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ABSTRACT
State socialism failed due to its inner contradictions. We compare the two economies that existed in parallel in the two Germanies to shed light on the successes and failures of the socialist system of innovation until its collapse in 1989. Based on newly created indicators from archival data, we show that investments in R&D-intensive industries were much larger in comparison to economic performance in the last decades of the German Democratic Republic than in the Federal Republic of Germany. These achievements, however, could not be fully realized through economic growth due to obstacles related to research priorities, innovation incentives, and knowledge flow.
Acknowledgments
Financial support provided by the German Federal Ministry of Education and Research for the project “Obstacles to Modernization in the Economy and Science of the GDR” (project number 01UJ1806DY) and the Deutsche Forschungsgemeinschaft (DFG, German Research Foundation) for funding the scientific activities of the network “The dynamics of innovation systems” (project number 496310572) is gratefully acknowledged. We thank the anonymous referees, the participants at the EAEPE Conference in Warsaw, the regional transformation conference at HTWK Leipzig and the Mod-Block-GDR Colloquium for their valuable comments.
Disclosure Statement
No potential conflict of interest was reported by the author(s).
Data Availability Statement
The associated dataset is published by Hipp, A., U. Ludwig, and J. Günther. 2022. Kennzahlen zur Wirtschaft, Technologie und Forschung der DDR und BRD (1949–89). Köln: GESIS, Datenfile Version 1..0, doi.org/10.7802/2454.
Notes
1. The classification of R&D-intensive industries includes: (1) the chemical industry, (2) the production of plastic products, (3) rubber processing, (4) steel and light metal construction as well as railroad equipment, (5) engineering, (6) the production of office machines, (7) automotive manufacturing and repair of motor vehicles, (8) electrical engineering and the repair of appliances, and (9) medical, precision and optical instruments.
2. This categorization according to the system of national accounts (SNA) allows us to calculate the investments in R&D-intensive industries, since macroeconomic data of the GDR was originally categorized according to the material product system (MPS), which only roughly differed between ten manufacturing industries, including the energy, fuel and water industries, which were actually not related to manufacturing according to the SNA.
3. The dependency of economic growth on modernization investments could be investigated in a regression analysis. Such an analysis would nevertheless require the use of data in constant prices, which can only be retrieved from the GDR’s national statistical office. To rule out any biases from potential manipulation approaches, we decided in favor of the case study approach, using harmonized and internationally comparable data in current prices.
4. While Stäglin and Ludwig (Citation2000) provide data on general investments in the GDR, the former federal territory distinguished between investments in plants, equipment and buildings, according to the SNA. To compare both investment data, we calculated the modernization investments of the FRG as the sum of investments in plants, equipment and buildings, which is equal to the definition of investments in the MPS of the GDR.
5. We refrain from using data from Merkel and Wahl (Citation1991), Maddison (Citation1995) and Sleifer (Citation2006) because they do not base their analyses on primary statistics, they apply a system of indicators that is not harmonized across the different aspects of the national account, and their methodological approach is not completely transparent.
6. Due to the missing exchange rate from GDR Mark to Deutsche Mark, a direct comparison to the FRG is not possible. Based on real prices of foreign trade, only Valuta-Mark could be used as an equivalent.
7. This approach was in contrast to the technology-oriented subsidies for a broad range of industries in the FRG (Grupp, Dominguez-Lacasa, and Friedrich-Nishio Citation2002).
8. Apart from inventor compensation, which was provided based on the economic benefit of the invention, soft incentives included an acknowledgment and naming of the inventor (Lindig Citation1995).
9. Some minor cooperation with selected Western suppliers took place in order to negotiate on technical belongings; however, such cooperation was constrained by foreign trade organizations (Sandberg Citation1989).
10. In contrast to civil sectors that relied on informal networks, military sectors could use larger formal networks (Radosevic Citation1999) and gained a more prominent role in the socialist economy over time because of the arms race with the US (Allen Citation2001).
Additional information
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Notes on contributors
Ann Hipp
Ann Hipp is a postdoctoral researcher at the Chair of Economics of Innovation and Structural Change, University of Bremen, and a senior researcher at Johann Heinrich von Thünen-Institute, Germany. Her research interests include the economics of innovation, system transformation, innovation policy, industry dynamics, and technology transfer.
Udo Ludwig
Udo Ludwig is Emeritus Professor of Empirical Economic Research at Leipzig University, and Halle Institute for Economic Research, Germany. His main research interests are comparative economics, transformation of socialist planning systems to market economies, economic convergence between market systems, and economic history.
Jutta Günther
Jutta Günther is Professor of Economics of Innovation and Structural Change at the University of Bremen, Germany. Since 2022, she is also rector of the University of Bremen. Her research focuses on innovation processes, structural change, and economic aspects of system transformation.