine and for
fishing. Gross production in the food industry by 1960 was to increase
23 percent above the level in 1955. Production of sugar is to in-
crease 34 percent, and production in the fishing and fish-processing
industry, 105 percent. Z./ Most of the sugar factories in East Ger-
many were built in the nineteenth century. Only two new plants have
been undertaken under the Communists -- one at Delitzsch, opened in
1956, and another at Guestrow, which is under construction.
Although the industry has ample capacity, considerable improvements
are now being made in existing facilities in order to lower operating
costs. ._2/ One combine for vegetable oil and margarine production
is scheduled to be constructed in the Rostock area, starting in 1960.
This combine will increase the capacity of the industry by a substan-
tial amount.* It is planned to increase the fishing fleet by 30 steel
cutters, 5 trawlers, and 1 factory ship. In addition, refrigeration
facilities are to be increased. 12/
V. Seven Year Plan (1959-65)
A. Plans
East Germany plans to increase the national income by 59 per-
cent during the Seven Year Plan (1959-65), from about 63 billion DME
to 100 billion DME. Gross industrial production is to increase by
88 percent during the period. 11/ Data on planned gross production
for 1965 have been published for major industries and industrial groups
and are shown in Table 5** in comparison with data on actual production
in 1958.
* The size of the increase depends on the kind of raw material used,
and it may amount to as much as 50 percent of the 1957 capacity.
** Table 5 follows on p. 28.
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Table 5
Gross Production in Selected Industrial Groups
in East Germany 1/
1958 and 1965 Plan
Industrial Group
Gross Production
(Billion Current DME)
Increase
(Percent)
1958
1965 Plan
Total
58.5 12/
110.0
88
Of which:
Basic materials industry
17.2
32.8
91
Of which:
Metallurgical industry
3.7
6.9
86
Chemical industry
8.8
18.1
106
Building materials
industry
1.1
2.6
136
Metalworking industries
18.3
39.8
117
Of which:
Heavy machine-building
industry
3.2
6.7
109
General machine-
building industry
2.8
7.0
150
Electrotechnical
industry
4.o
10.6
165
Light industry
13.2
24.2
83
Food industry
8.9
12.4
39
a7.7
b. /31
Gross production in the metalworking industries is to achieve
the greatest relative increase of any branch of industry, 117 percent.
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Within that group the electrotechnical industry is to receive primary
emphasis. Gross production in the electrotechnical industry is to
increase by 165 percent between 1958 and 1965. Gross production in
the general machine-building branch is to increase by 150 percent
compared with 109 percent in the heavy machine-building branch.
The basic materials industries are to increase gross produc-
tion by 91 percent. Within this group the metallurgical industry is
to increase by only 86 percent (slightly less than the average for
all industry); the chemical industry, by 106 percent; and the build-
ing materials industry, by 136 percent. No data are available on
plans for gross production in the coal and power branch. Physical
production of electric power is scheduled to increase by 81 percent
between 1958 and 1965, //1/ but production of raw brown coal is to
increase by only 29 percent. 12/
Gross production in light industry is to increase by 83 per-
cent and that in the food industry by only 39 percent between 1958
and 1965.
Table 6* shows average annual rates of growth of production
in 1956-58 Compared with planned rates of growth for 1956-60 and
1959-65.
The average annual rates of increase presented in Table 6 in-
dicate that the plan generally was exceeded for both national income
and gross industrial production during 1956-58. Gross production in
the metalworking and chemical industries also achieved average annual
rates of growth during 1956-58 in excess of the rates required to ful-
fill the 1956-60 plan. Gross production in the construction industry
and physical production of both electric power and brown coal in-
creased during 1956-58 at average annual rates that were less than
those required to meet the Second Five Year Plan. The data on the
Seven Year Plan in Table 6 indicate a planned acceleration in the
average annual rate of growth above that achieved during 1956-58 for
all of the categories shown.
Planned fixed capital investment during 1959-65 is shown in
Table 7.** State industrial investment is planned to average 58 per-
cent of total state investment and 42 percent of total gross invest-
ment. The average annual gross investment planned for 1959-65 is
approximately 20.3 billion DME, which is 85 percent greater than that
achieved during 1956-58.
* Table 6 follows on p. 30.
