austin-murphy-the-triumph-of-evil

200 THE TRIUMPH OF EVIL
a situation would slow the ability of the East German government to
phase out the mandatory savings associated with OM exchanges. For
instance, if the amount needed to earn a OM of exports rose to M5,
there would be required expo11 costs of OM23 {M5/0M}=Mll5 bil·
lion in the first year to pay for the originally assumed DM23 billion
in imports. With the East German government receiving M6 for every
OMI in imports, only Ml38-Mil5=M23 billion could be invested in
the first year to reduce the cost of future export revenue generation. If
the higher cost to generate a OM of export revenue were not a one·
time expense and instead continued, it would take 12 years of normal
East German investment to enable the government to remove the plan's
mandatory savings requirement associated with East German imports.
On the other hand, it is also possible that the enhanced capacity to
import goods from West Germany would raise productivity and actu·
ally decrease the amount needed by East Germany to earn a DMI.O
of export revenue. In particular, East German firms would have greater
flexibility to buy capital equipment from West Germany that co � ld
modernize East German industry and greatly cut the costs of eammg
export revenue. The probable elimination of the Western embargo on
high-tech exports to East Germany (as a result of the opening of the
Wall and the reduction in political tensions) might be especially im � r·
tant here (Parrott, 1985). For instance, despite investing over MlO btl·
lion in prior years into microelectronics, East Germany had in 1989
a cost of producing 256K semiconductors of M534 compared to the
OMS cost for such chips available on the "free" world market to Wes� ·
em countries (Hertle, 1996). If East Germany's political and economtc
reforms were rewarded with the removal of the embargo on computer
chips, · East Germany would be able to replace the M534 cost wtt h the
cost of DM5x[M4.4/DM]=M22 needed to generate the exports to pay
for the import of such high technology goods and thereby save over
95% on the production costs of that important component of the modern
economy (thus freeing up substantial sums of money, which could �
used to cover additional export costs associated with the plan, as we
· ·
as to increase investment or wages). Apart from any postttve e
,.
trect
resulting from greater productive imports, the increased imports of �,unf
sumer goods from West Germany might also enhance the morale 0
East German workers and spur productivity improvements. Such pro-
CHAPTER 5 20 1
ductivity increases would lower costs further.
In addition, the opening up of the East German economy and political
system would probably reduce many of the government trade barriers
set up against East German goods and thereby further facilitate
an expansion of exports at a lower cost, especially to the European
Community (EC), which included the richest countries of Western
Europe. In particular, although East German exports to all EC members
except West Germany had previously faced significant tariff barriers,
and although West Germany itself had employed significant quota
barriers that effectively prohibited East Germany from obtaining more
than 5% of the market in any industry (Melzer and Stahnke, 1986), EC
membership was offered to East Germany shortly after the opening of
the Berlin Wall (Der Taggesspiege/, 1990a). Such membership would
greatly reduce tariffs and thereby facilitate East German export sales at
a lower cost to a larger market and enable East Germany to concentrate
its exports in areas where it had a competitive advantage, such as in
heavy machinery, auto parts, porcelain, salt mining, and food production
where the cost of earning OMl.O was less than M3.0 (Mueller,
1989). East Germany might also be able to realize further economy of
scale cost reductions as a result of such increased production in specific
industries, especially if it were able to expand exports of the various
goods for which it already had production costs less than Ml.O fo r
every DMI.O earned (Schwarzer, 1999).
Also within this environment, Western distribution barriers and consumer
biases against East German goods might evaporate, especially in
West Germany where the government trade quotas might even be eliminated.
'2 The resulting increased exports might lead to further economies
of scale in both general distribution and manufacturing, especially as
East Germany became more integrated with the entire world economy.
. Besides a reduced cost of earning OM export revenue, an increase
Ill tourist traffic, which would likely result from a reduction in Cold
War tension and fear as well as from a heightened curiosity and desire
to assist (brought on by East Germany's reforms), might also facilitate
the �ng of hard currency revenue. For instance, without the plan,
forergners spent billions ofDM in East Germany in the first 2 months of
1990 alone, although a lack of controls against black market exchanges
resulted in few of these OM being exchanged officially with the gov-