East-West Divide

Rise of the East

300 Häusern droht der Abriss in Duisburg
Germany’s rust belt is in the west. Source: Picture Alliance.

According to the latest annual report on the state of Germany’s unity, eastern Germany is hardly an economic powerhouse but no basket case either.

Life satisfaction there is almost as high as it is in western Germany, incomes are close to the European Union average and since 2014, the region’s economic strength has been slowly but steadily approaching that of western Germany. And although the gross domestic product per capita in former East Germany is still only 73 percent of onetime West Germany’s, tremendous progress has been made since 1990, when GDP in the east was only one-third of that in the west.

The east-west divide undeniably still exists, but the gap is now smaller than some economic disparities within the West, such as between the cities of Bremen and Munich. A look at regional unemployment figures provides the best indication of how opportunities to benefit from Germany’s prosperity are distributed throughout the country. It’s more difficult to find work in Gelsenkirchen, a deprived city in Germany’s rust belt of the industrial Ruhr area, than in Erfurt, the capital of the eastern state of Thuringia.

The unemployment rate in the eastern states of Thuringia, Brandenburg and Saxony is about the same as in the western states of Lower Saxony, Schleswig-Holstein and Saarland, and it’s lower in all of these states than in North Rhine-Westphalia. A map of unemployment rates throughout Germany shows a much stronger North-South divide than an east-west split. And Potsdam, a historic town near Berlin, boasts an average net household income on par with Düsseldorf’s.

None of the 30 blue-chip companies listed in the DAX are headquartered in eastern Germany – or in the western states of Saarland and Bremen, for that matter

In 1990, then-Chancellor Helmut Kohl strongly criticized doomsayers who predicted it would take a generation for Germany to unite fully. East Germany’s industry was virtually wiped out in the 1990s, leading ructions far more severe than the decline of the Ruhr area. But the East also coped with the challenges more effectively than the West. Curiously, this year marks the point when the Berlin Wall has been gone for exactly as long as it existed: 28 years. The standard of living in the east has approached that of the west, but has not yet reached parity.

And just as Berlin has affluent and poor neighborhoods in both its former eastern and western halves, it’s high time we focused more heavily on the differences between rich and poor regions throughout Germany than differences based on the compass. The disparity is often substantial within the former East German states. Thriving eastern cities like Leipzig and left-behind regions, such as Western Pomerania, are as dissimilar as the rural region of East Frisia (on the North Sea coast) and affluent Lake Starnberg, near Munich.

The next legislature’s policy for regional economic development will only reach its targets if it takes structural weakness throughout Germany into account, looks at demographic dynamics in various regions, and recognizes that the growing urban-rural split isn’t just a serious problem in the east.

The fact that “the east” still lags behind “the west” in terms of economic strength is mainly due to the compartmentalized structure of Germany’s corporate landscape. None of the 30 blue-chip companies listed in the DAX index are headquartered in eastern Germany – or in the western states of Saarland and Bremen, for that matter. Large corporations generate business for smaller companies in their surroundings, stimulate research in their regions, and are strong exporters. Areas with no major corporations tend to be structurally weak.

A strong Mittelstand can only offset this effect to some extent, both in eastern and western Germany. Even the next federal government won’t be able to do more than take up the cause of promoting growth and research among small and mid-sized companies – in the hope that a mid-sized company eventually grows into a large corporation.

Digitalization lends itself as a tool to offset the urban-rural divide. Many freelancers could also operate their businesses in bucolic rural settings – if said rural areas finally got high-speed Internet connections. Broadband deployment has been included in party platforms since 2009, and yet little significant progress has been made with fiber-optic expansion throughout Germany. This alone is a reason anyone who wants to launch an Internet startup has to do it in a big city.

A generation after reunification, a specifically eastern German weakness is the lack of immigrants. This latest annual report on German unity does not focus on xenophobia, because the federal government’s Commissioner for Eastern German Affairs chooses a different main topic each year. Many eastern regions urgently need skilled workers, who they could recruit abroad. But foreign workers, such as EU citizens from southern Europe, give the east a wide berth because xenophobic attacks occur there frequently; these newcomers choose the west or Berlin instead. As long as governors and mayors prefer to downplay rather than address this problem, they’re missing out on real growth opportunities for their regions.

 

To reach the author: riedel@handelsblatt.com.

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