[Leonid Bershidsky] The Berlin Wall is still standing

By Bloomberg
  • Published : Feb 8, 2018 - 17:45
  • Updated : Feb 8, 2018 - 17:45
The Berlin Wall divided the city for 28 years, two months and 28 days starting Aug. 13, 1961. It ended on Nov. 9, 1989, when Guenter Schabowski, a top East German official, erroneously announced that crossing into West Berlin was now permitted. Now that the same amount of time -- 28 years, two months and 28 days -- has passed, it’s fitting that the next German government is expected to end the solidarity tax created to even out economic differences between both sides.

While there’s little sign of the physical wall these days, an economic one remains tall indeed. Last year’s government report on the state of German unity showed that the eastern part of the country still suffers from unemployment rates that are about 50 percent higher than the west. Per capita economic output in the east stands at about 73 percent of the western level, which is a great improvement on the 42 percent reported in 1991, but growth has stalled in the last decade. The government blames a lack of large enterprises in the east: No company represented on the DAX stock index is headquartered there. The impact on workers is striking: Easterners make about 82 percent as much on average as westerners.

The economic imbalance has created enormous political trouble in Germany. Eastern states provided nearly all the representation of the radical left party, Die Linke, in parliament. The far-right Alternative for Germany also performed disproportionately well in the east, capturing 21.9 percent of the recent vote compared with 12.6 percent nationwide. The political radicalism is a consequence of people feeling that they’re left behind -- and of a growing number of immigrants in places where locals aren’t used to them. Perhaps because of the divergent political cultures, few easterners hold major government positions on a federal level and only a third of Germany’s 100 biggest companies are led by easterners.

For the European Union as a whole, the economic wall problem is even worse. Only the Czech Republic has grown to 80 percent of the per capita economic output of the 15 “old” western European members -- and it started at 65 percent just two decades ago. Hungary and Poland are still at 63 percent of the western output level. Bulgaria is at 43 percent -- roughly where East Germany stood at the very beginning of the reunification. As within Germany, emigration from the ex-Communist east helped drive up the per capita output.

The convergence of eastern European economies has slowed down considerably since the global financial crisis in 2008. It was driven by western European investors seeking industrial production with lower wages than required at home. As capital resources grew more scarce, the model sputtered.

Eastern European voters are just as inclined as former East Germans to back political forces offering simpler solutions. Unlike in Germany, those voting patterns aren’t diluted by the more moderate choices that western Germans tend to make. The jury is still out on whether policies and institutions developed by increasingly nationalist and populist governments will lead to more economic convergence. It’s clear, however, that these governments rub western Europeans the wrong way, potentially further undermining the old investment-based growth model.

When the Berlin Wall fell, that’s not how many of us born on the Communist side hoped things would stand in 28 years, two months and 28 days.

Christian Bormann runs a blog on the history of Berlin’s Pankow borough. Last month, he revealed a discovery he’d made years earlier -- an 80-meter section of the Berlin Wall hidden in a wooded area. It’ll be turned into a memorial, a symbol of the past. I wish that would finally happen to the bits of the wall that aren’t made of bricks or concrete, though. The Communist and Cold War heritage is proving far harder to live down than any of us could have hoped on the day of the Schabowski slip.

Leonid Bershidsky
Leonid Bershidsky is a Bloomberg View columnist. -- Ed.