Nineteen years after the fall of the Berlin Wall, socialism is thriving in East Germany
Published on the Institute of Economic Affairs blog, November 2008
This Sunday will be the 19th anniversary of the fall of the Berlin Wall - one of the greatest victories for freedom in contemporary history, and a powerful reminder that huge advances in liberty can be made under the most adverse conditions.
But the fall of the wall also reminds us that liberty must never be taken for granted. Recent surveys have shown that socialist values are becoming more popular in East Germany, a development that would have been unimaginable in the euphoria of the reunification period.
Nearly three quarters of East Germans believe that socialism is a “good idea” which has just been “poorly implemented to date”. Only a third feels confident about the market economy, while 81% believe that the federal government ought to do more for ‘social justice’ and the same proportion believe that key industries should be run by the government.
Part of this dramatic shift can certainly be attributed to the mistakes that have been made during the economic transformation.
Firstly, in the privatisation process, there was no equivalent to Margaret Thatcher’s policy to encourage private ownership in the UK. Modified adaptations of the right-to-buy legislation and the sale of shares to the employees of newly privatised enterprises would have given East Germans a stake in the newly emerging market economy.
Secondly, the Bonn government abused the currency as a tool for wealth transfer. The East German Mark was exchanged for West German Marks at a rate of 1:1, while black market rates were between 4:1 and 5:1. As a result, wages rose faster than productivity, causing a wave of bankruptcies and widespread unemployment.
Thirdly, the intricate labour law, red tape, social insurance and tax system of West Germany were simply imposed on the East. As a result the expected take-off of the East German economy never happened. The gap was filled by transfer payments from the West, which continue to this day.
But most importantly, the advocates of a free economy totally underestimated the power of ideas. They thought that the failure of socialism was just too blatantly obvious and that capitalism would be appreciated simply because it “works”. So they withdrew from the intellectual battle.
This was a fatal mistake. Liberty must be constantly defended in its own right. People will not embrace liberal values simply because a Volkswagen is a nicer car than a Trabant.