** Table 7 follows on p. 32.
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Table 6
Average Annual Rates of Growth
of Income and Production in East Germany
1956-60 Plan, 1956-58, and 1959-65 Plan
Average Annual Rate of Growth (Percent) 2/
Activity
Second Five
Year Plan 12/
(1956-60)
1956-58
Seven Year
Plan d
(l959-'5)
National income 2/
5.4
6.3 f/
6.8
Gross industrial production E/
6.7
8.3
9.4
Metalworking industries E/
8.9
10.8
11.7
Chemical industry E/
6.0
8.8
10.9
Construction industry
10.1
9.8
11.0 LI/
Electric power industry 1/
7.7
6.7
8.8
Brown coal industry 1/
4.1
2.3
3.7
a. Average annual rates of growth are
period, including the terminal years.
b. 76/
c.
d. See Table 5, p. 2, above
e. Based
f.
g. Based
h. ?.2/
i. Based
j.Based
on data in DME.
computed for the stated
on gross production in DME.
on physical production in kilowatt-hours.
on physical production in metric tons.
The East German goals for the Seven Year Plan are quite ambi-
tious, as the data in Tables 5,* 6, and 7** indicate. The successes
achieved during 1956-58 and the assistance promised by the USSR doubt-
less are major factors underlying the optimistic plans for 1959-65.
Under agreements concluded in February and June 1958, the USSR is to
increase substantially its credits and raw material shipments to East
Germany. Several agreements were reached in 1956 and 1957 between
East Germany and the USSR in which the USSR promised credits and com-
modities to East Germany. Moreover, a substantial reduction was made
in the East German payments for the maintenance of Soviet troops.
* P. 28, above.
** Table 7 follows on p. 32.
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These measures alleviated the drains that had been imposed by the USSR
on the East German economy. The USSR also underwrote, to some extent,
credits granted by East Germany to other countries of the Soviet Bloc
and to underdeveloped non-Bloc countries. The agreements of 1958, if
fulfilled, will mark the first substantial contribution made by the
USSR to the economic development of East Germany and thus will affect
the prospects for fulfillment of the 1965 goals.
B. Prospects for Plan Fulfillment
The revised Second Five Year Plan and the announced goals to
1965 indicate a more realistic assessment of the economic situation
by the East German political leaders and a somewhat more judicious
allocation of economic resources than in the early 1950's.
A major problem that must be reflected in industrial investment
policy is the tightening labor supply in East Germany. The large de-
fections to the West, especially of professional and highly skilled
workers, have prevented development of some important industries as
rapidly as the East German leaders desired. In addition to defec-
tions, the age structure of the population is affecting adversely the
growth of the labor force.
the labor force is expected to decline by 500,000 workers between 195b
and 1965. This fact has helped to focus attention on the need for im-
provements and for replacement of the present obsolete industrial fa-
cilities with new, labor-saving types of fixed capital.
The loss of much skilled labor resulted in some diversion of
investment from producer goods industries to consumer goods industries
and housing in 1954, 1955, and 1956 in order to stem the outward migra-
tion and to improve labor productivity. The share of light industry
in planned state industrial investment for 1959-65 is slightly less
than in 1954-56 but is more than in 1951-53. Opportunities for more
intensive use of existing fixed capital are probably greater in light
industry than in other branches of industry.
The East German authorities also have tailored their invest-
ment program to the supply of raw materials within the country. Many
industries using large quantities of raw materials that can be pro-
duced domestically only at high cost or that must be imported are re-
ceiving smaller investment allocations than heretofore. The iron and
steel industry, for example, which was a priority branch until 1953,
now receives a smaller share of industrial investment funds. The
shift of investment allocation from the metallurgical industry is
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Table 7
Planned Fixed Capital Investment in East Germany
by Branch of Industry pi
1959-65
Million 1958 DME
Sector of Investment
1959
1960
1961
1962
1963
1964
1965
Total
Total gross fixed capital investment12/
14,722
16,830
18,750
20,450
22,150
23,850
25,550
142,302
Total state investment
10,611
12,174
13,785
15,072
16,225
17,622
19,009
104,498
State industrial investment
6,098
7,238
8,440
9,004
9,577
9,798
10,094
60,249
Basic materials industries 2/
4,058
4,682
5,481
5,927
6,486
6,570
6,798
40,002
Of which:
Coal
1,412
1,394
1,397
1,252
1,239
1,195
1,195
9,084
Electric power
1,020
1,275
1,490
1,740
2,030
2,160
2,440
12,155
Nuclear technology
48
100
128
100
120
150
150
796
Mining and metallurgy
594
717
911
1,018
1,116
1,034
987
6,377
Chemicals
900
1,100
1,460
1,723
1,887
1,930
1,925
10,925
Metalworking industries
763
983
1,112
1,159
1,140
1,138
1,165
7,460
Light industry
373
489
644
700
665
695
681
4,247
Food industry
133
137
180
180
192
184
189
1,195
Construction
556
657
707
702
720
764
791
4,897
Miscellaneous local industries 1/
215
290
316
336
374
447
470
2,448
a.
