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Concept
Economy of East Germany
Summary
East Germany had a command economy, similar to the economic system in the Soviet Union and other Comecon member states — in contrast to the market economies or mixed economies or other capitalist states. The state established production targets, set prices, and also allocated resources, codifying these decisions in comprehensive plans. The means of production were almost entirely state-owned.
East Germany had an above-average standard of living compared to other Eastern Bloc countries or the Soviet Union, and enjoyed favorable duty and tariff terms with the West German market; in 1989, it was estimated that 50 to 60% of its trade was with Western countries. However by the mid-1980s its economy had reached a state of stagnation.
Each occupation power assumed authority in their respective zones by June 1945. The Allied powers originally pursued a common German policy, focused on denazification and demilitarization in preparation for the restoration of a democratic German nation-state.
Over time, the western and Soviet zones drifted apart economically. In 1946, the Soviet zone had a slight total factor productivity lead; wartime industrialization had contributed more to the eastern economy, and the destruction caused by the war was lighter than in the west. However, by 1948 the western zones had become more prosperous.
There were several reasons behind the backward economic situation in East Germany. While large sums had been poured into West Germany, especially by the United States, the Soviet Union not only put nothing into the economy of its zone but actually took out large amounts in reparations and occupation costs. Direct and indirect reparations paid by East Germany between 1946 and 1953 amounted to $14 billion in 1938 prices.
Military industries and those owned by the state, by Nazi Party members, and by war criminals were confiscated. These industries amounted to approximately 60% of total industrial production in the Soviet zone.
Official source
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