TRENDS IN ECONOMIC MANAGEMENT IN EAST GERMANY 1945-57

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• Publication Date: May 15, 1958
• Content Type: REPORT

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SECRET
ECONOMIC INTELLIGENCE REPORT
N? '71
TRENDS IN ECONOMIC MANAGEMENT
IN EAST GERMANY
1945 - 57
CIA/RR 134
15 May 1958
CENTRAL INTELLIGENCE AGENCY
OFFICE OF RESEARCH AND REPORTS
SECRET
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WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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S -E -C -R -E -T
ECONOMIC INTELLIGENCE REPORT
TRENDS IN ECONOMIC MANAGEMENT IN EAST GERMANY
. 1945-57
CIA/RR 134
(ORR Project 41.1975)
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
S -E -C -R -E -T
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CONTENTS
Summary and Conclusions
I. General Background
A. Limitations on National Autonomy
B. Effects of Satellite Status on Economic Conditions and
Page
1
3
3
Policies
1. Difficult Postwar Recovery
5
2. Economic Adjustment to the Soviet Pattern .
?
5
3. Tendencies of the Regime
6
II.
Evolution of the Economic and Administrative Structure
?
?
6
A. Under Soviet Occupation . , . ...... _ .....
7
B. Under the East German Government
8
III. Administrative Revision: First Phase, 1952-55
HE
A. Economic Growing Pains
B. Administrative Response
1. Strengthening the Central Economic Control
11
12
13
Structure
13
a. Experimentation with Supraministerial Systems .
b. Consolidation of the Ministerial Structure . .
13
2.
Dividing Planning Responsibility
14
3.
Increasing Powers of Key Ministries
16
4.
Tightening Economic Control over Local Organs of
the State
17
C.
Situation at the End of the Soviet Occupation
18
IV.
Administrative Revision: Second Phase 1955 - mid-1957 .
19
A. Policies of the 25th Plenum of the Party Central
Committee-. . . . . . . . , .
B. Initial Attempts at Implementation
19
19
1. Structural Reorganization 19
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C.
2. Simplification of the Planning Procedure
3. Expansion of Powers of Ministers and Enterprise
Managers
Impact of Soviet De-Stalinization on Implementation .
Page
20
22
24
1. Additional Reorganization of the Top Control
Structure
25
2. Postponement of Reforms Relating to Enterprises and
Local Organs . - . . - . . - . .... ?
26
D.
Cautious Resumption of Implementation After the Polish and
Hungarian Uprisings of 1956 . . . - . ? ? ? ? ? ?
27
1. Legislation on the Local Organs (January 1957) . .
28
a. Status and Functions of the Local Organs ? ? ? ?
28
b. Economic Importance of the Local Organs
32
c. Probable Effects of the Legislation .:
38
2. Further Changes in Planning and Control . .
a. Establishment of the Economic Council (April
4o
1957) ? ? ....... ? ? ? ? ? ? .....
b. Widened Participation and Coordination in
4o
Planning . .
42
3. Recent Measures Affecting Operations of Individual
Enterprises
44
E.
Situation in Mid-1957
45
V.
Prospective Reforms
49
A.
Genesis of the Reorganization Proposals of the 32d Party
Plenum
49
B.
Evolving Reorganization Plan. ...... ; .
50
1. Proposed Structure and Functions of Ministries . .
51
2.. Proposed Structure and Functions of Industrial
Administrations . . . . . . . . .... .
52
3. Proposed Structure and Functions of District and
County Economic c offithissionS... -
53
4: Signs of Impending Reorientation
53
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C. Prospects of the Reorganization Program 54
Appendixes
Appendix A. Glossary of Terms
57
Charts
Figure
1.
East Germany: Stages in the Evolution of
the Economic Control Structure, 1945-52 .
Following Page
Figure
2.
East Germany: Major Stages in the Evolution
of the Economic Control Structure, 1953-54 .
14
Figure
3.
East Germany: Economic Control Structure as
of 1 February 1956
14
Figure
4.
East Germany: Legal Structure of the Central
Governmental Organs, 1957
28
Figure
5.
East Germany: Legal Structure of the State
Organs in the District, 1957
28
Figure
6.
East Germany: Legal Structure of the State
Organs in the County, 1957
28
Figure
7.
East Germany: Legal Structure of the State
Organs in the Municipality, 1957
28
Figure
8.
East Germany: Economic Control Structure as
of 1 July 1957
4o
Figure
9.
East Germany: Proposed Organizational Models
for Ministries
Figure 10. East Germany: Proposed Organizational Model
for Industrial Administrations
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(ORR Project 41.1975)
TRENDS IN ECONOMIC MANAGEMENT IN EAST GERMANY*
1945-57
* Summary and Conclusions
The assumption by the East German government of exclusive owner-
ship and management of all important economic enterprises under the
principle of administrative centralism and inseparability of political
and economic decision-making has raised so many problems that the
economic sector has had to be reorganized again and again and still
has not attained its final form.
Indiscriminate centralism characterized the early development of
economic administration in the government of East Germany (German
Democratic Republic -- GDR). To insure strong central control of the
economy, the ministries and state secretariats took over routine as
well as policymaking functions; and by 1952, both enterprise manage-
ment and the existing local governments had been largely divested of
discretionary authority. As the routine responsibilities of the
ministries increased, however, so did their size and number, and the
resultant fragmentation of authority within the top control structure
made interministerial coordination extremely difficult. To cope with
this problem, the regime has been experimenting since 1952 with various
systems of supraministerial coordination, and in 1953-54 it consoli-
dated the ministries in broad economic sectors such as industry,
machine building, and transport. Greater flexibility in the exercise
of economic authority was expected from these changes. In spite of
these structural innovations, top policymakers continued to be over-
burdened with administrative detail, and the system provided little
encouragement to local initiative, largely because of the regime's
refusal to relinquish central control over even routine functions.
To achieve a more definite separation of policymaking and
operational functions, the 25th Plenum of the Central Committee of
the Communist Party of East Germany recoffuHiended in October 1955 that
policy determination be concentrated in the Council of Ministers,
that ministerial authority in operational matters be expanded, and
that routine operational functions be transferred to enterprises and
local government agencies. Although implementation of some of the
recommendations was begun immediately, the de-Stalinization campaign
in the USSR strengthened the government's reluctance to weaken central
control by transferring functions to enterprise managements and local
organs. Consequently, measures to implement these recommendations
* The estimates and conclusions contained in this report represent the
best judgment of ORE as of 1 February 1958.
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were not initiated until well after the uprisings in Poland and Hungary
in 1956. Legislation enacted in January 1957 was intended to clarify
the functions of the agencies at the local levels and to enlarge the
role of the 14 districts and 216 counties in formulating and executing
plans for local development within the framework of the national plan.
The power of the top echelon to make final decisions in all important
matters, however, was carefully preserved.
Central economic control was tightened in April 1957 by the
creation of an Economic Council to oversee economic policy formulation
and planning functions. This council is composed of the six most
influential economic leaders of the Presidium of the Council of
Ministers, and, for all practical purposes, it exercises the full
economic authority of the Council- of Ministers and its Presidium.
The regime announced in July 1957 its intention to undertake addi-
tional administrative changes such as the merger of the Economic
Council and the State Planning Commission, the abolition of the eco-
nomic ministries and transfer of their planning and coordination
functions to the. State Planning Commission, the establishment of
associations of peoples owned or state-owned enterprises in key areas
of production to take over the operational supervision now performed
by the main administrations Of the Ministries, and the establishment
of economic councils in the districts to oversee the local economy -
and to be directly subordinate to the all-pbwerful State Planning
Commission as well as to the district assemblies and councils.
The steps taken or planned in the present stage of the continual
efforts to improve the structure and operational methods of the
economic administration and to simplify the planning process are by
no means intended to abolish or even to weaken central direction by
the top government. On the contrary, the continuing need for
economic and political centralism is stressed in all official pronounce-
ments and nongovernment comments. A principal objective of the trans-
fer of some functions to lower levels of the central administration
is to stimulate initiative and efficiency by creating the illusion
in the minds of members of lower governmental echelons, enterprise
directors, and the rank and file that they now have an important
voice in decision-making by a genuinely democratic process.
Because much of the reorganization remains to be implemented,
only a tentative appraisal of its prospects is now possible. Within
the framework of the economic and political system of the GDR, which
is immutably based upon "socialist centralise and government owner-
ship of economic enterprises, the present organizational changes,
by and large, appear to be sound; but some aspects of the revised
system seem to be of doubtful usefulness. The success of the reorgan-
ization, apart from the additional changes now being planned, will
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largely depend upon the response of the population and the extent to
which enterprises and lower echelons of government will be allowed,
in practice, to exercise initiative and freedom of action. Published
reports of discussions in plants and organizations and numerous other
publications on the subject make it appear that members of local ?
assemblies, managers, and workers are eager to make full use of the
new setup to play a larger role in the management of the economy. A
goodly amount of skepticism is, nevertheless, apparent in their
attitude -- a skepticism which appears well founded.
In spite of the democratic facade of the present system and in
spite of the seeming introduction of some local self-government,
independent local action of any importance will remain impossible.
Consequently, it appears unlikely that the recent revisions in the
state or national administration will stimulate the initiative,
efficiency, and voluntary cooperation that the East German leaders
desire. Whatever improvements are brought about in this aspect of
the problem would be largely confined to local economies -- that is,
economic activities of lesser importance. The planned further
reduction of the size of the top administrative structure, however,
should make the national government structure a more flexible and
effective instrument of control and should increase the general
efficiency of the system to some extent.
I. General Background.
A. Limitations on National Autonomy.
The freedom of choice of the GDR* in economic affairs is
circumscribed. The regime won and has maintained power with the
support of the USSR. As a loyal Satellite, it is committed not only
to a Communist economic system with central planning and public owner-
ship of the means of production but also to a highly centralized
bureaucracy, preferential development of heavy industry, and many of
of the other specific policies and methods associated with the
development of a planned economy in the USSR. The GDR may consider
only those solutions to economic problems that fall within this per-
missible frame of reference.
* The term GDR (German Democratic Republic -- Deutsche Demokratische
Republik) in this report refers to East Germany from the termination
of the Soviet military occupation in 1949 to the present.
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Conflicts between mandatory policies of the Soviet type and
national self-interest exist at many points. The rapid development
of heavy industry, for example, has frustrated the popular demand
for more consumer goods and in some instances has led to an ineffi-
cient use of available resources. Attempts to coordinate and
integrate the economies of the Soviet Bloc have been contrary to
national interest insofar as they tend to prevent the GDR from
exploiting its competitive industrial advantage within the Bloc.
Likewise, reorientation of trade from the world market to the Bloc
market has been contrary to the national interest in buying and
selling on the most advantageous terms. The regime tends to resolve
these conflicts of interest in favor of commitments to the USSR and
the Bloc.
Subservience alone, however, has not really disposed of the
underlying dilemma. Failure to make at least minimum provision for
national needs is potentially as dangerous as failure to meet commit-
ments to the Soviet Bloc. If the regime goes too far in sacrificing
public welfare, it invites popular unrest that may lead to Soviet
disfavor as well as possible loss of control. The consequences of
neglecting commitments to the Bloc are equally dire because the
present leaders of the GDR remain in power largely at the tolerance
of the USSR. Consequently, the regime works within rather narrow
tolerances in attempting to balance off Soviet demands against
national aspirations, and it must in the final analysis attempt to
satisfy both.
B. Effects of Satellite Status on Economic Conditions and
Policies.
The compromises made by the GDR in attempting to satisfy these
conflicting demands have resulted from the interplay of a variety
of factors. Basic among these have been the nature of Soviet policies
and control in the area and the local regime's limited success in
exercising authority in its own right.
East Germany experienced the humiliation of being occupied
territory. Although it has been wrenched from its traditional polit-
ical, economic, and social moorings, the population is inclined by
language, cultural heritage, and national tradition to cling to the
idea of a reunified Germany. Moreover, the visible Soviet might upon
which the GDR depends to hold this German nationalism in check is a
constant reminder of foreign domination and the subservient character
of the local regime. The latter therefore has had relatively little
success in winning acceptance by the population or in creating a sense
of national identity apart from Germany as a whole.
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1. Difficult Postwar Recovery.
The Soviet Zone of Germany experienced a difficult eco-
nomic recovery after World War II, for the policy of the occupation
authorities until approximately 1948 was to exploit it for the benefit
of the USSR. The industrial capacity of the Soviet Zone reportedly was
reduced to 50 percent of the 1936 level by war damage and by Soviet
dismantling of enterprises, bf which the latter accounted for 35 per-
cent. li* The USSR also transferred to Soviet management and ownership
about 200 of the most important industrial enterprises, which became
the Soviet joint stock companies (Sowjetische Aktiengesellschaften --
SAG' s)** and took war booty, spent captured Reichsmarks, printed occu-
pation currency, and charged occupation costs to the local regime. _V
Even after the USSR established the GDR and shifted to a
policy of Sovietization rather than naked exploitation, it continued to
take substantial amounts of goods and services from the economy. In
1950, for example, the USSR took goods and services amounting to 17 per-
cent of the gross national product (GNP) of the GDR. 3/ In 1953,
reparations and requisitions by the occupation authorities still absorbed
12 percent of the GNP. Moreover, when reparations were at last termi-
nated in January 1954 the GDR undertook substantial financial obligations
in connection with the return of the remaining SAG's except SAG Wis-
muth. 4/ Thus Soviet exploitation has been a major retarding influence
in the postwar economic recovery and development of East Germany --
one over which the local regime had little control.
2. Economic Adjustment to the Soviet Pattern.
The transformation of East Germany into a planned economy
also brought major adjustments in its industry and trade relationships.
Processing and finishing industries and agriculture were predominant in
the economy before World War II. The area depended on the well-developed
heavy industry of western Germany for heavy machinery, iron, steel,
bearings, and rubber products, for which it exchanged agricultural pro-
ducts (largely grain, potatoes, and sugar); optics; precision instru-
ments; printing and textile machinery; textiles; and lignite. 2/ Under.
Soviet influence, however, East Germany has given priority to the rapid
development of heavy industry and has reoriented its trade to the Soviet
Bloc, which accounted for 75 percent of the total in 1951-52 and 76.7 per-
cent in 1956.
** See Appendix A.
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These changes in economic orientation were abrupt and con-
sequently caused dislocations and stress. Plan targets for industrial
development, for example, consistently have been based on sharp
increases in economic productivity and reductions in costs that were
difficult if not impossible to achieve. East Germany, like the other
European Satellites, is not self-sufficient in all of the resources
required for heavy industry. Although rich in brown coal and potash,
its iron ore reserves are low grade and difficult to smelt, and
domestic output of hard coal has not been sufficient to meet industrial
demand since the end of World War II. 1/ East Germany also lacks
ferroalloying metals and all ferroalloys except ferrosilicon, ferro-
manganese, and ferrochromium; and it has no domestic reserves of
bauxite. 8/ These and other scarce resources required by heavy indus-
try must .17e imported. Moreover, they must be acquired largely within
the Soviet Bloc because East Germany has neglected the traditional
export industries that formerly enabled it to trade with western Germany
and the world market on favorable terms. The resource deficiencies of
the other Satellites are similar to those of East Germany, however,
so its economic fortunes depend mainly on the ability and willingness
of the USSR to supply crucial raw materials. 9/ Dependence on the Bloc
market also has certain other disadvantages. ?Trade with the more
highly developed Satellites is basically somewhat unsatisfactory because
they too are engaged in programs of rapid industrialization, and their
requirements tend to duplicate rather than complement those of East
Germany. On the other hand, the latter is expected as one' of the more
highly industrialized members of the Bloc to support the developmental
programs of the more backward Satellites and consequently tends to
give more than it.receives in economic benefit. Thus the East German
economy has become increasingly vulnerable to dislocations within the
insulated Bloc system but has gained few compensating advantages.
3. Tendencies of the Regime.
The East German regime has thus developed under difficult
circumstances and has had little opportunity for flexibility in
dealing with either the USSR or its public. It depends on the former
for survival and largely lacks the confidence and support of the latter.
The leaders of the GDR are convinced quite correctly that the latent
hostility of the population is held in check only by alert control and
visible symbols of Soviet might. Their behavior is conservative,
therefore, because they feel too insecure to risk innovations requiring
relaxation of central control.
II. Evolution of the Economic and Administrative Structure.
In the early postwar years, first the USSR and later the German
Communists took steps to adjust the traditional, liberal economic-
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system existing in the Soviet Zone of occupation of Germany to the
Soviet economic and administrative pattern.
A. Under Soviet Occupation.
On 30 October 1945 the Soviet Military Administration in
Germany (SMAD) issued Order 124, which resulted in the sequestration
of tens of thousands of economic enterprises.' Subsequently, these
enterprises were divided into three classes. Those included in
List A remained nationalized and those in List C (SAG's) became
the property of the Soviet government.* Enterprises in which
neither the USSR nor the German -Communist leaders were at the time
sufficiently interested to take over were included in List B
and were returned to their private owners with great publicity.
