Jumpstart: The Economic Reunification of Germany.

• Author: Steindl, Frank G.

This tightly argued, important book advances a proposal--"a social compact for the upswing"--whereby the standard of living in the former East Germany (GDR) can come to resemble more closely that of West Germany. The proposal derives from a high-level, first-rate theoretical analysis. Their proposal has shares in the firms the Treuhandanstalt (Trusteeship Corporation) wishes to privatize being distributed--the "participation model"--in return for a moratorium on wage increases. The ownership participation differs from the Czech model in that it provides reorganization incentives for owners of the newly-privatized firms.

The three principal difficulties impeding the upswing are (a) the legal quagmire involved with property restitution, the conundrums of which are meaningfully considered, though no suggestions for reform are made; (b) the inherent stringing-out of privatization because of Treuhand's policy of cash sales of firms and (c) the high and sharply increasing level of real wages in the East. The "social compact" is intended to solve the last two simultaneously.

In arriving at their proposal, the Sinns analyze in depth, at times brilliantly, the shortcomings of current proposals for sharply increasing the growth rate of East Germany, as well as the perversity of some of the actual practices being pursued. The principal concern is with East Germany and how to increase the rate of capital formation. West Germany is considered primarily as a basis of comparison. There is no attempt either to draw or deny analogies from the West German experience of 1948. For the most part, the book is complementary to Giersch, Paque, and Schmieding |1~.

There are three main chapters, these following the two necessary and interesting ones detailing the events leading to unification, presentation of data comparisons between East and West Germany, and discussion of reasons for the poor performance and collapse of the East. The overall discussion is nicely paced and insightful.

In addition, there is an extensive statistical comparison in an eight-page appendix. Data from the East are however notoriously suspect and so it is unsettling to read too much into such comparisons. For instance, the Sinns accept too readily the zero unemployment fiction of planned economies. In fact however, there was extensive unemployment, though it was disguised. Because of political considerations, there were many industries protected from international competition. The...