b. In addition to state investment this category includes costs of project planning, expenditures for
maintenance of the budgeting organization, investments made from the internal resources of enterprises,
and long-term credits.
c. Including investment for geological prospecting in addition to that for the coal, electric power,
nuclear technology, mining and metallurgical, and chemical industries.
d. The exact composition of this category is unknown.
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indicated by the following tabulation, which shows the share of the
iron and steel industry in total industrial investment for several
periods:
Percent of Total Industrial Investment
Seven Year Plan**
1951-53* 1954-55* 1956 D../ (1959-65)
28 17 13 11
The shipments of materials and products of the Soviet metal-
lurgical industry to East Germany are to increase between 1957 and
1965, as follows L/:
Thousand Tons
Material or Product
1957
1965 Plan
Pig iron
417
1,600***
Metallurgical coke
928
1,550
Rolled steel and pipe
652
1,560
Copper
15
43
Aluminum
18
85
The USSR also is cooperating with East Germany by sharing in
the construction of a pipeline to carry crude oil from the USSR to
East Germany. Soviet exports of crude oil to East Germany will in-
crease from 1.0 million tons in 1957 to 4.8 million in 1965. L/
Thus East Germany will have an important new chemical raw material,
which will be the basis for the expansion of the plastics and syn-
thetic fiber industries and which may decrease the dependence of
these industries on brown coal as a raw material. The relative share
of the chemical industry in industrial investment will increase to
more than 18 percent of industrial investment compared with less than
13 percent in 1954-55. This increase reflects primarily the develop-
ment of facilities for petroleum refining and for making plastics and
synthetic fiber. The share of the chemical industry in gross
See Table 2, p. 10, above.
Computed from data in Table 7, p. 32, above.
xxx The figure for pig iron apparently has been reduced. The figure
given in the Seven Year Plan for total imports of pig iron in 1965
was 1,435,000 tons. 82/
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industrial production is to increase from 15.0 percent in 1958 to
16.5 percent in 1965.
The coal and electric power branches of industry, which were
to receive more than 50 percent of the allocations to industrial in-
vestment in the Second Five Year Plan, are to receive only slightly
more than 35 percent in the Seven Year Plan. The decline in the
share reflects the decreased emphasis on investment in the coal in-
dustry, which was reduced from more than 30 percent to approximately
15 percent. The electric power industry retained the same share as
in the Second Five Year Plan -- about 20 percent. Planned invest-
ment in the coal industry is to decline gradually from 1.4 billion
DME in 1959 to 1.2 billion DME in 1965. In the electric power in-
dustry, planned investment is to increase from 1.0 billion DME in
1959 to 2.4 billion DME in 1965.
Success of the Seven Year Plan for industrial development will
depend on the deliveries of industrial raw materials promised by the
USSR. Without this assistance, East Germany will be unable to achieve
the major goals set for 1965. Receipt of the Soviet aid will not, of
itself, however, assure fulfillment of the plan.
The success of the investment program in the next few years
also will depend on more effective use of resources in the metal-
working and construction industries. Although these industrial groups
have achieved high rates of growth in the past few years, the demands
on them are still great.
The metalworking industry must still produce more than one-
half of East German export goods while supporting the investment pro-
gram. Supplies of machinery available for the domestic economy appear
to have increased in recent years. Gross production of the metalwork-
ing industry increased by 35.7 percent between 1955 and 1958, but net
exports increased by only 8.7 percent.* It is likely, however, that
the priority given in the past to exports of such types of machinery
as chemical equipment will continue to hamper domestic investment in
the next few years. As stated above, the large increase planned for
gross production in the metalworking industry between 1958 and 1965 is
substantially greater than that for the other major industrial groups.