The SMAD Order 76 of 23 April 1948 subsequently authorized
the now defunct governments of the lands** to permit utilization of
smaller enterprises of only local importance by the local govern-
ments. In 1951-52, all important peoples owned enterprises (Volks-
eigene Betriebe VI,M's) were placed under the immediate control
of the main administrations of the proper economic ministries or
other bodies on the national level, 10/ and the ministries of the
lands were directed to transfer all nationalized enterprises of
limited and merely local importance to administration by the author-
ities in the geographic areas concerned. 11/ These enterprises,
accordingly, were handed over to counties or municipalities. Such
are the origins of the local peoples awned enterprises.
In 191.1.8 the occupation authorities began to take systematic
steps to convert the Soviet Zone of Germany into a dependable Satel-
lite and to restore and enlarge its industrial base. Reparations
payments were reduced and put on a more regular basis, and currency
reforms were initiated to curb inflation. 12/ Large-scale nationali-
zation of industry was continued under the Two Year Plan (1949-50)
of the newly established GDR; and by 1950, heavy industry was almost
exclusively state-owned and centrally controlled, although many
small enterprises in light industry still remained under local con-
trol or in the private sector of the economy. Finally, in 1951 the
GDR embarked on a full 5-year plan of the Soviet type, which
emphasized priority development of heavy industry.
* At the end of 1953, title to these enterprises also was transferred
to the GDR.
** The German lands (Laender) were roughly equivalent to the states in
the US. The lands were Mecklenburg, Brandenburg, Sachsen-Anhalt,
Thuringia, and Saxony.
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The evolution of the economic control structure in East
Germany reflects the major shifts in Soviet occupation policy. During
the period of ruthless exploitation the USSR directly controlled the
economy, principally through the SMAD. A Special Committee under the
Council of Ministers of the USSR directed independently the dismantling
of East German industry until May 1947, and the Group of Soviet Occu-
pation Forces in Germany (Gruppa Sovetskikh Okkupatsionnykh Vcdsk v
Germanii GSOVG) actively requisitioned supplies and took war booty
until near the end of 1946. / Central administrations (see Figure
1* 111/) were set up to assist the SMAD in directing the economy and
coordinating the work of the governments of the lands.** The central
administrations merely executed legislative and administrative ordi-
nances of the SMAD, however, and exercised no independent authority. 16/
After late 1946, administrative control over the economy of the
Soviet Zone of Germany began to be unified under the SMAD. It gradually
took over the economic functions of the GSOVG and of the Special Committee
under the Council of Ministers of the USSR, and in May 1947 the Special
Committee was abolished. Once the SMAD was in full control, it began
to take steps to develop a permanent and more efficient economic control
structure in the Soviet Zone.
In June 1947, Order 138 of the SMAD established a German Economic
Commission (Deutsche Wirtschaftskommission DWK). It was the first
German central administrative body in the Soviet Zone and included
12 central administrations corresponding to those formerly under the
SMAD (see Figure 1*). In the beginning the powers of the DWK were very
limited. It merely executed policy decisions of the SMAD, and one of
its chief duties was to insure the reparations deliveries to the USSR.
In March 1948 the central administrations were transformed into main
administrations, and their number grew from 12 to 17. For all practical
purposes the secretariat of the DWK was the first German central govern-
ment of the Soviet Zone. When the GDR was proclaimed on 6 October 1949
the name of the DWK was changed to Provisional Government of the GDR,
and its leading personalities became the ministers and state secretaries
of the new government (see Figure 1). Thus by establishing the DWK,
the Soviet occupation authorities took an important step toward changing
from direct supervision of the zonal economy to indirect supervision
through German administrative agencies.
B. Under the East German Government.
When the GDR was proclaimed in East Germany on 6 October 1949
the SMAD was simultaneously abolished, and its economic functions were
* Following p.8.
** SMAD offices also existed in each of the land governments. 12/
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As of October 1945
ISOVIET MILITARY ADMINISTRATION (SMAD)
Central Administration for Economic Planning
EAST GERMANY
STAGES IN THE EVOLUTION OF THE ECONOMIC CONTROL STRUCTURE, 1945-52
As of 15 June /947
As of 30 Dec. As of 30 October /949
/948
SOVIET CONTROL COMMISSION (SCC)
As of i December 1950 As of 30 December 1951
As of 30 December /952
Figure 1 50X1
German Economic Commission (DWK)
Council of Ministers (GDR)
COUNCIL OF MINISTERS (GDR)
Presidium
Department of Economic Planning
Central Commission
for State Control
Central Commission for State Control
Office of the Council of Ministers
Coordination and Control Groups
Industry and Transportation
Agriculture, Forestry, and Water Economy?
Internal Trade ?
Education, Science, and Art
Administrative Services
Central Commission for State Control
State Planning Commission
State Planning Commission
Central Administration for Statistics
Department of Material Control
and Allocation
State Secretariat for Material Procurement
Department of Statistics
State Central Administration for Statistics
State Secretariat for Material Procurement
State Central Administration for Statistics
Central Administration for Finance
Department of Finance
Ministry of Finance
Ministry of Finance
Central Administration
for Labor and Social Welfare
Department of Labor and Social Welfare
Ministry of Labor and Social Welfare
Ministry of Labor and Social Welfare
Central Administration for Post and Telegraph
Department of Post and Communications
Ministry of Post and Communications
Ministry of Post and Communications
Central Administration for Trade and Supply
Department of Trade and Supply
Ministry of Trade and Supply
Ministry of Trade and Supply
Central Administration
for Agriculture and Forestry
Department of Foreign
and Interzonal Trade
Ministry of Foreign and Domestic Trade
IState Secretariat for Food
and Beverages
State Secretariat for Food and Beverages
Ministry of Foreign and Domestic Trade
Department of Agriculture and Forestry
Ministry of Agriculture and Forestry
Central Administration for Transportation
Department of Transportation
Ministry of Transportation
State Secretariat for Control and
Purchase of Agricultural Products
Ministry of Agriculture and Forestry
State Secretariat for Control and Purchase
of Agricultural Products
Ministry of Transportation
Department of Coal
Central Administration for Fuel and Power
Central Administration for Industry
Department of Fuel
Ministry of Construction
State Secretariat for Construction
Ministry of Construction
Ministry of Industry :1:ri,E Ministry of Heavy Industry
Ministry of Mines and Ore Smelting
Ministry of Mines and Ore Smelting
Department of Metallurgy
Department of Machines
and Electric Industry
26639 3.58
Department of Chemicals
Department of- Light Industry
Soviet administrative organs
Administrative organs of the GDR
Coordination and indirect administrative controls
State Secretariat for Coal and Power
State Secretariat for Chemistry
and Nonmetallic Minerals
State Secretariat for Fuel and Power
State Secretariat for Chemistry
and Nonmetallic Minerals
Ministry of Machine Construction
Ministry of Light Industry
Ministry of Heavy Machine Construction
Ministry of Agricultural and Transport
Machine Construction
Ministry of General Machine Construction
Ministry of Light Industry
Only government agencies engaged primarily in economic activities
are included, and the economic control structure is shown only at
selected periods which typify the main stages in its development.
This chart is not intended to be a definitive representation of all
details of the organizational changes that occurred during the period.
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taken over by the new Soviet Control Commission (SCC). The latter
gradually relinquished administrative control of the economy to the
GDR, although continuing to issue mandatory plan targets for the pro-
duction of items of interest to the USSR. 1// Progress in carrying
out this transfer of economic functions is graphically shown by the
steady reduction of the staff of the SCC. In 1952 it had only about
3,000 employees compared with 50,000 on the staff of the SMAD in 1949.
The GDR was preoccupied at first with the elementary problems
of nationalizing industry, centralizing control, developing adequate
planning and administrative techniques, and otherwise adjusting the
traditional German administrative pattern somewhat to that of the
USSR. The decisive phase of the administrative reform was initiated
by a law dated 23 July 1952 18/ which implemented resolutions of
the Second Party Conference* of the Socialist Unity (Communist) Party
of East Germany (Sozialistische Einheitspartei Deutschlands SED).
This law stated that "the old imperial system of administrative
division in lands with governments of their own, as well as in large
counties, does not assure the performance of the new tasks of our
state." This is so, the preamble explained, especially because the
economy is now owned by the people and because the GDR, in contrast
to former German governments, has to manage it in addition to its
other duties. Thus it is necessary to fix the territorial domain of
the "local organs of the state authority" in a manner which enables
them to participate effectively in the direction of the economic
and cultural development. In addition, effective guidance and con-
trol of the lower by the higher organs must be assured. The statute
directed the lands to divide their territories into new counties and
to incorporate the counties into districts according to their economic
requirements and in such a manner as to insure the performance of all
state functions, especially the effective guidance and control of
municipalities by counties and of counties by districts. The statute
also provided that the national government agencies, each within its
field of responsibilities, would regulate the transfer of the functions
formerly performed by the governments of the lands to the adminis-
trative organs in the newly formed districts. Complying with the stat-
utory directives, the diets of the various lands passed identical laws
depriving themselves of their status under the constitutional law.
Because of the elimination of their governments, they are no longer
capable of undertaking any activities, but they continue to exist in
* The conference met on 9-12 July 1952.
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the constitution. Their status is indeterminable according to the
principles of traditional public law.*
Since the passage of this statute, East Germany has consisted
administratively of 14 districts (Bezirke)** which comprise 216 counties
(Kreise), of which 193 are rural counties (Landkreise) and 23 city
counties (Stadtkreise). The districts and counties are units of the
central administrative apparatus at the intermediate and lower levels,
respectively. East Berlin is organized in the same manner as the
14 districts of East Germany and is combined with them in setting up
the national budget.
After the virtual abolition of the lands, the GDR established
administrative machinery and methods for governing the new districts
and counties. 12/ Both of these types of administrative subunits were
placed under the administration of agencies of the "state authority" --
the national government. Elected district assemblies were installed as
the highest regional organs of the state authority in the districts,
as were elected county assemblies in the counties. Each of these
assemblies elects a council, XXX called the district council or county
council, which functions as the executive agency of the assembly that
elected it.
A Coordination and Control Office for the Operations of the Local
Organs of the State Authority was established as an organ of the Council
of Ministers to guide and control the various activities of the local
agencies.xxxx The supervision of the latter was regulated in relatively
* The German Communist leaders initially considered effectuation of
the administrative reform by the orderly process of constitutional amend-
ment. The idea, however, was abandoned, probably in view of the con-
tinuing efforts to reunite the two parts of Germany. There could be no
doubt that a constitution providing for conditions as brought about by
the reform would be unacceptable to a vast majority of the West Germans
and thus would add to the many Obstructions to reunification.
** Chemnitz, Cottbus, Dresden, Erfurt, Frankfurt (Oder), Gera, Halle,
Leipzig, Magdenburg, Neubrandenburg, Potsdam, Rostock, Schwerin, and Suhl.
XXX The German term is Rat, which is the translation of the Russian
term sovet (soviet). These councils, however, differ in character
from the soviets in the USSR.
xxxx See the Statute for the Coordination and Control Office for the
Operations of the Local Organs of the State Authority, dated 16 April
1953 E2/ and the Resolution of the Council of Ministers Pertaining to the
Guidance and Control of the Councils of the Districts and Counties by the
Council of Ministers, dated 3 February 1955, 21/ both subsequently re-
pealed by the Resolution Pertaining to the Regulation of the Direction of
the Local Councils by the Council of Ministers, dated 24 January 1957 22/
and therefore not discussed here.
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great detail. An equally comprehensive legal. regulation of their
functions did not take place until January 1957*,
The national law regulating the structure and working methods
of the regional and local organs of the national government placed
them under the statutory duty of establishing certain standing com-
mittees. Each district assembly had to form 10 such committees for
the following fields of activity: budget, agriculture and rural con-
struction, local industry, health and social services, education,
commerce, traffic, housing and communal economy, culture, and local
police and administration of justice. The county assemblies had to
establish seven standing committees covering the same fields, except
traffic. These committees have been and are still playing a very
important role in the operation of the local assemblies and councils
and have helped them, in particular, to perform such functions in plan
preparation and implementation as the top authorities have assigned
to them., The law pertaining to the first annual plan after the admin-
istrative reform of 1952, 23/ for example, made not only the ministers
and state secretaries but also the chairmen of the district and county
councils responsible for plan fulfillment within their jurisdictions.
The district councils were to review and approve the plans of counties
and municipalities under their jurisdiction and to control compliance
with the plan tasks. The county councils, likewise, were obligated
to review and approve the plans of their cities and municipalities**
and to insure their execution. The district, county, city, and
municipal councils received detailed directions to organize the carrying
out of the plans of the local peoples owned industriesxxx as well as to
support the centrally administered economy in solving its problems.
As the GDR consolidated its position, the top economic control
structure became more complex. The number of ministries increased,
and they became more specialized in character, (see Figure lxxxx).
Furthermore, an Office of the Council of Ministers was set up in 1952
which included five coordination and control groups (see Figure 1).
They functioned as supraministerial expediting and investigating organs
for the major sectors, of the economy.
III. Administrative Revision: First Phase, 1952-55.
The apprenticeship of the GDR in learning how to run a planned
economy ended in 1952. Its control was firmly established, but drastic
improvements in economic efficiency were required to achieve the targets
See IV, D, 1, a, pp. 28 ff., below.
Smaller cities and towns are examples of municipalities.
See IV, D, 1, b, pp. 32\ff., below.
Following IS. 8, above.
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of the First Five Year Plan (1951-55). It therefore made almost con-
stant efforts to develop more effective methods of economic planning
and administration.
A. Economic Growing Pains.
In July 1952 the Second Party Conference of the Communist
Party of East Germany declared that the time had come to proceed with
'building socialism." This announcement ushered in a vigorous drive
to complete the reform of the economy along Soviet lines. During the
next year the regime attempted to collectivize agriculture, restrict
private industry and trade, and break the bottlenecks that interfered
with the rapid development of basic industries. It adopted new laws
providing stiff penalties for "crimes" against the national economy
and permitting district councils to dispossess farmers who did not
comply with state regulations. EY It increased the income tax for
private firms and took away their ration cards as well as those of
the self-employed. A 10-percent increase in over-all work norms also
was called for, effective 1 June 1953.
When the GDR shifted to the "new course" in 1953, it moderated
many of the harsh policies associated with "building socialism," although
not in time to prevent the uprising of 17 June. E2/ After the uprising
the regime attempted to provide improvements in the scale of living that
would be immediately apparent to the population. It accomplished this
by wage increases; by price and tax reductions; and by making more con-
sumer goods available from domestic reserves and, in part, from imports
from the USSR. The new course also brought a reduction of investments
in heavy industry and an increase in plans for the production and
distribution of consumer goods. EW The production targets for industry
during 1954 and 1955 continued to be rather modest, although by 1955
there was a definite swing away from light industry. 2//
The dependence of the GDR on foreign resources to carry out its
program of industrialization continued to be one of the most serious
economic problems during this period. The government therefore empha-
sized expansion of foreign trade not only within the Soviet Bloc but
also with "the countries of the capitalistic market," beginning with
the 1954 Plan. ELY
The drive to increase trade had rather mediocre success,
however, and plan fulfillment was uneven, so that East German industry:
frequently suffered from spot shortages of key materials and pro-
ducts. 29/ Moreover, planned increases in productivity and reductions
in cost usually were not achieved. 1),./
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B. :Administrative Response.
The East,German regime made many adjustments in the system
of management during this period in an effort to solve its economic
problems.
1. Strengthening the Central Economic Control Structure.
The central economic control structure of the GDR underwent
constant change. The various reorganizations coincided in part with
shifts in policy, attempts to solve immediate problems, and a general
concern with achieving greater efficiency. More fundamentally, they
reflected the efforts of the regime to cope with two dilemmas inherent
in the management of a planned economy. First, how to transcend
narrow departmentalism and to provide coordinated direction of the
whole economy without overburdening high-level policymakers with admin-
strative detail. Second, how to achieve an efficient division of
responsibilities among national ministries and between ministries and
their subordinate organs and how to stimulate initiative at all levels
without fragmenting authority to the point of weakening central con-
trol. The GDR attempted to solve these problems primarily.by improving
techniques of central control.
a. Experimentation with Supraministerial Systems.*
Several attempts were made in East Germany to develop
supraministerial coordinating staffs to free the Council of Ministers
of administrative detail yet give it more sensitive and effective con-
trol over the economy as a whole. At first, coordinated direction of
only the major sectors of the economy was undertaken, largely through
the groups set up in the Office of the Council of Ministers in 1952
(see Figures 1** and 2xxx 31/). The three economic coordination
groups were those for Internal Trade; Industry and Transport; and
Agriculture, Forestry, and Water Economy.
This system was, abandoned in October 1953, and a
Department of Coordination of the Presidium of the Council of Ministers
was set up "to improve the work of the state apparatus by exerting more
strict control over the execution of decrees of the government." 32/
The Director of the new Department reported to the Chairman of the
Council of Ministers and was entitled to participate in the sessions of
the Council and the Presidium. The Department of Coordination worked
* See IV, B, p. 19, below, and IV, D, 1, c, p. 38, below, for dis-
cussions of the later evolution of the supraministerial coordination and
control groups.
** Following p. 8, above.
xxx Following p. 14.
