austin-murphy-the-triumph-of-evil

Outlook for Reform
THE TRIUMPH OF EVIL
An alternative to the capitalist solution for Eastern Europe might be a
politically-reformed socialist system. Political reforms relating to press
and election freedoms actually might further enhance the efficiency of
a centralized system. Such reforms might stimulate the flow of innovative
ideas and reduce the possibility of an inept and/or corrupt central
planning commission from becoming entrenched and/or working for
personal gain as opposed to societal goals (Gey and Quaisser, 1989).16
Such political reforms would, however, also necessitate some eco
nomic reforms. For instance, the opening of the borders in East Ger·
many in 1989 created a very real danger that the country would be
cheaply sold to West Germany through the migration of welt-trained
and well-educated East Germans to the higher-paying jobs in the West
and through the sale of subsidized East German goods and wealth via a
ridiculously cheap exchange rate. As a result, a wage and price reform
of the East German system was unavoidable. The lifting of some restric·
tions on wage differentials might have also enhanced incentive systems,
and a more flexible pricing system might have also created the ground·
work for a more efficient flow of goods and services. The possibility
of expanded trade, capital, aid, and technology from the West because
of such reforms might have provided a further impetus to growth (Der
Tagesspiegel, 1990a). However, the fact that reforms cause uncertainty
and thereby inhibit the inflow of beneficial foreign capital should also
have been considered (Reuter, 1989). An effective framework for reform
that would have preserved stability (and the advantages of communism)
has been described by Murphy ( 1992a), and details fo r the German case
are provided in the next chapter.
CHAP TER 5
AN APPLIED INVESTIGATION INTO A PLAN
FOR EA SING THE TRANSITION TO ECONOMIC
COMPETITIVENESS USING EA ST GERMANY AS
AN EXAMPLE
Although the West German government originally forecast economic
prosperity for all (including equal wages and very low unemployment)
� a result of winning the vote for the annexation of East . Ge � any . on
1ts own tenns in 1990 ( Ostseezeitung, 1990a), the economtc �mfic�h�n
of Germany in 1990 actually led to a large drop in econonuc achvt�
by over 400/o in the eastern part of the country (Kempe, 1991 b). In addi­
tion, despite wealth transfers from the western part of Germany that
have accumulated to almost one trillion Marks (over $500 billion), the
problems continue, with nearly half of eastern German income still rep­
resenting transfer payments from western Germany in 1996 (Rohw�d­
der, 1996). While real output per capita in East Germany before unifi­
cation was 2/3 of that for West Germany (Gregory and Stuart, 199�},
and may even have been over 80% of West German output per captta
according to some estimates (Summers and Heston, 1988), output per
capita in the eastern part of Germany is now only about 1/2 tha� ofwe�t­
� Germany, and many believe that such large diffe�nc�s wtlt � rslst
Into the long-term future and may even be magnified stgmficantly If the
transfer payments are reduced (Der Spiegel, 1997b ).'
White many now claim that there was no way to avoid the e � ormous
etonomic difficulties of unification (Ritschl, 1996}, there was m fact a