EAST GERMAN ECONOMIC PROSPECTS AND POLICIES THROUGH 1965

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• Sequence Number: 1
• Publication Date: April 1, 1962
• Content Type: REPORT

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Economic Intelligence Report
N? 78
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EAST GERMAN ECONOMIC PROSPECTS AND POLICIES
THROUGH 1965
CIA/RR ER 6 2-1 0
April ' 1962
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
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Economic Intelligence Report
EAST GERMAN ECONOMIC PROSPECTS AND POLICIES
THROUGH 1965
CIA/RR ER 62-10
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
to an unauthorized person is prohibited by law.
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
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CONTENTS
Page
Summary and Conclusions 1
I. Introduction 7
II. Long-Term Plans 7
A. Rates of Growth 9
1. Industry 9
2. Construction 17
3. Agriculture 19
4. National Income 20
B. Factors in Growth 21
1.
2.
3.
Foreign Trade
Input-Output Relations
a. Fuels and Power
b. Metals
Supply and Efficiency of Labor
23
32
32
37
La
a. Employment
41
b. Education and Training
44
c. Work Norms and Wage Rates
44
d. "Socialization" and Efficiency
e. Increased Consumption and the Supply
45
and Efficiency of Labor
46
4.
Capital Requirements
49
5.
Technology
52
6.
Defects of the Seven Year Plan
54
III.
Plan Revisions and Economic Policy
55
A. Lag in Investments
56
B. Changes in Plans
58
IV. Capabilities for Economic Growth
6o
A. Industry 6o
B. Construction
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Page
C. Agriculture 68
D. Conclusions 69
Appendix
Source References
Tables
1. East Germany: Average Annual Rates of Planned Economic
Growth, 1959-65
2. East Germany: Comparison of the Average Annual Rates
of Growth for Industry in the Original Directives
for 1956-60 and in Those Approved for 1959-65 . . . .
3. Comparison of the Average Annual Rates of Growth for
Industry Planned for East Germany in 1959-65 and
Those Achieved in West Germany in 1954-58
4. East Germany: Indexes of Planned Industrial Production,
1965
5. East Germany: Goals for Output of Selected Industrial
Products, 1965
6. East Germany: Average Annual Rates of GrOwth in
Imports, 1956-58
7. East Germany: Breakdown
1958 and 1965 Plan
8. East Germany: Breakdown
1958 and 1965 Plan
of Imports by Major Category,
of Exports by Major Category,
9. East Germany: Breakdown of Foreign Trade Between the
Sino-Soviet Bloc and the Free World, 1958 and
1965 Plan
10. East Germany: Projected Increases in Imports of
Selected Commodities, 1958-65
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13
13
15
16
24
25
25
26
28
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11. East Germany: Projected Change in Production and
Imports of Coal, Petroleum, and Natural Gas,
1958-65
Page
33
12. East Germany: Projected Change in the Relation of
Inputs of Rolled Steel to the Value of Output in
Metalworking, 1958-65 38
13. East Germany: Indexes of Planned Production, Produc-
tion per Worker, and Employment, 1965 43
14. East Germany: Employment in the Private Sector as of
the End of 1957
1[6
15. East Germany: Planned Increases in Per Capita
Consumption of Selected Commodities, 1958-65 47
16. East Germany: Index of Gross Fixed Capital Investment,
1955, 1958-60, and Plans for 1959-61 and 1965 . . . . 57
17. East Germany: Fulfillment of the Original Goals
for 1960 of Selected Commodities 61
18. East Germany: Index of Industrial Production, 1960 . 63
Charts
Figure 1. East and West Germany: Indexes of GNP and
Industrial Production, 1956-60, and East
Germany: Plans and Projections Through
1965 following page
Figure 2. East and West Germany: Monthly Fluctuations
in Metalworking Production, 1956-60 following
page
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EAST GERMAN ECONOMIC PROSPECTS AND POLICIES THROUGH 1965*
Summary and Conclusions
The object of East German economic policy in the early 1960's, as
formulated 2-1/2 years ago in the Seven Year Plan (1959-65), was to
"demonstrate the superiority of socialism" by "overtaking and surpassing"
West Germany in output and consumption per capita. This object, which
has long been an obsession with Walter Ulbricht, the head of the East
German Communist Party, is far beyond the reach of East Germany. During
the first 3 years of the plan period (1959-61), output per capita has
actually grown more slowly in East Germany than in West Germany. On
the average the total output rose by more than 7 percent per year in
West Germany as against about 4 percent in East Germany, and even on a
per capita basis the difference is still significant (about 4.5 percent
for East Germany as against about 6 percent for West Germany).
Although Ulbricht was in dead earnest about catching up with West
Germany, he saw this objective only as part of the over-all objective
of "demonstrating the superiority of socialism," which also calls for
the creation of a full-fledged "socialist state." He was equally im-
patient to achieve this aim, and the steps taken to achieve it -- in
particular, the abrupt decision of early 1960 to force all private
peasants into cooperatives -- have interfered with economic growth.
Probably the most serious disagreements within the regime have arisen
over Ulbricht's refusal to acknowledge or perhaps even to realize the
economic costs of his social and political program.
Ulbricht is not likely to acknowledge his mistakes in economic
policy, least of all during the Berlin crisis. But a general recon-
sideration of the plans for the next few years can hardly be avoided.
Some reductions have already been made in the goals for 1965. Other
reductions will be made, although the regime doubtless will do its
best to minimize and explain away the divergence between actual eco-
nomic growth and that projected in the Seven Year Plan.
During the years 1961-65 the economic growth of East Germany will
be slower, perhaps considerably slower, than during the years 1956-60,
when gross national product (GNP) increased at an average annual rate
* The estimates and conclusions contained in this report represent
the best judgment of this Office as of I March 1962.
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of about 5 percent. East Germany is capable of maintaining an annual
rate of growth of about 4 percent in the next few years. The actual
rate is rather more likely to be below than above this figure, given
the political and social difficulties resulting from collectivization
and the Berlin crisis. The rate will not fall below 3 percent unless
East Germany, contrary to expectations, has to bear the main cost of
a long Western embargo. Even if there is no Western embargo, however,
the rate will not rise above 5 percent unless the USSR, as is always
possible, extends credits to East Germany on an unprecedentedly large
scale.
In the Seven Year Plan, on the other hand, a rate of growth of
about 7 percent (in Western terms*) was projected. Output in industry
and handicrafts was to increase at about 9 percent per year as against
an actual average rate of about 7 percent during the years 1956-60 and
an estimated prospective rate of about 6 percent for the years 1961-65.
The relation between the actual growth of industry and GNP in 1956-60,
the actual West German growth in the same period, the prospective East
German growth in 1961-65, and the growth projected in the Seven Year
Plan are shown in the chart, Figure 1.**
The growth of the East German economy since 1955 has been greatly
stimulated by the ending of Soviet exploitation (still fairly heavy in
1955) and the extension of considerable Soviet credits. The effect was
an abnormal increase both in the availability of basic materials and in
allocations to investment, which were more than doubled during the 5-
year period. The increase in availability of materials had a more im-
mediate effect on economic growth (though somewhat delayed by the dis-
ruption of trade with Poland and Hungary in 1956). Not only in manu-
facturing but also in construction and agriculture, a rapid addition to
material inputs resulted in a fuller use of capital and labor. This
increase in efficiency, together with the rising rate of additions to
fixed capital, accounts for the spurt in output during the years 1957-59,
which represented a last delayed burst of recovery from the effects of
World War II and postwar occupation and partition.
The economic situation of East Germany is less favorable to eco-
nomic growth in the early 1960's than it was in the latter 1950's.
Even if the East Germans do not have to settle their indebtedness to
the USSR by 1965, Soviet aid is unlikely to provide a stimulus to
growth comparable with the lifting of the burden of Soviet exploitation
in the latter 1950's. The rate of additions to fixed capital will be
* Western concepts of national accounts are used throughout this
report unless otherwise indicated.
** Following p. 2.
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300
200
100
Figure 1
EAST AND WEST GERMANY
INDEXES OF GNP AND INDUSTRIAL PRODUCTION, 1956-60
AND EAST GERMANY: PLANS AND PROJECTIONS, THROUGH 1965
GNP
1950=
I
100
??? e.
.... 00
I .?..*
os? .00
???
.0
os?
I
........'
.0
...
I
.00
........"'
???
???
???
.0 I
..??? ???
..........
??? ..,
.......'
........' ..p...."'"
1950 1956 1957 1958 1959 1960
EAST GERMANY
Actual
? Projected
? ? ? Planned
INDUSTRIAL PRODUCTION
400
300
200
100
1950
36044 4.62
1961 1962 1963
WEST GERMANY
Actual
1964
1965
1
100
#
#
.
#
#
#
#
#
???
#
#
#
/
#
#
.../
1
.0
.0.......-
.0
/
/
,....---
...?*"
."
#
/.
/.0
.0
,
1956
1957 1958
1959
1960
1961
1962 1963
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higher than in the latter 1950's. Excess capacity has been greatly
reduced, however, and opportunities for further increases in efficiency,
without significant technological changes, no longer represent an impor-
tant source of possible growth. Finally, employment is declining and
will continue to decline until the mid-1960's.
The decline in the labor force is the most unfavorable feature of
the East German economy during the early 1960's. From 1955 to 1960,
East German employment declined hardly at all: the effects of con-
tinued flight to West Germany and the unfavorable age structure of the
population were being offset by the use of labor reserves still exist-
ing. Presumably, there will be little further loss of population (after
13 August 1961) from flight to West Germany, but there will be a loss
of about 0.7 percent per year in the population of working age as a
result of the unfavorable age structure. There also will be a decline
in participation by young people of school age, which probably will not
be offset by the additions that can be obtained from raising the partici-
pation of women and of workers eligible for retirement.
The Seven Year Plan was based on the idea that the trend in employ-
ment and the exhaustion of the nonrecurrent factors in the growth of the
late 1950's could be more than offset by improving the quality of the
human inputs. A sudden increase in the skill and energy of workers,
management, and planners was to be obtained through reorganization, in-
tensive propaganda, more technical training, and added incentives. This
improvement was expected to result in raising greatly the efficiency of
existing production processes and in maximizing the gains from invest-
ments in new technology. The improvement was not to be obtained without
cost -- fairly heavy costs would be involved in expanding technical
training, and the rapid increase planned in consumption to provide
greater incentives also may be thought of as a cost. Even so, the
plan rested finally on Ulbricht's faith that Communist leadership and
"socialist" institutions were uniquely capable of drawing on ordinarily
unused reserves of human ability.
By these means, Ulbricht proposed to make up, during a 7-year
period, a lag of 20 percent in East German output per capita. Out-
side industry, East German labor productivity in the late 1950's was
not greatly below the West German level, but output per worker in
industry was only about two-thirds of that in West Germany. To "over-
take and surpass" West Germany, even on the assumption of a decline in
the rate of West German growth, obviously called for a high rate of
growth.
Ulbricht's faith in reorganization, indoctrination, training, and
added incentives had its most striking effect on plans for finished
goods industries, for construction, and for agriculture. The Seven
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Year Plan was balanced mainly by overstating what these branches could
produce with the factors of production allocated. Plans for other
sectors, however, were not greatly distorted in this respect, although
they were certainly tight. The plans for the basic materials industries
in particular were on the whole quite reasonable internally, given the
investments and the inputs projected. The rates of growth projected for
the several sectors are shown in Table 1.
Table 1
East Germany: Average Annual Rates of Planned Economic Growth a/
1959-65
Percent
Industry (excluding handicrafts)
Metalworking
Industrial handicrafts (excluding repairs)
Plan for 1959-65
9.4
11.8
2.2
Construction (including handicrafts)
10 to
11
Agriculture
4.5
Retail trade
7.6
Transport
3.8
Communications
3.4
Handicrafts services (excluding construction)
Repair services 7.3
Other services 4.3
a. These projected rates of increase, together with the rela-
tively slow increase in "unproductive" services (see Table 13,
p. 43, below), imply an increase of about 7 percent in national
income or GNP (Western concept). The implied increase projected
in "national income produced" (Soviet concept), which excludes
"unproductive services," was about 7.5 percent. See the first
footnote on p. 21, below.
The technical and organizational characteristics of the producing
sectors account for the way in which the Seven Year Plan was distorted.
The sectors in which plans were most reasonable, including basic indus-
tries and transport and communications, are capital-intensive. More-
over, products of basic industries -- the electric power industry,
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metallurgy, and much of the chemical industry -- are relatively few
and technically complementary. In these sectors the capacity assumed
to be available and the state of the art set rather definite limits
to increases in production and economies in the use of materials, and
economic plans are therefore based fairly directly on engineering
studies. The East Germans are experienced and competent in this kind
of planning, and the political leaders accept this kind of reasoning,
the more readily because the management of these sectors is the most
capable and cohesive in East Germany.
The finished goods industries, construction, and agriculture pre-
sent in general a striking contrast. These sectors are generally
labor-intensive and extremely decentralized. Because they are labor-
intensive, the leadership is far more doctrinaire about what can be
done through added training and better supervision. Because these
sectors are decentralized, there is much less effective resistance
to such ideas by enterprise management and by staffs at the ministry
level which in any case contain proportionally fewer technically
competent people and many more Party hacks than management and staffs
in basic industry.
Moreover, in many branches of the finished goods industries --
the machinery and equipment industries and parts of light industry --
and in construction, there is another obstacle to realistic planning.
In these branches of the economy, there is a eeat variety of products,
with a broad range of substitutability, and plans cannot be worked out
mainly on the basis of technical studies as they are in most basic
materials industries. As a result, planning must be done with aggre-
gative techniques that are very imprecise and can easily be made to
conform to the desires of the political leadership.
The most serious error in the Seven Year Plan affecting the finished
goods industries probably was in estimating excess capacity. Plans for
agriculture and construction were thrown off also by the assumption
that the elimination of private ownership and the consolidation of
enterprises would at once bring about increases in efficiency, although
it is hard to imagine that anyone could seriously expect such a result.
It is true that investments were to be increased rapidly in these sec-
tors. Indeed, capital-output ratios were even due to rise somewhat,
but the expected effects of these investments were much exaggerated.
Ulbricht's insistence on competition with West Germany, although
resulting in exaggeration and distortions, also had some positive re-
sults, forcing the planners and management to work out a program for
modernizing the East German economy, modeled on recent developments
in Western Europe and the USSR. Under Ulbricht's prodding the East
Germans began to lay increasing emphasis on technological change: re-
search and development, standardization and mass production, and
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comparisons with 'world" standards of efficiency and quality. The
Seven Year Plan provided for large increases in the supply of those
basic materials in which East Germany has lagged behind Western Europe:
gasoline, diesel fuel, and fuel oil to be produced chiefly from im-
ports of Soviet crude oil; plastics and synthetic fibers, partly ear-
marked for export to the USSR; high.-grade steels, both from imports
and from domestic production; and building materials needed to indus-
trialize construction, especially prestressed concrete and fiberboard.
The plan also provided for the redesigning of finished goods, especially
machinery, to "world" standards, with the aim of making East German
export goods comparable with those of Western competitors and of making
East German investments far more productive. The work done on these
problems will by no means be lost, even though the Seven Year Plan as
a whole is quite unrealistic.
If at all possible, Ulbricht will avoid a general revision or formal
abandonment of the Seven Year Plan. The lag in economic growth, however,
with GNP rising by an average of only 4 percent per year during the first
3 years of the plan period instead of 7 percent as planned, has already
forced ad hoc readjustments. Especially important has been the lag in
investments, which during the first 3 years of the plan have run about
10 percent below the originally planned levels, although running more
or less on schedule for priority projects in the steel and chemical
industries. Moreover, it is generally recognized within the regime
that more rapid growth cannot be expected during the next few years.
There is still occasional brave talk about reaching the originally
planned rate of industrial growth in 1963, but the adoption of more
realistic goals for the next few years can hardly be avoided. All the
present leadership can do is to make the most of its explanations --
the loss of labor to West Germany through mid-1961 and the difficulties
arising out of the Berlin crisis, especially those involved in reducing
vulnerability to a Western embargo. To some extent, of course, it is
possible to exaggerate actual achievements, but even such exaggeration
will hardly cover up the extent of the change in expectations or in the
final underfulfillment of the Seven Year Plan.
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I. Introduction
The theme of East German economic planning since 1958 has been
competition with West Germany. The West German "economic miracle"
has stood as a challenge to the East German regime throughout its
existence. In 1955, with growing confidence and sudden impatience,
Walter Ulbricht, the head of the East German Communist Party (Sozi-
alistische Einheitspartei Deutschlands SED), took up the challenge,
boasting that East Germany would in a few years "prove the superiority
of socialism."
To make good this boast was the goal set forth in the directives
for the Second Five Year Plan (1956-60) issued in April 1956. In the
year of uneasiness that followed the Polish riots and the Hungarian
revolt, Ulbricht acceded to the drafting of a more modest plan, but
in the winter of 1957-58 he finally was given the authority to carry
out his ideas on economic growth. The Seven Year Plan (1959-65) which
quietly superseded the Second Five Year Plan, embodies these ideas,
summarized in the goal of "overtaking and surpassing" West Germany in
per capita output and consumption by 1965.
The Seven Year Plan provides the starting point for the present
study of East German economic policies and prospects through 1965.
The main body of this report begins with an examination of the plan
itself (see II, below); the major weaknesses brought out by this exami-
nation then are traced in the ad hoc revisions that the East Germans
have already made (see III*); and, finally, an independent assessment
is made of East German economic capabilities, based on both East and
West German experience, leading to an estimate of economic developments
in East Germany through 1965 (see IV**).
II. Long-Term Plans
Present East German policies on economic growth may be traced back
to the winter of 1955-56, when the original directives for the Second
Five Year Plan (1956-60) were being drafted. In October 1955, Walter
Ulbricht gave to a large working group of the SED Central Committee,
made up of senior economic functionaries, the job of outlining a plan
under which East Germany would match West German per capita output of
* P. 55, below.