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independently of the Central Commission for State Control and was given
broad authority to investigate the implementation of government decrees
in ministries and other state organs.* It had no direct control over
state organs but submitted reports and recommendations for action by the
Council of Ministers and its Presidium.
Twelve coordination groups were set up in the new
Department of Coordination, one for each significant economic ministry
(see Figure 2xx). The Presidium of the Council of Ministers thus was
provided with a sensitive administrative device for directly overseeing
and coordinating the activities of the whole economy as well as those of
the most important sectors.
b. Consolidation of the Ministerial Structure.
Until 1953 the GDR tended to disperse responsibility
for operational supervision of the economy among an ever-increasing
number of ministries and state secretariats which'were set up to
deal with special problems (see Figures 1 and 2xxx). After the uprising
of 17 June 1953, however, the major sectors of the economy were brought
under a few large ministries headed by trusted leaders. In October
1953 the metallurgical, coal, power, and chemical industries were brought
under a Ministry of Heavy Industry; and in January 1954, all machine
building was brought under a single Ministry of Machine Construction 33/
(see Figure 2).
Additional consolidations of ministries occurred during
1954 as the GDR attempted to tighten control over the economy preparatory
to the reinstatement of the policy of rapid industrialization. In Novem-
ber, railroads, motor transport, and shipping were brought under a
single Ministry of Transportation; the State Secretariat for Vocational
Training was absorbed by the Ministry of Labor and Vocational Training
(see Figure 3xxxx), and the State Planning Commission took over the
State Secretariat for Material Procurement. .2111
2. Dividing Planning Responsibility.
The GDR took over the Soviet system of planning virtually
without change but lacked the experience to make it work well. At
* The Ministries of the Interior, Foreign Affairs, and Justice; the
Supreme Court; the Central Commission for State Control; and the Office
of the Attorney General, however, were not placed under the jurisdiction
of the Department of Coordination, for the latter was prianrily concerned
with economic affairs.
** Following p. 14.
xxx Following pp. 8 and 14, respectively.
Following p. 14.
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EAST GERMANY
MAJOR STAGES IN THE EVOLUTION OF THE ECONOMIC CONTROL STRUCTURE, 1953-54*
As of /0 August /953
OFFICE OF THE SOVIET
HIGH COMMISSIONER
OFFICE OF
THE SOVIET
HIGH COMMISSIONER**
As of I July /954
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Figure 2
Council of Ministers (GDR)
Presidium
26640 3-58
Office of the Minister
President
Office of the Council of Ministers
Coordination and Control Groups
Internal Trade
Industry and Transportation ? ?
Agriculture, Forestry, and Water Economy ? ? ?
Education, Science, and Art
Administrative Services
Soviet administrative organs
Administrative organs of the GDR
Coordination, and indirect
---- administrative controls
SEMIAUTONOMOUS OFFICES
7EState Planning Commission
State Secretariat for Material Procurement
^ State Central Administration for Statistics
State Geological Commission
Central Office for Research and Technology
Central Commission for State Control
State Secretariat for State Reserves
Office for Standardization
L _ ,
MINISTRIES, STATE SECRETARIATS,
AND STATE COMMISSIONS
State Commission for Trade and Supply
Ministry of Trade and Supply
Ministry of Food, Tobacco, and Drink
^ Ministry of Foreign and Domestic Trade
^ Ministry of Finance
Ministry of Light Industry
Ministry of Construction
Ministry of Railroads
State Secretariat for Shipping
- State Secretariat for Highways
- Ministry of Heavy Machine Construction
Ministry of Transportation and
Agricultural Machine Construction
Council of Ministers (GDR)
Presidium
Office of the Minister
President
Department of Coordination
Coordination Groups
Science, Education, and Cultural Matters
Trade and Supply
Railroad Traffic
Foreign Trade
Light Industry
Construction
Food Industry
Agriculture
Exports
Labor and Public Health
Machine Construction ?
Heavy Industry
Ministry of General Machine Construction
Ministry of Mines and Ore Smelting
State Secretariat for Coal
State Secretariat for Power
State Secretariat for Chemistry
and Nonmetallic Minerals
L_
-I
406... Ministry of Machine Construction
SEMIAUTONOMOUS OFFICES
State Planning Commission
State Secretariat for Material Procurement
Central Office for Research and Technology
State Central Administration for Statistics
State Geological Commission
Central Commission for State Control
State Secretariat for State Reserves
Central Inspectorate for Tables of Allocations
MINISTRIES, STATE SECRETARIATS,
AND STATE COMMISSIONS
- Ministry of Trade and Supply
Ministry of Railroads
- Ministry of Foreign and Domestic Trade
Ministry of Light Industry
- Ministry of Construction
Ministry of Food, Tobacco, and Drink
Ministry of Agriculture and Forestry
State Secretariat for Control and
' Purchase of Agricultural Products
Ministry of Labor
Ministry of Post and Communications
State Secretariat for Shipping
Ministry of Agriculture and Forestry
State Secretariat for Control and Purchase
of Agricultural Products
State Secretariat for Supervision and Control
of Communal Administrative Organs
Ministry of the Interior
Ministry of Labor
State Secretariat for Coordination of Finance
Ministry of Post and Communications
German Bank of Issue
- Ministry of the Interior
Ministry of Finance
401b Ministry of Heavy Industry
- State Secretariat for Highways
State Secretariat for the Local Economy
State Secretariat for Internal Affairs
State Secretariat for Coordination of Finance
German Bank of Issue
Only government agencies engaged in economic activities are included,
and the economic control structure is shown only at selected intervals
which typify the main stages in its development.
** The Soviet High Commission was abolished in September 1955.
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EAST GERMANY
ECONOMIC CONTROL STRUCTURE AS OF 1 FEBRUARY 1956
Figure 3
COUNCIL OF MINISTERS
Office of the Presidium of
the Council of Ministers
Office of the Minister
President
Presidium of the Council of Ministers
Leuschner (Deputy Chairman)
Grotewohl (Chairman)
Ulbricht (First Deputy Chairman)
Loch (Deputy Chairman)
Stoph (Deputy Chairman)
Rau (Deputy Chairman)
Maron
Rumpf
Oelssner (Deputy Chairman and Commissioner)
Commission for Trade and Supply
Selbmann (Deputy Chairman and Commissioner)
Commission for Industry and Transport
Scholz (Deputy Chairman and Commissioner)
Commission for Agriculture
SEMIAUTONOMOUS OFFICES
State Planning Commission
Central Commission for State Control
State Commission for Tables of Allocations
State Secretariat for Material Reserves
Advisory Council for Construction Matters
MINISTRIES, STATE SECRETARIATS,
AND STATE COMMISSIONS
Ministry of Armaments
E- Ministry of Foreign and Domestic Trade
Ministry of Labor and Vocational Training
Ministry of the Interior
Ministry of Finance
German Bank of Issue
? Ministry of Trade and Supply
- Ministry of Light Industry
? Ministry of the Food Industry
- State Secretariat for Control and
Purchase of Agricultural Products
- State Secretariat for the Local Economy
Ministry of Mines and Ore Smelting
? Ministry of the Chemical Industry
- Ministry of Coal and Power
? Ministry of Heavy Machine Construction
- Ministry of General Machine Construction
- M'inistry of Transportation
? Ministry of Post and Communications
? Ministry of Construction
Ministry of Agriculture and Forestry
Office of Inland Waterways
26km
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first the regime was preoccupied with such elementary problems as
getting enterprises to plan their activities in a uniform manner on
the basis of central directives. Its basic approach to problems of
this nature was to bring all aspects and levels of planning under
strict central control. 12/ As a result, planning methods tended to
become more and more elaborate, and the responsibilities of each admin-
istrative level tended to be defined and regulated in ever-increasing
detail. Some refinement in planning techniques also became evident.
For example, the Planning Rules, which the State Planning Commission
issues each year as prescribed methodology, had evolved by 1954 from
a single set of somewhat general instructions into a series of sets
of comprehensive instructions adapted to each branch of the econ-
omy. 36/ Rigid central control discouraged enterprise managers
from showing initiative or accepting responsibility, however, and
this tended to offset increased technical proficiency in planning.
The Central Committee of the Party therefore recommended
that planning should be simplified and the responbibilities of enter-
prise managers increased in order to make them more conscious of
costs, productivity, and general profitability. On 16 December 1954
the Council of Ministers passed a resolution implementing those
recommendations. 37/ The State Planning Commission was directed to
reduce national plans to targets of major significance* and was
empowered to regulate the amount of detail that ministers, main
administrations, and the district and county councils could require
of their subordinate enterprises. It also was directed to assist
ministries and district councils in developing a simpler system of
enterprise planning before the 1956 Plan was prepared.
Simplification, however, was not intended significantly to
reduce central control over the planning process. The resolution of
the Council of Ministers instructed the State Planning Commission and
the Ministries of Finance, Foreign and Domestic Trade, and Labor and
Vocational Training (see Figure 3**) and other top organs to improve
their leadership and control over those phases of plan formulation
and implementation falling under their jurisdiction. Moreover, it
specified in comprehensive detail when and in what form the ministries,
main administrations, and councils of districts and counties should do
the following: (a) issue instructions to the enterprises for drafting
each important part of the plan; (b) notify enterprises of their plan
targets in precise documents signed by the chief of the main administra-
tion or appropriate deputy of the district council; (c) issue provisional
* Contrary to the general trend toward simplification, the plan con-
trol figures for manpower and finance were to be made more detailed in
order to tighten control.
** Following p. 14.
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targets if plan targets were not formally ratified by the beginning
of the plan year; and (d) supervise the introduction or further refine-
ment of quarterly operational planning in enterprises -- that is,
planning of internal preparations for carrying out state Obligations.
These agencies also were prohibited from changing the plan of an
enterprise unless strong justification could be shown and their own
plans would not be affected.
The resolution of the Council of Ministers of 16 December
1954 also placed much greater emphasis on the planning responsibilities
of the enterprise manager than upon his rights. He was given no new
powers with respect to the annual plan, although an effort was made
to assure that he would receive more adequate and timely assistance
and supervision. He was made legally responsible, however, for
developing suitable quarterly operational plans on his own initiative,
if necessary on the basis of provisional planning documents. Moreover,
such operational plans had to provide for making up underfulfillment
of production targets in previous quarters. The plans could be revised
during the quarter to include new assignments but could not be reduced.
The only concession to the enterprise manager was that, although the
operational plan is prepared under the supervision of superior organs,
it need not be submitted to them unless the enterprise is lagging
in plan fulfillment.
Although the decree provided few concessions to management
at the operational level, it was intended to lay the groundwork for
later changes. Ministries, state secretariats, and other organs of
state authority were directed to evaluate their initial attempts to
simplify, economic planning before the 1956 Plan was drafted. At that
time they were to suggest such additional simplifications in pro-
cedures as seemed practical on the basis of experience.
3. Increasing Powers of Key Ministries.
The GDR also became concerned over managerial deficiencies
at the operational level of industry, as the economy experienced
increasing difficulty in achieving plan targets for productivity and
reduction of costs. At first the regime was inclined to blame short-
comings in industry on "grievous and significant subjective errors
on the part of the works' managements." 38/ Consequently, vigorous
exhortations to enterprise directors to be more diligent and steps to
tighten central control over their activities were at first the
principal forms of corrective action.
Centralization of control reached such an extreme in the
ministerial consolidations following the uprising of 17 June 1953,
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however, that administrative compensations had to be provided. The
trusted heads of the large omnibus ministries therefore were given
somewhat broader discretionary authority. Near the end of 1953 the
new Minister of Heavy Industry and his deputies, for example, were
given a rather free hand in appointing administrative personnel,
controlling the internal organizational structure, approving the
plans and budgets,* assigning work, and regulating prices of
subordinate enterprises and establishements. 39/ Significantly,
these rights seem not to have been extended to the less important
economic ministers and heads of state secretariats.
No new powers of any significance were delegated to
enterprise managers during 1952-55. On the contrary, regulations
governing the exercise of powers already granted to them became more
detailed and restrictive, as is indicated by the various revisions
in the statutes governing the use of the enterprise director's
fund. 40/
4. Tightening Economic Control over Local Organs of the
State.
As mentioned above, the districts, counties, and munic-
ipalities in East Germany functioned after 1952 as organs of the
state authority and not as autonomous local governments'. Nevertheless,
additional steps were taken in 1954 to tighten national control over
local industry and other residual economic functions remaining under
the jurisdiction of the districts, counties, and municipalities.
In 1953 the departments of the district and county councils, which
handle local industry and handicrafts, were subordinated to a national
State Secretariat for the Local Economy. 41/ Moreover, a law of
16 November 1954 directed the Council of Ministers specifically to
adapt the structure of the national government, including its regional
and local levels, to the needs of national economic plans and other
state tasks. 42/ The Council was authorized to cancel decisions and .
legislation of the district councils and assemblies without the
formality of legislative action by the Peoples Chamber (Volkskammer),**
as previously had been required by law. In a policy speech on 19
November 1954, Otto Grotewohl, Chairman of the Council of Ministers,
called for tighter central control over the district and local organs
of the state administration. L.1- Subsequently, steps were taken to
* Changes in the plan or budget of the Ministry itself still required
the approval of the State Planning Commission and the Ministry of Finance.
** The lower house of the national parliament of the GDR, which in
practice passes alone on all legislation.
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bring locally controlled peoples owned enterprises under closer
supervision of national agencies such as the German Bank of Issue
(Deutsche Notenbank). 44/
C. Situation at the End of the Soviet Occupation.
During 1952-55 the USSR steadily reduced and eventually
abandoned direct participation in the management of the economy of
East Germany in order to enhance the standing of the GDR as a "sov-
ereign" power. In May 1953 the SCC was replaced by the Soviet High
Commission for Germany. The latter, however, confined itself to
representing specific interests of the USSR in Germany and to such
broad supervision of the GDR as was required by the Potsdam Agree-
ment.122/ The USSR took additional steps to reduce its overt con-
trol mechanism after it granted the GDR "sovereignty" in March.
1954. 46/ In June the Soviet High Commission reduced its staff by
two-thirds and withdrew local representatives. In August, all de-
crees and orders issued by the SMAD and the SCC between 1945 and
1953 were canceled. In January 1955 the USSR officially terminated
the state of war with Germany. Finally, in September 1955 the Soviet
'High Commission was abolished and the Soviet occupation formally
terminated.
The gradual elimination of the overt Soviet control mechanism,
however, was accompanied by a sharp rise in the number of Soviet
advisers in the economy of the GDR. Early in 1954 the GDR began to
contract with the USSR on a large scale for the services of technical
experts of various kinds. 47/ These "technical" advisers became an
important indirect channel of Soviet control and also probably made
a substantial contribution to the German economy as consultants.
Their influence continued to be strong for the next several years,
although by mid-1956 it apparently had started to wane. 48/
The prevailing trend in economic management throughout the
period 1952-55 Was toward ever greater centralism. Absolute con-
trol, however, created as many problems as it solved. In spite of
extensive experimentation with the central control structure, com-
plaints continued that the Council of Ministers and its Presidium
were overloaded with routine administrative detail and that ministers
and lower level managers were reluctant to take responsibility. 49/
The GDR therefore had begun by early 1955 to reconsider its admin-
istrative preconceptions. It cautiously attempted to simplify
planning near the end of 1954, with provision for reopening the ques-
tion in 1955. Moreover, in April 1955 the Ministry of Machine Construc-
tion was divided into separate ministries of Heavy Machine Construction
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(see Figure 3*). 50/ Thus an important first step was taken toward
breaking up the unwieldy omnibus ministries.
IV. Administrative Revision: Second Phase, 1955 - Mid-1957.
Several converging economic and political influences finally caused
the GDR to undertake a full-scale review of its management problems
near the end of 1955. The Second Five Year Plan (1956-60) called for
a return to the priority development of heavy industry and the "building
of socialism." Improved management therefore assumed importance in
achieving the sharp increase in labor productivity upon which the plan
depended. Coordinated planning within the Soviet Bloc also was
becoming more firmly established, so that realistic plans and certain
fulfillment took on added significance. Moreover, the USSR had launched
a campaign against bureaucratic tendencies in economic administration
during the summer of 1955, so the political climate was right for
innovation.
A. Policies of the 25th Plenum of the Party Central Committee.
In October 1955 the 25th Plenum of the Central Committee of the
Communist Party of East Germany concluded that the system of economic
administration should be overhauled and made recommendations that were
to dominate the policy of the GDR on management reform from then to
the present. The Central Committee recommended the following 21/:
(1) more definite separation of policymaking and routine operational
functions; (2) improvements in the administrative structure and
methods of the Council of Ministers and the districts, counties, and
municipalities; (3) simplification of planning; and (4) greater use
of economic incentives to stimulate the initiative of enterprise
managers. Several speakers at the Plenum emphasized that better use
should be made of the experience of enterprise managers in deciding
detailed questions falling within their competence.
B. Initial Attempts at Implementation.
The Council of Ministers of East Germany took prompt measures
to implement the recommendations of the 25th Plenum.
1. Structural Reorganization.
In November 1955 the GDR replaced the Department of Coordi-
nation** with three supraministerial economic commissions, as follows:
the Commissions for Industry and Transport, Trade and Supply, and
* Following p. 14, above.