The planned increase in metalworking production amounts to 41.7 per-
cent of the planned increase in all industrial production.
* See Appendix C.
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The following tabulation shows ratios of the increments in
production to the investment in the metalworking and basic materials
industries and in total industry for 1954-56 and the Seven Year Plan:
Industrial Group
Ratio of Increments in Production
to Investment
1954-56 Seven Year Plan (1959-65)
Total industry
1.2
0.9
Metalworking industries
3.0
2.9
Basic materials industries
0.5
0.4
Differences in these ratios in given periods for various industrial
groups are affected by many factors. The low ratios in the basic ma-
terials industries result in part from the high capital intensity in
those industries as well as from the long construction period required
before full productive capacity is realized. High ratios in the metal-
working industries reflect lower capital intensity and, possibly,
greater multiple counting in the gross production data than occurs in
basic materials industries. Comparison of the ratios for the two
periods indicates a planned decline in the increments in gross indus-
trial production relative to investment between 1954-56 and 1959-65 of
25 percent. The planned decline for the basic materials industries is
20 percent compared with a planned decline of only about 3 percent for
the metalworking industries. The expected maintenance of this ratio
in the metalworking industries may well be overly optimistic in spite
of the fact that the investments of the industries are designed to
yield relatively large increases in production. Fairly important
changes in product mix and continuing labor shortages, to mention only
two problems, make the fulfillment of plans for the metalworking indus-
tries doubtful. Failure to fulfill those plans will jeopardize the
entire plan for industrial investment.
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APPENDIX A
EAST GERMAN INVESTMENT ACCOUNTING*
The East German accounting category of industrial fixed capital
includes all of the structures and equipment in the industrial sector
of the economy. The category embraces the social and cultural facili-
ties controlled by industrial enterprises as well as the fixed capi-
tal used directly in the production process.
Investment in East Germany is divided for administrative purposes
into two categories, planned and nonplanned. Planned investment is
that included in the state investment plan and financed primarily by
funds allocated from the treasury through the East German Investment
Bank. Nonplanned investment is undertaken by individual enterprises
and is financed from the funds of the enterprises. ?1/
Planned investment is divided further into investment in main in-
stallations and investment in secondary installations. Main instal-
lations include not only productive facilities but also the nonpro-
ductive facilities that are not operated by industrial enterprises,
such as hospitals, day boarding homes for children, technical schools,
research and development facilities, and trade enterprises subordinate
to the individual ministries. Secondary installations include nonpro-
ductive facilities such as cultural, social, health, and training fa-
cilities that are operated by industrial enterprises.?J.E1/
Following are several measures of fixed capital investment that
are useful in various kinds of economic analysis:
1. Estimates of gross investment in a given period measure
the portion of a country's production that is devoted to both re-
placement and new investment (that is, growth of stock of fixed capi-
tal).
2. Estimates of new investment in a given period measure the
increment to gross fixed capital.
3. Estimates of net investment in a given period measure the
increment to net fixed capital.
* For definitions of terms not specifically defined in this appendix,
see Appendix B.
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The East German Central Statistical Administration has published
data on state investment covering the period since 1950. There are
certain deficiencies, however, in the official data. These defi-
ciencies are threefold: first, the data are expressed in current
prices; second, "state" investment, as officially defined, is a hy-
brid category; third, the definition of "state" investment was
changed beginning in 1956.
Until the beginning of 1956, "state" investment included both re-
placement and new investment from state funds* and excluded replace-
ment investment from amortization funds controlled by enterprises and
new investment by enterprises from their own funds or from long-term
credits. Published data on state investment cover all areas of the
economy except the police, the national military forces, and defense
enterprises that are under the jurisdiction of the Ministry of the
Interior. L/ State investment, then, before 1956 included only part
of the new investment in the state sector of the economy and only
part of the replacement investment. In the industrial sector, the
major exclusion from state investment before 1956 was replacements.