** P. 6o, below.
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the "most important products" by 1960.* With the appointment of this
working group, Ulbricht brought into the open an unresolved conflict
over the Second Five Year Plan, and especially over its goals for in-
dustry. He must have concluded that "business as usual" attitudes had
so permeated the Party and state apparatus that he would have to make
a clear break.
Although Ulbricht succeeded in getting his views incorporated in
the directives for the Second Five Year Plan adopted by the Third
Party Conference in March 1956, he lost the initiative later on in the
year as a result of the Polish crisis and the Hungarian revolt, and it
was not until early in 1958 that he finally gained the Soviet support
that he had to have to reestablish his control. After reorganizing
the economy to make both the planners and management responsive to his
direction, Ulbricht quickly succeeded in enacting his program for
"proving the superiority of socialism," which in the form of the Seven
Year Plan (1959-65) was formally approved in October 1959.**
The views of Ulbricht, as reflected in the Seven Year Plan, had
changed little since 1955 in the main lines of reasoning and on the
principal rates of growth. In these respects the Seven Year Plan
bears a close resemblance to the original directives for the Second
Five Year Plan. It is no less ambitious. Indeed, the principal rates
of growth are slightly higher, as shown by the following tabulation
(annual average increases in percent):
Industry
Construction
Agriculture
Directives Law
for the Second of the Seven Year
Five Year Plan Plan
9.2
9.5
4.o
9.4
lo to 11
4.5
* The establishment of this working group and the statement of its
mission are described by a defector, Fritz Schenk, who was then a
senior official in the East German State Planning Commission. The
goal of matching West Germany in output per capita was not stated in
the published draft of the directives for the Second Five Year Plan,
nor was it emphasized in official propaganda, although it was mentioned
occasionally.
** Planning in 1958 took the form of an upward revision of the goals
for the last 2 years of the Second Five Year Plan (that is, 1959-60)
and the drafting of a Third Five Year Plan (1961-65). It was only in
March 1959 that the East Germans began to refer to a single 7-year plan
for the period, on the Soviet model.
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The following sections are devoted to an analysis of Ulbricht's ambi-
tious plan, which falls naturally into two parts -- one to suggest
the reasons for fixing on these particular rates of growth, the other
to examine the changes in economic structure projected to fit them.
A. Rates of Growth
The first consideration in setting the goals for the East
German Seven Year Plan was that of "demonstrating the superiority of
socialism." This consideration was the main factor in fixing the over-
all rate of growth of industry, the most important single decision in
planning the growth of the economy. The point of departure for the
entire industrial plan was the requirement of "overtaking and surpass-
ing" industrial output per capita in West Germany by 1965. Even more
ambitious goals were set for construction and agriculture, in part, at
least, on the expectation that "productive relationships" in these
sectors especially would be transformed by "socialization." The con-
struction program was based on Soviet models. Beginning with lower
productivity, the East Germans hoped to match by 1965 the high level
of productivity planned for the USSR. The goal for agriculture was to
approach the highest actual yields in comparable agricultural areas in
Western Europe and thus to equal or exceed probable West German levels.
Because of the downward bias of the East German regime in esti-
mating future West German growth, even the fulfillment of the industrial
plan was not likely in fact to result in catching up with West Germany
in output per capita during the period. In construction, however, the
projected rate of growth was evidently high enough to offer the prospect
of "overtaking and surpassing" West German output per capita, and, in
agriculture, output per capita was already higher in East Germany. In
general, therefore, the goals that were set justify the description of
the plan as one designed to make the East German economy competitive
with that of West Germany.
1. Industry
East German studies of West German industry were begun at
the time of the drafting of the directives for the Second Five Year
Plan in order to obtain comparisons of industrial output per capita
and projections of West German industrial growth and thus a measure
of the growth required to catch up with and pass West German industry.*
* The first studies were done by a large working group (Kommission) of
the SED Central Committee in the winter of 1955-56. According to Fritz
Schenk, Western economic and technical publications previously had been
forbidden, except to elements in the Ministries of State Security and
Defense and to the research institute (Deutsches Wirtschaftsinstitut)
specializing in the study of current economic developments in the West.
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The approach that was followed and the over-all results that were ob-
tained can at least be suggested.
The comparative studies of industrial output that were used
in drawing up the Seven Year Plan are presumably reflected in the fig-
ures given out by Heinrich Rau, the Minister of Foreign Trade at that
time, a few months after the publication of the plan. According to Rau
the value of industrial output per capita in East Germany in 1958 was
slightly more than 3,000 DME as against about 4,000 DME in West Germany,*
giving a relationship differing little from Western estimates. On this
basis, output per worker in East Germany was about two-thirds the West
German level.**
There is no direct evidence of the specific assumptions
and methods used in projecting the rate of growth of West German in-
dustry. Because of the many differences in structure and product mix
between East German and West German industry, however, it is probable
that the main target of the East German plan was an aggregative projec-
tion of industrial output per capita in West Germany. The rates of
growth allowed in the East German plan for West German industrial out-
put, about 4.5 percent a year in total and 4 percent a year per capita,
were considerably lower than the average rates achieved in preceding
years and somewhat lower than Western projections made at that time,
but they were not inconsistent with selected historical trends. A
growth rate of 4 to 5 percent a year in output could have been obtained
by projecting trends during 1956-58 in industrial employment, hours
worked, and output per man-hour.*** Thus, although the East German
* For industrial products the value of the DME (Deutsche Mark
East -- East German mark) is roughly US $0.25. These data, however,
are not exactly comparable to statistics for US industry. The data
for East Germany represent the value of commodity production by indus-
trial enterprises at factory prices. The West German values probably
were computed from physical data using the same prices. Western esti-
mates, which include industrial handicrafts, show East German per capita
output in 1958 to be slightly lower in relation to West German per
capita output.
** The data on employment used here for East Germany are those that
match Rau's data on output -- workers and salaried employees in "indus-
trial enterprises," which exclude, inter alia, employment in military
production, uranium mining, and handicrafts.
*** Increases in industrial employment in West Germany had declined
steadily from 8 percent in 1955 to less than 1 percent in 1958, and it
was an accepted view in West Germany that further increases in indus-
trial employment would be small. (In fact, industrial employment in-
creased sharply in 1959 and 1960.) The number of hours worked had in-
creased in 1955, though less rapidly than [footnote continued on p. 11]
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projections were on the conservative side -- for example, the 1955-58
period was affected by the 1958 recession -- these projections were
not without foundation, and they are high enough to indicate that
Ulbricht really was thinking in terms of competition with West Germany.
West German growth in 1959-60, of course, turned out to be much higher
than the East German projections, but this development surprised Western
observers as well.
The official projections of rate of increase for West
Germany, together with the over-all comparison for industrial output
given above, yielded the average increase in East German industrial
output required to "overtake" West Germany within a given period.
According to Rau, the aim was to match West German per capita output
by 1963-64. This aim could be achieved with the planned rate of in-
crease of 9.4 percent in industrial production, given the expectation
of a negligible net change in the East German population.*
The implied relationship between East German and West German
growth daring the plan period is approximately the same as the historical
relationship in labor productivity. In East Germany, according to offi-
cial statistics (which somewhat exaggerate industrial growth), output
per worker had been increasing at an average rate of more than 8 per-
cent per year since 1950; in West Germany, at less than 5 percent.**
Since 1954 the rates had been 7 and 3 percent, respectively. Thus the
projections must have seemed reasonable, given the expectation of a very
gradual increase on either side in industrial employment. Ulbricht's
belief that East German industry could catch up, however, was not based
only on historical relationships. He realized that the growth of indus-
try in East Germany and West Germany alike depended above all on develop-
ments in the great economic blocs to which they belonged. Ulbricht ex-
pected these external factors to change greatly in favor of East Germany,
with the result that West Germany would gradually cease to make full use
of its natural resources, capital, and experience, while East Germany,
by making fuller use of all three, would overcome the handicaps of iso-
lation and backwardness in a few years.
the number of workers, and had fallen by about 3 percent in 1957 and
about 1 percent in 1958. (They fell again in 1959 by slightly more than
1 percent and remained the same in 1960.) Output per man-hour had grown
at an average annual rate of 5 percent during 1955-58.
* The population was expected to increase by about 250,000, or 1.4 per-
cent, during the 7-year period, on the implicit assumption of no further
emigration.
** For East Germany, what is measured in the official index is output
per "production worker"; in West Germany, output per worker.
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On the one hand, Ulbricht looked hopefully for an "eco-
nomic crisis" in the West. His first hopes, stimulated by the US
recession of 1.954, had been disappointed, and the steady growth of
the Western European economies in 1955-57 had helped weaken the case
for the original Second Five Year Plan. In 1958, however, there was
again a recession, this time not only in the US but also in Western
Europe, renewing the expectation that West German growth would slaw
down.
In the Soviet Bloc, on the other hand, Ulbricht expected
not only steady economic growth but also better integration, bringing
a rapid improvement in East German foreign trade. Although very dis-
turbed by the Polish crisis and the Hungarian rebellion of 1956, which
had caused him for a time to acquiesce in a more modest economic pro-
gram, Ulbricht was greatly encouraged by the Soviet reaction to the
crisis, especially by Soviet willingness to support East German eco-
nomic development.
For, in the end, Ulbricht counted on Soviet support. In
1955 he had anticipated the early end of Soviet exploitation, and the
USSR had largely made good on this expectation. In 1958, besides the
political support that he had needed to carry out his ideas, Ulbricht
received a guarantee of a large increase in supplies of raw materials
from the USSR. With such evidence, even if he had no other specific
commitments, Ulbricht had reason to believe that the USSR would give
further support as needed to make East Germany the "show window"* of
the "peoples democracies."
In regard to most changes in structure of output the "final"
industrial plan for 1959-65 resembled both the plan for 1956-60 and
the actual expansion of West Germany during 1954-58, as shown in
Tables 2 and 3.**
In the Seven Year Plan, as in Ulbricht's original proposal,
the most rapid growth was planned in production of finished goods,
especially for export and investment, and in output of building ma-
terials. The planned growth of mining was much slower and that of
metallurgy somewhat slower, mainly as a result of planned savings in
the use of these materials but also because some further increase was
expected in the already great share of requirements to be furnished
by imports.
* According to Fritz Schenk, Khrushchev had promised the East Germans
in October 1955 that East Germany must become the "show window" of the
Soviet Bloc.
** Tables 2 and 3 follow on p. 13.
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Table 2
East Germany: Comparison of the Average Annual Rates of Growth
for Industry in the Original Directives for 1956-60
and in Those Approved for 1959-65
Percent
Directives Law
for the Second of the Seven Year
Five Year Plan Plan
Industry (excluding handi-
crafts)
9.2
9.4
Power (public net only)
13.6
11.2
Mining
6.3
3.2
Metallurgy
8.6
9.2
Chemicals
10.5
10.8
Building materials
11.8
12.9
Metalworking
11.8
11.8
Light
7.4
9.1
Food
5.5
4.8
Industrial handicrafts
(excluding repairs)
3.6 2.2
Table 3
Comparison of the Average Annual Rates of Growth for Industry
Planned for East Germany in 1959-65
and Those Achieved in West Germany in 1954-58
Percent
Industry (excluding handi-
crafts)
East Germany
Plan for 1959-65
West Germany
Actual 1954-58
9.4
8.6
Power (public net only)
11.2
9.6
Mining
3.2
3.6
Metallurgy
9.2
7.9
Chemicals
10.8
11.0
Building materials
12.9
5.8
Metalworking
11.8
12.0
Light
9.1
6.5
Food
4.8
7.3
Industrial handicrafts
(excluding repairs)
2.2 2.5
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In many ways the relations among the actual West German
rates of growth are much the same as those among the projected East
German rates. The relation between the rates for the basic industries
power, mining, and metallurgy -- and those for the other branches of
industry is similar. In both countries, chemicals and metalworking
lead and dominate the growth of manufacturing. The principal differ-
ences in the pattern of development are attributable to obvious dif-
ferences in the distribution of the national income between consump-
tion and investment. Thus the higher West German rates of increase
for food processing and the very much lower rates for output of build-
ing materials indicate a somewhat faster growth for personal consump-
tion in West Germany than that projected for East Germany* and a sub-
stantially lower rate of increase for investments in West Germany.
It does not follow, however, that the Seven Year Plan was
adapted mechanically from the earlier plans or from West German ex-
perience. On the contrary, a great deal of additional work had to be
done at every level, from the State Planning Commission -- the economic
general staff -- down to the enterprises -- the tactical units.
A branch-by-branch survey of the production plans offers
a more detailed view of the Seven Year Plan. Data are shown in
Table 4** for the main branches and in Table 5xxx for selected prod-
ucts.
Production of electric power (including power generated
by industrial plants) was to rise by almost 9 percent per year, a
little more rapidly than in the early 1950's, but the increase planned
in output of electric power was still not enough to take care of the
demand projected by the planners. It was estimated that the gap would
be 10 percent in 1965. The main limiting factor here unquestionably
was the high cost of investment in electric power, which even as planned
was to take close to 10 percent of the total investment.
The rate projected for mining is lower than in the original
plan for 1956-60 mainly because of provision for a gradual decline in
the rate of increase for mining of brown coal. This decline reflects
the desire to use the East German reserves more advantageously by
gradually abandoning the uneconomical conversion of coal to liquid fuels.
Increasing amounts of imported crude oil were to be used to supply the
larger quantities of petroleum products planned for 1965. This shift
* On a per capita basis the projected trend for East German con-
sumption would be somewhat higher than 'the actual trend in West
Germany.
** Table 4 follows on p. 15.
*** Table 5 follows on p. 16.
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Table 4
East Germany: Indexes of Planned Industrial Production
1965
1958 = 100
Industry (excluding handicrafts)
188
Power (public net only)
210 a/
Mining
125 a/
Metallurgy
185
Chemicals
205
Building materials
234
Heavy engineering
210
General engineering
248
Transport equipment
175 a/
Shipbuilding
148
Aircraft
210
Forgings and castings
160
Metal products
236 a/
Electrotechnical
266
Precision mechanics and optics
211
Wood products
188
Textile
182
Clothing
200
Leather
172
Cellulose and paper
155 a/
Printing
165 a/
Glass and ceramics
200
Food
139
Industrial handicrafts (excluding repairs) 116
a. Estimated.
in the pattern of consumption of energy was to differ from the shift
that is occurring in West Germany, where oil is being substituted directly
for coal, causing production of coal to level off and exports of coal to
decline. In contrast, East Germany planned to increase production of
brown coal, although at a lower rate than accomplished in the past.
Coal and oil in East Germany were to complement each other, not compete,
as the total consumption of energy increased.
The planned growth of metallurgy was higher than that pro-
jected in the original plan for 1956-60 because of the additional
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Table 5
East Germany: Goals for Output of Selected Industrial Products
1965
Index
Commodity Unit
Output
(1958 = 100)
Electric power Billion kilowatt-hours
63
181
Mining
Brown coal Million metric tons
278
129
Hard coal Thousand metric tons
2,831
98
Metallurgy
Pig iron Thousand metric tons
2,150
121
Rolled steel Thousand metric tons
3,500
155
Chemicals
Sulfuric acid Thousand metric tons
503
1,005
189
Caustic soda Thousand metric tons
NaOH
44o
148
Soda ash Thousand metric tons
Na2CO3
730
132
Calcium carbide Thousand metric tons
1,180
142
Nitrogen fertilizers Thousand metric tons
N
386
121
Phosphorus fertilizers Thousand metric tons
P2?5
284
208
Rayon filaments Thousand metric tons
19.4
77
Rayon staple fibers Thousand metric tons
106
95
Synthetic fibers Thousand metric tons
38.9
581
Building materials
Cement Thousand metric tons
7,975
224
Bricks Million units
2,700
123
Concrete products Thousand metric tons
15,635
356
Light industry
Yarn Thousand metric tons
369
147
Leather shoes Million pairs
34
172
Paper of all kinds Thousand metric tons
755
155
Wood products Lt./
177
Food processing
Meat and meat products Thousand metric tons
874
124
Flour Thousand metric tons
1,250
98
Margarine Thousand metric tons
184
101
Butter Thousand metric tons
241
153
Sugar Thousand metric tons
1,022
130
Beer Thousand hectoliters
14,300
111
Cigarettes Million units
18,450
108
Metalworking I/
218
Calculated index of industrial production 2../
179
Official planned index of industrial production
188
Official planned index of industrial
handicrafts (excluding repairs)
116
a. Plan data were not available for wood products. Therefore, an estimate was made to represent the
growth of sample commodities within the industry.
b. The index for metalworking is unavoidably the official index.
c. This calculated index of 179 for 1965 is considerably lower than the official index of 188 for
industry. The official index is inflated in two respects. Because the Seven Year Plan was not for-
mally approved until the fall of 1959, an actual (anticipated) rather than a planned increase was
included for 1959, accounting for a slight inflation of the official index. In addition, handicrafts
were excluded, resulting in an inflation of about four points in the official index. The calculated
index is weighted for the major sectors by a gross-value-added series in 1950 West German prices.
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emphasis put on production of high-quality steels and more highly
finished steel products. Whereas output of pig iron was to increase
by only 21 percent between 1958 and 1965, that of crude steel by
52 percent, and that of rolled steel by only 55 percent, output of
cold-rolled and other special finish steel products was to increase
by 211 percent -- mainly in the form of tubes (150 percent), cold
strip (350 percent), and cold-drawn steel (158 percent). Similarly
for nonferrous metallurgy, whereas output of primary aluminum was to
increase by 65 percent and that of copper ore by only 47 percent,
output of rolled nonferrous metal products was to increase by more
than 100 percent (including an increase of 150 percent in aluminum
products).
In the other branches of manufacturing -- chemicals,
machine building, building materials, and light industry -- and in
construction the planned increases in output were very closely re-
lated to the planned end uses and consequently were most directly
influenced by political motives. The feasibility of large increases
in output of these branches, which produce mainly finished goods for
exports, investment, and consumption, continued to be disputed case
by case even after the general question of their rate of growth was
settled at the political level. There were repeated requests for
labor and capital much above the planned allocations. By the same
token the greatest effort to improve planning and management was made
in this area. In particular, planning for exports was founded on more
complete knowledge of demand by East Germany's principal trading part-
ners in the Soviet Bloc, and more systematic use was made of Western
and Soviet technology to plan changes in process and in product design.
