Listener: 16 July, 2005.
Keywords: Political Economy & History;
New Zealanders largely see Europe from the Atlantic offshore. Few – myself included, until the German Government and the Goethe-Institut enabled me to spend two weeks in Germany last month – would know about the “Battle of the Nations”. In 1813, Austria, Prussia, Russia and Sweden decisively defeated Napoleon’s army, just outside Leipzig – the monument is pure megalomania. Because Britain was not involved, it hardly registers to us. Yet, with the end of the Cold War, the centre of Europe is moving east, evident in the reconstruction of Berlin as its transport hub.
The first shift eastward was when East Germany reunified with the Federal Republic of Germany in 1991. The Western Germans, fearful of a flood of “Ossis”, offered generous merger terms, but their effect was to set the eastern region’s price level too high, and the economy collapsed.
The Federal German Government has poured in subsidies: transport and communications infrastructure, skills upgrading, cash for housing renovation and for new businesses. It contributed over a quarter of the plant’s capital cost of a German car assembly line set up in Leipzig, while also paying for workforce training, and transport infrastructure. Eastern Ger-many’s productivity initially doubled from a third of the Western German level when the Iron Curtain collapsed, to two-thirds today. But the convergence has stopped. Yet, unemployment remains stubbornly high, hovering around 22 percent in the east, compared to 10 percent elsewhere.
Eastern German wage rates are lower than those to the west, although I was told that their lower cost of housing means standards of living are similar, if one has a job. Because the unemployment benefit is the same throughout Germany, it is really more valuable in the east, which may be a discouragement to its unemployed finding work.
The regional strategy has focused on recruiting “beacon” businesses of large employers such as car assemblers. However, small and medium-size enterprises (SMEs) are crucial for economic development. The pessimistic view is that 40 years of communism crushed the region’s entrepreneurial spirit and, anyway, all the potential entrepreneurs have already gone west. One might have hoped that local outsourcing by the beacons would generate opportunities for SMEs, but Germany is small enough for almost anywhere to provide just-in-time supplies overnight.
I pressed those I spoke to, that if it made sense to move production east, why not to Poland and the Czech Republic (which joined the European Union in May last year), where wages are even lower. They said that eastern Germany has better transport links, a common currency, more robust commercial practices, and the Federal Republic’s subsidies. In the case of a big computer consultancy to supply Germany and Austria, that the programmers would speak German may have been decisive.
Maybe so, but some big businesses are already moving further east. Meanwhile, Poles, in particular, are moving west. The frequently mentioned “scandal” was their slaughtermen coming over the border, cutting up the livestock and undercutting German workers. Apparently, it is illegal – for the next six years, anyway. But not a single commentator mentioned that Germans got cheaper meat. (If the Poles can’t go to the animals, presumably the animals can go to Poland.)
The tour highlighted for me the importance of labour mobility in the political economy of globalisation. The temporary restrictions on the mobility of Poles and others only puts aside the day when they can work anywhere in the EU. The objection to Turkey joining the EU need not be racist (or religionist). Rather, Turks are going to undercut the pay of unskilled western Europeans (but also do jobs considered too lowly by the Western unemployed).
This does not mean that eastern Germany is doomed, although there was much pessimism over the prospects of the north, which is based on declining agriculture (capital city Berlin excepted). To the south, beacon industries are establishing in Leipzig and Halle, once on traditional east-west trade routes, with a history of competitive industry. (A major international airport will also help.) Add in Dresden and Lutherstadt Wittenberg and there is attractive tourist potential. But for that to happen, those with a British and American perspective will have to accept that Europe is not just on the Atlantic coast.