🏭 Old factories
Money went on welfare and on paying debts, so many factories kept old machines. Goods made with old machines were often of a lower standard than Western goods.
Stabilisation and Control: The GDR, 1962-87 » Economic Problems in the 1980s
What you'll learn this session
Study time: 30 minutes
Edexcel spec: Paper 2 Section A, Investigation A5, Key topic 2
- Why the GDR spent more on welfare than its economy could afford
- How debt and poor quality goods built up in the 1980s
- Why East Germans faced shortages and queues
- How to answer a "How far does Source A support Source B?" question
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Unlock This CourseWelfare the economy could not afford
East Germany was officially the German Democratic Republic (GDR). It had a planned economy, which means the state, not the market, decided what was made and what things cost. By the 1980s its leader was Erich Honecker, who had taken over from Walter Ulbricht in 1971.
Honecker wanted people to accept Communist rule because their lives were secure. His policy was the "unity of economic and social policy". The state would keep prices low and give people jobs, homes and welfare. To do this it paid subsidies, which means it paid part of the cost of goods and services so that the price in the shops stayed low.
Key terms:
- Subsidy: money from the state that keeps the price of something below what it costs to provide.
- Overspend: spending more than you can afford or have earned.
- Debt: money that has been borrowed and must be paid back, usually with interest.
- Hard currency: Western money, such as the West German Deutschmark, that could be used to buy goods from the West.
- Shortage: when there is not enough of something to meet demand.
The cost was huge. In the 1980s a tenant paid between 80 pfennigs and 1.25 marks for each square metre of living space. Electricity cost 8 pfennigs per kilowatt hour, far less than it cost to produce. The state made up the difference. Honecker's big housing programme added to the bill. In 1984 he handed over the two-millionth home built or renovated since 1971, but the programme ate up billions in state money.
The result was a welfare overspend. The state promised more than the economy produced, so it kept prices low by borrowing and by starving the factories of the money they needed to modernise.
Debt to the West
To pay for imports and for its welfare promises, the GDR borrowed hard currency from the West. It also tried to earn hard currency by exporting goods, even goods that East Germans could not find in their own shops. The more it borrowed, the more interest it had to pay, and the less money it had left over for new machines.
By October 1989 the problem was so serious that Gerhard Schürer, head of the State Planning Commission, wrote a report for the Politburo, the top leadership of the Socialist Unity Party (SED), the ruling Communist party. It warned that from 1990 the GDR would not be able to pay the interest on its debts to the West. The state had been pushed close to bankruptcy.
Poor quality goods
📋 Plan targets
Factories were judged on whether they met the plan. Many made more of the expensive goods because it paid better, so fewer cheap, basic goods reached the shops.
A famous example was the Trabant, the small car most East Germans could afford. It was cheap, but buyers had to wait on a list for many years, often more than ten, and it was slow and noisy compared with a Western car. Shoppers knew that Western goods were better, and many had seen them on West German television.
Shortages and queues
Basic food and rent stayed cheap, but many other things were hard to find. East Germans spent a lot of time queuing and running from shop to shop. A West Berlin newspaper reported in 1980 that people could not find towels, underwear, dishes or even chocolate. Some goods were sold "under the table", which means secretly to people who knew the shop assistant. Shops often limited how much each person could buy.
There was a second kind of shop for the better-off, called a Delikat shop, where luxury food cost many times more than in ordinary shops. Ordinary people could not afford it. Meanwhile the state kept exporting goods to earn hard currency, and East Germans complained about it.
The economy did not collapse overnight. Most people had a job, a home and cheap basic food. But the shortages and queues showed that the promise of a better life was failing, and that made the state less popular.
Common mistakes
- Saying East Germans were starving. Basic food was cheap and available. The problem was shortages of other goods and a lack of choice.
- Writing that welfare was cut. In fact it was welfare spending that the state could not afford.
- Mixing up the reforms of the 1960s with the problems of the 1980s. This lesson is about the 1980s.
- Writing only "debt" with no detail. Say who the GDR owed money to (the West), why it borrowed, and what it meant (interest it could not pay).
Exam-style question
This is a Paper 2 Section A (b) question. Study Sources A and B.
Source A
From a letter written by a family in East Berlin (signed Fam. W.) to a woman in West Germany, 10 May 1980 (translated).
"...we're still not at the point where we don't have to stand in line and run around to purchase the most basic things in life... Berlin still has the best inventory levels... each person is limited to two items, no matter what it is... Yes, that's the highly vaunted planned economy, nothing works, nothing is in order."
Source B
From a report by Michael Mara, a West Berlin journalist, in the Tagesspiegel newspaper, 21 December 1980 (translated).
"...GDR citizens race from store to store mostly because of supply shortages... although the economic plan for this year was fulfilled... a number of factories had delivery backlogs for certain products, often popular ones... the GDR population continues to criticize the high export levels."
How far does Source A support the evidence of Source B about shortages in the GDR? Explain your answer. [8 marks]
Model answer
Both sources show that shopping in the GDR meant searching for goods. Source A says people have to "stand in line and run around to purchase the most basic things", and Source B says citizens "race from store to store mostly because of supply shortages". Both also link the shortages to the way the economy was run, because Source A blames "the highly vaunted planned economy" and Source B says factories had "delivery backlogs" even though the plan was met.
However, there are differences. Source A says "nothing works, nothing is in order", which is a general attack on the whole economy, whereas Source B is more careful and says that "the economic plan for this year was fulfilled" and that the problem lay with certain "popular" products. Source A also says Berlin has "the best inventory levels" and describes limits of "two items" per person, details which Source B does not mention, while Source B adds a complaint about "high export levels" that Source A does not raise.
Overall, Source A supports Source B to a fair extent. They agree that shortages and queues were a daily problem and that the economy was to blame, but they differ over how bad the failure was and over what caused it.
What lifts it to the top level: it cross-refers short quotations from both sources for the agreement and for the difference, and ends by judging the extent of support.
Exam tip
You only need to compare what the two sources say, so you do not have to bring in your own knowledge. Write about both agreement and difference, quote from both sources each time, and end with a judgement such as "to a fair extent".