The importance of both these aspects of planning had been emphasized
by Ulbricht in urging his proposals for both the Second Five Year Plan
and the Seven Year Plan.
2. Construction
East German plans for the construction sector looked to
the USSR rather than to West Germany. In the early and middle 1950's,
many East German officials had been sent to Moscow to study the Soviet
construction industry, and their views prevailed from the start in
planning for the period 1956-60.
The goal of the East German, as of the Soviet, plans was
the rapid "industrialization" of the entire sector: the transfer of
processes from the building site to the factory and the introduction
of mass production techniques on the site, with the great changes
implied in the use of materials and in economic organization and cor-
respondingly great increases in output per worker. In housing, for
example, it was estimated that the use of assembly-line techniques
would increase output per worker on the site to two and one-half times
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the level reached with traditional methods. The projected growth of
construction was far more rapid than was expected in West Germany or
elsewhere in Western Europe. The East German plans indeed projected
an even more rapid increase in output and productivity than that
planned in the USSR. Under the East German Seven Year Plan, both out-
put and productivity in 1965 were to be somewhat more than double the
level of 1958. For the same period the USSR provided for an increase
of only 60 to 65 percent in output and productivity.
The most likely explanation of the adoption of more ambi-
tious goals by East Germany is suggested by a comparison of the con-
struction industries in the two economies in 1958. The level of mech-
anization and probably of skill as well was significantly higher in
East Germany than in the USSR, whereas output per worker was 10 to
20 percent below the Soviet level.*
As for comparisons with West Germany, the lag in East
German construction had already been made up in great part. Output
per capita in East German construction, to be sure, was still well
below the West German level, especially in housing. There is no East
German comparison available, but it is estimated that per capita out-
put was only about two-thirds of the West German level, and housing
construction per capita had as yet risen only to little more than one-
half of the West German level. In this instance, however, the dif-
ference does not reflect an enormous difference in productivity. Since
1955, although productivity had been increasing rapidly in East Germany,
there had been almost no increase in West Germany. As a result, East
German productivity had reached about seven-eighths of the West German
level. The East German plans for the 1960s obviously meant that pro-
ductivity in East German industry was expected to rise well above that
in West Germany, which had been changing very slowly for several years.
The great increase projected in output in East German con-
struction evidently implied also the expectation of "overtaking," if not
"surpassing," West Germany in per capita output. On the basis of the
planned doubling of output by 1965, construction per capita would be
about one-third above the West German level of 1958. With the assumed
slowdown in the West German economic boom, the East Germans doubtless
expected that construction would rise very slowly in West Germany. Even
at the per capita rate of the previous 5 years, it would rise by some-
what less than one-third by 1965.
* The information available on mechanization is rather limited but in-
dicates a great advantage to East Germany. The estimate on output per
worker is based on a comparison of the main inputs per worker of con-
struction materials -- cement, bricks, wood, and steel.
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3. Agriculture
In all that pertained to the organization of agriculture,
Ulbricht looked to the USSR, and he was even prepared to insist on the
introduction of Soviet agricultural practices over the opposition of
East German experts. In setting particular goals for output in East
German agriculture, however, the main criterion was the best experience
in Western Europe, in particular, the actual yields in Denmark, the
Netherlands, and Belgium -- the most productive areas comparable with
the main agricultural area of East Germany. Published comparisons re-
lated specifically to Denmark, the Netherlands, -and Belgium -- and of
course to West Germany, where the yields are considerably lower.* The
crop yields planned for both potatoes and sugar beets were close to
those in the Netherlands in 1958, the highest in the area. The average
yields projected for grains were still below the yields in Denmark, the
Netherlands, and Belgium, though much above the actual West German
yield. Production of meat, in relation to the total agricultural area,
was planned at not far below the level in Belgium and Denmark, though
still well below that in the Netherlands. Production of milk per cow,
which was still extremely low in East Germany, was to be increased
enormously, even though it was to fall a little short of the average
for Denmark and well below the averages for the Netherlands and Belgium.
Comparisons of the same kind with West Germany show that the
goals adopted were far enough above the West German levels in 1958 to
indicate that East German agriculture was expected to be slightly ahead
of West German agriculture in these respects in 1965. The conclusion
is consistent with over-all figures for agriculture. In 1958 the value
of output per hectare of agricultural land in East Germany ran at
nearly nine-tenths of the West German level and the increase planned
for the total agricultural output was some 36 percent, substantially
more than would occur in West Germany if recent trends continued. The
projections in the Seven Year Plan probably also would bring East German
output per worker in agriculture, which in 1958 was about the same as
in West Germany, somewhat above the West German level by 1965.
In per capita agricultural output, East Germany was already
well ahead of West Germany, for as a result of the contrasting trends
in East and West German population in the 1950'5, there was about one-
third more agricultural land per capita in East Germany than in West
Germany by 1958.
The goal of agricultural policy, adopted in the early
19501s, was to make East Germany self-sufficient in meat and dairy
* These comparisons are given not in the main presentation of the
Seven Year Plan but in other speeches and articles issued at about
the same time.
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products during the period. Indeed, after reviewing the Seven Year
Plan, the regime decided that this goal must be very nearly met by
1963. Ulbricht's plans for increasing output were based on the ex-
pectation that great increases in efficiency would be obtained by
conversion to large-scale production, which meant socialization and at
least a considerable consolidation of collective holdings. The risks
of collectivizing the independent "old" peasant, who was still the
mainstay of East German agriculture in 1958, thus were added to the
uncertainties of any agricultural program. The costs, however, cannot
be estimated with any exactness, and political factors doubtless led
to their being minimized in the East German plan.
4. National Income
The planned growth of industry, construction, and agricul-
ture very largely determined the growth of trade and of transport and
communications and thus of aggregate "material production," or national
income, Soviet style. The goal of "overtaking and surpassing" West
German output per capita in industry, construction, and agriculture
evidently implied the expectation that East German national income per
capita also would be higher in 1965.
The expectations of the leadership are suggested by a pro-
jection of labor productivity for both the East German and West German
economies, made by the East German theorist Fritz Behrens. Behrens
estimated East German labor productivity in 1958 at about 80 percent
of the West German level (as against a ratio of about 67 to 75 percent
in 1955).* Using these relationships -- which are consistent with
Western estimates -- he projected the growth of West German output per
worker at 3 percent per year and that of East German output per worker
at two alternative rates of 6 and 9 percent. According to Behrens'
projection, East Germany thus would overtake West Germany at some point
between 1962 and 1966, as he pointed out in the following tabulation
on growth in output per worker (West German output per worker in
1958 - 100):
West Germany
(at a Rate of 3 Percent) At a Rate of 6 Percent At a Rate of 9 Percent
East Germany
1958
loo
80
80
1962
112
100
113
1965
121
118
1966
124
124
* This estimate is the only known East German estimate involving a com-
parison of East German output as a whole (in effect, the national prod-
uct) with that of West Germany. The [footnote continued on p. 21]
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If Behrens' projection reflects the staff work done in
preparation for the Seven Year Plan, then Ulbricht literally meant
to "overtake and surpass" West Germany by 1965, for the average annual
increase in labor productivity projected in the plan was almost 9 per-
cent.* It is very likely that Ulbricht himself believed that the dif-
ference between East German and West German output per worker was some-
what less than that estimated by Behrens.** Thus Ulbricht may well
have felt that he had an excellent chance of achieving his stated aims,
and he must have been confident that the economic gains would at least
be great enough to constitute a political success.
B. Factors in Growth
The changes in economic structure involved in Ulbricht's pro-
gram for transforming the East German economy appear clearly in an
examination of the plans made for foreign trade, input-output rela-
tions, the allocation of labor, additions to capacity, and improve-
ments in technology. Each of these plans show careful study, but there
also is evidence of forced balancing and, to some extent, of imbalances
not reconciled.
The plan for foreign trade rested on fairly dependable assur-
ances that calculated import requirements of major commodities would
be met as a result of Soviet commitments and negotiations under way
with other countries of the Soviet Bloc. Nevertheless, imports and
exports apparently were balanced without making sufficient allowance
for imports, which, though of relatively small value individually, are
estimate may represent the results of a preliminary study by the Central
Statistical Administration (of which Behrens was the chief until late in
1957). It probably has been disputed by other East German economists,
as such estimates often are.
* This estimate relates only to "material production" -- that is, the
part of GNP included in national income, Soviet style. The announced
increase in national income was about 60 percent, or just less than 7
percent per year, but the announcement related to national income avail-
able for domestic use. The planned growth of national income produced,
however, was about 66 percent, or 7.5 percent per year. The difference
represents a change in the foreign trade balance -- a net increase in
exports (see pp. 24-26, below). The growth of labor productivity was
planned at about 8.8 percent, for employment was to decline by about
0.9 percent per year (excluding any effect of further population move-
ment to West Germany) (see pp. )41-43, below).
** Ulbricht in fact quoted an estimate of the Deutsches Wirtschafts-
institut, the East German group specializing in the study of Western
economies, which indicated that the East German industrial output per
capita in 1958 was only 13 percent lower than the West German.
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collectively of substantial importance to the economy. Moreover, it
is not unlikely that calculations of import requirements and export
capabilities were modified themselves to make the foreign trade plans
balance.
Whether or not such modifications were made, there were to be
major shifts in input-output relations during the period of the plan,
and some of these shifts were at best optimistic guesses. The changes
projected in the energy sector, chiefly as a result of large increases
in output of petroleum products based on imported crude oil, reflected
careful technical planning. Much the same was true of changes in
efficiency in the use of inputs in electric power, metallurgy, and the
chemical industry. In other instances, however, notably in the use of
rolled steel by machinery and equipment industries, major reductions
were projected in inputs per unit of output on much less firm grounds.
In calculating changes in the supply and efficiency of labor,
the planners started with a carefully worked out projection of the
decline in the population of working age, inevitable as a result of
the unfavorable age structure. They failed to project any further move-
ment to West Germany, but the effects of this error were limited by the
closing of the Berlin sector border on 13 August 1961. Scarcely less
arbitrary were the decisions made as to increases in the efficiency of
labor. Rapid increases in labor productivity were projected in every
sector, and to a great, if uncertain, extent they reflected nothing
more than Ulbricht's unbounded confidence in the efficacy of proper
organization and aggressive management ("socialist working methods").
Additions to fixed capital also were, of course, to contribute
to increased labor productivity. The end of Soviet exploitation had
permitted a rapid increase since 1955 in capital investments, which had
already been reflected in a large rise in the rate of additions to fixed
capital. Some further rise was projected in the Seven Year Plan. The
greater part of these additions were in capital-intensive branches of
the economy -- electric power, coal mining, petroleum refining, chemical
production, metallurgy, and transportation -- and it seems likely that
in these branches the fixed capital to be made available was closely
related to the projected increases in output. In other branches, how-
ever, and especially in agriculture and construction, the additions,
though larger than in the past, generally were still too small to bring
about the increases planned in output and labor productivity.
To accelerate the introduction of new technology into East Ger-
many, Ulbricht counted especially on aggressive management. He was
justified in prodding East German management to benefit from Western
and Soviet experience in exploiting new technology. He was quite wrong,
however, to believe that unpopular social and political programs actually
would speed up the effort to modernize the economy and "catch up" with
West Germany.
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1. Foreign Trade
The foreign trade prospects of East Germany for the period
1959-65 were in a sense less favorable than in earlier periods. Be-
cause the USSR finally had relieved East Germany of the burden of ex-
ploitation, no further windfall gains could be expected from Soviet
concessions. On the contrary, East Germany was expected to repay its
debts to the USSR, to cease running an import surplus with the West,
and to advance additional credits to the other European Satellites
and to underdeveloped countries. As a result, imports were to increase
more slowly than in the early and mid-1950's, and exports were to in-
crease more rapidly than imports. To be sure, the Seven Year Plan,
unlike earlier plans, rested on firm commitments by the countries of
the Soviet Bloc, especially the USSR, but the long-term trade agree-
ments negotiated for the period ending in 1965 by no means covered
the exports and imports projected in the Seven Year Plan.
Official apologists, in explaining the slow recovery of
the East German economy, have always placed first the fact that trade
with West Germany was restored only in small part after the defeat and
partition of Germany. The argument is well founded. The East German
economy, which had accounted for only a little more than one-quarter of
the total output of prewar Germany, had been highly specialized. Be-
cause of size and limited natural endowment East Germany would have
had more trouble than West Germany in adjusting to a separate exist-
ence even as a Western European economy. The primitive organization
of international trade within the Soviet Bloc represented a far greater
obstacle to recovery and growth. The consequences were, first, that
resources, particularly plant capacity and skills, were not fully em-
ployed for lack of inputs and markets and, second, that the allocation
of resources among users was less efficient than it would have been if
wider opportunities for foreign trade had been available.
Recovery also was held up, though official apologists have
not emphasized this aspect, by Soviet exploitation of the East German
economy, which in effect compelled East Germany to export considerably
more than it imported. Soviet exploitation continued to be substantial
through 1955, although reparations deliveries ostensibly had been con-
cluded at the end of 1953.
Beginning in 1956, the over-all East German position on
foreign account improved greatly. East German reparations deliveries
to the USSR dropped to a very low level, and, by the late 1950's,
Soviet exploitation had been eliminated except for such losses as
East Germany may have been forced to bear in uranium mining. The USSR
also extended some medium-term commercial credits to the East Germans
in 1957. As a result, East Germany, instead of having to export far
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more than it imported, as in the early 1950's, was able in the latter
1950's to run a small import surplus, when invisibles are taken into
account. The increase in imports during the period is shown in Table 6.
This increase was fairly rapid -- in the years 1956-58, for example, it
averaged 14 percent per year (measured in constant prices). Total de-
liveries on foreign account, however, dropped sharply in 1956 -- though
commercial exports, of course, increased -- and did not even regain the
level of 1955 until 1957-58.
Table 6
East Germany: Average Annual Rates of Growth in Imports 1/
1956-58
Percent
1956-58
Food and unprocessed agricultural products
8
Industrial raw materials
7
Manufactured goods
26
Total
14
a. This table is based on commodity data (with 1958 for-
eign trade price weights), except that finished goods
(which account for about half the weight given to manu-
factured goods) are included on the basis of unadjusted
values at current prices.
In the period of the Seven Year Plan the East Germans ex-
pected imports to continue to increase fairly rapidly for another 3
years -- through 1961 -- and thereafter to increase more slowly. Ex-
ports, on the other hand, were to increase more rapidly in the latter
years of the period. East German indebtedness thus was to rise during
the first 3 years, and this indebtedness was to be repaid during the
last 4 years. The East Germans also planned to accumulate some foreign
exchange reserves and to extend credits to other European Satellites
and to underdeveloped countries.
These plans explain the large export surpluses in commodity
trade expected in 1965, as shown in Tables 7,* 8,* and 9,** which break
* Tables 7 and 8 follow on p. 25.
** Table 9 follows on p. 26.
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Table 7
East Germany: Breakdown of Imports by Major Category
1958 and 1965 Plan
1958
1965 Plan
Billign
Billiqn
Index
DME a/
Percent
DME a/
Percent
(1958 = 100)
Coal and power, ores, and building
materials
1.1
16
1.5
13
136
Metals
1.4
20
2.6
22
186
Pettoleum and chemicals
o.4
6
0.9
8
225
Metal products, machinery, and equipment
0.8
12
2.0
18
250
Textile manufactures and clothing
0.4
5
0.5
4
125
Other products of light industry
O.
5
0.8
7
200
Food, drink, and tobacco
1.8
25
2.1
18
117
Other products of agriculture (including textile
fibers) and forestry
0.8
11
1.2
10
150
Total
7.1
100
11.6
100
163
a. Both actual and planned values are converted from 1958 (old) rubles at a rate of 1.05 DME to 1 ruble.
The nominal value of the old ruble was US $0.25.
Table 8
East Germany: Breakdown of Exports by Major Category
1958 and 1965 Plan
1958
1965 Plan
Billiqn
DME 2J
Percent
Billign
DME 2J
Percent
Index
(1958 = 100)
Coal and power, ores (including uranium
ores), and building materials
1.3
17
1.9
13
146
Metals
Negl.
Negl.
Negl.
Negl.
Petroleum and chemicals
1.1
14
2.2
15
200
Metal products, machinery, and equipment
4.1
52
8.o
54
195
Textile manufactures and clothing
0.5
6
0.9
6
180
Other products of light industry
0.6
7
1.2
8
200
Food, drink, and tobacco
0.2
3
0.4
3
200
Other products of agriculture and forestry
0.1
1
0.2
1
200
Total
7.9
100
14.8
loo
187
a. Both actual and planned values are converted from 1958 (old) rubles at a rate of 1.05 DME to 1 ruble.
The nominal value of the old ruble was US $0.25.
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Table 9
East Germany: Breakdown of Foreign Trade
Between the Sino-Soviet Bloc and the Free World
1958 and 1965 Plan
Billion DME a/
1958 1965 Plan
Imports Exports Turnover Imports Exports ?Turnover
Sino-Soviet Bloc
5.0
6.1
11.1
9.0
11.0
20.0
Free World
2.1
1.8
3.9
2.6
3.8
6.4
Total
7.1
7.9
15.0
11.6
14.8
26.4
a. Both actual and planned values are converted from 1958 (old) rubles
at a rate of 1.05 DME to 1 ruble. The nominal value of the old ruble
was US $0.25.
down planned exports and imports by product groups (Tables 7 and 8)
and between trade with the Soviet Bloc and the Free World (Table 9).
There is, of course, an export surplus shown for 1958, approximately
enough to cover the usual unfavorable balance of East Germany on in-
visibles (chiefly transport charges). Because the East Germans were
planning to carry a greater proportion of their overseas exports and
imports in their own bottoms by 1965 and to expand their own port
facilities to handle most of the East German traffic then being handled
through Hamburg, expenditures on invisibles were to increase less
rapidly than the volume of imports. Such expenditures were expected to
be less, and probably a good deal less, than one-third of the gross ex-
port surplus planned for 1965. The remainder thus represents a planned
net surplus.
