Germany: The East--Still Sinking

Commies love concrete. P. J. O'Rourke, the American humorist, wrote that about the old East bloc in the dying days of communism. But he could have been talking about Complex No. 7 in the city of Eisenhuttenstadt, a battered steel town in eastern Germany. It's a vast block of six-story prefabs, begrimed in the brownish-gray hues of slag and coal dust, hemmed in by a highway overpass and an overgrown railway. To one side a boarded-up supermarket offers a blank face to graffitists who seem to have long gone. On another, the inaptly named Pizzeria Paradieso caters to a clientele, at 8 p.m., of precisely zero. As for Complex No. 7, a third of its flats are empty, their windows dark and bare. Someday, "the forest will be growing here again," says Paul Bortel, one of the elderly residents who call these grim precincts home. "Anyone who's good at anything moves away," he says, waving vaguely westward toward the setting sun.

Chancellor Gerhard Schroder visited last week, a stop in his annual tour of the former German Democratic Republic. Flashing his checkbook, he promised 2 billion Deutsche marks to revitalize dying East German communities like Eisenhuttenstadt. Last month Berlin pledged to keep subsidizing the region as a whole at the rate it has for most of the past decade: 200 billion DM a year. It's a colossal sum that has sapped the federal budget and fed animosities on both sides of the old East-West divide. Yet will it be enough? Leipzig and Dresden are booming, doing better than many regions of western Germany. But they are islands in a sea of social and economic blight. Overall growth is sliding toward negative numbers. Unemployment at 17 percent is more than twice that of the west. And even that is understated.

Germany's heroic efforts to rebuild the east, at bottom, seem to have stalled. Its best and brightest, the young and most talented, are leaving in droves to find opportunities elsewhere that they cannot find at home. Forty years ago last week, East Germany erected the wall to keep its people from fleeing to the West. As Schroder marked the anniversary, placing a wreath where East Germans died trying to escape, they are fleeing once again--in growing numbers. The east's population has declined from 15.4 million at reunification in 1990 to 14 million. By various estimates, between 40,000 and 80,000 east Germans emigrate every year. "I can't deny there are problems here," said Schroder. Translation: the east is still sinking.

It wasn't supposed to be this way. After unification, West Germany began pumping in money. It rebuilt shattered infrastructure and housing, revamped old industries and put up money to jump-start new ones. Those left by the communists were engineered for maximum employment and minimum efficiency. Most were horribly polluting--and so uncompetitive that three quarters went bust almost the instant the borders opened. All told, the German government has spent a staggering 1.5 trillion DM on the east. "We implemented every effort one could possibly implement," says Karl Lichtblau, an economist with the German Economics Institute in Cologne. What did it get? A few years of heady growth. After that, a fizzle.

To the casual visitor, it might not look that way. Roads in the east are immaculate, towns freshly renovated. Dresden is the splendidly restored capital of "Silicon Saxony," where Siemens, AMD and Motorola have built state-of-the-art chip plants and a new high-tech industry is taking shape. Newly well-off burghers have spruced up the art nouveau mansions amid the hills and vineyards on the River Elbe. Considering how forlorn Dresden was a decade ago, that's immensely encouraging. "People here have really picked up the entrepreneurial spirit," says Matthew Goldstein, sales director for Lightpoint, a San Diego, California-based telecom-equipment maker that set up a fast-growing subsidiary in the city last year. "It's great to watch the city revive."

But for every Dresden, there are more Eisenhuttenstadts--blighted communist industrial towns where most jobs are gone forever. The name in English means "Iron Works City." Built in 1951 on cleared forest land 100 kilometers east of Berlin, the city surrounds a single communist-era steel-making plant stretching five kilometers along the River Oder. A monument to East Germany's forced industrialization of the empty Prussian countryside, the massive foundries once employed 12,000 workers. Now, with some of the mills closed and others modernized at a cost of 1.3 billion DM, only 2,800 jobs are left. Few new businesses have opened to take the steelworks' place.

Young people, especially, have little choice but to look for jobs elsewhere. In Eberswalde, another dying steel town about 30 kilometers northeast of Berlin, Schroder toured a government-funded vocational school set up to train workers in crafts, office and hotel work. Exemplary, except that few have any prospect of putting those skills to use, at least not in Eberswalde. "They told us right at the beginning that we wouldn't find jobs here," says Marc Ohnholz, 20, who finishes a three-year carpentry course this week. None of his classmates have found work in the region, and all expect to leave. "I'm looking at Sweden," Ohnholz says. Like most trainees, he'll go straight on welfare.

The exodus leaves behind an older, smaller population. Eberswalde has lost a fifth of its people. In Eisenhuttenstadt, down from 53,000 in 1989 to about 44,000 today, many of the tract houses stand a third empty. In 1998 the city was the first in the east to start blowing up abandoned housing blocks--a fate that likely awaits Complex No. 7. The region has at least a million empty apartments--many of them already renovated at taxpayers' expense.

It's tempting to see East Germany's future as more of the same. Wolfgang Thierse, Bundestag president and one of only a handful of easterners to rise to high political office, touched off a political furor earlier this year when he expressed his fear that the region will become "permanently second rank." Certainly, places like Eisenhuttenstadt are unlikely to see any sudden reversal of the past decade's misfortune. If anything, investment is slowing, despite Schroder's assurances. Lately there's been talk of establishing an auto recycling plant at nearby Ziltendorf, where what used to be East Germany's largest railroad cargo complex stands rusting and abandoned. But old businesses are still shutting down, like the sausage factory that laid off 600 workers when it closed last year. "Every time we get a new investment, we lose one of our old ones," says Siegfried Behrendt, head of the agency responsible for bringing foreign investors to town.

Yet not all is bleak. Touting the east's potential, Behrendt rightly notes some clear strengths: lower wages, longer work hours and much more flexible labor arrangements than in the west. If east Germans have accomplished anything in recent years, it's debunking the old myth of Ossi laziness and poor work ethics. And there are more tangible signs of promise. Opel and VW plants are thriving in Chemnitz and on the Moselle. The once blighted chemical town of Bitterfeld has shown new life, thanks to outside ventures. BMW recently picked Leipzig as the site of a new car plant, beating out Bavaria, France and the Czech Republic. The hope is that these "islands" of prosperity will "grow together," says Alexander Eickelpasch of Berlin's Institute for Economic Research. "It just takes time." More than a decade after reunification, the question has to be: how much more time?