** See III, B, 1, a, p. 13, above.
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Agriculture (see Figure 3*). The commissions were policymaking bodies
and performed control as well as coordination functions. Each of them
was headed by a member of the Presidium of the Council of Ministers
who also had been in charge of one of the omnibus ministries previously
set up for major sectors of the economy. In addition, each of the other
members of the Presidium was made personally responsible for overseeing
one of the economic sectors not placed under the jurisdiction of the
commissions (see Figure 3).
This reorganization made economic policy the exclusive
prerogative of a small and select group in the Presidium, which was
freed of more routine ministerial responsibilities. Moreover, it
unified responsibility for policy formulation and.the aver-all imple-
mentation of policy in the persons of a few top leaders of sufficient
stature to make necessary decisions.
The reorganization of the supraministerial control structure
relegated the ministries essentially to routine administrative functions.
The need for large omnibus ministries was eliminated, for the economic
commissions provided the desired concentration of policymaking authority,
and operational supervision could best be accomplished by smaller, more
specialized ministries. The GDR therefore continued the breakup' of the
omnibus ministries which had started in April 1955.** In November
of that year the Ministry of Heavy Industry was again divided into
separate Ministries of Mines and Ore Smelting, the Chemical Industry,
and Coal and Power 2/ (see Figure 3*). As a precautionary measure,
however, the powers of the Central Commission for State Control were
simultaneously expanded in order to make sure that the increase in the
number of ministries did not diffuse and weaken central control.
2. Simplification of the Planning Procedure.
The Council of Ministers of East Germany also responded to
the recommendation of the 25th Party Plenum that plan simplification
should be continued. 53/ On 26 January 1956, Bruno Leuschner was
authorized, in his capacity as Chairman of the State Planning Commission
and Deputy Chairman of the Council of Ministers, to modify provisions
of the decree of 16 December 1954 in order further to simplify planning
in state-owned industry. 54/ Several changes in the regulations
governing the assignment of tasks to the enterprise under the state
plan were introduced immediately and were formally ratified by the
Council of Ministers on 20 February 1956. 55/ The changes tended to
restrict the discretion of ministers, chiefs of main administrations,
* Following p. 14, above.
** See III, C, p. 18, above.
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and chairmen of district and county councils with respect to policy
but to give them greater freedom in operational matters. Under the
new regulations they were legally obligated to raise the plan targets
of the enterprise to include any unforeseen increase in the rate of
production. Upward revision of plan targets for other reasons,
however, was to require the consent of the enterprise, once the
annual plan had been formally ratified. Downward revision of enter-
prise plan targets was of course sharply discouraged. It was to be
permitted only if fulfillment of the plan of the ministry or district
council was not jeopardized, and the supply and delivery contracts
of the enterprise concerned were not to be changed without the
consent of both contractors or their superior organs.
Nevertheless, main administrations and district and
county councils were permitted somewhat more discretion in making
necessary adjustments in the quarterly plan of the enterprise. They
were authorized to change quarterly targets of the enterprise for
gross volume of production, manpower, and finance within limits of
plus or minus 3 percent if no additional resources were required and
if fulfillment of the annual plan was not jeopardized. Ministries
and district councils, however, were made legally responsible for
seeing that plan adjustments carried out under the above provision
did not interfere with fulfillment of other parts of the enterprise
plan and did not result in violation of the deadlines set by the
State Planning Commission.
One innovation was that enterprises may be assigned only
annual targets for certain commodities designated by the State
Planning Commission. Distribution of such products was then to be
effected by sales contracts negotiated by the enterprise rather than
on the basis of a quarterly plan, although ministries were of course
expected to influence the sales activities of the enterprise.
The new law also granted ministries, district councils,
and enterprises the right to build up contingency reserves of
materials, manpower, and wage funds, although main administrations
and county councils were forbidden to do so. Ministers and chairmen
of district councils were specifically authorized to hold back up
to 1 percent of their manpower and'wage funds and unspecified amounts
of materials in making allocations, and they could dispose of this
reserve as they saw fit. No specified limits were set for enter-
prises. They were merely exhorted to build up contingency reserves
but were in no way relieved of responsibility for fulfilling all
plan targets.
The GDR also continued its previous efforts to reduce
the amount of detail contained in the national plan and in the plans
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for major sectors of the. economy. In 1955, for example, national
production targets had been set for 950 individual products, but the
number was reduced to 810 in 1956 and was scheduled for a further
reduction to 450 items in the 1957 Plan. 2_61 Moreover, it was
announced that the number of mandatory plan control figures for the
machine construction sector was to be reduced from 228 in 1956 to
16 in the 1957 Plan. 21/
3. Expansion of Powers of Ministers and Enterprise Managers.
The tendency to downgrade the role of rank and file
ministers in policy formulation in East Germany was accompanied by the
transfer of an increased number of routine operational functions to
them. In December 1955 the Council of Ministers expanded the powers
of ministers, chiefs of main administrations, and enterprise directors
of the "centrally administered peoples owned industry." 58/ Under the
new law a limited increase of discretionary authority was granted to
all ministries and state secretariats, but preferential treatment was
given.to the Ministries of Coal and Power, Mines and Ore Smelting,
the Chemical Industry, Heavy Machine Construction, General Machine
ConstruCtion, Construction, Light Industry, and the Food Industry and
to their subordinate main administrations and enterprises..
The new powers granted to all ministers and heads of
state secretariats included the following: (a) to enter into contracts
with special wage earners -- scientists, engineers, and technicians --
without registering the agreements with the Ministry of Labor and
Vocational Training, provided the monthly wage rates did not exceed
4,000 Deutsche Mark East (DME)*; (b) to determine when their collegium
should meet, although the schedule and changes in the schedule still
had to be announced to the Council of Ministers; (c) to use their
reserve funds for investment purposes, although all projects extendihg
beyond 1 year still require the approval of the State Planning Com-
mission; and (d) to change the amount of planned investment, provided
that targets for growth of capacity were not hampered and the invest-
ment funds of the main administrations were not overdrawn.
The industrial ministers indicated above were, in
addition, given the following rights: (a) to fill all administrative
posts under their jurisdiction except those of deputy minister and
chief of main administration; (b) to alter the tables of organization
of their respective ministries and subordinate organizations up to a
limit of 15 percent of the number of positions; (c) to demand up to
* The Ministry of Labor and Vocational Training continues to
dispose of the quota of special workers earning over 4,000 DME per
month (approximately US $1,667).
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2 million DME in additional funds for special purposes such as com-
pensation for mining injuries, with the agreement of the Ministry of
Finance; and (d) to set up branch offices abroad for those enter-
prises engaged in the export of products of a specialized or technical
character, with the agreement of the Ministry of Foreign and Domestic
Trade.
The new rights granted to the chiefs of main administra-
tions and directors of enterprises in the industries specified above
pertained to approximately the same areas as those granted to the
ministers. Chiefs of main administrations were given the following
rights: (a) to enter into contracts with employees falling in certain
wage categories; (b) to determine the organizational structure and
tables of organization of enterprises under their immediate juris-
diction; (c) to establish bonus systems within the general limits of
existing regulations, although the agreement of the Ministry of Labor
and Vocational Training was still necessary on all basic questions;
(d) to organize export sections for their enterprises; (e) to set
aside funds from their investment plans for introducing new technol-
ogy; (f) to authorize changes in the plans of subordinate enter-
prises if planned targets for quantity and quality were not adversely
affected; and (g) to delegate certain of their powers to important
enterprises, particularly with respect to labor, technological im-
provement, and investment costs for general repairs. Managers of
enterprises were granted the following rights: (a) to change their
tables of organization if overdrawal of the wage fund did not thereby
result; (b) to authorize investment projects up to a limit of 20,000
DME and up to 750,000 DME if so empowered by their main administrations;
(c) to authorize deviations from the enterprise plan within a single
quarter up to plus or minus 5 percent if fulfillment of the quarterly
and annual plans were not jeopardized and the main administration had
been notified*; (d) to change production technology if plan fulfill-
ment, product quality, or production costs were not adversely
affected; (e) to accept orders to produce goods from materials supplied
by customers or from the enterprise's own stock if fulfillment of the
production plan was not thereby jeopardized; (f) to demand credit
from the German Bank of Issue or the German Investment Bank; and (g) to
assign apprentices for training purposes only upon consent of the
ministry, without review or approval by the county councils or depart-
ments for labor and vocational training.
* This right was virtually nullified, however, by the planning decree
of 20 February 1956 (see 2, p. 20, above), which'made ministries and
main administrations legally responsible for assuring that enterprises
used their new power wisely. 22/
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In addition, the ministers could at their discretion per-
mit certain enterprises to decide questions relating to the following:
(a) recruitment and labor strength, (b) granting of supplemental food
rations to old people and enterprise workers, (c) spending of interest-
bearing funds for export negotiations, and (d) certain other questions
of similar character.
Necessary central control was of course adequately pro-
tected, for any decision made by an economic manager on the basis of
the new rights was subject to annulment by his superiors. The Deputy
Chairman of the Council of Ministers and the Commissioners for Industry
and Transportation and for Trade and Supply, for example, were specif-
ically empowered to modify all conflicting orders orginating within
ministerial chains of command. Moreover, all "important" questions
related to planning expressly required the approval of the State
Planning Commission. In spite of these restrictions, the new law
represented a rather significant refinement in the underlying philoso-
phy of central-control. Instead of attempting to make all routine
decisions,, the central authorities apparently had decided to give
economic managers greater operational freedom and to intervene only
if the intent of the government was definitely being violated.
C. Impact of Soviet De-Stalinization on Implementation.
? Implementation of the reforms recommended by the 25th Plenum
of the Communist Party Central Committee of East Germany was brought
virtually to a standstill by the denunciations of Stalin at the Twen-
tieth Congress of the Communist Party of the Soviet Union (CPSU) in
February 1956. In the GDR, as in the other Satellites, de-Stalini-
zation.was a decidedly negative phenomenon. It undermined confidence
in the regime and stirred the latent hostility of the population without
offering any constructive program of corrective action. It caused both
the Party rank and file and the public to expect change of some kind
but left them uncertain as to how they would be affected. .2,/ The
regime thus was confronted with a difficult choice. If it yielded to
popular pressures for liberalization, it ran the risk of weakening
control and letting the situation get out of hand. But if it did
not, it still would have had to contend with the pent-up frustrations
of a discontented population. .
Because the regime in East Germany does not command the
loyalty and support of the majority of the population, it has always
tended to view any relaxation of control as an invitation to disaster.
This defensive attitude was intensified by the uprising of 17 June
1953 which immediately followed some easing of the harsh policies
associated with "building socialism." The instinctive response of
the East German leaders therefore was to resist de-Stalinization.
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They experienced some initial confusion because some formal agreement
with the Soviet denunciations of Stalin was required of them 61/ but
quickly recovered and took the general line that the policies of the
GDR were basically correct and that any tendency toward the "cult of
personality" had been eliminated by 1953. 62/ This bland fiction
did not entirely satisfy the Party rank and file or the public, 63/
but, with only nominal steps to rehabilitate purged Communist leaders
and political prisoners, the regime managed to keep unrest within
manageable limits. 64/
The regime also attempted to divert de-Stalinization to its
own ends. At the Third Party Conference, in March 1956, Grotewohl
equated implementation of the recommendations of the 25th Plenum with
the "broad development of democracy in the GDR." 65/ Thus he attempted
at one stroke to narrow the scope of de-Stalinization and to demon-
strate that the regime had already undertaken necessary reforms.
Moreover, he adroitly provided a convenient basis for rationalizing
concessions which might become necessary, in terms of established
policies rather than the de-Stalinization campaign. The Party Con-
ference and the Council of Ministers sanctioned this policy line by
recommending more vigorous efforts to improve the efficiency of the
bureaucracy. 66/ The scope and character of the management reform
program already under way was not basically changed, however, and the
tempo of implementation was actually retarded. Moreover, management
reform was carefully related to the achievement of planned targets for
economic growth rather than to the correction of "Stalinist errors."
1. Additional Reorganization of the Top Control Structure.
As in the past, the problem of improving the organization
and operational methods of the central economic control structure of
East Germany received first consideration. In May 1956 the State
Planning Commission, which previously had functioned as an organ of
the Council of Ministers, was set up as a separate legal entity. 67/
This change enhanced its official importance and reflected the growing
interest of the GDR in improving long-term planning and in coordinating
planning with the Soviet Bloc.
Additional organizational measures specifically taken to
improve long-term planning included the following: (a) the establish-
ment of a Central Supply Commission for Mineral Resources (under a
deputy chairman of the Council of Ministers) to check and coordinate
assessments of the raw material potential of the GDR in order to
provide a better basis for long-range economic planning 61/ and
(b) the convening of an ad hoc commission of specialists by the Chair-
man of the State Planning Commission to oversee the utilization of
economic reserves -- that is, materials and production capacity. .62/
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In addition, the Main Administration for Local Councils
was taken out of the Ministry of the Interior and brought directly
under the Council of Ministers, effective 15 October 1956. 70/ This
change was essentially a precautionary measure taken in conjunction
with the steps under consideration to increase the participation of
the district and local councils in economic affairs.
2. Postponement of Reforms Relating to Enterprises and Local
Organs.
The East German regime postponed the delegation of addi-
tional responsibilities to enterprise management and justified the
delay on the ground that thorough study of the operational problems
of industry should precede further reform. In May 1956 an ad hoc
cipmmission was set up under Fritz Selbmann, Commissioner for Industry
and Transport and Deputy Chairman of the Council of Ministers, to
study supply and inventory problems in industry, particularly excessive
stocks of raw materials and semifinished and finished goods. 71/
The findings submitted to the Party Central Committee by
this Commission were reportedly highly critical of the discrepancy
between plan targets and market demand for products, the lack of
sufficient advance notice of orders for special products, the failure
of the GDR to acquire a continuous supply of critically needed
materials from imports, excessive drains on the capital of enterprises
by the government, and similar problems of a fundamental character.
Moreover, the Commission allegedly concluded that these conditions
could not be improved without altering some of the basic concepts
of central planning and permitting greater flexibility in the operations
of individual industries. The Party Central Committee and the Council
of Ministers, however, did not immediately act upon the recommendations
of the ad hoc Commission, 22/ and the practical effect was to defer
reform at the enterprise level indefinitely. Likewise, no attempt
was made to enhance the economic role of the local organs of the state
administration as recommended by the 25th Plenum, although routine
functions were in a few instances transferred to them on a piecemeal
basis. 73/ In view of the de-Stalinization in the USSR, the Peoples
Chamber of the GDR began with great fanfare to consider new legisla-
tion for "continuing the democratization" of government by increasing
the powers of local organs. 74/ On 21 August 1956, two bills dealing,
respectively, with the relationship between the Peoples Chamber and
the local legislative assemblies and with the regulation of working
methods of the local administrative organs were given a first reading
in the Peoples Chamber. Contrary to the usual custom of the Chamber,
the bills were sent to committee in order to provide an opportunity
for widespread publicity, and no serious attempt was made to enact
them until after the uprisings in Poland and Hungary. Thus the
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leaders of the GDR were clearly more interested in propagandizing
the public about their "democratic" intentions than in really
enhancing the economic role of the local organs.
D. Cautious Resumption of Implementation After the Polish and
Hungarian Uprisings of 1956.
. The uprisings in Poland and Hungary transformed the temper of
the East German people and made control more difficult. Although any
immediate hope of unseating the regime was largely discouraged by
the experience of June 1953 and by the bloody Soviet intervention in
Hungary, unrest continued to be manifested by the ideological ferment
among intellectuals and students and the interest of the general
public in the reforms being undertaken in Poland. 22/ What the public
hoped for was less central control and subservience to the USSR and
more attention to public welfare and the national interests.
The uprisings merely served to convince the German Communist
leaders, however, that alert control and the intimidating presence of
Soviet military forces were the two mainstays upon which their sur-
vival depended. After some initial panic they joined with the USSR
in rejecting national Communism and in reaffirming Soviet Bloc
solidarity. 76/ They also conducted an active campaign against the
doctrines and experience of Poland and Yugoslavia 77/ and took vigorous
measures to repress dissidents and "revisionists" in the GDR. 78/ In
spite of their unwillingness to yield on the basic issues of doctrine
and.policy, the German Communist leaders recognized that inflexible
adherence to the "hard line" was potentially dangerous.
The regime therefore took an ambivalent position on manage-
ment reform after the October 1956 uprisings. Although adhering to the
"hard line" ideologically, the leaders pretended to have some interest
in workers' councils and other liberal innovations, without any
intention of making serious use of these reforms. They also resumed
implementation of the reform proposals of the 25th Plenum and attempted
to convince the public that their efforts would adequately "decentra-
lize" and "democratize" the economic structure.,
This renewal of interest in limited reform was motivated by
economic as well as political reasons. Loss of vital imports from
within the Soviet Bloc caused dislocations in the East German economy.
