The Hidden History of East German Privatization

East German Privatization and the Difficult Legacy of the Treuhand

DW (2019)

Film Review

This documentary provides a detailed timeline of the four-year privatization of East Germany following the 1989 fall of the Berlin Wall. The privatization was overseen by the Treuhand Trust. Originally appointed in 1990 by the East German Council of Ministers, it was ultimately run by West German corporate and political elites. Following reunification in August 1990, it was the responsibility of the West German government in Bonn to oversee Treuhand. However the Bundestag provided no oversight at all until a massive Treuhand corruption scandal erupted in 1992.

During its four-year existence, Treuhand privatized 10,000 state-owned East German enterprises, put three million East Germans (70% of the workforce) out of work and permanentlyy deindustrialized East Germany.

According to the filmmakers, some of this disastrous outcome stemmed from the rigid neoliberal bent of Trehand managers; some from bribery and corruption; some from from incompetence; and some from the avarice of West German entrepreneurs who bought West German businesses that competed with them and shut them down. East Germany experienced massive public protests and even a hunger strike as thousands of factories closed and millions of East Germans became jobless.

Some factors contributing East Germany’s financial collapse were beyond Treuhand’s control. At the time the two Germany’s reunited, East Germany lost most of its export market as the Communist regimes in other Eastern bloc countries collapsed. To prevent the East German mark from collapsing, the Bundestag introduced the Deutschmark into East Germany in July 1990. This led to massive price inflation of German consumer goods, leading East German residents to reject them in favor of cheap West German products. With no sales revenue, East German companies were forced to turn to Treuhand for loans and subsidies to pay their staff.

In 1992-93 when the Bundestag intervened, Treuhand was forced to preserve designated East German industries by providing loans and subsidies to businesses willing to modernize.

One-hundred-fifty convictions resulted from the Treuhand corruption scandal. As in the former Soviet Union, East German were promised shares in their state owned enterprises as they were privatized. These shares never materialized.

The Greek documentary Catastroika provides a somewhat different perspective on Treuhand’s role in the wholesale privatization of East Germany’s state-owned industries: See Privatization and the Theft of the Commons

This documentary, which can’t be embedded, can be viewed free at Privatizing East Germany

Privatization and the Theft of the Commons

Catastroika

by Aris Chatzistefanou and Katerina Kitidi

Film Review

Catastroika is a Greek documentary on neoliberalism, with a specific focus on the privatization of publicly owned resources. Although it makes no mention of historian Richard Linebaugh, its depiction of the neoliberal privatization movement provides an elegant illustration of the ongoing theft of the Commons (see Stop Thief: the Theft of the Commons).

After a brief overview of the University of Chicago economists (championed by Milton Friedman) who first put neoliberal theory into practice during the Pinochet dictatorship, the documentary tracks the wholesale privatization of Russia’s state owned industries after the 1993 coup by Boris Yeltsin, in which he illegally ordered dissolution of the Russian parliament (see The Rise of Putin and the Fall of the Oligarchs).

The fire sale of state assets to oligarchs and western bankers would virtually destroy the Russian economy, throwing millions of people into extreme poverty and reducing average life expectancy by ten years.

The Privatization of East Germany

With German reunification in 1990, East Germany would be the third major target for massive privatization. According to German economists interviewed in the film, the process amounted to an “acquisition” of East Germany by West German bankers. The West German government set up an agency called Treuhand to buy up state owned East German businesses at the rate of ten to fifteen a day – a total of 8,500 businesses in four years. The process, undertaken with virtually no oversight, predictably resulted in massive chaos and fraud. Many well-performing East Germany companies were dissolved for the simple reason they competed with West German businesses. Three million (out of 4.5 million) East German workers lost their jobs, which East Germany’s GDP shrank by 30%.

Using Debt to Compel Compliance

With the gradual demise of the world’s dictatorships during the 1990s, debt, rather than brute force, became the main mechanism to compel people to give up their publicly funded assets. At present, most of the focus is on Greece.

Current EU Commission Jean-Claude Juncker holds up Treuhand (which incurred a 250 million euro debt German taxpayers are still paying off) as a model for the Greek Asset Development Fund. The latter has been steadily selling off (at bargain basement prices) Greek railroads and municipal power and water systems.

The Dismal Track Record of Privatized Utilities

The filmmakers end the film by highlighting the disastrous outcome of Britain’s decision to privatize its railroads in 1993, the city of Paris decision to privatize its water service in the 1980s (it’s recently been re-municipalized due to massive public unrest – like privatized water systems in Bolivia, Ecuador and Argentina) and California’s experiment with electricity deregulation in the 1990s (leading to the Enron scandal).*

---

*The Enron scandal involved massive securities fraud and a deliberate conspiracy by power companies to withhold power to drive up electricity prices.