The largest source of investment funds in East Germany is the
treasury (nonrepayable funds are made available to enterprises through
the budget). Enterprises also have their own investment resources, in
the form of retained profits and amortization allowances. About one-
fourth to one-third of investment financing is from the resources of
enterprises. 22/ Since 1954, industrial enterprises have been able to
finance investment by means of long-term credits, which can run to a ?
maximum of 4 years. 21/ Long-term credits are a minor source of funds
for industrial investment.
East Germany follows the practice of the USSR in accumulating
amortization funds for replacement investment and capital repairs.
The shares of the amortization funds allocated to replacements and to
repairs are fixed by law each year and may vary from year to year.
Before 1 January 1958 the plan for capital repairs was separate from
the investment plan. Beginning on that date, the investment plan was
divided into a plan for the maintenance and replacement of fixed capi-
tal and a plan for the expansion of fixed capital. The capital re-
pairs were incorporated into the plan for the maintenance of fixed
capital. 22/
* Apparently all capital repairs were included in "state" investment
beginning in 1956, although the definition of "state" investment that
is given with the statistical tables in official sources was not
changed.
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APPENDIX B
GLOSSARY
Accounting period: Any period of time for which economic flows (pro-
duction, costs, income, and the like) are totaled.
Basic materials industries: As used in East German economic account-
ing, this group of industries includes those plants producing the
following classes of products: electric power, gas, coal, ores,
potash and other minerals, pig iron, steel, nonferrous metals, chemi-
cals, petroleum products, and building materials.
Capacity: The maximum production possible from a given combination
of productive resources in specified quantities under stated condi-
tions of operation during a given period (usually 1 year).
Capital repairs: (Also called general repairs.) Relatively large-
scale renovating projects involving the replacement of a large num-
ber of parts or the most important parts of an item of fixed capi-
tal in order to restore it to full working power.
Centralized industry: That portion of state industry which is con-
trolled directly by the East German central government.
Consumer industries: As used in this report, this group of industries
includes the light and food industries.
Depreciation: The amount of decline in the value of a fixed asset
during a given period.
Fixed assets: See Fixed capital.
Fixed capital: The stock of durable physical instruments of produc-
tion that is used for more than one accounting period. As used in
this report, the term instruments of production is defined broadly
to include such social overhead capital as housing, which is neces-
sary to (but not used directly in) production. The terms fixed
capital, stock of fixed capital, and fixed assets may be used inter-
changeably. Gross fixed capital is the total value of fixed capi-
tal without any deduction for depreciation. Net fixed capital is
the value of fixed capital after the deduction of the cumulative
depreciation.
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Fixed capital investment: The fixed capital goods added to the stock
of fixed capital during a given accounting period. Gross fixed capi-
tal investment is the total addition to the stock of fixed capital
without any deduction for depreciation or retired assets. Net fixed
capital investment is gross fixed capital investment minus deprecia-
tion of the stock of fixed capital during the period. New fixed capi-
tal investment is gross fixed capital investment minus the gross
value of fixed capital retirements in the period.
Food industry: As used in East German economic accounting, this
branch of industry includes those plants or enterprises producing the
following classes of goods and services: processed meat and meat
products, fishing and processed fish, oil mill products, margarine,
processed grain, bakery goods, processed fruit and vegetables, sugar,
alcohol, and tobacco goods.
Gross production: The total value of production of industry or of a
branch of industry, including the value of raw materials or services
used in the production process.
Income: The value of goods and services produced in a giveil period.
Investment goods industries: As used in this report, this category
includes those industries that produce fixed capital goods (primarily
the metalworking, building materials, and construction industries).
Light industry: As ?used in East German economic accounting, this cate-
gory includes those plants producing the following classes of goods
and services: lumber and other wood semifinished products, furni-
ture, musical instruments, toys, jewelry, textiles, clothing, shoes,
felt and leather goods, cellulose, paper and cardboard products,
bookbinding and printing, and glass and ceramic products.
Metalworking industry: As used in East German economic accounting,
this group includes those plants producing machinery (other than
electrical machinery), transportation equipment, electrotechnical
equipment, precision and optical instruments, fabricated structural
steel, and other metal goods.
Obsolescence of fixed capital: The functional supplantation of fixed
capital by superior substitutes or because of a decrease in demand
for its products.
Producer goods industries: As used in this report, this category in-
cludes the basic materials and metalworking industries.