The reduction in Polish shipments of hard coal and coke, for exalmple,
contributed to underfulfillment of production targets for steel, 79/
which in turn disrupted production schedules in other economic
sectors. L32/ The October uprisings obviously were not the sole cause
of the economic difficulties experienced by the GDR. Demand for coal,
power, and other basic resources required for industrialization
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previously had been rising more sharply, than the rate of increase in
domestic production. 81/ Moreover, industry as a whole was experiencing
difficulty in achieving the projected rates of increase in produc-
tivity upon which plan targets were based. Consequently, the precarious
dependence of the GDR on nondomestic sources of crucial raw materials
compounded the economic impact of the October uprisings. The USSR pro-
vided some assistance in overcoming shortages of critical materials
but was unwilling to make up the whole deficit because many of the
other Satellites were experiencing the same difficulties as the GDR. .8.2/
The latter had to release materials from state reserves L/ and to
initiate a priority program for rapidly increasing domestic production
of coal and power. .8)1/ Measures to improve management efficiency
therefore assumed practical significance as a partial solution to
immediate economic problems.
1. Legislation on the Local Organs (January 1957).
At long last the two bills dealing with the rights and
duties of the local organs of the state administration in East Germany
and with the relationship between the national parliament (the Peoples
Chamber) and the local assemblies of peoples, representatives were
passed by the Peoples Chamber in January 1957, thus signifying a
further effort by the government to improve local economic administra-
tion.
a. Status and Functions of the Local Organs.
The Law Pertaining to the Local Organs of the State
Authority of 17 January 1957 _82/ consolidated and partly amended the
numerous earlier laws, decrees, and regulations dealing with the status,
organization, and functions of these agencies in East Germany.* In the
economic field the law continued earlier attempts to remove gross
shortcomings resulting from the distant locations of directing agencies
by bringing the immediate planning and directing authority closer to
the basic process of manufacture or other economic activity.** In
addition, the January law attempted to stimulate more active rank-and-
file cooperation by giving workers and the general public the feeling
of greater participation in decision-making. No abandonment or
deviation from the basic Soviet tenet of public ownership of the
* The official structure of the central government organs on the
national, district, county, and municipal levels is presented in Figures
4 to 7 86/ (following p. 28). The official command channels do not neces-
sarily tally with the actual rank and power positions of public bodies.
** This policy is also being pursued by Soviet leaders in the present
overhaul of their economic administration. Techniques used in East
Germany, however, are different.
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EAST (3ERMANY Figure 4
LEGAL STRUCTURE OF THE CENTRAL
GOVERNMENTAL ORGANS, 1957
Standing Committees
Local Assemblies
Committees
Constitution
Standing Orders
Credentials
President of the GDR
PEOPLES CHAMBER
466 DEPUTIES
Standing Committees
Economic and Finance
General Matters
Presidium of the Peoples Chamber
Pardons
Justice
Legal Matters
Petitions
Prosecutor General
Council of Elders
Secretariat
MINISTRY
Foreign Affairs
National Defense
Heavy Machine
Construction
General Machine
Construction
Chemical Industry
Light Industry
Transportation
Post and Telecom-
munications
Foreign and DomesticTrade
Trade and Supply
Labor and Vocational
Training
Health Matters
26524 1-58
COUNCIL OF
MINISTERS
Committees
Economy
Agriculture and Forestry
Budget and Finance
Education and Culture
Youth
Presidium of the
Council of Ministers
Bureau of the Presidium
of the Council of Ministers
Ministries and Offices
of State Secretaries
with portfolio
Labor and Social Policy
Health
Supreme Court
Lands Chamber
63 Deputies
OFFICES OF STATE COMMISSIONS
SECRETARIES AND COMMITTEES WITH
WITH PORTFOLIO OWN FIELD OF JURISDICTION
German Bank of Issue
University Matters
Requisition and
Buying
Local Economy
Administration of
State Reserves
State Planning
Commission
Central Com. for
State Control
State Radio Committee
State Contract Court
State Com. for
Physical Culture and Sport
Other Commissions
and Committees
MINISTRY
, Justice
State Security
Finance
Coal and Power
Mines and Ore Smelting
Agriculture and Forestry
Food Industry
Construction
Education
Culture
Justice
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Figure 5
LEGAL STRUCTURE OF THE STATE ORGANS IN THE DISTRICT
According to the Law Pertaining to the Local Organs of the State Authority of 17 January 1957
STANDING COMMISSIONS
Budget and Finance
? Local Industry
_
STANDING COMMISSIONS
Trade and Supply
Transportation
Agriculture and Rural
Construction
Health and Social Welfare Work
Education
Youth Matters
DISTRICT ASSEMBLY
(Highest organ
of the state administration
in the district)
Housing and Communal Economy
Culture
Local Peoples Police and Justice
Additional commissions according
to local conditions and peculiarities
Ad hoc commissions as required Ad hoc commissions as required
DEPARTMENTS, ETC?
Development
Finance
00'
Administrative Commissions
?????
DISTRICT COUNCIL
(Executive and
operational organ
of the District Assembly)
DIRECT WORKING
ORGANS OF THE
COUNCIL CHAIRMAN
??????????
Administrative Commissions
DIRECT WORKING
ORGANS OF THE
COUNCIL SECRETARY
DEPARTMENTS, ETC
Cadres
Planning Commission
Org. Instr. Department
Requisition and Buying
Youth Matters
Internal Affairs
General Administration
Local Economy
Trade and Supply
Labor and
Vocational Training
Transportation
Health Matters
Communal Economy
Culture
Agriculture and Forestry
Education
----- Local Peoples Owned
Enterprises
Centrally directed organs of the state apparatus and the economy which cooperate
closely with the local organs of the state authority in performing their functions.
Committee for Physical
Culture and Sport
1_
Peoples Police
State Security
District
Prosecutor
Justice
State Control
Statistical
Distr. Office
Peoples Owned
Enterprises
(VEB [2])
Army
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EAST GERMANY Figure 6
LEGAL STRUCTURE OF THE STATE ORGANS IN THE COUNTY
According to the Law Pertaining to the Local Organs of the State Authority of 17 January 1957
STANDING COMMISSIONS STANDING COMMISSIONS
Budget
Agriculture and Rural Construction
Health and Social Welfare Work
Education and Culture
? ? ? ? ? ?
Ad hoc commissions as required
Trade and Supply
COUNTY ASSEMBLY
(Highest organ of the state
administration in the county)
Administrative Commissions
DEPARTMENTS, ETC.
Local Peoples Police and Justice ?
Housing, and Local
and Communal Economy
Youth Matters
Additional commissions according to
local conditions and peculiarities
COUNTY COUNCIL
(Executive and operational
organ of the County
Assembly)
DIRECT WORKING
ORGANS OF THE
COUNCIL CHAIRMAN
?
Administrative Commissions
, DIRECT WORKING
ORGANS OF THE
COUNCIL SECRETARY
Development
Cadres
Planning Commission
Org. Instr.
Department
DEPARTMENTS, ETC.
Trade and Supply
Finance
Youth Matters
Internal Affairs
Local Economy
Legal Matters
General
Administration
Labor and Vocational Training
Health Matters
Transportation and
Communal Economy
Culture
Agriculture and Forestry
Education
Requisition and Buying
Peoples Police
26530 1-58
Committee for
Physical Culture and Sport
Local Peoples
Owned Enterprises
Centrally directed organs of the state apparatus and the economy which cooperate
closely with the local organs of the state authority in performing their functions.
State Security
County Prosecutor
Justice
State Control
Statistical
County Office
Peoples Owned
Enterprises
(VEB [Z])
Army
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EAST. GERMANY Figure 7
LEGAL STRUCTURE OF THE STATE ORGANS IN THE MUNICIPALITY
According to the Law Pertaining to the Local Organs of the State
Authority of 17 January 1957
STANDING COMMISSIONS STANDING COMMISSIONS
According to size and local peculiarities According to size and local peculiarities
of the municipality MUNICIPAL ASSEMBLY of the municipality
I? Ad hoc commissions as required
L
(Highest organ of the
state administration
in the municipality)
Ad hoc commissions as required
_1
_
??????
MUNICIPAL COUNCIL
(Executive and operational organ
of the Municipal Assembly)
Mayor
???????
??????
??????
Municipal councilors or
secretary
Administrative commissions Administrative commissions
????????
The number of "collaborators" performing the functions of special
branches depends upon the size of the municipality
Local Peoples Owned Enterprises (VEB [K]) and Enterprises
of the Communal Economy
In very small municipalities the functions of the state apparatus are handled by the mayor.
26528 1-58
Central y directed oigons of the state apparatus and the economy which cooperate
close y with the local organs of the state authority in performing their functions.
Peoples Police
Peoples Owned
Enterprises (VEB [Z])
Local Peoples Owned
Enterprises of the
Districts and Counties ?
1.. I
..,
..."
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economy and its management by the national government, however, was
intended. Accordingly, the statute explicitly emphasized that
organizational innovations, now as before, apply only within the
framework of this fundamental principle. This means that the rights
and duties of the elected local bodies and other lower managerial
echelons are limited in such a manner as to preserve the power of the
highest governmental echelon (and the Communist Party) to have the
decisive voice in decision-making.
To bring tout this point, the provisions of the
January laws concerning the organizational status of the local
legislative bodies and their executive organs reemphasize strongly
that both are "organs of the state iTationai7 authority" rather
than elements- of independent local governments. As such, they are
components of a governmental pyramid composed of superior and sub-
ordinate agencies. Logically, the law provides that the highest
superior of the local legislative bodies (the local assemblies of -
peoples representatives) is the national legislative assembly
(the Peoples Chamber) and that the highest superior of all local
executive bodies (local councils) is the national executive body
(the Council of Ministers). Accordingly, each of the lower assem-
blies and the local councils must comply with decisions and orders
of the Peoples Chamber or the Council of Ministers, respectively,
as well as with the orders and decisions of the proper (higher)
local assemblies or executive organs at higher levels of the govern-
ment structure. Their organization and method of operation as well
as their functions are fixed by national law.
The members of the Peoples Chamber, of the higher
local assemblies, and of the councils of the higher local assemblies
may attend the sessions of the lower assemblies in an advisory
capacity. The Peoples Chamber performs its function of guiding
and supervising the local assemblies through a Standing Committee
for Local Assemblies. 87/ The Committee's activities include, among
other things, the supervision of the local elections and the calling
and preparation of the sessions of the local assemblies as well as
of the sessions themselves. If resolutions of district assemblies
conflict with laws, decrees, or resolutions of the Peoples Chamber or
the Council of Ministers, the Committee prepares their nullification
by the Peoples Chamber. The Committee also draws up the standing
orders of the local assemblies, the working rule b of their standing
committees, and the rules for the activities of local representatives.
The local councils, as mentioned above, are directed
by the Council of Ministers./ One of the latter's tasks in per-
forming this function is to make sure that the principle of "democratic
centralism" and the dual subordination in matters requiring a uniform
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central settlement* are preserved in the integrated operation of the
top and local organs of the state administration and their subordinate
organs, enterprises, and facilities. The Council of Ministers also
demands from the local councils oral or written reports on their
activities. A State Secretary for Affairs of the Local Councils has
the special duty to effectuate the directives of the Council of
Ministers. Higher councils, too, are entitled to demand reports
from lower councils on the performance of their duties and to make
decisions which are binding upon the lower councils. In performing
tasks assigned to them by laws, decrees, or decisions of higher
government organs, chairmen of higher councils have the right to
issue orders to chairmen of lower councils. Members of higher local
councils may also participate in meetings of lower councils in the
capacity of advisers.
These provisions in the various enactments of
January 1957, however, are not the only factors which restrict the
powers of the local assemblies of peoples representatives and of
the local councils. They are also limited by the fact that the
most important economic enterprises still are administered directly
by top rather than by regional and local organs of the national
government. Finally, although the law provides for election of the
assemblies by general, equal, direct, and secret ballot, elections in
East Germany cannot be relied upon to reflect the will of the people
and to provide it with an opportunity to participate in important
decision-making.
The Law Pertaining to the Local Organs of the State
Authority of 17 January 1957 reiterates that elected assemblies of
representatives of the people in the various administrative subdi-
visions of East Germany are, within their substantive and territorial
jurisdictions, the supreme representatives of the authority of the
state, as follows: the district assembly in the district, the
assembly of city delegates in the city county,** the county assembly
in the rural county, the assembly of city delegates in the city, the
city district assembly in the city district, XXX and the municipal
assembly in the municipality.
These assemblies elect local councils as their execu-
tive and administrative branches. The following councils are estab-
lished: the district council by the district assembly, the city council
by the two types of assemblies of city delegates (in the city county
See first footnote, p. 32, below.
A large city.
XXX A city district is roughly equivalent to a borough in a large
US city.
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and the city), the county council by the county assembly, the city
district council by the city district assembly, and the municipal'
council by the municipal assembly.
The local assemblies of peoples representatives are
called upon to direct the political, economic, and cultural develop-
ment of socialism. Their freedom of action, however, is restricted
by a number of statutory limitations. They may perform their func-
tions only within the framework of the rights and duties given to
them, and they must comply not only with the provisions of the con-
stitution and other laws but also with the resolutions of the Peoples
Chamber, the Council of Ministers, and the local assemblies on the
higher administrative levels.* Decisions of lower assemblies which
conflict with laws or decrees or decisions of the Peoples Chamber,
the Council of Ministers, or higher local assemblies are to be nulli-
fied by the higher assemblies unless they are repealed by the lower
assemblies themselves. The law includes corresponding provisions
regarding the handling of conflicting decisions in the council hier-
archy.
The jurisdiction of the local assemblies in indus-
trial matters includes the following:
1. Determining the economic plan and the budget
for their areas of responsibility on the basis of the national
economic plan and budget and the corresponding plans of the higher
peoples assemblies as well as insuring the execution of these plans
and receiving reports regarding their fulfillment.
2. Increasing the production of the local
peoples owned industry, especially the production of mass consumer
goods, and developing and strengthening the local peoples owned
industrial, service, and supply enterprises.
3. Developing and strengthening the producer
cooperatives of craftsmen and other forms of cooperatives and pro-
moting participation of the handicrafts in the production of consumer
goods of high value and in repair service activities, above all for
the purpose of conserving resources.
4. Furthering the manufacture of important
industrial products, above all mass consumer goods, by private enter-
prise with or without state.participation.**
* See II, B, p. 8 ff., above.
** See b, p. 32, below.
L.
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In addition, the local assemblies have the duty to
increase agricultural production, to insure the fulfillment of plans
for the collection and purchase of farm products, to develop and
strengthen machine tractor stations and peoples owned farms, to pro-
mote the agricultural producer cooperatives and the permanent joint
working groups of farmers, and to render assistance to individual
farmers. The economic duties of the assemblies include also dis-
covering and exploiting all local reserves, satisfying the needs of
the population adequately, developing and strengthening nationalized
and cooperative commerce, and supporting private retail trade.
The council, as the executive and administrative
agency of each assembly of peoples representatives, has to organize
the execution of the latter's tasks. Each council performs this
function by implementing the resolutions of the assembly with due
regard to the laws, decrees, and other provisions which are binding
upon them. Each has the specific duty to prepare the sessions of
its local assembly, to support the assembly members and committees
in the performance of their duties, to insure the uniform direction
of the departments of the council dealing with specific economic
fields (Fachorgane)* and of the enterprises and installations
subordinate to these departments. Each council, further, has to
support the lower councils and to prepare and submit to the assembly
the drafts of the economic plans and budgets for their administrative
areas. In performing their duties, the councils of the city counties,
city districts, cities, and municipalities have the statutory obli-
gation always to use the services of the trusted Communist house and
block wardens. The chairman of the local council is the lord mayor
in the city county, the district mayor in the city district, and
the mayor in towns and municipalities belonging to a county.
b. Economic Importance of the Local Organs.
The economic importance of the regionally and locally
administered industries is one of the determinants of the significance
of the role of middle and lower levels of the national government in
the direction of East German industry. The Law Pertaining to the
Local Organs of the State Authority of 17 January 1957 lists certain
functions which the "local peoples assemblies" are to perform with
regard to the peoples owned local industry, private enterprises, and
handicraft producer cooperatives.**
* These departments, as a rule, operate under dual subordination. In
matters demanding a uniform central settlement, they are subordinate
not only to the council but also to the corresponding department of
the next higher council or to the national government agency having
jurisdiction in the specific field.
** This list is not exhaustive.
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The State Central Administration for Statistics main-
tains a list of the enterprises of the GDR showing which enterprises
are placed under central organs of the public administration and
which operate under "local organs of the administration of the state."
This confidential list contains the name, the number, the subordina-
tion, and possibly also the number of employees of each enterprise.
The statistical office acts, however, only as a record keeper. The
subordination of the enterprises is determined not by this office
but by written agreement among the heads of the administrative
organs affected, such as the minister in charge of the industrial
branch concerned, the proper state secretary with portfolio, and
the head of any other interested central organ of the state admin-
istration -- for example, the Minister of Finance and the State Secre-
tary for the Local Economy-- and the chairman of the proper district
council. If no agreement can be reached, the decision will be
rendered, on application, by the State Planning Commission. The
guiding principle in making this determination obviously is that the
important industrial enterprises should be under the supervision of
a central ministry, while the local councils, by and large, should
administer enterprises which serve predominantly local needs or
which are of a nature which makes them unsuitable for direct subordi-
nation under a top government authority. Demands to change the
subordination of enterprises have been coming more frequently from
the ministries concerned than from agencies on the local level.
