Privatization of East Germany - Research Paper Example

Privatization of East Germany The process of privatization involves the dissociation of the administration either wholly or partly from the government controlled companies. Different forms of ownership assume leadership in the companies following the states withdrawal. They vary from sole proprietorship, partnerships and company rights. However, the state can chose to retain a small proportion of ownership for the purpose of asserting their control. The East of Germany had been separated from the western part of Germany by the Berlin wall for a period of thirty years. This period had traumatic experiences to the eastern part as it lagged behind in development. It was considered to be at the same economic level as a third world country (Farazmand 41). On the other side of the wall, the westerners enjoyed a lot of prosperity in their economy along with an economic boom. This was before the reunification of the two sides in the year 1991. The eastern part was under communism rule whereas the western part was under a democratic regime. The practices in the west led the east to lag behind in terms of their routines, achievements and demographics. It also led to their underproduction, lack of proper resource utilization, automation and prospects for growth in the future (John 32). After the reunification of the western and eastern states in the year 1991, the German state encountered a high level of unemployment along with an increase in taxes. The results of the communist policies on the East German population led to the fleeing of thousands of their people into the western part (John 54). This culminated in the building of the wall to stop the further entry of the easterners in the year 1961. The east German people lacked the ability to think autonomously and engage in the activities of risk taking. These people also had less levels of sophistication as compared to their counterparts on the west of Germany. The immigration of the easterners to the west caused many problems in unemployment in their industries. However, the trend brought many advantages to the western manufacturing industries. This is because the labor costs decreased because of the increase in the available laborers (Philip 52). The manufacturing costs that the west incurred also reduced and this gave them an increased advantage in their competitiveness around the globe. By the time the communist regime fell in the eastern part of Germany, their authorities were experiencing several problems. The authorities in the east were unable to subsidize bankrupt manufacturing industries and their production had decreased. They also encountered the problems of their products being below standard and the pollution of their environment. The authorities had lost their functionalities in the eastern economy by the time of their collapse. The government owned industries therefore had no owners after the collapse of the eastern government. After the reunification of the east and the west of the country, a company by the name of Treuhand was charged with the responsibility of overseeing the privatization of the East German industries. The major reason for privatizing the industries was to reduce the costs the government was incurring in operating these industries along with the improvement of the products quality. There was a need to bring in surplus funds for reducing the internal shortage of funds or external borrowings (Philip 78). The regime used several methods in implementing the process including the establishment of investment companies to manage the property. They also transferred ownership to the workers of the organizations and outside proprietors. Treuhand had the responsibility of overseeing the transfer of ownership of East German companies. This company made use of all the above strategies when implementing their job. This organization comprised mainly of representatives from east Germany along with a few experts from the west. The company had four major goals that included the withdrawal of the administrations involvement in business by reducing their activities. They aimed at ensuring the current jobs were not reduced and new ones were created by maintaining the competitiveness of the companies. They also aimed at restructuring the east German country to include the business of real estate though limiting it to business uses only. Lastly, the company had to give foreign investors the right to share in the administration of the property (Ramanadham 132). This would enable the company to overcome the money conversion rates which had greatly declined. Within a span of four years after the formation of the company, they had managed to change the east German economy from using communist policies to using the principles of a market financial system. This led to growth and development in the eastern part of the country. The company helped to oversee the privatization of over fifteen thousand companies in the former east Germany. The commission gave priority to investment and creation of jobs as opposed to previous ownership claims. Their efforts succeeded as a result of the enactment of the act on the transfer of property in the year 1991 during the month of March. The disgruntled former owners who refused to comply with the new regulations were forced by the local authorities to give up their land. They were later on compensated by the authorities appropriately. The company allowed foreign investors along with the locals to purchase a share of the countries manufacturing industries (Ramanadham 120). The restructuring of many companies that were owned by the administration was essential for them to continue attracting customers. A good example of such a company in Eisenhuttenstadt that underwent this process is the Eko Stahl AG. This was the biggest producer of steel in the eastern part of the country. Treuhand had to invest over DM 500 Million to ensure that the company was wholly privatized. This resulted in the company producing better quality steel at a cheaper price than