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Rate of accumulation: The ratio of net investment in fixed and work-
ing capital to the national income.
Retirements: The value of fixed capital removed from service in a
given period.
State industry: As used in this report, this category includes all
socialized industry except cooperative industry.
Stock of fixed capital: See Fixed capital.
Working capital: Resources that are used in a productive process and
that are consumed within one accounting period.
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APPENDIX C
METHODOLOGY
1. State Investment, 1950-55
The East German Central Statistical Administration has published
figures on state investment covering state industry (including the
construction industry) for 1950 and 1955. An official East German
index gives a means of completing the state series for 1951-54. The
complete series, which has been developed by the application of this
index, is given along with the index in Table 8.
Table 8
State Investment
in Centralized and Local Industry and Construction
in East Germany
1950-55
Year
Index 2/ Million Current
(1950 = 100) DME
1950
100.0
956 12/
1951
153.0
1,463
1952
209.7
2,005
1953
249.1
2,381
1954
217.3
2,077
1955
228.9
2,189 12/
Total investtent
for 1951-55
10,115
a. 2/. Including any state investment in both cen-
tralized and local industry and construction.
b. 2.12/
Other official data give a check on the 5-year investment total
presented in Table 8. An article on investment in the First Five
Year Plan stated that total state investment in 1951-55 was
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20,879 million DME and that investment in centralized and local in-
dustry amounted to 48.5 percent of the total. 22/ The figure for
investment in centralized and local industry and construction during
1951-55 shown in Table 8* (10,115 million DME) amounts to 48.45 per-
cent of 20,879 million DME.
State investment in centralized industry and construction during
1951-55 was as follows 2O:
Type of Installation Million DME
Total 9,689.8
Main installations 9,158.1
Secondary installations 531.7
Table 9** gives indexes of state investment in centralized in-
dustry and construction during 1951-55, by industrial group.
State investment in centralized industry and construction dur-
ing 1951-55 was distributed among the major industrial groups, as
follows
Industrial Group Percent
Total
100.0
Basic materials industries
68.o
Metalworking industries
14.7
Light industry
6.3
Other
11.0
The following breakdown of state investment in centralized in-
dustry and construction during 1951-55 is based on the above per-
centages:
Industrial Group
Investment (Million DME)
Total
9,689.8
Basic materials industries
6,589.1
Metalworking industries
1,424.4
Light industry
610.5
Other
1,065.8
* P. 43, above.
** Table 9 follows on p. 45.
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These investments, except for the "Other" category, can be distrib-
uted among the individual years, 1951-55, by means of the indexes given
in Table 9. In Table 10 the indexes have been converted to estimating
coefficients by means of a shift to a 1951 base and division by 100.
Table 9
Indexes of State Investment
in Centralized Industry and Construction
in East Germany 2/
1951-55
1950 = 100
Industrial Group
1951
1952
1953
1954 Pi
1955 12/
Total 12/
156
222
258
229
229
Basic materials industries
175
279
342
332
334
Electric power
174
295
511
846
866
Coal
147
396
471
628
640
Metallurgy
185
233
265
90
74
Chemicals
180
267
316
340
255 2/
Metalworking industries
153
198
178
68
73
Light industry
76
77
196
226
205
Food industry
86
101
101
161
106
b. Including former SAG's.
Table 10
Estimating Coefficients for the Distribution of State Investment
in East Germany Among Individual Years, by Industrial Group
1952-55
1951 = 1
Industrial Group
1952
1953
1954
1955
Total
1.423
1.654
1.468
1.468
Basic materials industries
1.594
1.954
1.897
1.909
Metalworking industries
1.294
1.163
0.444
0.477
Light industry
1.013
2.579
2.974
2.697
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The estimating equations for the respective groups follow. In
each case, x = the state investment for the group in 1951.