The export surplus shown on the commodity account with the
Free World (see Table 9) reflects mainly the East German expectation
of having to cover a net import of services from the Free World (pre-
viously covered, along with some net import of commodities as well, by
Soviet credits) together with the extension of some small credits to
underdeveloped countries and perhaps the accumulation of some foreign
currency reserves. A substantial export surplus on commodity account
is necessary simply to balance accounts with the Free World, for the
greater part of the total unfavorable balance on invisible account
represents charges for shipping and harbor fees paid to countries of the
Free World. Part of the export surplus on commodity account with the
Soviet Bloc may represent an unfavorable balance on invisible account,
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but most of it probably represents a net favorable balance of trade
planned for 1965. This balance was intended to cover the final in-
stallment of debt repayments to the USSR and some extension of new
credits to other European Satellites.
These projections reflect the estimates of the foreign
trade organizations, which were not fully reconciled with other East
German plans. The foreign trade organizations, for example, projected
a steady rise in exports of textile machinery throughout the period,
but production plans indicated that exports would begin to rise only
in the last half of the period. Again, the value of exports of chemicals
for 1965 was estimated by the chemical industry at about 20 percent less
than the figure projected by the foreign trade organizations. Similarly,
projected imports of food and agricultural products were well below
those required to balance domestic production and consumption plans,
at least until late in the period -- an inconsistency that was later
resolved by further inflating plans for agricultural production to pro-
vide for greater increases during the early 1960's.
Apparently the over-all projections of foreign trade in
terms of value were not even consistent with the plans made for spe-
cific commodities. In the first place, the targets for total exports
and imports were minimum figures, which were to be exceeded by 10 per-
cent or more. In the second place, only about two-thirds of the total
value of exports and imports was covered by specific commodity goals,
according to one author. The result was that the target figures for
imports did not include realistic allowances for the value of commodi-
ties not specifically projected in the plan, as can be shown by spe-
cific comparisons. The total of fuels, ores and metals, foods, and
other raw materials, as given in the foreign trade plan (see Table 7*),
was to increase by only 50 percent. The value of the major imports of
these products, on the other hand, as estimated on the basis of physical
data, was to increase by more than 75 percent (see Table 10**). When it
is considered that these major imports account for about 70 percent of
the total value of imports of goods in these categories in 1958, the
difference in these trends strongly suggests a downward bias or actual
omissions in the projection of other commodities, in particular, as
suggested above, those that were not specifically projected in the im-
port plan. Imports of these commodities, taken together, were not to
increase at all. Such a result could have been produced by estimating
the value of imports of these commodities as a residual -- the differ-
ence between the total value of imports permitted by the export plan
and the value of major imports projected specifically (allowance being
made for changes in the balance on invisibles and on capital account).
* P. 25, above.
** Table 10 follows on p. 28.
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Table 10
East Germany: Projected Increases in Imports of Selected Commodities
1958-65
1958
- 1965
Index
(1958 = 100)
Quantity
(Thousand
Metric
Tons 2/)
Value )2/
(Million
Rubles)
Quantity
(Thousand
Metric
Tons 2J)
Value )/
(Million
Rubles)
Industrial raw materials
Hard coal
7,397
451.2
8,850
540.0
120
Hard coal coke
2,452
263.1
3,450
370.2
141
Crude oil
1,127
89.6
5,300
421.4
470
Iron ore (Fe content)
910
73.5
1,310
105.8
144
Apatite concentrates
398
27.9
800
56.1
201
Crude rubber
17
42.3
29
72.2
171
Timber (thousand solid cubic meters)
785
57.1
1,440
104.7
183
Sawn lumber (thousand solid cubic meters)
737
123.8
1,545
259.5
210
Cellulose
43
24.9
122
70.6
284
Cotton fiber
88
275.8
147
460.6
167
Wool (washed)
12.5
94.5
34.4
260.2
275
Oilseeds
314.3
61.7
349.5
68.6
111
Hides
17.2
50.5
31.2
91.7
181
. Metals
Pig iron
557
154.8
1,435
398.9
258
Rolled steel
1,155
815.3
2,265
1,598.9
196
Copper
19.5
46.7
43.4
104.0
223
Zinc
26.8
25.1
51.6
48.3
193
Lead
36.5
39.2
50
53.8
137
Aluminum (including rolled)
31.8
70.2
91
200.9
286
Food and unprocessed agricultural products
Meat and meat products
63.1
126.6
38
76.2
6o
Grain
1,860
520.2
1,716
480.1
92
Raw coffee
15.8
45.3
50
143.1
316
Cocoa beans
9.2
29.8
35
113.3
380
Tropical fruits and nuts
99
59.2
300
179.3
303
Fresh fruit
50
13.2
89
23.6
173
Total
3,581.5
6,302.0
176
a. Unless otherwise indicated.
b. The nominal value of the old ruble was US $0.25. At West European market prices the value of these
imports generally would be somewhat less.
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Although the over-all plan apparently was distorted in
this respect and in other respects, it was a fairly realistic plan
in terms of the major commodities to be imported and exported. It
had already been recognized in 1955-56 that the more efficient use of
resources by the European Satellites would require the coordination of
all Satellite economic plans. The result had been a renewal of interest
in the Council for Mutual Economic Assistance (CEMA), which had attempted
to coordinate the plans for 1956-60. This first effort had been unsuc-
cessful. By 1958, however, when coordination of the plans for 1965 be-
gan, the CEMA committees were able to test the consistency of the col-
lective expectations of the Satellites in the field of foreign trade
and to arrive at useful, if very limited, agreements for specialization
in manufacturing, chiefly in production of machinery and equipment.
Of special importance to East Germany, moreover, was the
growing concern of the USSR, with which East Germany conducts some
45 percent of its trade, with economic growth in the European Satel-
lites. This concern resulted in a widening of the scope of bilateral
negotiations between the USSR and the individual Satellite regimes --
the East German in particular. As early as 1956 the Soviet govern-
ment had been willing to explore in great detail the long-term East
German requirements for iron and steel. By 1958, Khrushchev was pre-
pared to go much further, for the first time making commitments to
Ulbricht for the most important materials for which East Germany was
mainly dependent on the USSR. Ulbricht's commitments, together with
the statement of Soviet requirements for major East German exports --
especially chemicals -- went far to provide the East Germans with a
basis for planning.
Although these commitments gave some solidity to the East
German plans for foreign trade through 1965, many details necessarily
remained tentative. Not only was the work of CEMA limited in scope, but
also the recommendations of CEMA were frequently disregarded, as is
occasionally noted by East German writers themselves. The long-term
agreements were more dependable, but they were far from covering the
requirements for foreign trade. Even the agreements with the USSR and
the other countries of the Soviet Bloc were incomplete. Those agree-
ments negotiated through the first half of 1960 covered only 78.5 per-
cent of the total trade with these countries projected in the plan,
leaving a substantial remainder to be included in supplementary annual
agreements. And trade with the West continued to represent an impor-
tant element of uncertainty.
Even firm commitments, moreover, were contingent on the
underlying plans for production and investment -- those of the Soviet
Bloc trading partners of East Germany -- which would in any case re-
quire adjustments, and, of course, those of East Germany itself, which,
as already suggested, were in some respects quite unrealistic.
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The main changes in the composition of imports under the
Seven Year Plan are shown in Table 7.* This breakdown reflects only
the planned transactions, which called for an over-all increase of
63 percent, without the additional allowance mentioned above. What
is particularly interesting is the large increase shown in imports of
metal products, machinery, and equipment, which were to increase to
about 2.5 times the level of 1958. This projection continues at a
somewhat slower rate a trend that was begun in 1956 (see Table 6**),
reflecting a rise in the rate of growth of East German investments
and improved coordination of intra-Bloc trade ("specialization").
About one-half of such imports have been investment goods; about
one-half, inputs into the machinery and equipment industries. In-
creases in imports of other manufactured goods were to be much less.
Imports of textiles and clothing were to increase by about one-fourth,
and those of other products of light industry (mostly cellulose, paper,
leather, and shoes) were approximately to double the level of 1958.
Imports of chemicals (excluding crude oil) were to increase very
little.
The principal imports of raw and semifinished materials --
fuels, metals, and food and agricultural products -- which constituted
about three-fourths of the total East German imports in 1958, were to
account for a slightly lower proportion of the total imports in 1965,
increasing by only 50 percent, as shown in Table 7. Among these im-
ports the projections range from a very large increase for crude oil
to a small increase for coal and to decreases for grain and for meat
and meat products.
The very large increase projected in imports of crude oil
and the substantial increases in imports of metals and textile fibers
matched the import requirements for these commodities in the industrial
plan, and the same situation apparently holds for the smaller increases
projected for coal and coke. For many other important commodities, how-
ever, including fertilizers, alumina, wood, grains, and meat, the supply
plans either were left unbalanced or were balanced forcibly.
The East German plan for exports, as shown in Table 8,***
reflects no great change in policy. The Ministry of Foreign Trade
planned on minimizing exports of "material-intensive," especially "import-
intensive," goods and on maximizing exports of "labor-intensive" goods.
This policy had become established in the early 1950's, when a lack of
raw materials had left East Germany with unused labor and capacity. The
policy happened to coincide roughly with the obvious interest of East
Germany in developing the long-established industries in which it was
*
P.
25,
above.
**
P.
24,
above.
***
P.
25,
above.
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already relatively efficient and which also were those that had the
best reputation among the main trading partners of East Germany.
Exports of metal products, machinery, and equipment would continue
to account for more than one-half of all exports. Most of the spe-
cific choices among products, however, depended mainly on the desires
of these trading partners -- above all, of course, the USSR -- and on
the frequently close relation between what they wanted to import and
what they would agree to export.
The composition of East German exports by major commodity
groups was not to change greatly during the period of the Seven Year
Plan. Within the major commodity groups, however, there were to be
important changes in composition. Within the machinery and equipment
industries the increase in exports during the period was to be largest
in branches in which East Germany had already been a leading producer
before World War II, such as machine tools (an increase of nearly 100
percent in exports), textile machinery (250 percent), refrigerator cars
(500 percent), chemical equipment (200 percent), equipment for mining
brown coal (250 percent), and optical equipment (more than 100 percent)
Established East German competence in such lines was recognized by the
twelfth session of CEMA at Sofia, Bulgaria, in December 1959. In
chemicals the main aim was to increase exports of highly processed
chemicals, especially synthetics, such as, for example, polyvinyl
chloride (a 140-percent increase) and polystyrol (a 449-percent in-
crease). There also were to be large increases in other chemicals
such as nitrogen fertilizers and in photographic film under mutually
advantageous specialization agreements within CEMA (East German imports
of phosphorus fertilizers also were to increase greatly). In light in-
dustry, large increases were projected in traditional fields such as
toys and musical instruments (210 percent) and furniture (206 percent),
and substantial increases also were planned for textiles (86 percent),
of which East Germany had not long been a major exporter, and for
readymade clothing (122 percent), which East Germany was just beginning
to export in significant amounts.
Limitations in raw materials and capacity and, generally,
high costs were important factors holding down future exports of other
commodities and particularly of basic materials. Relatively small in-
creases were to be made in exports of potash (4o percent), liquid fuels
(about 35 percent), and synthetic rubber (8 percent), and exports of
building materials were to be reduced (exports of cement were to be
discontinued). Exports of all kinds of merchant ships were to be cut
back sharply. Exports of these commodities alone had accounted for
about one-eighth of the total value of exports in 1958. In each of
these instances, exports had already been leveling off in the mid-1950's.
Deliveries of uranium to the USSR, however, were to increase substan-
tially in value as a result both of increases in output and of shipping
the uranium in a more highly concentrated form.
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2. Input-Output Relations
One of the ways used in the East German Seven Year Plan
to balance the main goals for production with the available supplies
of materials was to change the input-output relations. Improvements
in management, the adoption of new processes, the installation of new
equipment, the development of new products, and changes in product mix
all were involved, and every branch of the economy was affected. The
most attention was directed to changes planned in the consumption of
fuels and metals.
a. Fuels and Power
The most striking feature of the plans for fuels and
power was an increase in the share of crude oil and natural gas in the
total supply of energy. Plans for imports and output of coal and petro-
leum were as shown in Table 11.* In terms of primary energy, petroleum
would increase only from 2 to 6 percent of the supply, but the economic
implications of the change are much greater than these figures suggest.
The explanation lies in the economic importance of gasoline, diesel oil,
and fuel oil and the fact that crude oil c'an be converted to these prod-
ucts far more efficiently than can brown coal, which was still the
main source of energy used in East Germany in 1958. Important reduc-
tions in operating costs would be obtained from the increased use of
liquid fuels -- in the development of motor transport, the shift from
steam to diesel locomotives, the mechanization of agriculture and con-
struction, and the increased use of fuel oil for heating. Very large
amounts of brown coal would be needed if these requirements were to be
met by production of synthetic fuels. The official estimate was that
some 90 million tons** of brown coal would be needed for this purpose
to substitute for 5 million tons of crude oil, the amount to be imported
from the USSR in 1965, and that the additional investments involved for
mining, briquetting, and synthesizing would cost some 12 billion DME.
These capital costs were a compelling reason to shift to petroleum,
being much higher than those required to pay the East German share of
the cost of the Eastern European pipeline by which the greater part of
the Soviet petroleum imports was to be transported.
Although capital costs are very high in production of
synthetic fuel, labor costs, including those in brown coal, and the
cost of other materials are low relative to most other industries. At
current foreign trade prices, 5 million tons of crude oil could be pur-
chased by exporting some 30 million tons of brown coal (mainly in the
* Table 11 follows on p. 33.
** Tonnages are given in metric tons throughout this report unless
otherwise indicated.
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Table 11
East Germany: Projected Change in Production and Imports
of Coal, Petroleum, and Natural Gas
1958-65
Thousand Metric Tons
Brown coal
1958 1965
Percentage Change
1958-65
Production
214,970 278,000
29.3
Hard coal
Production
2,903 2,831
-2.5
Imports a/
7,397 8,850
19.6
Total supply
10,300 11,681
13.4
Crude oil
Production
Negl. 1,000
Imports b/
1,127 5,300
310
Total supply
1,121 6,300
459
Million Cubic Meters
1958 1965
Natural gas
Production
23 200
770
a. Not including imports of coke, which were to increase by 41 percent.
b. Imports of refined products are very small and are more or less
offset by exports.
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form of briquettes), thus saving some 60 million tons of brown coal
that would otherwise have to be used to produce synthetic fuel. The
trouble is, however, that East Germany could not sell much larger
amounts of brown coal abroad at anywhere near the current export price
to West Germany.* Without the opportunity to expand exports of brown
coal, it makes some sense to continue processing brown coal in synthetic
fuel plants until those wear out, for only a relatively small amount of
current inputs could be released for other purposes by an earlier shift
to crude oil.
Thus the shift to crude oil was to be gradual. By
1965 the consumption of crude oil was to increase to more than 5 times
the level of 1958, and the liquid fuels produced from crude oil were
to rise from 37.8 percent to 75.2 percent of the total output of liquid
fuels. The use of brown coal products in productioh of liquid fuel,
however, was not to phase out until the later 1960's (during the period
1959-65 this production actually was to be raised by 6.8 percent), but
the proportion of tar and light oil to crude oil was to drop from 62.2
percent to 24.8 percent.
With little increase being planned in the use of
brown coal to produce synthetic fuels, most of the remaining increase
in output could be allocated to the generation of electric power,
which is the major use of brown coal, accounting for about three-eighths
of output in 1958. Brawn coal, in fact, was to be the basis for the
entire increase in output of power during the plan period. Some econ-
omies were expected from the installation of new capacity for generating
electric power in the public power net. Whereas the average specific
heat consumption in the public net in 1958 was 4,553 kilocalories per
kilowatt-hour (kcal per kwh), the new 100-megawatt units to be installed
were to have a specific heat consumption of 2,400 to 2,500 kcal per kwh.
As a result, the average for the public network by 1965 was to drop to
about 3,400 kcal per kwh (slightly below the Western European average
in the late 1950's), permitting an increase of 118 percent in generation
by the public network with an increase of only about 63 percent in fuel
inputs. For the industrial powerplants, which still accounted for 54
percent of output in 1958 and were still to account for 46 percent in
1965, however, there was little improvement planned in efficiency, with
both output and inputs increasing by about 50 percent.
In the early stages of planning for the period through
1965 the regime was planning on some shifting from brown coal to atomic
* In recent attempts to shift exports from West Germany to other Western
European countries, East Germany has had difficulty placing even small
amounts of brown coal briquettes at one-third the price paid by West
Germany.
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energy in the generation of electric power. The original East German
program provided for the completion of the first commercial atomic
powerplant in 1960, followed by other larger units in succeeding
years until atomic plants accounted for 12 percent of the total capac-
ity of powerplants by 1965. Following a reevaluation of the Soviet
program in which it was decided that the costs were still too high,
the East German plans for industrial application of atomic energy
were suspended except for the construction of a first unit with a
capacity of 70 megawatts (or less than 1 percent of total capacity),
mainly for experimental purposes. This single unit originally was
scheduled to be placed in operation in 1961, but revised plans now
provide for initial operation by mid-1963.
In addition to the planned changes in the share of
the two major components (coal and petroleum) in the total supply of
primary energy, there were to be substantial shifts in their utiliza-
tion by conversion and processing to other forms (secondary and
tertiary). Coal was not to be used extensively in its raw form but
was to be converted to other forms of energy such as electric power,
coke, and manufactured gas. Similarly, crude oil was to be processed
primarily to produce gasoline, diesel fuel, and fuel oil. This in-
tensive processing of both coal and petroleum was to yield increased
quantities of valuable byproducts for use by the chemical industry.
Outside the fuels and power industries there was to
be a fairly rapid increase in the use of hard coal in metallurgy,
and a steady increase was unavoidable in rail transport, for diesel-
ization and electrification were to begin only during the plan period.