For example, the former have been requesting the transfer of enter-
prises from local to national administration for the purpose of
facilitating their cooperation with important enterprises of the
capital goods industry or, conversely, the transfer of smaller
nationally administered enterprises to local administration because
they are unprofitable or because their continued administration by
an agency at the national level is considered too difficult. Less
frequent have been requests for a change by agencies at the local
level. Such requests as have come from this administrative level
have, in most cases, been motivated by labor or supply problems. 89/
On 1 January 1957 (the last date covered by the
official Statistical Yearbook of the GDR), 5,206, or about 28 percent,
of the 18,344 industrial enterprises (excluding building construction)
were peoples owned, and 2,902, or 55 percent of the peoples owned
enterprises, were locally or regionally administered. The 2,902
enterprises employed about 12 percent of all wage earners in the
5,206 peoples owned enterprises, and they produced approximately
12 percent of the gross total product of these enterprises. In the
building construction industry -- a largely local industry -- 307,
or 87 percent, of the 353 peoples owned enterprises were locally
administered. They contributed 72 percent of the production of all
peoples owned building construction enterprises. 22/
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Thus, except in building construction, the share
of the locally and regionally administered industrial enterprises-
in the gross total production of the peoples owned industry has been
relatively small. The district and county councils, in handling
local industrypand handicraft, operate under the (national) State
Secretariat for the Local Economy,* so that their freedom of action
is circumscribed. The State Secretariat maintains special offices
for the various branches of the economy. One of its major duties
is the promotion of cooperation between the peoples owned local
industries and the peoples owned industries under the direct super-
vision of national government organizations on the top level. To
carry out this function, the State Secretariat concludes general
agreements (Rahmenvereinbarungen -- framework agreements) with pro-
duction ministries, which are then implemented by specific, detailed
agreements between centrally and locally administered enterprises.
The latter agreements are prepared with the assistance of the proper
main administration and the State Secretariat for the Local Economy.
The departments for the local economy of the district and county
councils concerned also participate.
Compared with other Soviet Bloc countries, the
number and economic importance of East German private enterprises --
largely small business -- has been and still is relatively large. Yet
the goal of the East German government, as of other Communist govern-
ments, has at all times been to eliminate, sooner or later, the
private sector of the economy completely. Only the intensity of the
effort and the techniques used to achieve this ultimate goal have
been changing in accordance with changes in the politico-economic
situation.
The government has taken steps to reduce both the
numbers and the independence of private enterprises. Private firms
may still be expropriated, for example, because of alleged offences
against legal provisions or inability to satisfy additional tax
assessments. Reports submitted to revenue and economic offices by
representatives of the government-dominated union (who, in private
enterprises, are entitled to broad codetermination and control of
compliance with the provisions concerning industrial safety arld
socio-political matters) often have provided a welcome pretext for
dispossession. Moreover, the license to carry on an industry,
craft, or trade expires 6 months after the death of the licensee or
if it is not used for more than 6 months. A new license is difficult
to Obtain because it is now granted only if the-proper government
agency regards the enterprise as "desirable from the point of view of
* See III, B, 4, p. 17, above.
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the country's economic efficiency" and acknowledges that the appli-
cant has "the required qualifications and reliability." Finally, the
union representatives are expected to exercise their great powers in
such a manner as to promote the nationalization of private enterprise.
As a result, such cooperation between private employers and their
workers as survived the overthrow of the old social order and pre-
vented the collapse of private business firms has become very diffi-
cult. Although previously, employees in the private sector of the
economy sometimes enjoyed more favorable employment conditions than
those in the nationalized sector, the reverse is now frequently the
case. This situation, too, contributes, as intended, to the gradual
decline of private enterprise.
In earlier years, machinations of such kinds -- in
addition to the government investment policy -- were used to force a
maximum of private entrepreneurs to give up or even to leave the
Soviet Zone of Germany so that their businesses could be nationalized.
At present the German Communist leaders are concentrating on subtler
methods. Moreover, they are apparently not unwilling for the time
being to make use of the entrepreneurial capabilities of private
industrialists in order to overcome weaknesses of their economic
policies, especially the failure to produce mass consumer goods
in sufficient quantities. Yet the functional independence of private
enterprises has been restricted since the introduction of the planned
economy. Since 1956 the private industrial enterprises have also
come under the "contract system." This means that production and
sales now are possible only under contracts with customers who
Obtained a permit from the county council to buy specific goods
from the private enterprise. Raw materials can be procured only on
the basis of such a contract. Government authorities thus can limit
or cut off the production of private enterprises simply by refusing
the issuance of the permit for the customer on the ground that there
is no need for it "from the point of view of the country's economic
interests."
A relatively new method of transforming private into
state enterprises 'by peaceful means" (also used, for example, in
Communist China) is the establishment of "private enterprises with
state participation." The reason given officially for this practice
has been the existence of a need to increase the working capital of
private enterprises which are financially not able to carry out
satisfactorily "production required in the interest of the national
economy for the purposes of improving the supply of the population
and increasing exports."* The scheme, however, has been executed in
a manner suitable to bring the capital of private enterprises and
* This was demanded by the 25th Plenum of the Party Central Committee
(24-27 October 1955).
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the enterprises themselves more into the control of the government.
Up to the present the transaction has been carried through by
forming a "limited partnership" (Kommanditgesellschaft -- KG),
which the government's German Investment Bank joins with its invest-
ment as the partner without personal liability (Kommanditist), while
the former private owner becomes the managing, personally liable
partner (Komplementaer).* The latter receives a salary and a share
in the profits of the company according to his capital share.
The government's share in the capital of these new
companies in the various industrial branches varies at present
between approximately 40 and 70 percent. For example, it is, on
the average, 61 percent in the precision tool and optical industry,
59 percent in the building trade, and 57 percent in the building
materials industry, but it is only 39 percent in the light and food
industries and only 37 percent in the felt and fur industry. 21/
The companies with state participation as a rule are administered
by the regional or local organs of the state; those which are im-
portant for the national economy, however, are centrally administered.
Detailed criteria were established to be used in determining the
subordination of the companies. 2E/
Apart from obtaining additional capital, the new
cogpanies are better off than the fully private enterprises with
respect to taxes, procurement of materials, and obtaining orders.
They are, however, under more stringent government control. They
also have to use part of their profits to maintain a fund similar
to the director's fund of the peoples owned enterprises, they must
enter into enterprise collective agreements of the type prescribed
for peoples owned enterprises, and all their accounts are subject
to control by the government-dominated union. Yet the incentives
offered apparently have been tempting enough to cause a substantial
number of private entrepreneurs to apply at the German Investment
Bank for "state participation." At the end of the first quarter of
1957, such applications had reportedly been filed by 865, or about
7 percent, of the private industrial enterprises still existing at
that time. 93/
As mentioned above, the aim of public policy, now
as ever, is the eventual liquidation of private enterprise because
it is considered inconsistent with the ruling concept of "socialist"
property in the means of production. This policy pervades also
the provisions of the Law Pertaining to the Local Organs of the State
Authority of 17 January 1957 dealing with the tasks of the local
peoples assemblies as well as the guiding rules established by the
Peoples Chamber for the activities of its standing committees. 94/
* See Appendix A.
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The "commissions for the local economy, municipal economy, and
traffic" are advised to further the production of private industrial
enterprises only insofar as this is still required in the interests
of the national economy. In contrast, they are, however, counseled
not only to foster existing private enterprises with state participa-
tion but also to create new ones -- Obviously because the establish-
ment of such enterprises is a transitory stage in the process of
transforming private into government property.
As a result of this hostile public policy, the private
sector of the industry has continued to decline. According to the
official Statistical Yearbook of the GDR for 1955 and 1956, the number of
private enterprises dropped from 17,543* (or 74 percent of all industrial
enterprises) in 1950 to 12,422 (or about 68 percent of all industrial
enterprises) by January 1957. 95/ Although private industrial enter-
prises employed 547,800 people?Tor 24 percent of the industrial labor
force) in 1950, they employed only 441,176 (or about 16 percent of this
labor force) on 1 January 1957. By the end of March 1957, 28,824 of the
workers in private enterprises were employed in companies with govern-
ment participation. 2?./ The share of private industry in the gross total
industrial production declined from 23 percent in 1950 to about 11 percent
early in 1957.
Although controlled by the government, producer
cooperatives of craftsmen are not necessarily state owned. Manu-
facturing consumer and producer goods and supplying basic, everyday
services, they utilize primarily local resources and materials. In
spite of great advantages offered to these cooperatives, especially
regarding the procurement of materials, only relatively few self-
employed craftsmen have joined them. According to the official
Statistical Yearbook of the GDR for 1956 only about 239 such co-
operatives had been formed in East Germany by 1 January 1957. At
this time the number of private handicraft enterprises** was 237,897
(303,821 at the end of 1950), of which approximately 47 percent did
not employ paid help. 97/ The peoples owned enterprises were
directed to place orders with the private enterprises only if the
orders could not be taken over by a handicraft producer cooperative.
The government policy of reducing the role of handicraft enterprises
is indicated also by the fact that the growth rate for production
provided by the economic plan for the handicrafts has recently been
much lower than that provided for industry.
* All data refer to industry without the building trades.
** The East German State Central. Administration for Statistics regards
as handicraft enterprises only shops employing, as a rule, not more
than 10 wage earners.
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These developments show that the industrial enterprises
placed under the administration of regional or local levels of the
national government are generally of considerably less importance for
the economy as a whole than those administered directly by top agencies
of the national government. Moreover, the authority of the lower
"organs of the administration of the state" to direct and control
even these less important enterprises is limited by the fact that
they are administratively subordinate to all higher organs and
especially to the State Secretariat for the Local Economy.
c. Probable Effects of the Legislation.
The various enactments of January 1957* dealing with
the functions and status of the local organs of the state administra-
tion in East Germany continue, insofar as they regulate economic
matters, previous efforts of the national government to reduce the
undesirable effects of the direction of economic activities by far-re-
moved central agencies through bringing the immediate planning and
directing authority closer to the process of actual production.
Conspicuous among the techniques used are the assignment to lower
levels of the state administration of some functions hitherto per-
formed by the top level and the creating of the notion in the minds
of members of lower governmental echelons, enterprise directors,
and rank-and-file workers that they now participate largely in
decision-making by genuinely democratic process. Although stressing
the continuing need for economic and political centralism, official
statements have pointed out that, as contrasted with earlier periods,
the economy has no longer to be directed and planned in every detail
at the top government level because the persons concerned at lower
levels now are capable of carrying greater responsibilities and
coping with bigger tasks.
Whether the new legislation will produce all the
desired effects and, especially, whether it will generally stimulate
initiative and efficiency will largely depend upon the response of
the population and the extent to which individual enterprises and
lower government echelons will be allowed, in practice, to exercise
initiative and freedom of action. In the two latter respects, reason
for skepticism appears to exist.
If published reports of discussions in plants and
organizations and the numerous other publications on the subject are
reliable, enterprise directors, workers, and members of local assem-
blies are eager to make full use of the new setup and to participate
* See 1V, D, 1, p. 28, above.
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actively in directing the national economy and improving planning and
operational practices. Yet serious doubt exists as to whether their
cooperation will be fully accepted.
The argument used in the preamble of the Law Per-
taining to the Local Organs of the State Authority that the people
on the lower managerial levels of the national economy were not
capable of carrying greater responsibilities until 1957 probably
will not be believed by many East German businessmen and workers\.
Although, in earlier periods, lower government officials and enter-
prise managements may not yet have been sufficiently experienced in
operating a centrally planned economy, the capability to handle
large industrial tasks was widespread in the territory which is now\
East Germany long before the formation of the GDR. Yet successive -
previous administrative reorganizations did not result in full
exploitation of this managerial potential, and its full utilization
this time is thus doubtful. The point should not be overlooked, in
this connection, that the local assemblies and councils, as agencies
of the general public administration, deal with both political and
economic matters. Expectation that the top level of government
will limit local influence in order to maintain its supreme power
in both fields therefore appears well founded.
It will not be very difficult to restrict local
influence because local agencies, elected under Communist conditions,
will be docile and because, even if they were not, the numerous
restrictive provisions in the January 1957 enactments fully protect
the traditional right and actual power of the top leaders to fore-
stall and overrule any action of lower authorities. In spite of the
democratic facade of the present setup and in spite of the seeming
introduction of some local self-government, truly independent action
of any importance by the lower authorities thus is still impossible.
This situation cannot be concealed in the long run. Because of
their continuing relatively close contact with the really democratic
Federal Republic of West Germany, it is more difficult to conjure up
a false picture of democratic government before the eyes of the average
citizens of East Germany than of the citizens of other Communist
countries. This is an additional reason why it appears unlikely that
the legislative measures initiated in January 1957 will stimulate
such economic initiative and efficiency and encourage such voluntary
cooperation as the East German leaders are hoping for. At any rate,
improvements brought about through action initiated by local assem-
blies and councils would probably be largely confined to local
economies -- that is, to economic activities of lesser importance.
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2. Further Changes in Planning and Control.
In addition to regulating the status and functions of
the local agencies, the East German regimp continued its efforts to
narrow and unify responsibility for the formulation and broad imple-
mentation of economic policy and to promote better coordination
between the ministries and local organs and between the ministries and
their subordinate enterprises.
a. Establishment of the Economic Council (Aorn. 1957).
The leaders of the. Party Central Committee in East
Germany debated several reorganization proposals early in 1957. 98/
The solution was to make a
small group of key administrators responsible for all economic
policy decisions of any importance and to unify responsibility for
both the planning and the managing of the economy in their persons.
In April 1957 an'Economic Council VW established in the Presidium
of the Council of Ministers. It is headed by Bruno Leuschner,
Chairman of the State Planning Commission, and includes Heinrich
Rau, Minister for Foreign and Interzonal Trade; the three Economic
CommissiOners Fred Oelssner, Fritz Selbmann, and Paul Sholz; and
Willi Rumpf, the Minister of Finance. 102/ (See Figure 8.* 103/)
The Council is empowered to decide all basic questions of an
operational nature, and its decisions are binding on all ministries
and their enterprises. 104/ It also reviews plans prepared by the
State Planning Commission before they are submitted to the Council
of Ministers for formal approval. 105/ Moreover, each member of the
Economic Council oversees the divisions of the State Planning Com-
mission preparing the plan of the economic sector for Which he is
responsible in his capacity as economic commissioner or minister. 106/
* Following p. 11-o.
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EAST GERMANY
ECONOMIC CONTROL STRUCTURE AS OF I JULY 1957
Office of the Presidium
of the Council of Ministers
26643 3-58
COUNCIL OF MINISTERS (GDR)
Presidium
Figure 8 50X1
Office of the Minister
President
Economic Council
Chairman: Leuschner (Chairman State Planning Commission)
Oelssner*
Rau (Minister of Foreign and Interzonal Trade)
Scholz"
Selbmann**?
Rumpf (Minister of Finance)
SEMIAUTONOMOUS OFFICES
State Secretariat for Material Reserves
State Committee for Procurement
Advisory Council for Construction Matters
State Central Administration for Statistics
LState Planning Commission
Central Office for Research and Technology
Central Commission for State Control
MINISTRIES, STATE SECRETARIATS, AND STATE COMMISSIONS
Minstry of Agriculture and Forestry Ministry of the Chemical Industry
Ministry of Inland WaterWays
Ministry of Trade and Supply
Ministry of Light Industry
Ministry of the Food Industry
State Secretariat for Control and Purchase
of Agricultural Products
State Secretariat for the Local Economy
Ministry of Foreign and Domestic Trade
Ministry of Labor and Vocational Training
Ministry of Mines and Ore Smelting
Ministry of Coal and Power
Ministry of General Machine Construction
Ministry of Heavy Machine Construction
Ministry of Post and Communications
Ministry of Construction
Ministry of Transportation
Ministry of Finance
German Bank of Issue
Ministry of the Interior
Oeismer is Commissioner for Trade and Supply and supervises the Ministries of
Trade and Supply, Light Industry, and the Food Industry and the State Secretariat
for Control and Purchase of Agricultural Products.
** Scholz is Commissioner for Agriculture and supervises the Ministries of Agriculture
and Forestry and of Inland Waters.
*** Selbmann is Commissioner for Industry and Transportation and supervises the
Ministries of Mines and Ore Smelting, the Chemical Industry, Coal and Power,
General Machine Construction, Heavy Machine Construction, Construction, Post
and Communications, and Transportation.
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For example, the State Planning Commission is divided
into long-range and current planning components, each of which has
divisions corresponding to the major sectors of the economy. 107/
These are headed by deputy chairmen, each ofwhich is administratively
responsible to the appropriate member of the Economic Council as well
as to the Chairman of the State Planning Commission. Hugo Meiser,
Deputy Chairman in charge of current planning for heavy industry,
thus would be responsible to Selbmann as the Economic Council member
who is also administratively responsible for Industry and Trans-
port. 108/ Plans or plan revisions prepared by Meiser upon instruc-
tions from Selbmann, however, would be submitted to the Chairman of
the State Planning Commission, who would in turn submit them to the
full Economic Council for approval.