Total centralized industry and construction:
x + 1.423x + 1.654x + 1.468x + 1.468x = 9,689.8 for 1951-55
7.013x = 9,689.8
x = 1,381.7
Basic materials industries:
x + 1.594x + 1.954x + 1.897x + 1.909x = 6,589.1 for 1951-55
8.354x = 6,589.1
x = 788.7
Metalworking industries:
x + 1.294x + 1.163x + 0.444x + 0.477x = 1,424.4 for 1951-55
4.378x = 1,424.4
x = 325.4
Light industry:
x + 1.013x + 2.579x + 2.974x + 2.697x = 610.5 for 1951-55
10.263x = 610.5
x = 59.5
investment in the cen-
tralized food industry in 1955 amounted to 5 percent of the total for
centralized industry. 100/ On the basis of the first equation above,
state investment in centralized industry in 1955 is estimated to be
2,028.3 million DME. State investment in the centralized food industry
in 1955, therefore, is estimated to be 0.05 x 2,028.3, or 101.4 million
DME. Investment in the food industry for 1951, 1952, 1953, and 1954
may be determined by the application of the index for the food indus-
try in Table 9.* The estimated investments for centralized industry
and construction and the major component groups are shown in Table 11.**
* P. 45, above.
** Table 11 follows on p. 47.
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Table 11
State Investment in Centralized Industry and Construction in East Germany
by Industrial Group
1950-55
Million Current DME
Total 2/
Industrial Group
1950
1951
1952
1953
1954
1955
1951-55
To-6a1
886
1,382
1,966
2,285
2,028
2,028
9,690
Basic materials industries
451
789
1,257
1,541
1,496
1,506
6,589
Metalworking industries
213
325
421
378
144
155
1,424
Light industry
78
60
60
153
177
160
610
Food industry
96
82
97
97
154
101
531
Other 12/
48
126
131
116
57
106
535
a. Totals are derived from unrounded data and may not agree with the sums of the rounded
components.
b. These figures are residuals and include figures for the construction industry plus or
minus the net error in the other components.
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2. Rate of Accumulation, 1951-55
The rate of accumulation is defined as the ratio of net invest-
ment in fixed and working capital to the national income. The esti-
mate of the average rate of accumulation in East Germany during
1951-55, based on data in current prices, was computed as follows:
a. The national income available for domestic use in 1955 was
48,821 million DME. 101/
b. The accumulation in 1955 was 12.8 percent of the 48,821 mil-
lion DME, 102/ or 6.25 billion DME.
c. The accumulation for 1951-54 is estimated, on the basis of
the official index 103/ and the estimate of accumulation for 1955,
to be as follows:
Index
Year (1950 = 100)
Accumulation
(Billion DME)
Total 27.3
1951 120
1952 138
1953 139
1954 156
1955 164
4.6
5.3
5.3
5.9
6.2
d. The total national income for 1951-55 was 224.9 billion
D,10)4/ and the rate of accumulation was 224-41-4, or 12.1 percent.
.y
3. Investment, 1956-59
Total gross fixed capital investment in East Germany during 1956-59
was as follows 105/:
Billion DME
1956 1957 1958 1959
10.0 10.7
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The East Germans have now published a new investment series that
has more complete coverage than the old state investment series. The
new series covers only the years 1956, 1957, and 1958. The investment
coverage in this series 106/
... includes the expenditures for maintenance and ex-
pansion of state fixed capital. These Lfundj come from
the allocations to the plan for the maintenance of fixed
capital in that portion of the economy which is subject to
amortization charges, to the plan for maintenance of the
fixed capital of the budget organizations, and to the plan
for the expansion of fixed capital as well as to expendi-
tures for project planning.
Excluded are the investments of the cooperative and
private economy from its own means and credits as well as
credits for rationalization of the people-owned economy.
The data from that series covering industry and construction are
shown in Table 3.*
4. Changes in Production and Foreign Trade in the Metalworking In-
sdustry, 1955-58
The percentage increase in gross production in the East German
metalworking industry was computed from the figures on gross produc-
tion reported by the East German Central Statistical Administration,
as follows: 1955, 13,102 million DME, 107/ and 1958, 17,785 million
DME. 108/
The percentage increase in net exports was derived as follows:
a. In 1955, exports of the metalworking industry were valued
at 3.09 billion rubles,** and imports of products of the metalworking
industry were valued at 220 million rubles. 109/
b. The total foreign trade turnover of the metalworking in-
dustry in 1958 is estimated to have amounted to 14.30 billion
rubles, 110/ and total exports in 1958 were 104.4 percent of total
* P. 16, above.
** Ruble values throughout this report are expressed in current rubles
and may be converted to US dollars at the rate of 4 rubles to US $1.