Almost no increase was expected in the use of coal for heat, as a re-
sult of conversion to the use of fuel oil in industry and the increase
in the supply of gas intended for household heating and cooking. The
chief increase in the supply of coke was to be in grades usable for
production of electric power and gas and in the chemical industry.
Very little increase was required in metallurgical coke, given the
projected improvements in efficiency.
For the other forms of energy that were widely consumed
in the economy, the projected increases in supply were about as follows
(percentage increase compared with 1958):
Electric power
81
Gas (including natural gas)
94
Gasoline
151
Diesel fuel
135
Fuel oil
904
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These figures reflect large projected increases in demand in all sec-
tors of the economy, including final demand.
The major consumer of electric power would continue to
be industry, which in 1958 consumed 74 percent of the total output.
Within industry the chemical and metallurgical branches (excluding
powerplants) consumed 46 percent, the power-producing plants 14 per-
cent, mining 16 percent, and the rest of industry about 24 percent.
The planned requirements of industry (including electric powerplants)
were to grow by only 72 percent, less rapidly than the supply of elec-
tric power or output of industry. The main reason for this slower
growth was the relatively slow increase planned in output of products
using large amounts of electric power -- aluminum (an increase of 65
percent), calcium carbide (42 percent), caustic soda (48 percent),
nitrogen fertilizers (21 percent), and synthetic rubber (25 percent).
In 1958 these products together accounted for nearly 29 percent of
the total consumption of electric power by industry (including consump-
tion in the fuels and power industries). If specific consumption re-
quirements for these products are assumed to remain the same during
the period, their share in the total industrial consumption of power
drops to 23 percent by 1965. Given these changes in structure and
such others as the relatively slow growth of mining (25 percent) and
production of synthetic fuel (7 percent), it is evident that alloca-
tions to the finished goods industries were to increase more rapidly
than output in the basic materials industries. The following tabula-
tion gives an estimated breakdown of the increase in power allocations,
together with the planned increase in production (1958 = 100).
Allocations of
Electric Power
Planned
Output
Power (public net only)
210
210*
Mining (except uranium mining)
146
125*
Uranium mining
120
120*
Metallurgy
170
185
Chemical industry
155
205
Other industry
224
190
Among the sectors consuming relatively small amounts
of electric power, two -- agriculture and transport -- were to in-
crease their requirements significantly more rapidly than their output.
A relatively large increase (155 percent) was planned in the use of
electric power in agriculture, which, however, would still account for
only 4 percent of the total consumption of power. Requirements of
* Estimated.
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transportation were to grow by 65 percent but would still amount to
less than 2 percent of the gross consumption. Household consumption
also was to increase rapidly (approximately to double the level of
1958), but the adjustment of supply and demand finally resulted in
some reduction in the planned allocation to households. Plans for
production of electric appliances (and the design of new housing for
their use) were cut back accordingly in 1959.
It is not possible to determine analytically whether
or not these allocations were in fact in keeping with production
plans. The available statistics on past consumption are inconclu-
sive. Trends in industrial consumption had been changing since 1955,
with a sharp drop in the rate of growth of the major power-intensive
products mentioned above. For the chemical industry and for metal-
lurgy, planned requirements rested on projected changes in specific
coefficients of consumption, which had been calculated for every prod-
uct. Otherwise, such detailed calculations were still to be made,
but it may be inferred that insufficient allowance was made to cover
requirements resulting from increased mechanization, for the East
Germans themselves concluded that their over-all requirements for
electric power were substantially greater than originally planned.
The gap was especially S'erious for the early years of the period, but
even by 1965 it was about 10 percent of over-all requirements --
equivalent to about 15 percent of industrial requirements. The greater
part of the shortage could be met simply by continuing to use capacity
as intensively as in the latter 1950's, but it could not fully be
covered without either some further investment or the elimination of
the planned increases in household consumption.
The increased supply of liquid fuels was allocated
mainly to industry, construction, motor transport, and agriculture.
The huge increase in domestic consumption of fuel oil (by 904 percent)
was mainly for industry (metallurgy, chemicals, and the machinery and
equipment industry). The greater part of the increase in consumption
of diesel oil (by 135 percent) also was for industry and construction,
but allocations were almost doubled for transport and agriculture,
which together were to account for slightly more than one-half of con-
sumption in 1965. Most of the large increase in supplies of gasoline,
however, was to be directed not to transport and agriculture but rather
to retail trade, and households were to receive much larger allocations
of natural and manufactured gas.
b. Metals
The use of metals also was expected to change greatly
during the course of the Seven Year Plan period. The most striking
change was in the use of rolled steel in the manufacture of machinery
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and equipment. In centrally controlled state enterprises the supply
of rolled steel was to increase by about two-thirds in tonnage as
against an increase of 123 percent in the value of output of machinery.
This very large planned increase in the value of output per ton of
rolled steel was to some extent the effect of a change in the branch
structure of the metalworking industries, but it also reflected planned
changes in the use of materials and the development of more complex
models, particularly in heavy engineering. As a result of the use of
higher quality steel and the substitution of nonferrous metals for
steel, the planned reductions in material costs were considerably
smaller than the projected "savings" in rolled steel tonnages. The
value of materials consumed in the centrally controlled metalworking
industries was to increase by about three-fourths, whereas the tonnage
of iron and steel consumed was to increase by about two-thirds. Never-
theless, the extent of the technical changes called for in the Seven
Year Plan is clearly indicated by data on tonnages of steel, such as
those for projected changes in consumption of rolled steel shown in
Table 12.
Table 12
East Germany: Projected Change in the Relation of Inputs
of Rolled Steel to the Value of Output in Metalworking a/
1958-65
Consumption of Rolled Steel
(Thousand Metric Tons)
12/
Value of Output
(Billion 1958 Dm)
1958
1965
With 1958 ,
Coefficients 2J
Planned
1958
1965 Plan
Heavy engineering d/
4.4
9.4
915
1,960
1,370
Shipbuilding
0.9
1.4
125
190
125
General engineering d/
5.0
10.3
600
1,240
1,115
Electrical engineering
3.7
10.1
160
440
400
Total
14.0
31.2
1,800
3 83o
3,010
Index (1958 = 100)
100
223
100
213
167
Consumption of rolled steel
as a percent of supply
51 50
a. Centrally controlled enterprises only, excluding foundries and the aircraft industry. In 1958 the
coverage is about three-fourths of the output of the metalworking industries (except for handicrafts)
and about four-fifths of their consumption of rolled steel.
b. Consumption of rolled steel here includes, as normally in East German statistics on rolled steel,
semifinished steel for forgings.
c. The hypothetical consumption of rolled steel for 1965 with 1958 "coefficients" is calculated by
multiplying consumption in 1958 in each branch by the ratio of planned output for 1965 in that branch
to output in 1958.
d. The classification of industries in this table is different from that in the usual East German
statistics. In the underlying statistics, enterprises are grouped by VVB (Associations of State
Enterprises) rather than by branch of industry. Besides industrial machinery and equipment, heavy
engineering here includes the manufacture of railroad equipment, and general engineering includes the
manufacture of automobiles and tractors, precision machinery and optical equipment, and metal products.
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The effect of changes in branch structure, the first
factor mentioned above, is suggested by the data shown in Table 12.
If the value of output per ton of rolled steel consumed in each branch
is assumed to remain the same in 1965 as in 1958, consumption of rolled
steel in centrally controlled metalworking enterprises rises less
rapidly than the value of output: the factor "tons of rolled steel per
billion ME of output" drops by 5 percent. This statistical effect re-
sults entirely from the fact that the growth planned for electrical
engineering, the branch with the lowest factor, is considerably more
rapid than that for the rest of the industry. With a finer breakdown
by branch the decline in consumption of steel resulting from changes in
branch structure might be shown to be somewhat greater.
A second important way of "saving" rolled teel was a
planned reduction in the waste factor from 22.5 percent in 1958 to
13 percent in 1965, to be obtained especially by the greater use of
metalforming machines. This means of "saving" rolled steel probably
was the most important one for branches in which the value of output
is high relative to consumption of rolled steel. Such savings are not
net, however, for less metal scrap is recovered as a result.
A third factor was a trend toward lighter construction
of machines, which were to be redesigned for the use of higher strength
steels and the increased use of aluminum and magnesium. Production of
the low-alloy, high-strength steel and the light structural steel to be
used in reducing the weight of machinery was to grow rapidly (by 150 per-
cent), although it was only a small part of the total supply of rolled
steel. Inputs of rolled and cast light metals were to increase from
about 3 percent of metal inputs, by weight, in 1958 to 6 percent in 1965.
The substitution of plastics for steel, much talked about, was still a
negligible factor, although the use of plastics in the industry was to
increase by 250 percent by 1965. Lighter construction was an especially
important factor in plans for lines of heavy machinery and equipment,
and the justification of many of the changes planned was at least as
much a matter of improving the characteristics of the product as of re-
ducing the costs.
A fourth factor accounting for the more rapid increase
planned in the value of output in comparison with the weight of inputs
was the introduction of new, more complex products and models --
again, especially in heavy machinery lines. In production of machine
tools, for example, which was to increase in value by 154 percent, out-
put of automatic and semiautomatic types was to increase by 202 percent;
that of precision machines, 275 percent; and that of special machines,
370 percent. This factor probably was of considerable importance in
plans for reducing steel inputs per unit of value, but it is not possible
to isolate the effect of such planned increases in "complexity."
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For other iron and steel products as for rolled steel,
reductions were planned in the tonnages to be consumed per million DME
of output. In the centrally controlled engineering industries the
ratios were to decline as follows (in percent):
Rolled steel
25
Steel castings
36
Cast iron
22
Drop forgings
18
Other forgings
36
The planned growth of the total supply and of consumption by these
enterprises are compared as follows (the percentage increase planned
for 1965 compared with 1958):
Supply
Consumption in
Centrally Controlled
Engineering
Rolled steel (including
semifinished steel for
forgings)
70
67
Cast iron
63
74
Steel castings
38
43
As these figures also indicate, there was to be a significant shift
from the use of steel castings to the use of cast iron.
The construction sector, the other major user of steel,
also was to reduce greatly the consumption of steel in relation to the
value of output. The use of structural steel in building was to in-
crease by only about one-half while construction was doubling -- a de-
cline of about one-fourth in the ratio of steel inputs to the value of
construction. This decline reflected the great planned increase (by
216 percent) in the use of prestressed and reinforced concrete (with a
steadily increasing share of the total consumption of steel going to
the manufacture of reinforced concrete).
The large planned "savings" of steel -- as they are
called in East German publications -- are not without precedent.
The planned increase of about 4 percent per year in the value of
machinery and equipment produced per ton of rolled steel apparently
can be matched in several European countries, including West Germany
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and some of the Satellites, during periods of several years. Inter-
national comparisons, however, are inconclusive. The available sta-
tistics* indicate a wide variation among such ratios for different
countries and at different times and indicate only that the East German
plans were certainly very ambitious. It was unquestionably possible
and desirable to reduce the weight of many items of East German heavy
equipment. What is uncertain is not only the extent of the possible
"savings" but the rate at which the East Germans could deal with the
engineering and production problems involved.
3. Supply and Efficiency of Labor
The most important economic policies affecting the utiliza-
tion of labor during the Seven Year Plan were, first, the acceleration
of technical development, which required the expansion of technical
education, extensive retraining and reassignment of workers, and the
general revision of work norms and wage scales, and, second, the com-
pletion of "socialization," which would affect more than one-fourth of
the labor force. The difficulty of carrying out such sweeping changes
was aggravated by the scarcity of labor. Labor was already scarce, and
employment at best would drop somewhat during the period. There also
remained open to every one until August 1961 the alternative of cross-
ing over to West Germany. The regime recognized that the collaboration
of labor could be obtained only with the skillful use of "persuasion"
and by maintaining the expectation of steady increases in the supply
of goods and services.
a. Employment
Plans for employment through 1965 were based on the
expectation that the population of working age would continue to de-
cline as a result of the unfavorable population structure in 1958.
Because of the low birth rate during and just after World War II, the
numbers to reach working age would continue to decline until 1963 and
would be lower throughout the period than the numbers reaching retire-
ment age, which represented the age group least affected by the wars
and crises of the past 40 years. According to official projections,
the result would be a decline of 613,000 (or 5.6 percent) in the pop-
ulation of working age during the period, together with a further in-
crease in the average age.
In this official estimate, no allowance was made for
further emigration to West Germany. The first results of the drastic
law forbidding "flight from the republic," which had been issued in
* Chiefly data on the apparent consumption of crude steel by the
economy. More detailed information is not generally available.
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late 1957, doubtless encouraged the regime to expect a steady decline
in such losses. The net migration to West Germany dropped from 274,000
in 1957 to 161,000 in 1958 and 81,000 in 1959 -- about 0.5 percent of
the population.
Some increase was expected in the participation rates
for women (then 56 percent of the women of working age) and for workers
past retirement age (then 19 percent).* Because women represent the
largest remaining manpower reserve, great efforts were to be made to
free them for full-time or part-time work. One of the reasons for the
introduction in 1960 of the 8-hour schoolday was to provide day care
for children, thereby permitting mothers to work full time. Working
mothers also were to receive special benefits, such as time during
working hours to care for sick children. Retired workers in many cases
had been rehired, and it was already common practice for those who had
reached retirement age to continue working.
Any gains to be obtained from higher participation
rates, however, would be more than offset by the extension of obliga-
tory schooling to 10 years and further increases in the numbers of
students to receive higher education. According to law, beginning
in the fall of 1954, all children were obliged to complete the 10-year
general polytechnic schools. It was not actually intended to make the
changeover so rapidly (according to the State Planning Commission, some
20 percent would still be leaving school earlier in 1965). But the ex-
tension of obligatory schooling, together with the increase of more than
one-half in university enrollments, was expected to result in the with-
drawal of nearly 90,000 additional young people from the labor force.
The only known East German calculation of employment
for the period 1959-65 gives the decline at 530,000, an estimate that
is consistent with the above figures. Average employment in 1958, in-
cluding those not counted in reported employment, was about 8,650,000.
The projected decline thus amounted to about 0.9 percent per year.
From the minimum of information given out about employ-
ment in the Seven Year Plan, it may be inferred that this deficit was
to be assigned mainly to agriculture and handicrafts. There were to be
very small increases in employment in industry, construction, and trans-
port, and very small reductions in employment in trade and communica-
tions. In general, labor was to be shifted to branches where output per
worker was higher than the average for the economy. This situation was
true on the whole not only of the shifts from agriculture and handi-
crafts to other sectors but also of shifts within sectors. In industry,
for example, it was reflected in an increase in employment for centrally
controlled enterprises as a group.
* Estimates comparable with Western data rather than official figures.
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When the projected employment figures are put along-
side the planned figures for output, as in Table 13, it is evident
that very, large increases were expected in output per worker -- "labor
productivity." Various means were to be used to achieve these in-
creases, such as improved training of workers, fuller use of produc-
tive capacity, additions to capital, and introduction of new techniques.
Table 13
East Germany: Indexes of Planned Production,
Production per Worker, and Employment a/
1965
1958 - loo
Production
Production
per Worker
Employment
Industry (excluding handicrafts)
188
186
101
Power (public net only)
210
170
124
Mining
125
145
86
Metallurgy
185
164
113
Chemicals
205
195
105
Building materials
234
200
117
Metalworking
218
221
99
Light and food
166
163
102
Industrial handicrafts (including
repairs)
125
179
70
Construction
208
221
94
Agriculture
136
192
71
Transport
130
116
112
Communications
126
126
100
Trade
160
160
100
"Material production" hi
166
180
92
"Unproductive" services c/
115
105
110
Total I/ 159 169 94
a. Excluding uranium mining, certain defense plants, the SED apparatus, and military and
security forces.
b. The subtotal includes all "material production" and thus covers national income, Soviet
concept (except uranium mining and certain defense plants, which are excluded from East
German national income).
c. The increase in output of "unproductive" services is an imputation. The value of these
services is not included in East German production statistics.
d. The total, covering most "unproductive" services, includes all GNP except as indicated
in footnote a, above.
When all these are taken into account, however, it is clear that the
East Germans were making ambitious plans. The rates of increase
planned were even greater than those achieved during the recovery
period from 1950 to 1958. This condition is startlingly true for agri-
culture and construction and in general is true for industry. The
rates shown in the table are estimated rates of increase made comparable
with Western data. The differences between these rates and past per-
formances are less if the East Germans' own figures are used.
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b. Education and Training
The developments in technology and the improvements in
efficiency implied in such increases in output per worker could be ob-
tained only by a broad upgrading of technical knowledge and skills.
Enrollments were to continue growing at both the secondary and the
university level at such a rate that there were to be twice as many
qualified technicians and twice as many graduate engineers employed
in 1965 as in 1958. In 1958, there were relatively fewer academically
trained engineers and technicians in East Germany than in West Germany,
presumably as a result of defections to West Germany. By 1965, accord-
ing to the regime, East Germany would have relatively more technicians
with a secondary education, although it was conceded that to catch up
in university-trained scientists and engineers would take 2 or 3 years
longer.
Plans also were made for greatly increasing the num-
ber of apprentices, which had been falling in every branch of the
economy for 5 years. There were only about three-fourths as many
apprentices in 1958 as in 1952. In both industry and transport, which
had been the most affected, there were only three-fifths as many. The
decline in the number of school graduates entering the labor force,
which had been a contributing factor since the mid-1950's, was to con-
tinue until almost the end of the plan period because of the extension
of mandatory schooling. The regime, however, planned to bring the num-
ber of apprentices generally back to about the level of 1952. In manu-
facturing, for example, the number of apprentices was to be increased
by 82 percent in the electrical engineering industry and by 62 percent
in the chemical industry.
