Deutschmark appreciation and structural change: An overview of economic structural reports

Changes in exchange rates have become a prominent issue in Germany and Japan - due to the enormous appreciation of the Deutschmark and the Yen. Conventional wisdom suggests that economic activity will be negatively affected if a currency is going through a phase of appreciation. The paper emphasizes the impact of the strong Deutschmark appreciation on structural change and economic growth in Germany in the 1970s and 1980s. It re-examines the diverging arguments supported in the so-called Structural Reports of the five leading economic research institutes. The paper concentrates on three questions: - first, which was the theoretical background of the discussion, - second, which were the controversial issues, and - third, which could be the lessons for Japan's economic policy drawn from the reports? The author comes to the conclusion that the strong Deutschmark has positively affected the German economy as it has increased the pressure to adjust. However, while manufacturing industries were flexible enough to reduce their staff quickly, service industries were too inflexible to provide relief for the labour market. In this respect, Germany can hardly be a model for Japan. In realizing economic reforms, it has made only little progress.

Treuhandanstalt and investment acquisitions: How to ensure that contracts are kept?

The process of selling a state-owned company in former centrally planned economies (CPEs) differs greatly from that of buying a private company in western market economies. While a private seller is normally interested in selling his portfolio expensively, a privatizing agency in CPEs has additional goals: she intends to ensure, e.g., that the purchaser continues the company, makes certain investments or maintains a certain number of jobs. Consequently, these concerns are a potential source of conflict. This paper gives an overview of how the German Treuhandanstalt (THA) copes with the problem. It investigates o first what the THA has done in establishing a contractual framework reflecting her social goals and - second how effective this framework has been in realizing them. The results are mixed: the THA has been very successful in putting an investor on the chain. However, she has invested a lot of money. Time must tell whether the results make all these efforts worthwhile.

Requirements for successful privatization: Lessons from the Treuhandanstalt's approach

The paper analyses the Treuhandanstalt's privatization approach by putting it in a public choice perspective. It comes to the conclusion that the Treuhandanstalt had been very successful in reaching its economic and social targets. Economists might worry that the Treuhandanstalt's operation had accumulated too much waste caused by social considerations. And politicians might lament that its strategy implied that millions of people were ,,outplaced or ,,downsized in the name of privatization. But in terms of the interaction of economics and politics the Treuhandanstalt's performance had not been so far from the optimum.

Privatization and local government reform in Germany: A slow train

The paper investigates the recent trends in privatization by local government organizations in Germany. It comes to the conclusion that the privatization policy has been two-directional: on the one hand, municipalities have reduced their economic activities, mainly by different forms of contracting out; on the other hand, they have expanded them into profitable fields. In many cases they have preferred a phantom privatization: government bodies have only been transferred into a private-law establishment. The paper examines the barriers to privatization and provides a strategy to overcome them.

Corporate restructuring and export performance in the transition process: The case of Eastern Germany

Economic restructuring in the transition from plan to market concerns the way enterprises try to achieve competitive advantage. Therefore, enterprises have to decide where to compete, that is to say with which product they should enter which markets, and how to compete, that is by which strategy they could succeed. During the seven years since unification, the eastern German economy has undergone considerable structural changes. However, the outcome is a poor market specialization: industries which sell their products mainly in local markets have remarkably increased their share in total output, while industries producing for world-wide markets have lost importance. Sailing into the safe harbour of local markets may be the need of the moment for many companies. But it is a dangerous strategy. In the long run, it may prove to be a trap without any escape. The paper provides a selective and interpretative account of the restructuring process in eastern German manufacturing. It starts with the given constraints - exchange rate and wage convergence - which constitute the wrong model for opening up a closed economy. It presents some stylized facts revealing a strong vertical differentiation between eastern and western German producers - with respect to product quality and product markets as well as with respect to technological and organizational environment. As a result, the division of labour between the eastern German economy and the rest of the world tends to be an inter-industry type rather than an intra-industry one. Finally, the paper turns to the key policy question of how to overcome these difficulties. It scrutinizes the main arguments for and against government's trade promotion towards eastern German enterprises.