their competitors (Immerfall and Hagen 69). Treuhand later on sold the company to a person called Cockerill just before their command expired. The costs the company incurred in cleaning the environment due to the activities of the manufacturer’s were massive. The company experienced several problems in their efforts to revive certain companies after thirty years of dismal performances. Similar problems were experienced when the company tried to revive the Transmercur GmbH which was a business that dealt with trucks. The company had their headquarters in Leipzig and had over 700 trucks with no spare parts available. The companies that were being taken over also had problems in land ownership since all the land belonged to the authorities (Treuhandanstalt 121). The company therefore encountered problems when securing financial back up because they had no securities. The demand for their goods was also on the decline as a result of the influx of more superior commodities from the western state. In addition to these issues , the foreign companies coming to trade in the east used their own facilities instead of utilizing the local one’s. The revaluation of their money caused an upsurge in the prices for their commodities. Many employees also lost their jobs as a result of the closure of many companies. For example the Transmercur company laid off 600 out of their 1,000 workers. The company encountered the problem of revaluing the companies before indulging in their privatization. The company’s books of accounts were also poorly kept with the blame for deficits being put on the company’s inefficiency (McAdams and James 73). Their assets were wholly depreciated and their records showed that they were unable to pay their workers. In summary, Treuhand experienced problems ranging from inappropriate fiscal data and the claims of previous proprietors. They also experienced problems in the pollution of the environment and the lack of involvement by the managements of the local industries. There were also many demands for the creation of additional jobs along with the retraining of former workers through various programs. Other demands that the company had to find ways to solve were calls to increase incentives for the able investors and stopping the close of many companies. The manufacturers of the east felt inferior when their counterparts from the west started arriving. This is because the westerners had better skills and information in performing their activities across most sectors. The people of the east were also lazy and inefficient in their performances in the industry (Treuhandanstalt 81). This resulted in their economies experiencing shortages in their supplies along with low profitability levels. The technologies that the companies in the east used were out of date and most of the companies were debt ridden. The company had to come up with strategies to use in solving the problems the eastern companies encountered. This included allowances owed to former employees and costs to be incurred in cleaning their environments (Emmet 55). The reunification of the western and eastern manufacturing industries brought problems in taxes, price increases and unemployment. The transition and reunification of the east German industries with their western counterparts has brought many successes for the German state. They have helped increase the country’s production, employment opportunities and taxes for the central government. There has also been an improvement in the living standards of the eastern people due to a rise in their salaries. The country has witnessed a growth in their foreign reserves because of the additional investment capital that comes with the foreigners (Cassel 43). The products coming from the eastern companies have improved in quality due to the technological advancements that came with the new investors. The eastern part of the country has seen an improvement in their work methods along with their work ethics. This explains the current improvements in their productivity of the eastern companies. The increased consumption of the country’s products as a result of the east joining up with the West brought an economic boom to the nation. The reunification of the two countries has also led to an increase in the technical abilities of the people living in the east. More people in the eastern part of the country are also engaging in business activities because of the changes in the legislation governing them (Ramanadham 67). The German legislative body has also enabled the privatization of many industries among them Lufthansa Airlines and Deutshe Telekom. In conclusion, the country continues to enjoy the benefits of the reunification with the east German companies continuing to experience growth in their activities. The citizens in the eastern part of the country are now able to own property due to the passing of the property transfer law of 1991. Works Cited Farazmand, Ali. Privatization or Public Enterprise Reform, International Case Studies with Implications for Public Management, 2001. New York: Greenwood Publishing Company. Print. Immerfall, Stephan and Hagen, Juergen. Territoriality in the Globalizing Society, One Place or None, 2002. New York: Springer Publishers. Print. John, Ardagh. Germany and the Germans after Unification, 2001. New York: Penguin Books. Print. John, Ardagh. Germany and the Germans, 2007. New York: Harper & Row. Print. Mark, Cassel. How Governments Privatize, The Politics Of Divestment In The United States and Germany, 2002. Georgetown: Georgetown University Press. Print. McAdams, James. Germany Divided, 2007. Princeton: Princeton University Press. Print. Philip, Glouchevitch. Juggernaut, 2002. New York: Simon & Schuster. Print. Ramanadham, Venkata. Privatization, a Global Perspective, 2003. New York: Routledge. Print. Robert, Emmet. The Reference Shelf, the Reunification of Germany, 1991. New York: The H. W. Wilson Company. Print. Treuhandanstalt. The Chance of the 90's. Investing In Eastern Germany, 2001. Berlin: Treuhandanstalt Publication. Print. . Read More