On a still wider basis, enrollment also was to be in-
creased greatly in correspondence courses and evening classes at tech-
nical schools, specialized short courses at industrial schools, and
on-the-job training. Such wide participation was necessary to teach
the application of new techniques and to retain workers displaced by
mechanization.
c. Work Norms and Wage Rates
The high, widely varying rates of increase in output
per worker projected in the Seven Year Plan also called for widespread
changes in work norms and wage rates. Work norms and wage rates had
in fact been distorted by the growth in labor productivity that had
already taken place. No satisfactory basis had been found, however,
for introducing timely changes in the face of the resistance of manage-
ment and the workers. This resistance hardened in 1958-59 as Party
intervention in economic affairs increased.
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Work norms were especially in need of revision in manu-
facturing. Overfulfillment of norms had been increasing since the early
1950's. In 1959, for example, about 10 percent of the workers earning
piece wages in centrally controlled industry fulfilled their norms by
200 percent, and in heavy machine building more than 6o percent fulfilled
their norms by at least 160 percent. Similarly unsatisfactory was the
proportion of norms based on time-and-motion studies, which in mid-1960
had been introduced only into the shipbuilding industry. As such data
indicate, the regime had proceeded cautiously in revising norms, for
enterprise management and trade union officials were reluctant to risk
open opposition by the workers.
The same kind of opposition also made it difficult to
control the use of wage incentives by enterprises, as indicated by the
failure to keep wage payments within the limits set in the economic
plans. In 1960, for example, the average wage increased by 5.4 percent
in comparison with 1959, whereas the plan called for an increase of
only 3.7 percent. The only aspect of wage policy effectively controlled
at the national level was the granting of selective wage increases for
large groups of workers, whether for reasons of social policy or for
purposes of reallocating labor.
d. "Socialization" and Efficiency
No less far-reaching than the projected modernization
of East German technology was the program for completing the "socializa-
tion" of the economy -- the absorption of independent peasants and
handicraft workers into cooperatives and the conversion of other private
enterprises (in industry, construction, transport, trade, and services)
into state enterprises. At the beginning of 1958, as shown in Table 14,*
the private sector still employed slightly more than 3 million workers,
or more than one-third of the total employment (including military and
security forces). It was the official view that the modernization of
the economy and the accompanying increases in efficiency could not be
obtained without "socialization."
A great many Party and state officials were skeptical
as to whether or not such profound changes, however productive in the
long run, could be completed quickly and at little cost. Above all
they feared the results in agriculture: first, a further loss of labor
to West Germany; second, a decline in family labor in agriculture; and,
third, a reduction in efficiency through weakened incentives and the
disorganization consequent to socialization. They feared not only that
these effects would be more severe and would last longer than was im-
plicit in the plan but also that the projected economies resulting from
* Table 14 follows on p. 46.
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Table 14
East Germany: Employment in the Private Sector
as of the End of 1957
Persons
Industry (excluding handicrafts)
484,135
Industrial handicrafts
635,699
Construction (including handicrafts)
255,971
Agriculture and forestry
1,075,262
Transport and communications
36,991
Trade
301,251
Services
289,899
Total
3,079,208
the consolidation of holdings and the modernization of agricultural
technology would be realized only slowly. There were similar doubts
as to the wisdom of forcing the consolidation of handicrafts into
cooperatives. These misgivings probably were more widespread than
any others relating to the major economic policies governing the
Seven Year Plan.
e. Increased Consumption and the Supply and Efficiency
of Labor
To counteract the effects of revising work norms and
the wage structure and of proceeding with "socialization," the regime
counted heavily on increases in consumption. The emphasis in official
propaganda on "overtaking and surpassing" West Germany in consumption
was backed up in'detailed planning, and it was given a high priority.
The greatest increases in consumption were planned for
workers in industry, construction, and transport and communications,
for the regime depended above all on their acquiescence and support and
the rapid pace of technological development would make the heaviest
demands on them. Other groups also were to benefit, but less so.
Peasant proprietors and independent handicrafts workers were to benefit
least, on the ground that they had enjoyed the main benefit of previous
increases in consumption.
The major increases in consumption were in those goods
and services in which Western European consumption had been increasing
most rapidly in the mid-1950's, which also were those in which East
German consumption lagged most conspicuously. Thus the consumption of
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basic foods in general was to rise only slowly in relation to total
consumption. The rapid increases were to be in textiles and shoes --
above all, improvements in quality, design, and assortment, in which
much of East German output was unacceptable; such commodities as coffee
and tea and tropical fruits, the shortage of which was particularly
resented by the population; consumer durables, chiefly television sets,
furniture, refrigerators, motor bikes, and motor scooters; and, in par-
ticular, repair services and the handicraft services. The projected
increases are summarized in Table 15.
Table 15
East Germany: Planned Increases in Per Capita Consumption
of Selected Commodities
1958-65
Unit
1958
1965
Coffee, roasted
Kilograms
0.712
2.0
Tropical fruits
Kilograms
5.7
16.5
Leather shoes
Pairs
1.2
2.1
Wool cloth
Square meters
2.0
4.5
Cotton and cotton types of cloth
Square meters
20.0
33.0
Television sets per 100 households
Units
6.2
77.0
Refrigerators per 100 households
Units
2.0
27.4
Motor bicycles per 100 inhabitants
Units
3.5
5.3
Motor scooters per 100 inhabitants
Units
1.8
5.5
In addition to the promises of more consumer goods and
handicrafts services, the regime also dwelt on prospective improvements
in housing, education, welfare, and public health. Investments in all
these fields were to be increased considerably, and public services were
to be expanded greatly. Most of these measures were directly related to
planned economic development. Much of the investment in housing, about
one-half, was intended for rapidly expanding industrial areas, in which
there were already housing deficits. The relation of education to the
production program was even more direct, as explained in b.* Public
welfare programs were intended not only to tie the employee's activities
more closely to the enterprise in which he worked -- an aspect of
socialization -- but to increase employment, particularly among married
women and workers past retirement age. Finally the public health
* P. 44, above.
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programs were designed, above all, to reduce the frequency and length
of absences for illness.
The increases in consumption promised in the Seven
Year Plan were designed not only to serve these specific aims but
also to provide propaganda with which to influence the East German
population as a whole and, to some extent at least, West German and
world opinion as well. The demands of propaganda somewhat distorted
the plans for consumption and promised to interfere with the achieve-
ment of the specific aims. Ulbricht's preoccupation with comparisons
resulted in the subordination of goods and services not directly in-
volved in the program for "overtaking and surpassing" West Germany.
One serious weakness was the premature decision to
end the rationing of meat, butter, and sugar, a political decision
taken in May 1958 after repeated Soviet urging. It was evidently
unwise, for the social policies of the regime as well as its propa-
ganda requirements did not permit setting prices high enough to balance
supply and demand. As a result, these foods would have to be rationed,
in effect, by controlling supplies to retailers, as vexatious a form
of rationing as can be devised. Other recognized weaknesses were a
lack of storage and undependable transport service, as a result of
which perishable foods were wasted on a large scale. Some relief was
planned for the lack of storage, but admittedly it was insufficient.
From 1955 to 1958, warehouse storage space, presumably in cubic meters,
had increased by about 17 percent, whereas centrally controlled retail
trade turnover rose by 41 percent. By 1965 the former was to increase
by only 6 percent more and the latter by 55 percent. The increases in
truck transport promised some improvement in the movement of perishable
goods, but in this respect, likewise, East German plans were far from
aiming at parity with West Germany.
Services to the population also were threatened by
Ulbricht's insistence on socialization. The regime had begun modern-
izing its retail distribution system with the introduction of consumer
credit for consumer durables and mail-order selling (both in 1956) and
with the development of self-service outlets (beginning in 1958). The
prospective disruption of private agriculture, handicrafts, and retail
trade, which continued to supply directly a large part of the demand
for goods and services, however, was likely to disrupt the distribution
system, especially in rural areas.
Nevertheless, even though the plans for consumption
were distorted in some ways and were internally inconsistent, a large
real improvement in living conditions was projected. Roughly one-half
of the total increase in output during the plan period was to be allo-
cated directly to consumption. The planned increase in personal and
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public consumption was conceived at once as a condition of the success
of the Seven Year Plan and as a consequence of its realization.
Ulbricht's promises in effect were intended to create among the popu-
lation a self-fulfilling will to believe in "overtaking and surpassing"
West Germany. The extent of what he expected to accomplish in this way
is indicated by the goals for labor productivity, as discussed above,
and the associated capital efficiencies and changes in technology, as
analyzed in the rest of this section.
4. Capital Requirements
The ambitious production goals set up for the Seven Year
Plan resulted in enormous demands for new capital by representatives
of enterprises and individual branches of the economy, and the problem
of planning capital requirements was one of cutting back this demand to
the general limits indicated by the over-all plans for investment. For
capital-intensive branches of industry -- such as electric power and
the mining of brown coal -- the study of capital requirements had greatly
influenced the production goals themselves, and the estimates developed
in the course of long, detailed investigations were not subject to ex-
tensive revision. The main problem of the State Planning Commission
lay rather in trying to estimate the capital needs of the rest of the
economy, including labor-intensive industries. Physical measures of
capacity, on which rational decisions could be based for capital-
intensive industries, also were used extensively in trying to make
estimates for the rest of the economy. No one was satisfied with the
result, however, and the experience led, as elsewhere in the Soviet
Bloc, to renewed interest in the development of value data for fixed
assets that could be used for planning purposes.
From what is known about the estimates made in connection
with the Seven Year Plan, the value of fixed capital in the sectors of
"material production" was to increase at an average annual rate of about
5 percent. Available information does not actually include any such
over-all estimate, but one article gives a rate of 5.4 percent per
year as the average rate of increase indicated for the value of fixed
capital in nationalized enterprises in these sectors. The over-all
rate would be somewhat lower, for little growth was expected in the
fixed capital of ptivate and cooperative enterprises, which still
accounted in 1958 for about one-tenth of the total value of "produc-
tive" fixed capital.
The most rapid growth in fixed capital was projected for
industry. According to the article quoted above, the implied rate of
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growth for nationalized industry was only 6.1 percent,* which would
indicate a rate of somewhat less than 6 percent for the sector as a
whole. The growth of fixed capital in agriculture also was expected
to be rapid, as is indicated by plans to double the value of the agri-
cultural machinery park by 1965. In trade and in transport and com-
munications, however, the projected growth of fixed capital was, to be
slow during the period.
In industry as a whole the projected increase in fixed
capital clearly involved a substantial decline in capital-output
ratios. The trend was to vary, however, from branch to branch. Among
the basic materials industries, there was to be a rise in the ratios
for electric power and mining, perhaps a slight decline for chemicals,
and a substantial decline for metallurgy. In these branches, there had
been carefully worked out engineering plans, based on changes in pro-
cesses, in equipment, and in product mix, and the investment plans were
more or less in accord with production plans. On the other hand, all
the available evidence suggests that capital-output ratios in the
finished goods industries, which were in some cases to decline and in
some to rise, were for the most part unrealistic, given the enormous
increases planned in output per worker. These industries are, on the
whole, labor-intensive, and even large increases in planned capital-
output ratios probably would not have justified the hope of raising
labor productivity so rapidly in most of them.
The regime was counting far too much on the "inner re-
serves" of these industries, the gains in efficiency that could be
obtained by removing bottlenecks in supplies, equipment, and skills.
Such gains had been the chief source of increases in output of the
finished goods industries during the early and mid-1950's, but by the
latter 1950's, when pre-World War II (1939) levels of productivity had
been regained, it could be assumed that future gains would be rela-
tively small. Ulbricht, however, persisted in believing that it was
possible to continue such gains as rapidly as ever.
A comparison with West German experience in the mid-1950's
gives some idea of the extent to which the projected additions to fixed
capital in East German industry fell short of what was needed to carry
out the production plans. By the time that West German industry had
reached prewar levels of output per worker -- in 1953 for industry as
a whole -- the over-all trend in capital-output ratios had already sta-
bilized. The subsequent fluctuations are explained by the business
* The rate is almost certainly understated, chiefly because the value
of capital assets in 1958 at current prices was overestimated. The
estimate was obtained by applying to data entered at "original cost"
a simple price adjustment based on sample studies.
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cycle. From 1953 to 1960, West German industry achieved a much lower
rate of increase in output than projected in the East German Seven
Year Plan, but the rate of additions to fixed capital was higher, and
the rate of increase in employment much higher in West German industry
during the 7-year period than what had been expected in East Germany
from 1958 through 1965.
In agriculture the planned increase in fixed capital prob-
ably involved some actual rise in capital-output ratios, as well as
the most rapid rate of increase in fixed capital per worker projected
for the whole economy during the period. The principal feature of the
plan, as already mentioned, was the doubling of the agricultural ma-
chinery park by 1965 -- the main condition of the substantial reduction
projected in agricultural employment and the extremely rapid increase
in output per worker. Substantial outlays, however, also were planned
for new buildings needed for the collectivization of livestock holdings.
Outlays for agricultural construction were to represent as large an
investment as gross outlays for machinery (including capital repairs),
even though the rate of additions to structures and installations was
to be much lower than the rate of additions to the machinery park. The
construction program was much less likely to be fulfilled than the
mechanization program, and the goals for converting animal husbandry
to large-scale production were less likely to be realized than those
for large-scale cultivation of crops.
The relatively small planned additions to fixed capital in
transport and communications allowed very little for simple replacement
of old equipment, already being used very intensively. Maintenance
costs were therefore likely to remain high or even to rise, and service
was likely to remain poor throughout much of the sector. The invest-
ment program was concentrated on certain priority objectives. Among
the important objectives in the transport investment plan were the be-
ginning of the dieselization ani some further electrification of the
railroads; a large increase in the merchant shipping fleet; the expan-
sion of Rostock harbor and of inland transport to serve the harbor
(including a Berlin-Rostock autobahn); and the development of short-
haul trucking, with a substantial increase in the truck park and an
improvement of the local highway net serving the principal cities.
Among the chief objects of the plan for investment in communications
were the attainment of military and security requirements, the expan-
sion of television broadcasting, and an increase in capacity for long-
distance telephone traffic. Several of the projects listed above were
considered urgent for reasons other than to support industry and
agriculture -- the increase in merchant shipping; the expansion of
Rostock harbor and the related investments in inland transport; and
the construction of facilities for military and security use, together
with expanded television services.
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The relatively small additions to capacity in trade re-
flected in part the relatively low priority given to improving retail
trade service. The main investment in retail trade was the conversion
of outlets to self-service as fast as possible in order to cut labor
costs. There also was reflected, however, a reluctance to make adequate
investment in storage capacity that was related to the persistently un-
real view of the regime as to inventory requirements.
5. Technology
Ulbricht's insistence on competition with West Germany was
constructive in one respect, that of calling attention to East German
backwardness in technology. The result was a broad study of foreign
plants, processes, and products and many international comparisons of
productivity, mechanization, input coefficients, costs, and the charac-
teristics (including quality) of output. The propaganda for the Seven
Year Plan included such comparisons, some of them dealing with the most
important industries in East Germany. Output per worker, for example,
was said to be lower than in Western Europe by about one-half in produc-
tion of iron and steel castings and between one-fifth and one-third in
production of cement. In the machine tool industry, output per worker
was estimated at 45 percent of that in West Germany. Output per worker
in the automobile industry was said to be a great deal lower than in
Czechoslovakia or West Germany: indeed, 400 man-hours were required
to make a Wartburg compared with 260 man-hours to make a Skoda-440 in
Czechoslovakia and 68 man-hours to make a Volkswagen in West Germany.
One of the most revealing statements on plant and equipment was that
the proportion of machine tools 20 or more years old was 38 percent of
the total in East Germany as against 18 percent in the USSR and 15 per-
cent in Czechoslovakia.
Many comparisons were made of differences in technology, as,
for example, the much greater use of steel castings in East Germany, in
which they represented 20 percent of all castings used as against less
than 10 percent in Western industrial countries. Another example was
the inefficient use of capacity in the iron and steel industry. It was
stressed that output per cubic meter of capacity was only about two-
thirds of that in the USSR -- both for daily output of pig iron per
cubic meter of blast furnace and for output of steel per cubic meter
of open-hearth furnace. For still another example, consumption of coke
per ton of pig iron output was 50 percent greater than in the USSR and
substantially greater than in Poland and Czechoslovakia.
As for quality of product, very unflattering opinions were
published. Ulbricht himself said that if he were a factory manager he
would not buy the "old machines" any longer but would make do with those
he had until he could get "new machines" even if it got him into diffi-
culties in the meantime. The following estimates appeared as to the
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proportion of output of East German machinery that could be considered
up to world standards -- one-half of the machine tools, one-fourth of
all the heavy machinery, and 30 percent of the textile machinery being
produced. Even more serious was the charge that only about one-half
of the machine tools selected to be offered at the Leipzig fair in the
spring of 1960 met the "highest world standards." Again, the textile
machinery to be produced and installed during the Seven Year Plan
period was described as obsolete (a spinning mill, for. example, was
said to be of 1925 design). The maximum strength of East German cement
was given as well below the normal strength of cement produced abroad.
It also was acknowledged that the synthetic rubber used in East German
tires wore out more quickly and broke down more readily than the rubber
used generally in the West and in the USSR and that the tensile break-
point of the viscose tire cord used was 30 percent below that of for-
eign cord.
The achievements of Western technology, particularly in
Western Europe, were applied especially in redesigning machinery and
equipment, both for domestic investments and for export. The exercise
was without doubt salutary. There are already indications that recent
additions to capacity in heavy industry have resulted in substantial
reductions in cost and that East German exports of machinery have been
competing more successfully in Western markets.
The technological changes most carefully planned and most
likely to be carried out are in the metallurgical and chemical indus-
tries. Improvements planned in metallurgy are the introduction of
oxygen into existing open-hearth and electric furnaces, the introduc-
tion of semicontinuous and continuous rolling mills, and the use of
vacuum and continuous casting processes. In chemicals a start is to
be made toward establishing a petrochemical industry to provide the
basis for an eventual shift from calcium carbide to crude oil as a
source for many of the organic intermediates used in production of syn-
thetics and plastic's. Least likely to be carried out on schedule are
the changes for the finished goods industries, although progress will
be made in improving material handling, in developing series production,
and in introducing assembly lines, measures that were stressed in the
plan.
