Thursday, August 14, 2008

Observations on Jena, former East Germany

So, last week I gave some lectures at the Max Planck Institute for Economics in Jena, a city in the Lander of Thuringia in the former East Germany. This city was touted in the latest Economist Country Survey of Germany as doing as well as any in this former nation. Its university is also very renowned. Founded in 1558, it had Goethe as an administrator and faculty that included Shiller, Hegel, Fichte, Herder, Haeckel, and Frege, with both Robert Schumann and Karl Marx as students. The major business in town (it is only about 90,000 population) is the Carl Zeiss Optical Works, which dates to the 19th century, and was one of the most successful of enterprises even during the period of socialist rule, and is doing well now, part of why The Economist could tout the place. Its unemployment rate is about the same as the German average, which is much better than most of the former East Germany, where some parts still have such rates exceeding 20%.

The city is a more extreme than usual example of mixing the old and the replacing bomb-damaged-new in Germany. The old Market Square, with its Rathaus dating to the 14th century survived bombing that hit the Eichplatz next to it. That area was rebuilt during the socialist period, partly with an open square, and partly with a tall and round skyscraper. This structure represented the "Kombinate" approach of the former East Germans, which involved lots of horizontal and vertical integration of activities, with, in this case. everything in Jena coming under a single administrative entity. This skyscraper effectively represented this approach, with much of the university on several of its floors in that era.

On the one hand life seems not too bad. Buildings look OK, and people do not look poor. Students seem to have adapted to the new regime, although they were completely unacquainted with Post Keynesian economics, which I lectured on in one of my talks. However, in talking to some of them, they do not see prospects as good there. Most plan to look for jobs in "the old states" (of the West) or even outside of Germany, these being economics grad students. I also observed very little construction going on, with some of what is going on still being fixups of WW II bomb damage.

A curious point is that while hard science faculty survived mostly the transition, all the social science faculties were purged at the time. The current economics profs are all from the West. None of them live in Jena permanently, having apartments there, but going back home to the West on the weekends, if not more frequently. One of them told me that he did move his family in the late 1990s to Weimar near Jena, but they moved back west after three years, there being too much hostility from the locals. However, the students say this is gradually dying out.


YouNotSneaky! said...

Currently I'm in Poland so I feel it fitting to offer some contrasting observations. In fact, I just left that kind of Poland - my grandmother's village - where Internet is hard to get and now, in a bigger city, I got some time to catch up with this crazy virtual world. Anyway.

First, construction. In Poland it's everywhere. And in addition to construction everywhere you see signs advertising construction firms, construction materials, etc. The thing is though that this has been pretty much going on since the early 90's. Actually, in a different way it's been going on ever since I can remember going back fairly deep into the communist era. The difference - and perhaps the reason why the amount of construction is not a very good indicator of how a particular place is doing - is that of stock vs. flow, essentially. Back in the 80's there used to be a lot of construction because the authorities would start projects but never finish them. It'd take 7 yrs to build a house and in the interval you'd have this construction site sitting there (makes for a great playground when you're a kid). Now most construction projects get finished quickly but there's a lot of them always starting up. I last visited my grandma's village 2yrs ago and the stuff that was progress in then is all done now (and expanded) and all the construction is brand new. This actually changes the atmosphere/culture/being of the village quite a bit but that's a different subject.

Second, as to the young residents of Jena not seeing many prospects in their home town - well, there's something to that. Obviously things are relative, and you can still make a butlload more money by going to Uk or Ireland or former West Germany then in the former satellites and even East Germany. On the other hand there's this taciturness/dourness particular to Eastern Europe (including though not to the same degree E.Germany) which basically considers it bad luck, or considers it "soft", to express happiness and satisfaction to strangers (though it's ok to do it among family members). If you say "life is good", you better knock on wood. This is also probably why E.Europe comes out so unhappy in all them Easterly-type happiness sourveys. There's a cultural taboo on "tempting luck" by showing outward signs of happiness. Things are changing though said...


Sorry to be so slow to get back but was out of country all this past week (Zurich for a conference), and about to run away for the weekend.

I have not been in Poland, but a major difference between it and the former East Germany was that when German unification happened it was at an equal rate of the currencies, which effectively had the Ostmark way overvalued. The upshot was a humongous crash of the East German economy, although its institutional evolution problem was "solved" by simply having West German laws and so forth imposed immediately. Later on, of course, there was a lot of subsidization from the West of the population, but also much easier outmigration from East to West.

In Poland, the zloty was devalued enormously in 1989. This led to less of a decline, although it certainly had a decline and a "J-curve." Poland was the first of the East European countries to bounce back, with much discussion about why that was the case. Some of it was the high level of entrepreneurship that Poland has, some was some policies, although parts of Balcerowicz's initial plan were not adopted, notably having a rapid privatization or major cuts in the social safety net. I think that these holdbacks helped Poland.