The Economic Council has no staff or quarters but
relies on the established administrative machinery to implement its
decisions'. 109/ It meets in the office of the Chairman of the State
Planning Commission as needed, usually weekly or more often,, and
conducts business on the basis of an agenda prepared by the Chairman
of the Council from requests submitted by individual members. 110/
Individual economic ministers may place items on the agenda only
through the appropriate Council member. Under the procedures adopted
by the Council, each member has an absolute veto, and in case there
is no unanimity the matter at issue may be referred to the full
Council of Ministers or, more likely, to the Politburo of the Party
Central Committee.
Economic policymaking in the GDR thus was narrowed
down to six men. 'The Economic Council exercises the full authority
in economic affairs of the Council of Ministers and its Presidium,
although the latter of course retains a formal right to intervene. 111/
In dealing with critical problems in the economy
the GDR also relies increasingly upon high-level committees and com-
missions rather than upon established administrative organs. The
Council of Ministers, for example, set up a Special Committee under
Selbmann* to work out the priority program for overcoming the fuel
shortage and to guide and coordinate the activities of all agencies
participating in its implementation. 112/ Likewise the State Planning
Commission undertook an investigation of the operations of the
Ministries of Foreign and Domestic Trade and other state trading
organizations 113/ at the instigation of the Party Central Committee.
* Other members of the committee were Leuschner, Oelssner, Gerhard Ziller,
and Rumpf.
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The Agricultural Commission of the Party Central Committee also
investigated and made recommendations on agricultural prices. 114/
No major ministerial reorganization s occurred.
There were frequent transfers of enterprises from one ministry to
another, however, and within ministries the main administrations
were frequently reorganized in the never-ending quest for greater
organizational efficiency. 115/
b. Widened Participation and Coordination in Planning.
After the October 1956 uprisings the leaders of the
GDR again emphasized that plan simplification would be continued and
that in the future only key plan targets essential to the development
of the whole economy would be-fixed centrally. 116/ The purpose of
this renewed emphasis on plan simplification was not to point out
the need for additional reforms but to convince the public that
implementation of existing policies and the impending adoption of
a new law strengthening the authority of the district and local
organs of state administration would complete the fundamental changes
required to overcome any objectionable bureaucratic tendencies.
Citing accomplishments already made in reducing the amount of
detail in the national plan, Leuschner told a workers' conference,
"I believe no one can any longer speak of overcentralization if 450
out of the millions of different products are planned centrally."* 117/
No attempt was made, therefore, to change the funda-
mental system of central planning. Superior organs in the hierarchy
still issue plan directives and indexes to their subordinate units,
which then prepare draft plans and submit them to the superiors for
approval. As of mid-1957, for example, the national directives for
the annual plan are issued by the Economic Council; and on the basis
of them the State Planning Commission issues detailed planning
indexes to the ministries and district councils, which in turn issue
planning indexes (through their respective planning departments,
main administrations, operational departments, and county administra-
tive apparatus) to their subordinate enterprises. The latter then
prepare draft plans and submit them to the next higher echelon for
approval, and the process continues until the State Planning Com-
mission has integrated the plans of the ministries and districts into
a single national plan. The draft of the national plan is then sub-
mitted through the Economic Council to the Council of Ministers for
formal ratification. The power of final decision thus ,continues to
rest with the top authorities.
* The number of production targets for individual products in the
national plan was to have been reduced to approximately 550 in the 1957
Plan.
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Although reluctant to make fundamental changes, the
GDR has continued to widen the participation of enterprise managers
and workers in the preparation of plans in order to give them a
greater sense of responsibility. The directives issued by the State
Planning Commission to guide the preparation of the 1958 Plan, for
example, emphasized that economic managers at each level and even
the workers in the enterprise should be informed and consulted con-
cerning the plan assignments of most immediate concern to them. 118/
At the upper administrative levels, wider participation means that
the State Planning Commission will now hold discussions with heads
of ministries, state secretariats, and district councils before
issuing control indexes or planning instructions, and, at the lower
extreme, that enterprise managers are directed to discuss plan assign-
ments with the trade union leadership and the workers before sub-
mitting a draft plan to the appropriate superior organ.
Lateral widening of participation and coordination in
planning also has been provided for. Central ministries and state
secretariats are directed to work more closely with the district and
county councils. The latter, in turn, are given somewhat greater
leeway in developing plan targets relating to local development in
addition to those contained in the national plan. All managers of
peoples owned enterprises therefore are legally obligated to inform
district and county councils of production schedules and economic
targets affecting local development. The district and county councils,
however, may not alter the plan of a centrally administered enterprise
without the consent of its superior ministry or state secretariat.
Sales organizations also are to participate more
actively in planning in order to assist enterprises in developing
production schedules that more accurately reflect the prospective
demand for their output.
Widened participation and coordination in the planning
process, however, was not intended to increase the discretionary
authority of enterprise managers or the other lower level economic
administrators. Draft plans are to be prepared in agreement with
superior organs as well as in consultation with subordinate administra-
tive units and workers. Obviously the former is to be decisive. The
same relationship also is to hold between the national ministries and
the State Planning Commission, between the district and county councils,
and between the State Planning Commission and the other agencies of
the national government. What widened participation in the planning
process signifies, therefore, is not a lessening of central authority,
but a changing philosophy as to how it should be used. The tendency
now will be for central authorities not to interfere in the performance
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of routine or detailed functions unless the responsibleadministra-
tive level it inefficient or attempts to go contrary to state regula-
tions and purposes.
3. Recent Measures Affecting Operations of Individual
Enterprises.
The GDR showed little inclination after the Polish and
Hungarian uprisings of 1956 to enlarge upon the resolution of December
1955, which had somewhat enhanced the freedom of enterprise managers
in operatiOnal matters.
In a few instances, however, limited additional con-
cessions were made to certain categories of enterprise managers in
order to solve specific problems or to promote important programs.
New regulations were issued by the Council of Ministers, for example,
making enterprise managers of the technical consumer goods industries
(those producing radios, televisions sets, refrigerators, motor vehicles,
and the like) responsible for the production and wholesale distribution
of the spare parts required to keep their products in service. 120/
Regulations governing the negotiation of loans by the enterprise
managers for the purpose of introducing new technology also were made
less restrictive. 121/
Any advantage gained by the preferred categories of enter-
prise managers from those slight concessions was offset by the intro-
duction of more rigorous control over inventories and certain other
phases of industrial operations. 122/
The GDR also attempted somewhat transparently to
capitalize on public interest in the workers' councils of Poland and
Yugoslavia. In November 1956, Ulbricht suggested to the Party Central
Committee that workers' committees might be a suitable vehicle for
stimulating initiative and a sense of responsibility among enterprise
employees. The Central Committee endorsed the idea and circulated
a resolution to guide public discussions of steps to be taken to
increase the rights of industrial workers. 123/
In December 1956, representatives of some 870 industrial
enterprises and of the Party and government were called together in a
national conference to discuss "democratically" and ratify "enthusi-
astically'! the Party proposal for establishing workers' committees. 124/
At the codference, however, Ulbricht made it clear that the workers'
committees were to have little in common with their Polish and
Yugoslav counterparts. He specifically rejected "self-government" at
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the enterprise level on the ground that it was incompatible with the
centrally planned and well-developed economy of East Germany. 125/
As he described them to the conference, the proposed workers' com-
mittees were to participate in drafting enterprise plans and in
solving production problems but were not to encroach upon the authority
of enterprise managers. 126/ Moreover, they were not to infringe upon
the functions of the trade unions, although the distinction between
the missions of the two organizations was by no means clear.
After the conference had unanimously approved the pro-
posal of the Central Committee for workers' committees, plans were
announced for "comprehensive debate" in peoples owned enterprises and
those with state participation. The purpose of the "debates" pre-
sumably was to elicit suggestions from the workers themselves as to
additional functions and powers that might be turned over to the
workers' committees. Near the end of January 1957, 40 representatives
elected by the national conference were to meet again and draft a
basic bill for submission to the Peoples Chamber. 127/ Meanwhile,
workers' committees were to be formed on an experimental basis in
about 20 enterprises of diverse character.
In spite of intensive propaganda, the GDR had only
moderate success in its campaign to "sell" workers' committees as a
significant step toward "democratization" of industrial management.
At discussions in enterprises the workers were eager for increased
participation but tended to view the Polish and Yugoslav workers'
councils as the proper models. Consequently, they pressed for more
authority than the regime was prepared to grant. 128/
Because of this response, in March 1957 the GDR convened
a second "conference of workers" which again endorsed workers' com-
mittees that would be restricted to the study of "basic production
problems." 129/ Subsequently, such workers' committees were elected
in a few isolated instances, but the Party Central Committee was
beginning to lose interest and reportedly was inclined to let the
movement languish. 130/
E. Situation in Mid-1957.
As of mid-1957, thus, the policy recommendations of the 25th
Party Plenum in East Germany had not been fully implemented. The
GDR had made substantial progress in unifying central authority and
in streamlining the control structure at the top but had delayed
implementation of measures to increase the operational freedom of
enterprise managers and the local organs, largely because of ?the
uncertainties arising out of the de-Stalinization campaign and the
uprisings in Poland and Hungary. ?A strong bias in favor of extreme
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centralism still characterized economic administration, and the GDR
had made little progress in its efforts to stimulate the initiative
of managers at the operational level.
It would be fallacious to attribute the persistence with
which the East German leaders are clinging to rather rigid centralism
merely to economic considerations or predilection for the Stalinist
approach. Because of historical development, geographic location,
political conditions, and various other factors, a strong trend
toward centralism in public administration has prevailed in Germany,
as in other European countries, for a long time. It far antedates
the Sovietization of the part of the country occupied by the USSR.
Without foreign intervention, it would probably have continued on a
larger scope in postwar West Germany also. In East Germany, however,
the inclusion of the management of the nationalized economy in the
public administration has added a novel feature to the old trend
which has been creating (and will continue to create) more and bigger
problems in the development of the East German administrative system
than would have existed if the Soviet rulers had only continued the
more traditional course toward greater centralism in political
administration.
A historical survey brings out what is typically German 'in
the East German approach toward administrative centralism and is,
therefore, perhaps not too unpopular. Under the first constitution
of 16 April 1871, Germany was a, federation of states which had
renounced only a relatively small portion of their independence and
had preserved their autonomy -- its constitutional principles were
similar to those of the US. The Weimar Constitution of 11 August
1919 aimed at much closer unity of the Reich. It augmented the
powers of the federal government at the expense of the individual.
states. To indicate that the latter had ceased to be fully autonomous,
Article 2 of the Weimar Constitution stated that "the territory of the
Reich consists of the territories of the German lands," substituting
the novel term "land" for the traditional name "state." Germany
thus became a kind of decentralized single state divided into adminis-
trative.subunits, the lands. This system was essentially taken over
by the Soviet Zone of Germany at the time of its formation, but, in
continuation of pre-Soviet trends, the powers of the national govern-
ment were further strengthened. Article 1 of the "Constitution of
the German Democratic Republic" of 7 October 1949 states,
"Germany is an indivisible democratic Republic erected on the basis
of the German lands. The Republic decides all matter's which are
essential for the existence and development of the German people as
a whole; all other matters are decided by the lands independently.
The decisions of the Republic, as a rule, are executed by the
lands." 131/ In reality, however, the national government from the
beginning was dominant in most respects.
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Although the relevant provisions of the constitution have not
been amended, the administrative structure of the GDR subsequently
was thoroughly revised on Soviet lines. This "reform of the admin-
istration" or "democratization," as mentioned above, resulted in the
establishMent of a centralized unitary state run by the national govern-
ment, which, in turn, is directed by, if not identical with, the
Communist Party.* Ever since, all political and economic administration
of and in East Germany thus has been the exclusive function of the
national government, which it performs through its central, regional,
and local organs. There are no individual state or local governments.
as they exist in the West. This has been emphasized again and again
in the pertinent statutes, decrees, official government and Party
documents, and private publications by the persistent use of the
term "organs of the state 5ationai7 authority" for administrative
agencies at any level, including the agencies in charge of local
political and economic administration.
The pertinent enactments of January 1957 were by no means
intended to bring a change in this respect. "It is necessary," states
the preamble of the Law Pertaining to the Local Organs of the State
Authority, "further to strengthen the authority of the state as the
most important instrument in the advancement of socialism." Only
a redistribution of functions within the central administrative
apparatus has therefore taken place, which leaves the final decision
(at least in all important matters) in the hands of the Council of
Ministers or other organs at the top. "Since the structure of the
state organs in the GDR rests upon the principle of democratic
centralism, typical of socialist democracy," states the official Hand-
book of the Peoples Chamber of the GDR, "the laws, orders, and
resolutions of the Peoples Chamber or the Council of Ministers and
of the higher peoples assemblies are binding upon the lower peoples
assemblies and their organs. Resolutions of the lower peoples
assemblies which are incompatible with these laws, etc., must be
repealed. Likewise, according to the principles of democratic
centralism, ... councils are subordinate and responsible to the
Council of Ministers and the higher councils." 132/ This means for
all practical purposes that any action by a lower organ of any kind
can be nullified by the corresponding organ on the next higher level
* This is the principle of "unity of state and party" which was first
applied in Germany by the National Socialists (Nazis). Although the
East German constitution, in spite of many deviations as to details, is
largely based on the Weimar Constitution (frequently even using the
same words), the country is governed, in reality, under methods very
similar to those applied by the National Socialists, who never repealed
the democratic and liberal Weimar Constitution but paid little or no
attention to its provisions and spirit.
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(there is always such a superior organ), and that actions by any organ
can be forestalled or overruled by the Council of Ministers. In
addition, the central or national parliament, the Peoples Chamber, has
regulated not only the .standing orders of the local assemblies but
?even the activities of their standing committees. 133/.
The assignment of greater rights and duties to the local
organs of the state authority, emphasized a,recent article in the
official journal of the East German Federation of Unions (FDGB),
"does not signify that our principle of democratic centralism has
become obsolete or is to be abolished. The economic system, the
socialist property, and the objectively existing common interest of
the working people call, at any rate, for central guidance toward
the erection of the socialist structure. Such a rigid guidance, in
addition, is required to prevent any hostile attempt to undermine and
liquidate the socialist order and to ward off the degenerating
influence of bourgeois ideology."* 135/
The principle of "socialist centralism" applies equally to
the political and economic activities of government. Government
management of industry and agriculture is considered to be both a
political and an economic function because the reciprocal effects of
economics and politics are particularly strong in a Communist society.
According to Communist doctrine, private property in the means of
production is undesirable because it separates the producers from
one another and, by thus engendering unhampered competition, makes for
economic anarchy. Under this view, the socialist system of property
is preferable because it merges the multitude of industrial enter-
prises into a single entity comprising the whole national economy
* As in the other Communist countries, the body which, in reality,
determines all policies at all levels, including the top government
level, is the Communist Party. Writing in the Party's theoretical
journal Einheit in June 1956, Professor Dr. Karl Polak, the Party's
constitutional expert, stated that the local assemblies of peoples
representatives are to be the most comprehensive transmission lines from
the Party to the masses. He pointed out that the local Party organizq-
tions- should discuss in advance the most important political and
economic questions to be debated in the assembly and should put recom-
mendations prepared in this manner before the asseMbly. To avoid
rejection of such recommendations, Dr. Polak added, the Party must gain
the support of all the representatives rather than be satisfied with
only acquainting-them with the Party recommendations. It may be
mentioned in this connection that, according to a report in the West
Berlin Telegraf of 11 August 1957, 19 of the 21 members of local
assemblies (elected on .23 June) who had fled to the West during the
preceding week declared that a genuine parliamentary system involving
real local government was impossible in East Germany. 134/
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and in this manner makes the determination of a common goal and
planned (proportional) economic development possible (and necessary).
It is only logical that the Communist leaders should regard central
and uniform direction of the national economy as indispensable in
operating this system.
V. Prospective Reforms.
A. Genesis of the Reorganization Proposals of the 32d Party Plenum. 50X1
The leaders of the GDR were reserved in their initial response 50X1
to the Khrushchev program for reorganizing the Soviet economy.
This doubt was indirectly 50X1
reflected in the sparse coverage by the press and radio of discussions
of the Khrushchev theses in the USSR. Moreover, although a few German
Communist agencies held formal discussions (prompted in at least one
instance by a staff study of Soviet advisers) concerning the advis-
ability of reorganizing along Soviet lines, they manifested no great
interest. 137/
The sudden ouster of several top Soviet leaders in June 1957,
however, had an electrifying effect in the GDR. Important leaders
began to question whether its policies adequately reflected the' spirit
of the Twentieth Congress of the CPSU. 138/ Consequently, after warmly
endorsing the vigorous Soviet action against the "anti-Party" group, 139/
the German Communist leaders hastily made economic reorganization
the main item of business at the 32d Plenum of the Central Committee of
the Communist Party, which was scheduled for July. 140/ This sudden
renewal of interest in further economic reorganization clearly was
prompted by the desire of Party leaders to ingratiate themselves with
Khrushchev by emulating his policies.