The projected technological changes in the machinery and
equipment industries and in construction, to be sure, were much more
rapid than justified by the level of planned investment. Apart from
this distortion, however, the detailed studies represented a major
advance in East German planning for the introduction of large-scale
standardized production using specialized machinery and assembly lines.
The technical information contained and the greater knowledge of com-
parative costs and efficiency should permit intelligent reconsideration
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of the Seven Year Plan, when it is politically feasible, and indeed
probably has contributed to the ad hoc revisions already carried out.
6. Defects of the Seven Year Plan
The imposition of overambitious goals on planning for
1959-65, as described in II, A,* most directly affected the rates of
growth projected for the machinery and equipment industries, the con-
sumer goods industries, construction, and agriculture. The inflation
of the rates of growth in these branches of the economy was the chief
means of raising output fast enough to "overtake and surpass" West
Germany during the plan period. The Seven Year Plan was brought into
balance both by overstating what these branches could produce with the
factors of production allocated and by understating the material in-
puts that would be required for the planned level of production. Plans
for the other sectors of the economy, on the other hand, were on the
whole internally reasonable.
Technical and organizational characteristics account for
the fact that the plans for electric power, metallurgy, and much of
the chemical industry were internally consistent, whereas those of most
other industries were not. The branches mentioned are all capital-
intensive, and their products either are few or are technically comple-
mentary. In these branches the capacity assumed to be available and
the state of the art together set rather definite limits to increases
in production and economies in the use of materials. Economic plans
are therefore based fairly directly on engineering studies, and the
leadership tends to accept them. This tendency is reinforced by the
cohesiveness and ability of management in these key branches, which
are strongly centralized and have attracted the most capable staffs.
In branches such as machine building, light industry, and construction,
on the other hand, capacity and technical limitations are more diffi-
cult to define because labor inputs play a large role and products are
numerous and often technically substitutable. As a result, plans de-
pend mainly on approximative and aggregative techniques of economic
analysis. This field is one in which the East Germans are backward
and in which the political leadership has little respect for the opinions
of management. To make the contrast complete, these branches are in
general extremely decentralized, management is dominated by Party hacks,
and the level of technical competence is characteristically low. Fur-
thermore, in agriculture the problem is compounded by the doctrinaire
optimism of Party leaders concerning the effects of collectivization.
* P. 9, above.
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The main defects of the Seven Year Plan are readily enough
identified, but the distortions involved cannot be measured directly.
The only available evidence of how far the proposals of the lower
levels of management diverged from the directives of the State Planning
Commission -- probably the best direct evidence of distortions in the
plan -- is for branches such as the chemical industry, metallurgy,
and electric power -- that is, branches with the most reasonable plans.
The plans for the machinery and equipment industry, the consumer goods
industry, construction, and agriculture can be evaluated only by examin-
ing the difficulties that have already arisen and the reaction of the
regime, as in the analysis that follows in 1112 below, and, finally, by
comparing them with the independent estimates of capabilities given in
IV.*
III. Plan Revisions and Economic Policy
When the Seven Year Plan was finally approved in the fall of 1959,
the regime was full of confidence, based on the growth of the preceding
2 years. It was expected, indeed, that the growth in 1959 would be
more rapid than planned. The official statistics at the end of the
year showed an annual increase of 9 percent in national income. The
result reflected a considerable statistical bias, but even when allow-
ance is made for this bias, it appears that the over-all growth was in
fact not far from the planned rate for the period 1959-65. In terms
of GNP, that is, the growth was somewhat more than 6 percent, the
highest rate since 1954. Although investments were already lagging and
although agricultural production fell slightly below the level of 1958,
confidence was maintained by the encouraging results obtained in indus-
try for the second year in a raw.
Since 1959, however, actual economic developments have diverged
widely from the projections contained in the Seven Year Plan. Agri-
cultural production increased in 1960 but dropped in 1961. The rate
of increase in industrial production fell in 1960 and again in 1961.
The lag in investments has become steadily greater.
Officially the regime has explained these disappointments as 'a
result of a decline in employment and the measures required to protect
the economy against a Western embargo. Both these factors have indeed
contributed to the economic difficulties of East Germany. The sudden
decision of early 1960 to force all peasants into cooperatives also
has had an effect. These three factors have reduced the average annual
rate of growth in the years 1960-61 by at least 1 percentage point.
The average rate achieved, however, has been about 3 points below that
planned -- less than 4 percent as against 7 percent -- indicating quite
* P. 6o, below.
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clearly that the planned goals were in any event beyond the capabili-
ties of East Germany.
The regime not only has failed to acknowledge the discrepancy be-
tween the original goals and East German capabilities but has recently
expressed the hope of regaining in 1963 the rate of growth planned for
the period 1959-65. During the Berlin crisis the regime is unlikely to
admit that the Seven Year Plan was unrealistic to begin with, because the
prestige of Ulbricht and the regime is involved.
In practice, however, the ad hoc decisions on investments and in-
dustrial production forced on the regime in 1960-61 must have led to
forward planning of a more realistic kind, especially in connection
with the almost continuous negotiations in Moscow relating to East
German economic development. All of the decisions mentioned below
presumably were reviewed in Moscow, and it is quite possible that they
were initiated there.
A. Lag in Investments
The need for a revision of investment schedules became evident
very early in the Seven Year Plan period. At the end of 1959, when
the plan had just been approved, there was already a lag in investments,
and the lag became more serious in 1960. The planned growth of invest-
ments for the period and the actual growth of investments in 1959 and
1960 are shown in Table 16.* Investments in the first 2 years of the
plan were about 7 percent less than planned, and the value of unfinished
investment projects, which had been growing very rapidly during the
investment drive of 1956-58, continued to grow. During 1960, the aver-
age value of these unfinished investment projects was greater than that
of the year's additions to capital assets.
The widespread failure to meet schedules for investment projects
resulted in large part, of course, from the underfulfillment of plans
for production of machinery and equipment and for construction. It
also resulted, however, from weaknesses in management, reflected in the
familiar tendency to start too many projects at the beginning of a plan
period and the partiality of Communist leaders for "big" projects. The
symptoms were familiar, and Ulbricht himself in presenting the Seven
Year Plan gave out statistics to show that it took nearly twice as long
in East Germany as in the USSR to build comparable industrial plants.
Ulbricht's own policies, however, contributed to the difficulty, espe-
cially his unreconstructed fondness for grandiose projects like the
Schwarze Pumpe coal combine, the Stalinstadt (now Eisenhuettenstadt)
steel combine, and the Rostock port expansion.
* Table 16 follows on p. 57.
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Table 16
East Germany: Index of Gross Fixed Capital Investment a/
1955, 1958-60, and Plans for 1959-61 and 1965
1958 = 100
1955
1958
1959
1960
1961
1965
Seven Year
Plan
Actual
Seven Year
Plan
Actual
Seven Year
Plan
Annual
Plan
Seven Year
Plan
Industry and construction
59
100
124
120
148
136
173
152
206
.
Basic materials industries
57
100
124
121
142
132
166
146
207
Chemical industry
52
100
141
142
172
160
228
201
301
Metalworking industries
68
100
117
123
153
156
172
162
179
Light industry
94
100
155
138
203
187
267
213
283
Other industry
Construction
49
47
100
100
123
118
107
123
153
145(
122
173
157(
150
202
196
Agriculture and forestry
83
100
125
127
137
142
141
146
179
Transport and communications
73
100
108
121
119
123
136
138
203
Housing
70
100
128
114
150
117
157
126
183
Other
59
100
110
92
120
106
130
112
241
Total investment
65
100
120
11)4
137
126
153
137
207
a. The index numbers for planned and actual investment are based on data as nearly as possible comparable. Any
lack of comparability is reflected mainly in the index numbers for the residual categories "Other industry"
and "Other."
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By the summer of 1960 the lag in major investment projects had
become serious enough to lead the State Planning Commission to re-
schedule a number of projects and to warn against major difficulties
in holding to the original investment schedules in 1961. Apparently
in the hope of forestalling a general cutback in plans for 1961, the
regime appealed to the USSR for a very large loan, 1.5 billion DME,
for 1961. When the USSR refused to advance aid on any such scale, the
State Planning Commission at once ordered a reduction of about the same
magnitude, 1.4 billion DME, in planned investment for 1961. This pro-
posal was accepted and approved with apparently little or no debate in
October 1960. The cutbacks in investments, about 1 billion DME in con-
struction and 400 million DME in machinery and equipment, were distributed
to all sectors in roughly the same proportion to the planned investments.
Cutbacks ranged from 5 to 10 percent, running on the average about 7 per-
cent of the original plan goals. During the later stages of planning for
1961, further cuts of some 600 million DME were made, chiefly, it would
appear, in construction work, resulting in an over-all reduction of
nearly 11 percent.
It became evident during 1961 that even this reduction was not
drastic enough. From the latest information it appears that investments
for the year ran well below the annual plan and very little above the
level of 1960. If this provisional estimate is used, investments during
the first 3 years of the Seven Year Plan ran about 10 percent below the
planned level (45 billion DME instead of 50 billion DME).
B. Changes in Plans
The lag in investments and the resulting changes in investment
schedules have been followed by changes in annual production plans and
by some changes in specific goals for 1965. Over-all revisions in the
Seven Year Plan also have been discussed at the staff level. In each
case the judgments that were made imply the same estimate of how much
the planned rate of growth for industry should be cut back -- from
about 9 percent, as originally planned, to about 7 percent.
The most general reflection of East German planning since the
Seven Year Plan is furnished by the economic plan for 1961, the first
annual plan to differ from the original design. In 1960 the increase
in industrial production (8.2 percent) had fallen short of the plan
of 9.1 percent for that year. A substantially lower rate of increase
in gross production, only 7.2 percent, was planned for 1961, chiefly,
it is presumed, because of the cumulative lag in investments and the
flat refusal of Soviet aid in September 1960.
The increases in production planned for the individual branches
of industry in 1961 do not at all suggest, however, a basic reconsidera-
tion of problems. In the machinery and equipment industries, with the
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notable exceptions of shipbuilding and production of aircraft, the
percentage increases planned were slightly greater than those actually
achieved in 1960 -- the easiest position for the planners to take. In
other industries the planned increases were smaller than the actual in-
creases in 1960 except for a rise projected in the rate of increase in
output of clothing. In effect the plan took account of lags in invest-
ment and shortages of some imported materials but not of the causes for
the appearance of these lags and shortages. Serious imbalances remained
between the projected output of the finished goods industries, construc-
tion, and agriculture, on the one hand, and the supply of capital and
labor and the allocation of material inputs to these sectors, on the
other.
There nevertheless were indications that the leadership was
aware of serious difficulties in the offing, particularly in the
actions taken in regard to the shipbuilding and aircraft industries.
In the shipbuilding industry, production was to be cut back (from an
increase of 12.2 percent in 1960 to a decline of 9.5 percent), and in
the aircraft industry (in which output had dropped in 1960) production
was to be discontinued. Both these industries were unprofitable (the
aircraft industry was heavily subsidized) and partly dependent on im-
ports of steel and components from the West (chiefly West Germany).
The decision on the shipbuilding industry apparently was made in the
normal course of planning, and production was in any case to increase
very slowly after 1960. The decision on the aircraft industry, how-
ever, involved East German prestige and probably would not have been
taken except at the insistence of the USSR, which had for some time
shown a marked lack of enthusiasm for production of aircraft in East
Germany.
Some evidence is already available on the consideration of
plan goals for 1962 and the rest of the Seven Year Plan period. There
are various indications that staff planners do not believe that it is
possible to raise the rate of growth of industry during the rest of
the period much above the results of 1960 and 1961, in which the esti-
mated average increase in industrial production (adjusted for compara-
bility with Western data) was somewhat less than 6 percent. These
views are in line with earlier East German staff thinking. The leader-
ship continues to hope for better results. In October 1961, Karl Mewls,
the new head of the State Planning Commission, intimated that in spite
of the prospective underfulfillment of the 1961 plan the regime was ex-
pected to raise the rate of growth of industry in 1962 and to return to
the original Seven Year Plan rate of 9 percent by 1963.* Similar, and
perhaps even more serious, differences exist in relation to the growth
of agriculture and construction.
* The East German economic plan for 1962, announced since the comple-
tion of this report, reveals that the view of the planners won out,
presumably because of Soviet insistence.
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Under the present political circumstances a basic revision of
the goals for 1965 and thereafter is hardly possible, but further di-
vergence from the Seven Year Plan is unavoidable, and some ad hoc ad-
justments must be made, especially for purposes of planning invest-
ments. The differences between the views of Ulbricht, on the one hand,
and the "realists," on the other, make the process of adjustment ex-
tremely difficult -- indeed, without Soviet influence and intervention,
almost impossible. The process, however, is continuing, and the re-
sults should be plain to see in the East German plans of the next few
years.
IV. Capabilities for Economic Growth
This section is devoted to the assessment of East German economic
capabilities during the early 1960's in the most important sectors:
industry, construction, and agriculture. The assessment rests mainly
on the recent growth of output, employment, and capital assets in these
sectors in East and West Germany, considered in relation to probable
changes in the supply of capital and labor through 1965. The assess-
ment is followed by an estimate of the probable rate of growth of the
economy as a whole through 1965.
A. Industry
The growth of East German industry in the years 1956-60 offers
a fairly good indication of East German capabilities for industrial
growth through 1965. The growth in employment in the years 1956-60
was negligible, and industrial employment will at best remain stable
in the years 1961-65. Capital assets will grow more rapidly, but unused
capacity, which was considerable in 1955, has largely disappeared. The
estimated rate of increase in industrial. production (including handi-
crafts) during the years 1956-60, which was about 7 percent, probably
is about the highest rate of increase in industrial production the East
German regime can maintain during the next few years.
The record of East German industry for the years 1956-60 offers
a reminder that in some ways official statistics may be quite mislead-
ing. The East German statistics show that the gross output of industry
rose over the 5 years by 55 percent, or at an average annual rate of
9.2 percent. Now this rate of increase is exactly the rate proposed in
Ulbricht's original plan. At the same time, however, the original
goals for all but one or two of the most important commodities were
underfulfilled by significant margins, as shown in Table 17.* Evidently
the index of the value of gross production must be inflated. The in-
flation does not result from changes in the branch structure of industry,
* Table 17 follows on p. 61.
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Table 17
East Germany: Fulfillment of the Original Goals for 1960 of Selected Commodities
Electric power
Brown coal
Pig iron
Crude steel (ingots)
Rolled steel
Sulfuric acid
Caustic soda
Soda ash
Calcium carbide
Unit
Original Goal
for 1960
Actual 1960
Achievement
Percentage
Fulfillment
Billion kilowatt-hours
Million metric tons
Thousand metric tons
Thousand metric tons
Thousand metric tons
Thousand metric tons SO3
Thousand metric tons NaOH
Thousand metric tons Na2CO3
Thousand metric tons
(300 liters C2H2 per kilogram)
44
260
2,250
3,500
2,600
725
350
130
990.2
40.3
225.5
1,994.7
3,337.0
2,613.3
595.9
321.0
593.7
922.7
92
87
89
95
101
82
93
81
93
Nitrogen fertilizers
Thousand metric tons N
335
334.1
loo
Phosphorus fertilizers
Thousand metric tons P205
200
165.8
83
Synthetic fibers
Thousand metric tons
15.7
7.8
50
Cement
Bricks
Thousand metric tons
Million units
5,200
2,800
5,032
2,272
97
81
Roofing tiles
Million units
499
358.5
72
Concrete products
Wool cloth
Thousand metric tons
Million square meters
6,200
58.8
6,973
47.5
112
81
Cotton and cotton types
of cloth
Million square meters
395
345.3
87
Leather shoes
Million pairs
22
25.0
114
Meat
Margarine
Thousand metric tons (slaughter weight)
Thousand metric tons
701
226
664.1
180.6
95
80
Butter
Thousand metric tons
163
174.6
107
Beer
Million hectoliters
14.2
13.4
94
Cigarettes
Million units
19,948
18,187
91
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for the use of wage weights instead of gross value weights does not
reduce the over-all index (indeed, it raises it slightly). The up-
ward bias, therefore, occurs in the indexes for the industrial
branches, probably resulting mainly from the efforts of management to
maximize the gross value of output by such means as subcontracting
and manipulating price differentials and specifications. Most manu-
facturing industries would have been affected, but especially metal-
working and food processing.
The approximate extent of the bias in the official index is
measured by the calculated index as given in Table 18.* This index,
based on physical data for outputs of basic materials, shows the
increase in industrial production as being about 40 percent from 1955
to 1960 rather than 55 percent as claimed. Industrial handicrafts,
which are not covered in the official index for industry, are included
(implicitly) in the estimate. Output of handicrafts grew very slowly
in the period, and the inclusion of handicrafts, therefore, has the
effect of lowering the index slightly. Even so, there is a large dis-
crepancy between the estimated index and the official index.
The bias in the official index also may be measured by comput-
ing an index of the over-all fulfillment of the original Ulbricht plan,
using the principal commodities for which data appear in the plan.
According to this index, the plan was underfulfilled by about 10 percent
(see Table 17**). If this percentage of underfulfillment is applied to
the projected index of 155 in the original plan, an index of 140 is
obtained for industrial production (excluding handicrafts). This result
may be considered as corroboration of the above estimate of 40 percent
for the increase in industrial output (including handicrafts) during
the period 1956-60.
Employment in industry and handicrafts remained practically
stable during the period, increasing somewhat in 1957-58 and beginning
to decline in 1959-60. This decline continued in 1961, and there prob-
ably will be some further drop during the next few years.
The distribution of industrial employment by branch of industry
changed very little during the latter 1950's and is likely to change
very little during the early 1960's. The main increases were in
branches producing basic materials, in which employment increased from
1955 to 1960 by almost 2 percent per year. Employment in the consumer
goods industries declined slightly because of the considerable decline
Table 18 follows on p. 63.