This rate of exchange, however, does not necessarily reflect the dollar
value.
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exports in 1957. 111/ Whereas total exports in 1957 were 7.24 billion
rubles, 112/ total exports in 1958 are estimated to have been 7.56
billion rubles. Total imports in 1958, then, are estimated to have
been 14.30 billion rubles minus 7.56 billion, or 6.74 billion rubles.
c. Products of the metalworking industries accounted for
52 percent of total East German exports in 1958 and 12 percent of
total imports. 113/ The estimated amount of trade in products of the
metalworking industry in 1958 is as follows: exports, 3.93 billion
rubles, and imports, 0.81 billion rubles.
d. Net exports of products of the metalworking industries
are, therefore, as follows: for 1955, 3.09 minus 0.22 equals 2.87 bil-
lion rubles, and for 1958, 3.93 minus 0.81 equals 3.12 billion rubles.
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APPENDIX D
COMPARISON OF THE OFFICIAL OR "STATE" INVESTMENT SERIES
WITH THE GROSS INVESTMENT SERIES FCR CENTRALIZED INDUSTRY
Data on "state" investment in centralized industry and construction
(see Table 11*) and on gross fixed capital investment in centralized
industry (see Table 1**) are shown in Table 12.*** It is impossible,
in the absence of explanatory data, to reconcile the figures given for
centralized industry in these two series. The known differences be-
tween the series are as follows: (1) The data on gross investment in-
clude capital repairs, but the other series of data cover only "state"
investment, and (2) the data on state investment refer to product
groups, but the data on gross investment refer to ministry groups.
The probable differences are as follows: (1) The data on gross invest-
ment cover only investments in main installations, but the data on
state.investment cover both main installations and secondary instal-
lations; and (2) the data on state investment have been adjusted to
include investment made in enterprises before their transfer to cen-
tralized control, but the data on gross investment have not been so
adjusted. These latter two points can be only speculation, for there
are other possible explanations for the differences between the two
series. The sharpest differences between state investment and gross
investment in centralized industry, as shown in Table 12, occur in
the data for 1953 and 1954. State investment shows a decline in 1954
of approximately 11 percent from the peak of 2,285 million DME reached
in 1953. Gross investment shows an increase of 33.5 percent from 1953
to 1954, followed by a decline of about 6 percent in 1955. The in-
crease in gross investment of 704 million DME in 1954 reflects, to a
large extent, the increase of 600 million DME in the investment of the
Ministry of Coal and Power -- an increase of 128 percent. By way of
comparison, indexes of state investment show the following increases
during 1953-54 in the coal and power branches of centralized industry:
power, 66 percent, and coal, 33 percent.t
Appendix C, p. 47, above.
P. 8, above.
XX Table 12 follows on p. 52.
Computed from indexes in Table 9, p. 45, above.
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Table 12
Alternative Industrial Investment Series
for Centralized Industry and Construction in East Germany 2/
1951-55
Million Current DME
Investment Category
Total
Basic Materials Industries
Metalworking Industries
Light Industry
Food Industry
Other 12/
Total investment for 1951-55 E./
Gross investment
10,922
7,537
1,933
717
482
254
"State" investment
9,690
6,589
1,424
610
531
535
Investment for 1951
Gross investment
1,445
892
355
8o
78
4o
"State" investment
1,382
789
325
60
82
126
Investment for 1952
Gross investment
1,938
1,316
409
88
67
59
"State" investment
1,966
1,257
421
60
97
131
Investment for 1953
Gross investment
2,101
1,443
404
115
96
43
"State" investment
2,285
1,541
378
153
97
116
Investment for 1954
Gross investment
2,805
2,054
419
205
71
56
"State" investment
2,028
1,496
144
177
154
57
Investment for 1955
Gross investment
2,633
1,832
346
229
170
56
"State" investment
2,028
1,506
155
160
101
106
a. For figures on gross investment, which apparently cover only investment in main installations (Hauptanlagen), including capital repairs, see Table 1, p. 8, above.
For an explanation of "state" investment, see Appendix A and Table 11, Appendix C, p. 47, above.
b. Gross investment totals include data for the construction industry only, and "state" investment totals include data for the construction industry plus or minus the net
error in the other ?components.
c. Totals are derived from unrounded data and may not agree with the sums of the rounded components.
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