East Germans Climb A Steep Path to Parity

At a building site in this town, Gerhard Philipp takes a break to review his employment history: Once a construction worker for an East German state enterprise that was liquidated after the two Germanys were unified, he worked for two years followed by a six month stint of joblessness.

Now he's employed again, but only until October.

Mr. Philipp's job experience contrasts greatly with life under communism in East Germany, where most citizens expected lifetime employment in state-run enterprises. Philipp's concern today is apparent: "As long as one member of the family has a job, you're all right," he says. "But getting rich - we're not."

His uncertainty, typical of many workers in eastern Germany, reflects the economic challenges the region has faced since reunification six years ago. Eastern Germany is still struggling to catch up with the richer west in productivity, income, and management know-how.

It will take 10 to 25 years or longer to close the gap between the economies of the two regions, say many economists and politicians - and those are the optimists. Others say there is no end in sight for Bonn's need to continue massive subsidies to eastern Germany.

Vast sums are transferred eastward through direct government spending (road work and other infrastructure projects), investment credits and subsidies, and unemployment and general welfare benefits.

Eastern Germany faces a significant trade deficit as well: Its 5 million people incur a trade deficit ($135 billion) nearly equal to that of America's 250 million people. In short, eastern Germany is living beyond its means.

After a period when eastern Germany was growing faster than the west, it has now slipped behind again. In 1994, the west grew 2.4 percent, compared with 8.5 percent in the east, says Rolf-Dieter Postlep of the German Institute for Economic Research (DIW) in Berlin. For 1997, DIW expects the lines to cross: 1.5 percent growth for the west, against 1 percent for the east. "A definite slowdown," Dr. Postlep forecasts.

In Neubrandenburg, about two hours by car north of Berlin in the former East German state of Mecklenburg-Western Pomerania, a fair number of signs of prosperity and success are in evidence.

The banners of shiny new car dealerships snap smartly in the breeze, new housing developments cluster atop the rolling hills, and a new shopping mall that would not look out of place in Florida has been plunked down on the edge of town.

Tough transition

But scratch a little deeper and another picture becomes visible: high unemployment and a feeling of precariousness for those who do have jobs.

Ursula Lechtenbrink, spokeswoman for the district labor office in Neubrandenburg, sees about 250 people a day who come to the office to apply for unemployment compensation. Early in the morning at the beginning of the month, the line snakes out the front door, down the stairs, and onto the street.

The official unemployment rate in the district is 18.2 percent, but the real rate, she says, "is twice that high." She explains that in Neubrandenburg an especially large number of people are in retraining programs, and those individuals are not included in unemployment statistics. This is true throughout eastern Germany.

Ms. Lechtenbrink suggests the consumer sector may have been overbuilt to the detriment of the productive sector: "We've had filling stations built on a massive scale. We've had shopping centers and department stores in abundance. But we need more manufacturing," she says.

Bankruptcies are "up sharply," she adds. "There were more in the first five months of this year than all of last year - and every one of them puts people out of work."

The high rate of joblessness is rooted in the July 1990 currency union - Chancellor Helmut Kohl's decision to swap eastern marks one to one for western ones.

Wages tend to equalize within a currency union, and that has been the case in Germany. Eastern German wages "went from 7 percent of the west's at the beginning of 1990 to 38 percent by the end of 1990," says Michael Fritsch, an economist at the Technical University of Freiberg in Saxony. "That was a shock - a 500 to 600 percent increase."

Eastern German productivity has increased from about 30 percent of that of western workers in 1987 to 70 percent today - "a proud development," Mr. Fritsch says. He predicts that by the year 2004 or 2005, easterners will have closed their productivity gap with the west. But in the near term, unit labor costs are higher in the east than in the west - by about 20 percent, according to Fritsch, or one third, according to others, such as DIW.

What might be called the economically correct solution here would be to pay easterners less than westerners for the same work. That is happening, but not to the extent that would be needed to bring eastern unemployment rates, typically in the mid-teens, into line with those of the west.

It is a very tough sell to get eastern workers to understand that they're less productive than westerners. "We have a saying, 'The east German sweats as much as the west German,' " Fritsch says.

Needed: entrepreneurs

Among the east's problems in making these structural adjustments: a lack of entrepreneurial initiative and a lack of research and development in industry. Though the same complaints are heard in the west, the needs are even more acute in the east.

"Eastern German firms have to be innovative just to survive," Fritsch says.

He points out that the east's "entrepreneurial index," used to measure the proportion of entrepreneurs in the work force, is only half that of the west's: 5.5 in the east, compared with more than 11 for the west. And entrepreneurs in the east tend to be in consumer services rather than manufacturing.

"The problem isn't hardware, it's software," Fritsch stresses: people, not machinery. Aging equipment has been replaced in many eastern factories - but the workers have not been trained to use it.

Often the problem is bad physical organization of work. "Every time I order a pizza in the university dining hall, the woman has to walk 40 meters [130 feet] to fetch it," he says.

And the Freiberger Brauerei is notorious for its slow service: It often takes an hour for one's order to arrive because no one has provided the servers with that basic labor-saving device, the tray, which allows them to serve more than two customers at a time.

Kajo Schommer, economics and labor minister for Saxony, says that the people's response to the challenges of reunification has been "an unbelievable achievement, when you consider that all this happened without any social eruption, even though in some sectors, such as the chemical industry, two-thirds of the jobs have been lost."

"It isn't going to happen all at once, in one big change," says Lechtenbrink of eastern Germany's quest for prosperity. "It's going to come from building a new life, step by step."