At the 32d Plenum, Party boss Ulbricht presented theses on
economic reorganization in language reminiscent of that earlier used by
Khrushchev. He declared that the GDR needed better forms and methods
of administration at its present stage of development if the "building
of socialise was to continue successfully. 1411 He singled out the
system of central policy formulation and planning as one area in which
improvement was still needed and said that one of the goals of reorgani-
zation at lower levels should be to relieve central organs of the
burden of daily operational tasks. 142/ He also declared that opera-
tional management was to be brought closer to the producing enterprises
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in order to develop a closer relationship between the state or national
government and the population. 143/
The concrete proposals made by Ulbricht showed 'signs of having
been hastily concocted. Many were no more than a refinement of policies
already in effect. For example, he again raised the question of whether
or not the Economic Council and the State Planning Commission should be
merged into a single all-powerful agency or definitely separated into
long-term and current planning agencies but indicated that no decision
was immediately contemplated. 144/ He also recommended enhancement of
the role of the Central Commission for State Control (see Figure 4*
and Figure 8**), further streamlining of the ministerial structure, and
abolition of the Ministry of Labor and 'Vocational Training, and the
State Secretariat for the Local Economy, both of which had been somewhat
ineffectual. 145/ What he seemed to have in mind was a somewhat more
vigorous implementation of the policies of the 25th Plenum of. the
Party Central Committee.
Some of the innovations proposed by Ulbricht bore a super-
ficial resemblance to the current Soviet reforms but obviously had
not been well thought out. 146/ They were as follows: (1) ministries
should concentrate on the solution of broad problems affecting whole
branches of industry, such as planning and technological development;
(2) main administrations should be wholly or partially eliminated in
many ministries, with operational supervision of enterprises being
turned over to associations of peoples owned enterprises (Vereinigungen
Volkseigener Betriebe VVB's) situated in key production areas; and
(3) economic commissions should be set up under the district and
county councils to integrate local planning and coordinating functions.
Ulbricht was exceedingly vague, however, concerning the precise form
and functions of the VVB's and the new economic commissions in the
districts and counties. Moreover, he declared that initial emphasis
should be on improvement of working methods rather than on basic
structural changes and that wide discussion and investigation at the
ministry and enterprise level should precede any change. 147/
B. Evolving Reorganization Plan.
The Central Committee of the Communist Party of East Germany
established a working group under the chairmanship of Selbmann to
guide discussion of the theses and ultimately to develop areorgani-
zation plan. 148/ In mid-August 1957 it began to issue instructions to
ministries and other agencies. 149/
* Following p. 28, above.
** Following p. 40, above.
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1. Proposed Structure and'Functions of Ministries.
The working group of the Party Central Committee pro-
posed several alternative organizational models to accommodate the
projected reduction in the size and functions of ministries in East
Germany (see Figure 9*). 150/ These models are considered primarily
applicable to the production Ministries of Coal and Power, Mines and
Ore Smelting, the Chemical Industry, Heavy Machine Construction,
General Machine Construction, Light Industry, and the Food Industry
and not to the more complicated situation of such ministries as
Construction, Post and Telecommunications, and Transportation 151/
(see Figure 4** and Figure 8xxx). According to the proposed models,
all of the designated ministries will have central staffs for planning,
organization and reporting, labor, and inspection of operations.
The staff for inspection of operations is being set up specifically to
counterbalance any loss of control that may be caused by abolishing
the main administrations. 152/ The ministries will also set up
operational departments to supervise economic affairs (finance, bales,
and supply); technical development; and production, but the number
will vary according to the needs of individual industries (see
Figure 9). Moreover, ministries having jurisdiction over funda-
mentally different types of production will be permitted to set up
parallel administrative organizations for each major production
area (see Figure 9, organizational model Type III).
The reorganization of the ministries is to be accompanied
by fundamental changes in their functions. They are to concentrate
on basic questions of policy and will supervise only enterprises and
combines of national importance. All other enterprises will be
placed under the new industrial administrations (Industrieverwaltungen
IV' sxxxx) or economic commissions in the districts and counties, and the
ministries will be relieved of direct supervisory responsibility. They
will continue to lay down basic policy with respect to such matters as
planning, economic auditing and control, labor and wages, and employee
training, but the IV's will assume primary responsibility for super-
vising implementation at the enterprise level. 153/ In addition,
certain operational functions such as overseeing general repairs;
quality control; transfers of equipment; dispatching of production in
the enterprise; labor and technological safety; and arrangements for
Following p. 52.
** Following p. 28, above.
xxx Following p. 4o, above.
xxxx IV was substituted for VVB, the term earlier used by Ulbricht,
in order to avoid the appearance of Merely reverting to earlier and not
too successful organizational forms.
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transportation, fuel, power, and scrap collection will be completely
relinquished by the ministries.
2. Proposed Structure and Functions of Industrial
Administrations.
Industrial Administrations, or IVis, are to be formed of
enterprises and combines in East Germany engaged in similar or succes-
sive stages of production or in both.* 154/ .They would include peoples
owned enterprises now under the direct supervision of ministries and
enterprises now under local control whose output is-of importance
beyond the boundaries of a single district. The legal status of the
IV would be that of a juridical person holding public property, but
its subordinate enterprises would still retain their independent
legal status.
The organization of the IV's is to center around main
administrations for planning, production and technology, procurement
and sales, and finance and 'bookkeeping (see Figure 10**). 155/, The
chiefs of the main administrations and the director of the IV are to
be members of a directorate, which would also have a scientific-
technical council with advisory powers and central staffs for research;
labor, wages, and personnel; and similar functions. The number of
central staffs will vary according to need.
The IV's presumably are to take over the direct super-
vision of enterprises and perform most of the functions formerly centra-
lized under the main administrations of ministries. They are to oversee
the planning, procurement, technological development, finances, and
(in some cases) marketing of enterprises, subject to general policy
directives and regulations of the ministries. 156/ Moreover, certain
operational functions such as quality control, repairs, transfer of
equipment, and production expediting are to become exclusively the
responsibility of the IV's.
* It was specifically recommended that horizontal IV's, composed of
enterprises engaged in similar stages of production, should be established
for the following: coal, brown coal, potash, machine tools, textiles,
ocean fishing, musical instruments, power circuits and repairs, cast iron,
standard parts, automobiles, agricultural machinery, telecommunications
equipment, paper and cellulose, inland shipbuilding, sugar, and pub-
lishing. Vertical IV's, composed of enterprises engaged in successive
stages of production, were recommended for copper, aluminum, iron ore
mining, and crude iron. Other industries presumably would adopt the
form of IV best suited to their needs.
** Following p. 52.
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EAST GERMANY
PROPOSED ORGANIZATIONAL MODELS FOR MINISTRIES
TYPE 1*
MINISTER
Collegium
CENTRAL STAFFS**
Office of Minister
Secretariat
General Administration
Classified Documents
Legal Section
Press Section
Coordinated
Planning
Plant Organization
and Reporting
Labor, Wages, and
Personnel
1
Inspection of
Operations
OPERATIONAL DEPARTMENTS**
1 1
Deputy Minister
of Economic Affairs
Deputy Minister for
Technical Development
Deputy Minister
of Production
* Suggested for the Ministries of General Machine Construction, Heavy Machine Construction, and Light Industry.
?* The central staffs and operational departments are to have sections for each branch of industry.
TYPE 11*
TYPE 111*
Figure 9 50X1
Office of Minister
MINISTER
Office of Minister
MINISTER
Secretariat
Secretariat
General Administration
General Administration
Classified Documents
Classified Documents
Collegium
Collegium
Legal Section
Legal Section
Press Section
Press Section
CENTRAL STAFFS
CENTRAL STAFFS**
1
1
Coordinated
Plant Organization
Labor, Wages, and
Inspection of
Coordinated
Planning
Plant Organization
and Reporting
Labor, Wages, and
Personnel
Inspection of
Operations
Planning
and Reporting
Personnel
Operations
OPERATIONAL DEPARTMENTS**
Deputy Minister
of Economic Affairs
Deputy Minister
of Production
* Suggested for the Ministries of the Chemical Industry and the Food Industry.
*? The central staffs and operational departments are to have sections for each
branch of industry. In ministries of Type II the functions relating to technical
development will be distributed to the departments for economic affairs and for
production, primarily the latter.
26642 3-58
MAJOR PRODUCTION AREA
MAJOR PRODUCTION AREA
Deputy Minister
OPERATIONAL
DEPARTMENTS
Economic Affairs
Technical Development
Production
Deputy Minister
(duplicate structure
* Suggested for such ministries as Coal and Power and
Mines and Ore Smelting, which include components
engaged in fundamentally different types of production
and technology.
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Figure 10 50X1
EAST GERMANY: PROPOSED ORGANIZATIONAL MODEL
FOR INDUSTRIAL ADMINISTRATIONS
Organization
Reporting
.DIRECTOR
Directorate*
CENTRAL STAFFS**
Labor, Wages,
and Personnel
Scientific-Technical
Council
Legal
MAIN ADMINISTRATIONS
Administration
and Bookkeeping
Planning
26644 3-58
Production
and Technology
1
Procurement
and Sales
Finance
and Bookkeeping
* The membership of the directorate consists of the director of the
industrial administration and the chiefs of the main administrations.
** The number of central staffs is considered flexible and may be
varied according to need.
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Present plans call for four stages in the transition to
IV's. First, the ministries are to determine whatenterprises-now
under central control should be transferred to the districts and.
counties and what enterprises now under local control should be brought
under the ministries'. Some branches of industry would also be trans-
ferred to different ministriesin the interest of more rational
administration'. Second, combines are to be formed wherever they will.
contribute to economy and efficiency. They are to be located if
possible entirely within a single district in order not to complicate
planning at that.level. Third, combines and enterprises of national
significance are to be brought directly under the ministries, and
all others are to be organized into IV's. Finally, the main
administrations of the ministries would be dissolved. No schedule has
been proposed, however, for carrying out this transition.
3. Proposed Structure and Functions of District,and.County
Economic Commissions.
Ulbricht's vague statements at the 32d Party Plenum still
constitute the most explicit official description of the proposed
economic commissions in the districts and counties in East Germany. As
he described them, the economic commissions will be subordinate to one
or more of the top economic organs as well as to the councils of the
districts and counties. 157/ They will give particular attention to
local economic activities of importance to the IV's and ministries and
to problem sectors such as housing, agricultural construction and pro-
duction, and the handicrafts. The councils of the districts and
counties, however, apparently have not been specifically instructed as
to how they are to proceed in developing plans for the establishment
of economic commissions.
4. Signs of Impending Reorientation.
In August 1957, many of the industrial ministries in East
Germany began, on the basis of directives received from the Selbmann
working group, to draft plans for setting up IV's. 158/ In September,
about 42 groups were reportedly set up in the Central Committee of the
Party to oversee the drafting and potential implementation of reorgani-
zation plans in the ministries, districts, and counties; and in early
October they held up their operations because radical changes were
expected in the whole program. 159/
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At the 33d Plenum of the Party Central Committee in late
October, Ulbricht confirmed that the scope and concept of reorganiza-
tion had been enlarged on the basis of the discussions since July
1957. 161/ He announced that the Economic Council and the State
Planning Commission are to be merged and that the latter will like-
wise take over the planning and coordinating functions of the ministries,
which are then to be abolished. Central authority in both economic
planning and administration is to be vested in a single all-powerful
agency, the State Planning Commission. According to Ulbricht, the GDR
still intends to implement its proposals for establishing IV's* and
local economic commissions. Even these proposals, however, reportedly
have been criticized in private by some leaders of the Party Central
Committee, so the reorganization plans of the GDR clearly are still in
flux. 162/
C. Prospects of the Reorganization Program.
Inasmuch as the GDR is publicly committed to economic reorgani-
zation and definitely needs to achieve greater efficiency, it will
probably undertake additional changes of some kind. The top planning
and control structure is the administrative area in which the immediate
prospect of change is greatest. The whole problem of developing
suitable administrative agencies to take over the operational functions
of the ministries, however, is proving troublesome. Some leaders are
reportedly beginning to doubt the wisdom of establishing separate
regional organizations for nationally important industries and for
local industry -- that is, the IV's and the economic commissions of the
districts and counties. On the other hand, a regional approach calling
for integration at the district level of all economic supervision
clearly would involve problems that the leaders of the GDR have not
thought through realistically. Delay and procrastination therefore
can be expected' in planning and implementing reorganization of the lower
organs of state administration. Old-line dommunist officials reportedly
are opposing further redistribution of administrative functions and the
planned reorganization of production ministries, arguing that these
measures would not only be a step backward ideologically but would also
end in a fiasco, especially because, in their opinion, the districts
would not be able to perform the additional tasks expected of them.
These officials tend to regard the whole plan as nothing but a per-
sonal propaganda move by Ulbricht. 163/
* Ulbricht used the earlier designation VVB rather than IV, but no
change in basic concept seemed to be involved.
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Whatever its ultimate form, economic reorganization in the
GDR will probably be consistent with its previous attempts to do the
following: (1) separate policymaking and routine functions, (2) narrow
and unify responsibility for formulation and implementation of economic
policies and plans, and (3) redistribute routine functions in order to
reduce the burden of the top leaders and to give managers at lower
levels a greater sense of responsibility. A reduction in central
authority undoubtedly will not result, but a streamlined and more
efficient administrative structure may evolve.
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APPENDIX A
?
GLOSSARY OF TERMS
Assembly of city delegates'
City
City council.
City county
City district
City district assembly
City district council
Commission with its own field
of jurisdiction
County
County assembly
County council
Departments dealing with
specific economic fields
District
District assembly
District council
Education
GB1
'German Bank of Issue
German Economic Commission
German Investment Bank
Handicraft producer
cooperative
Home and block warden
Stadtverordnetenversammlung
Stadt
Rat der Stadt
Stadtkreis
Stadtbezirk
Stadtbezirksversammlung
Rat des Stadtbez irks
Komission mit eigenem
Geschaeftdbereich
Kreis
Krei stag
Rat des Kreises
Fachorgane
Bezirk
Bezirkstag
Rat des Bezirkes
V olksbildung
Gesetzblatt der Deutschen
Demokratischen Republik --
Official Law Gazette of the
German Democratic Republic
Deutsche Notenbank
Deutsche Wirtschaftskommission (DWK)
Deutsche Investitionsbank (DIE) --
Financial institution of the state
economy for financing capital
projects
Produktionsgenossenschaft. des
Handwerks
Haus- und Strassenvertrauensmann
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Industrial administration Industrieverwaltung (IV)
Kommanditist
Komplementaer
Kommanditgesellschaft (KG)?
Local assembly of peoples
representatives
Local council
Local economy (consisting of
the local peoples owned
industry, private industry,
and handicrafts)
Main administration
Municipal assembly -
Municipal council:
Municipal councilor
Municipality
Office of State Secretary
with portfolio
Permanent joint working
group of farmers
Peoples Chamber
Prosecutor general
Rahmenveteinbarung
Requisition and Buying (for
exapple, State Secretary
for ... )
Rural county
The partner in a limited partnership
whose liability in respect to the
obligations of the partnership is
limited to the amount of his capital
investment
The partner in a limited partnership
whose liability in respect to the
obligations of the partnership is
unlimited
A partnership operating under a
trade name and consisting of (1) one or
more partners whose liability in
respect to the obligations of the firm
is limited to the amount of his or
their capital investment and of (2) one
or more partners whose liability is
not so limited
Oertliche Volksvertretung
Oertlicher Rat
Oertliche Wirtschaft
Hauptverwaltung
Gemeindevertretung
Rat der Gemeinde
Gemeinderat
Gemeinde
Staatssekretariat mit eigenem
Geschaeftsbereich
Staendige Arbeitsgemeinschaft
der Einzelbauern
Volkskammer
Generalstaatsanwalt
Framework agreement
Erfassung and Aufkauf
Landkreis
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SAG
SMAD
Socialist Unity
(Communist) Party
of Germany
Special branch
State central admin-
istration for statistics
University matters
VEB
VEB (K)
VVB
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Sowjetische Aktiengesellschaft -- Soviet
joint stock company
Sowjetische Militaeradministration in
Deutschland --Soviet Military Admin-
istration in Germany
Sozialistische Einheitspartei
Deutschlands (SED)
Fachabteilung
StaatliChe Zentralverwaltung fuer
Statistik
Hochschulwesen
Volkseigener Betrieb -- Peoples owned
enterprise
Volkseigener Betrieb (Kommunal) --
Local peoples owned enterprise admin-
istered by a municipality.
Volkseigener Betrieb (Oertlich) --
Local peoples owned enterprise
Volkseigener Betrieb (out Zonenebene or
Zentral) -- Centrally administered
peoples owned enterprise
Originally Vereinigung Volkseigener
Betriebe -- Association of Peoples
Owned Enterprises. The VVB's were
compulsory associations of VEB's..
This was an organizational setup decreed
by SMAD Order 76 of 23 April 1948.
After early 1952 the VVB's were called
Verwaltungen 'Volkseigener Betriebe --
Administrations of Peoples Owned Enter-
prises, rather than Vereinigungen
Volkseigener Betriebe -- Associations
of Peoples Owned Enterprises. Their
functions were limited to guidance and
control of peoples owned enterprises.
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?
SECRET
SECRET
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