** P. 61, above.
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Table 18
East Germany: Index of Industrial Production
1960
Commodity
Weight
Index, 1960
(1955 = 100)
Electric power
Mining
Brown coal
Hard coal
Metallurgy
620.4
1,066.3
76.1
140
112
101
Pig iron
510.6
132
Rolled steel
123.4
139
Chemicals
Sulfuric acid
118
123
Caustic soda
85
127
Soda ash
166
130
Calcium carbide
154
116
Nitrogen fertilizers
136
114
Phosphorus fertilizers
18
196
Rayon filaments
84
121
Rayon staple fibers
164
114
Synthetic fibers
116
228
Building materials
Cement
199
169
Bricks
259
116
Concrete products
81
420
Light industry
Textiles a/
1,424.1
112
Leather shoes
138.9
142
Paper
158.1
128
Wood products a/
359
110
Food processing
Meat
295
109
Meat products
218
160
Flour
217
98
Margarine
78
98
Butter
249
121
Sugar
155
106
Beer
217
114
Cigarettes
124
102
Metalworking b/
5,714
172
Calculated index of industrial production
J
140
Official index of industrial production
(excluding handicrafts)
155
a. The indexes for both textiles and wood products are based on increases in the total supply of
yarn and veneer, respectively.
b. This index is an estimate based on the official East German index for metalworking, taking into
consideration the increase in double-counting that results from subcontracting and specialization.
c. The industrial output of handicrafts enterprises is covered by this index because the base year
weights selected for the major inputs into branches in which handicrafts are important -- notably
yarn, meat, flour, and steel -- reflect value added in handicrafts and because the indexes for these
inputs are based on figures that include supplies to handicrafts.
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in handicrafts employment. In the machinery and equipment industries
the trends vary, with little over-all increase. The same general
priorities were projected for the period through 1965.
The general level of skill and education in the industrial
labor force should improve somewhat more in the next few years than
during the latter 1950's. The workers lost to West Germany had some-
what better than average training, and the closing of the sector
border alone assured a slightly more favorable trend (apart from ad-
verse effects on the attitudes of the labor force). The expansion of
training and educational programs also should have some effect during
this period, although the full effect will not be evident until the
latter 1960's. The net effect is that the outlook with respect to in-
dustrial employment in the next few years is at best slightly more
favorable than the actual trend for the period 1956-60.
The growth of fixed capital during the next few years is more
uncertain, for it depends on economic growth and on policy decisions.
Thus, any comparison of the prospective growth during the next few
years with past growth involves other estimates for the period, as
well as an allowance for underutilization of capacity at the beginning
of the two periods.
As part of the rapid over-all growth of investments during the
latter 1950's, capital investments in industry rose by 1960 to more
than double the level of 1955. Almost one-half of the total for indus-
try was invested in the fuels and power industries, but the amounts
devoted to manufacturing also increased sharply. In a few branches,
notably ferrous metallurgy and shipbuilding, investments rose very
little. Because the growth of capacity lagged by at least a year be-
hind the increase in investments, the value of capital assets in
industry at replacement cost increased from 1955 to 1960 at an average
rate of only about 3 percent per year. This increase is much less
than the plan figure of about 6 percent per year implied in the Seven
Year Plan data for the years 1961-65. The planned increase, however,
will not be realized. East Germany has been unable to maintain the
projected rate of increase in investments in recent years. Instead
of the increases of 19 and 17 percent, respectively, planned for 1960
and 1961, the actual increase in 1960 was only 13 percent, and there
was only a small increase in 1961 (probably 3 percent). Even if this
lag is reduced somewhat, investments are almost certain to be well below
the planned amount, and the value of capital in industry probably will
grow by less than 6 percent per year during the years 1961-65.
The effects of a more rapid growth of capacity depend somewhat
on changes in structure, which probably will be slight, and the intro-
duction of new technology, about which it is not possible to be at all
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precise. The main consideration, however, in making a comparison with
the latter 1950's is the fact that most of the capacity not fully
utilized in 1955 is now employed much more effectively. The best
indication of the decline in the amount of unused capacity is the
gradual disappearance in the latter 1950's of extreme fluctuations
during the year in the level of production. Production tends to rise
in the last month of each quarter, to fall in the next month, to rise
in the last quarter of the year, and then to fall sharply in January
of the following year. Such fluctuations were considerably reduced
in 1956 and again in 1959 and 1960. In 1960, moreover, the range was
no greater than the normal range for West Germany, as shown in the
chart, Figure 2,* which compares the monthly fluctuations in output
of the East German and West German machinery and equipment industries
from 1955 to 1960. This comparison strongly suggests that there was
much less excess capacity in these industries in East Germany in 1958
than Ulbricht was willing to admit and that most of it disappeared in
1959-60.
Labor productivity in these industries remains substantially
lower in East Germany than in West Germany -- according to an East
German estimate, which is approximately correct, East German labor
productivity in machine building in 1960 was still only 70 to 75 per-
cent of the West German level. The lag in East German efficiency,
however, no longer reflects to any great extent material shortages.
Rather, it is now "built into" the economy. It represents, that is,
the loss of efficiency resulting from the partition of Germany, the
investment policies of the postwar period, the basic weaknesses of
East German management, and the inherent limitations on foreign trade
within the Soviet Bloc. There is therefore no reason to expect the
continuation of such significant increases in labor productivity and
reductions in capital-output ratios as occurred in the latter 1950's.
A maximum rate of 7 percent in the annual growth of East German
industry during the years 1961-65 also is suggested by the record for
West Germany in the most nearly comparable period, 1956-60. Output
per worker and capital-output ratios in West German industry in 1955
were much the same as those in East Germany in 1960, although there
were considerable variations from branch to branch in manufacturing
and although the mining industries are quite different in character.
During the latter 1950's, industrial employment in West Germany in-
creased by nearly 3 percent per year, or by much more than the East
German regime possibly can expect in the early 1960's. The value of
capital assets grew by more than 7.5 percent, a more rapid growth
than probably will be achieved during the next few years by East
Germany. Similarly, West German foreign trade increased at a rate
* Following p. 66.
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of about 12.5 percent per year, likewise higher than the probable rate
for East Germany. The rate of industrial growth achieved was about
7 percent per year. Thus, West German experience indicates that East
German industry would be doing very well to increase industrial produc-
tion by anywhere near this rate during the early 1960's.
In some respects, however, West German experience is not com-
parable, and the results of a comparison tend to understate East
German capabilities. In West Germany, there was some decline after
1954 in the Utilization of industrial capacity. East Germany, there-
fore, would need proportionally less capital to achieve the West German
rate of growth than West Germany actually used. There also are important
differences from branch to branch. For example, the use of electric
power capacity in East Germany is so much more intensive that West
German experience is scarcely relevant. Again, in West Germany most
mining is shaft mining for hard coal, whereas in East Germany mining
is chiefly strip mining for brown coal, which is more capital-intensive.
There also is no parallel in West Germany for uranium mining, which is
still very inefficient in East Germany.
B. Construction
The growth of construction undoubtedly will be slayer in the
early 1960's than it was in the latter 1950's. The reduction of
Soviet exploitation after 1955 and the resulting stimulus to East
German investment resulted in a rapid increase in construction -- the
growth in 1956-60 was indeed faster than in the early 1950's. At cur-
rent prices the value of construction increased by about 73 percent
from 1955 to 1960. The rise in costs was relatively slow, and the
real growth of construction probably was between 55 and 60 percent
during the period. Value added in construction increased somewhat
less rapidly, with the greater use of highly processed materials such
as reinforced concrete.
There is no really satisfactory basis for estimating the growth
of East German construction. Apart from average costs for state and
cooperative housing (since the mid-1950's), there are only scanty cost
data available for deflating the published figures on the value of
construction. There are no physical indicators of the volume of the
various types of work done except the total housing space built and
renovated. A weighted index of inputs is likely at best to give only
a very rough answer, especially because the indexes of the availability
of the chief construction materials during the period vary so widely.
There was a large increase in the supply of cement (112 percent) and a
substantial increase in the use of steel (probably more than 80 percent),
but production of bricks and roofing tile rose very slowly (16 percent),
and the consumption of wood declined slightly.
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160
150
140
130
120
110
100
90
80
70 r
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Figure 2
EAST AND WEST GERMANY: MONTHLY FLUCTUATIONS IN METALWORKING PRODUCTION
1956-60
I
111111111 11111111111 11111111111
FMAMJJASONDJFMAMJJ ASONDJ FMAMJJASON
1956
1957 1958
EAST GERMANY
\
.r
WEST GERMANY
11111111 I11
JFM
AMJ
JA
1959
36045 4-62 Based on monthly production figures adjusted to eliminate long-term and seasonal trends.
S
ON
11111111111
DJ
FMA MJ
JA
1960
S
0
ND
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For lack of any better basis, information on inputs has been
used in estimating the growth of construction during the latter 1950's
but in a way that minimizes the possible error. The supply of the
principal inputs to the construction sector increased from 1955 to 1960
roughly in accord with the plan, and an estimate of the actual growth of
construction in the period can be obtained by applying to the index
number for the planned growth of construction a factor representing the
weighted fulfillment of plans for the supply of construction materials.
On the basis of Ulbricht's original directives the supply of cement in
1960 was greater than planned (by about one-tenth) and that of bricks
and roofing tile somewhat less than planned (by about one-fifth). Sup-
plies of steel and wood to the sector were approximately at planned
levels. Thus the over-all availability of inputs probably was close
to planned levels (using West German price weights). Planned savings
in the use of materials, on the other hand, may not have been achieved.
On balance, however, the construction sector probably came very close
to fulfilling Ulbricht's original goal of an increase of 58 percent in
construction (an estimate that, taken in connection with the official
index, implies an increase of about 10 percent in construction costs
during the period 1956-60).
The estimated increase of nearly 10 percent per year in con-
struction from 1955 to 1960 (somewhat less for value added in con-
struction) was obtained with an increase of only about 0.2 percent per
year in employment. The high rate of increase indicated in output is
explained mainly by the availability of additional materials, includ-
ing concrete products (an increase of 320 percent) and fiberboard (an
increase of 147 percent). The prewar level of output per worker was
reached by the middle of the period, but the prewar German construc-
tion industry was operating considerably below capacity, and the East
German industry probably did not reach capacity until 1960. The growth
of productivity in 1960 was still substantial (more than 5 percent),
but in 1961 there was no further growth, possibly in part because of
the effects of the Berlin crisis. During the next few years it seems
probable that further increases in productivity will be much more modest
than those in the latter 1950's. They will depend heavily on the in-
dustrialization of the industry -- on investment and the development of
standardized components and prefabrication. These factors also will be
the main source of increases in output, for there is little prospect of
increasing employment in construction, which fell in 1961, given the
probability of some decline in over-all employment.
The hope of rapid gains through "rationalization," however, are
not well founded. Indeed, efforts to reorganize production may well
prove, as in agriculture, counterproductive. The regime has succeeded
since 1957 in forcing nearly one-half of the handicrafts enterprises
into cooperatives and has acquired control of more than one-half of
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the surviving "capitalist" enterprises. It is unlikely, however, that
the attitudes of the managers and workers can be changed rapidly. The
small handicrafts enterprises and cooperatives, the private enterprises,
and the "semistate" enterprises together account for more than 40 per-
cent of all employment in construction. The locally controlled state
enterprises, which account for another 45 percent of employment, also
are relatively small, and the management and workers of these enter-
prises then tend to resist changes.
This resistance is serious enough to warrant a very conserva-
tive projection of output in East German construction in the early
1960's. There is no basis, however, for any very specific figure.
West German productivity continued to grow by about 5 percent per year
for several years after reaching the prewar level of productivity
(already attained in West Germany by 1950) in spite of the ready avail-
ability of additional labor. Thus the East German industry should be
capable of attaining at least this rate in the early 1960's. Employ-
ment, however, probably will decline slightly, and the resistance of
management and labor probably will have some adverse effect. For these
reasons, the growth of output of construction is estimated at 4 percent
per year, but the estimate is less firm than that for industry.
C. Agriculture
The prospects for growth in East German agriculture at best
are uncertain. During the years 1954-58 there was a marked improve-
ment in crop yields, in production of meat, and in output per worker.
The principal causes were a rise beginning in 1953 in average prices
paid to the peasant (itself mainly the result of increased production
and the high prices paid for deliveries above the quota) and subsequent
increases in the supply of fertilizers and feed and in the availability
of agricultural machinery. These increases did not continue in 1959 and
1960 -- there was, in fact, a drop in output in 1959 -- but the results
could be laid mainly to less favorable weather. They indicated indeed
that socialization, which was increasing rapidly in 1959 and was com-
pleted in 1960, would not necessarily result in a decline in output. A
further drop in output in 1961, however, suggests that the cumulative
effect of discouragement and disorganization inthe village may well be
more serious than at first appeared. These factors weigh at least as
much as the trend in employment and the rate of growth of fixed capital
in evaluating the prospects through 1965.
In agriculture, as in construction, the East German regime sees
a sector characterized by small-scale production with prewar techniques,
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in which output per worker has-only recently exceeded prewar levels.
Like construction, agriculture is to be completely reorganized into
larger units, with a great increase in mechanization and the intro-
duction of new techniques. The difference is that the social resist-
ance to be overcome, the managerial problems to be solved, and the
capital requirements for reorganizing the sector are much greater than
in construction. These factors would have been serious enough if the
regime had proceeded, as foreseen in the Seven Year Plan, with a more
or less gradual socialization program. The decision taken in February
1960 to bring all peasants into the collective sector suddenly left
the regime facing all the problems at once.
The managerial problems in particular were magnified by the
sudden socialization of agriculture, not only because one-half of
the agricultural labor force had to be provided with direct super-
vision but also because the regime could not provide the capital re-
quired for the establishment of new cooperatives on such a scale.
The regime could not provide at once the machinery needed to replace
the labor supplied at harvesttime by the family of the independent
peasant or the new construction needed to shelter livestock on a
cooperative basis. Even under the ambitious production schedules of
the Seven Year Plan, the necessary machinery and construction mould
take several years to provide.
With the resources at its disposal the East German regime
probably will have some success in increasing production during the
next few years in spite of a decline in employment. The most likely
development is a fluctuation in output within a broad range, with
probably a slight upward trend. The resulting increase in production
and productivity, however, will be bought dearly. The added invest-
ments and higher industrial inputs involved even could lead to a
decline in value added in agriculture until some way is found of
easing, if not solving, the social and managerial problems growing
out of collectivization. Thus the contribution of agriculture to
the national income will rise little if any during the period 1961-65.
D. Conclusions
The preceding estimates of capabilities of growth in the most
important producing sectors of the East German economy lead to the
conclusion that the rate of growth through the mid-1960's probably
will be somewhat laver than it was in the latter 1950's. In the
years 1956-60 the average growth of GNP was about 5 percent per year.
The estimates of capabilities suggest that the rate of growth in the
years 1961-65 probably will lie between 3 and 5 percent per year, with
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a best estimate of 4 percent per year. This estimate may be broken
down as follows, sector by sector:
Annual Rate of Growth
(Percent)
Industry (including handicrafts) 6
Construction 4
Agriculture and forestry Negl.
Transport and communications 3
Trade 4
Other services 2
National income (and GNP) 4
The growth of transport and communications and of trade is estimated
on the basis of the need for these services implied in the estimates
for other sectors. Although the policy of skimping on these services
involves a cost to other sectors, the supply of such services is not
expected to limit economic growth. Therefore the projected growth of
the service sectors is related to that of industry, construction, and
agriculture. The estimate for other services assumes a slight net in-
crease in employment and a nominal increase in productivity.
The economic prospects of East Germany in the early 1960's are
somewhat less favorable than suggested by the above estimates of capa-
bilities for growth. Politically and socially, East Germany has be-
come less stable than in the latter 1950's as a result of the steps
taken to convert East Germany into a full-fledged "peoples democracy"
entirely isolated from the West. The tightening of Party controls over
the state apparatus and of legal and extralegal pressure on the populace
in the effort to suppress dissent and to push the economy to the limit
of its capabilities tends to reduce efficiency. So too does the elab-
orate program developed in 1961 minimizing the effects of a Western
embargo. The combined effects on economic growth may be significant if
the Ulbricht social and political policies are continued through the
period and if East Germany continues with the program of making the
economy independent of West German imports.
The above estimates assume that the East German regime will
remain intact through the Berlin crisis and that East Germany will not
have to bear the main cost of a prolonged Western embargo. If the
regime does not remain intact or if the economy must bear the main
cost of a long embargo, economic growth will be severely affected,
and the average annual rate of growth may fall well below 3 percent
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for the period 1961-65. Even a Western embargo of a few months, given
the assumption that the USSR and the other European Satellites promptly
come to the help of East Germany, would have a significant short-term
effect on the rate of growth and some effect in the following years.
If, on the other hand, none of these unfavorable developments
takes place and if the USSR furnishes economic support to East Germany
on a large scale, East Germany may do somewhat better than estimated.
There is little basis for evaluating the possibility that East Germany
may receive large-scale aid. In May 1961 the regime announced, in con-
nection with the renegotiation of the Soviet-East German long-term trade
agreement, that the USSR had agreed to extend credits of 2 billion DME,
nominally worth about $500 million. The credit apparently is for the
years 1961-65. The East Germans have not given out any further infor-
mation about the credit, nor has any corroboration been furnished either
by the Soviet press or otherwise. The most plausible explanation is
that the USSR reluctantly agreed to defer the repayment of East German
debts falling due during the period in order to assure that certain
investment projects in East Germany would be completed on time. Impor-
tant as this aid can be, however, it is estimated that at least twice
this amount would be required to raise the average rate of growth by
1 percentage point during the 5-year period. The East Germans them-
selves may well have been thinking in even larger terms. They doubt-
less will continue to urge on the Soviet government the strategic
importance of making East Germany a "show window" of Communism.*
* Since the completion of this report, negotiation of a goods credit
of $310 million, presumably for the year 1962, has been announced. It
is not known what this credit has to do with the East German announce-
ment of May 1961, but the new announcement is at least better substan-
tiated, for it was announced simultaneously by both Soviet and East
German sources.
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