East Germany Holds Opportunities and Challenges

ANALYSIS

By , Richard A. Nenneman is the Monitor's editor in chief.

STITCHING together the two German economies will be the work of many hands. Most foreign assessments of the challenge facing West Germany as it tries to integrate the sick, polluted, inefficient economy of East Germany into its own vibrant one have emphasized the problems which must be overcome. But talk to some West Germans on the scene, and one comes away with a rather different impression. ``In general, economists have tended to emphasize the challenges we face and to underestimate the opportunity we have,'' said Ulrich Ramm, chief economist at Commerzbank. ``We are talking about a population that is one-quarter that of the Federal Republic and whose economy is one-seventh the size of ours.'' He likens the task more to what Americans would face if they had to pitch in and clear up the devastation of a large corner of the United States.

Various estimates are that between $600 billion and $1.2 trillion will need to be invested in East Germany to clean up its pollution, rebuild its infrastructure, and make its industrial sector fully competitive with West Germany's. Dr. Ramm did not himself care to quantify the figure. He said that the sources of funds for East Germany are numerous - first, from West German industry and the government, but also from other European, Japanese, and US investors who see new opportunities in both East Germany and the other East bloc countries.

Moreover, a cost in the East will result in a profit for someone in the West. ``Not only is East Germany polluted,'' said Dr. Ramm, ``but it is highly energy inefficient. There is little or no double-glazing in East Germany. This creates a big opportunity for window manufacturers. East Germany can continue to burn soft coal after the proper filters are added. We have three companies in West Germany who make the filters.''

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What the economic estimates cannot measure is the human factor, which will work in several ways. If the integration of the two countries is not handled well, there is always the possibility of some kind of backlash of resentment among East Germans over being virtually taken over by their wealthier countrymen to the west. One sees something of this factor in the current discussions about the appropriate exchange rate for Ostmarks, the East German currency.

The other side of the human factor is the great desire many West Germans have to show that the integration can proceed smoothly. East Germany is looked upon as the last legacy of World War II. ``We must remember that East Germany has had to pay for the war much longer than we had to,'' said one German. There is a deep desire among most West Germans not only to make the country whole again but for the five eastern L"ander, or states, which will probably be reconstituted, to catch up as fast as possible with the West. This intense desire to make things work cannot be measured, but it is likely to make the transition to a healthy economy happen more quickly.

The infrastructure needs substantial upgrading. The autobahns need repair, as does the railway system. East Germany needs a new phone system. Dr. Ramm pointed out that some of this infrastructure cost will be borne by private industry. Even some elements, such as the highway system, which has traditionally been a freeway system in West Germany, could be financed privately if this would make it possible to do the job faster.

The main challenge, which most Germans admit, is the transition period over the next two years. To begin with, many of the deals that have been announced are basically letters-of-intent; their execution awaits the passing of a new East German business code of law that will be compatible with the business system in the federal republic.

Once the economies begin to be integrated, the problem many foresee is the relative inefficiency of East German industry. For instance, it takes 900 man hours of labor in West Germany to produce a Volkswagen, 3,000 in East Germany to produce the inferior Trabant. As the Trabant and other inefficiently produced manufactures are phased out, it is anticipated that unemployment will take a major leap.

However, Matthias Wissmann, a CDU Bundestag member whose home district is Ludwigsburg in Baden-W"urttemberg, said that he sees a great potential for small businesses starting up in East Germany. Most attention has been paid to the over-100 state-owned conglomerates, who today account for most of the economic activity in East Germany. However, said Dr. Wissmann, ``There are today 180,000 small businesses in East Germany. Within a year of the introduction of a market economy, I will be surprised if there are not four or five times that number.''

Wissmann told the story of a man in East Germany who is opening a driving school (until now the monopoly of the state). ``It has taken up to eight years for someone to get his driver's license in East Germany. The first day this man advertised his school he had 800 applicants.'' Wissmann also noted the lack of small service-type businesses in East Germany. After an evening of appearances during the period leading up to the March 18 election, he and his friends drove for over an hour looking for a restaurant along the highway to a major city. They found only two restaurants, and both of them were closed.

If a million small businesses each had three people working in them, one can see how quickly any redundancy from large factory layoffs could be absorbed.

Thus, the picture taken from West Germany is mainly one of large opportunity in East Germany. For the moment, much awaits the terms of the monetary unification and the establishment of a workable company legal code by the East German parliament.

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