Small- and medium-sized enterprises in cross-border networks: Empirical evidence from the Pearl River Delta

The Pearl River Delta is one of the most successful cases of economic re-integration after a long period of separation. Hong Kong's traditional policy of non-interventionism and China's open-door policy have induced a rapid increase in cross-border trade, outward processing and outward investment. The paper focuses on the different modes of integration as well as on the driving forces behind. It argues that small- and medium- sized enterprises have played the pivotal role in the Delta's economic development. Their cross-border operations have been mainly facilitated through two channels: through subcontracting networks among manufacturers and through links with trading houses which are frequently small in size. The paper underlines three main keys to the Delta's economic success: a non-interventionist policy favourable for growth, a pronounced outward orientation in business which consequently exploits complementaries in comparative advantages and, last but not least, the so-called Chinese factor - the special attitudes adopted by local entrepreneurs, their adaptability and flexibility, their work ethics and their common cultural heritage. In some respects, the Pearl River Delta can serve as a model for developing border regions in Central Europe along the former Iron Curtain. Despite their great potential, these regions are integrating only slowly. The paper suggests that border regions after a long period of political and economic division are predestined to become an economic power-house.

Foreign direct investment in Central and East European countries: State of affairs, prospects and policy implications

Foreign direct investment (FDI) is rightly considered as an engine in transforming Central and East European Countries (CEECs). Without massive inflows of capital, technology and management know-how a sustainable growth is unlikely to happen. Although governments in CEECs make more than air effort to create a favourable climate for FDI, the international investors' community has responded hesitatingly. Only the number of projects have skyrocketed, the amount of capital invested has increased only at a slow pace. Foreign investors are testing the water, but they are not rushing to jump. The paper attempts to provide an overview of the current state and prospects of FDI in CEECs. First, it briefly reviews the theoretical framework for understanding FDI. Then it focuses on the trends and patterns of FDI-flows. Finally, it draws attention to the policy towards FDI.

Emerging East-West collaborative networks: An appraisal

Although an extensive amount of literature reviews emerging patterns of east-west co-operation, it is not easy to grasp the state of the art. Too many of the books, articles and papers tend to mark the trees rather than to map the forest. The paper analyses recent trends from the point of view of modern economics which emphasizes the growing use of a wide variety of new types of co-operative mechanisms between firms in organizing international business. It takes an appraising look at the outcome of a recent research project of a group of scholars from east and west. The paper comes to the conclusion that east-west integration is proceeding at a considerable rate. But it is dominated by shallow modes - by arm's length transactions and contract work. To a certain extent, this might reflect new patterns of inter-firm co-operation. But this might also be an indication that co-operation with partners in CECTs is still in a flat state. Eastern firms find it hard to obtain an adequate position in international networks. Their lack of competence, reliability and reputation is often an insurmountable barrier. Accordingly, they must improve upon their technological and organizational standards to be considered by western firms as competent, reliable and trustworthy and, hence, equal partners in collaborational networks.

On the competitive position of Eastern German manufacturing: Why is catching-up so slow?

Seven years after the transition from plan to market, it is hard to summon up much enthusiasm for the results of active restructuring of the eastern German economy. Although companies have made considerable efforts to reach the efficiency level of their western German counterparts, the gap is still large. In our paper, we provide a selective and interpretative account of the restructuring process in eastern German manufacturing. We start with modelling some economic relations which can be considered crucial in the restructuring process: ownership status and overall performance, sectoral and regional specialization, gross output and value added, investment and productivity, and wages and employment. In search of adjustment failures, we examine these relations by comparing the performance of eastern German with that of western German enterprises. Finally, we discuss the key policy question of how to overcome the difficulties. Without an about-face in wage policy, it will be difficult to shift the balance from wage convergence to efficiency convergence.