Opinion: Lessons learnt from the fall of the Berlin Wall

But nothing could really capture the political and economic magnitude of what had just happened – the first step in the reunification of Germany. What followed was a much less glorious spectre: the near-total insolvency and restructuring of everything in the former state.

When we, professionals from the West, came to do what we could to prepare East Germany for the free market, we were using concepts that a planned economy had kept unspoken for a generation. The law of West Germany could not be immediately imposed upon the former German Democratic Republic (GDR), so there was no real insolvency regime at all. With time and funding against us, we had a very short time to do the restructuring, with tools not effective or appropriate for the situation. I was one of the first restructuring professionals to enter East Germany after the fall of the Berlin Wall. My first case in East Germany was a prominent semiconductor manufacturer.

Even though the GDR was supposedly a workers’ country, no representation of the workers had really existed. We had to go right back to basics, creating a company agreement stipulating the rules and conditions for the workers there. We also had to lay off staff who were not needed to rescue the business. Some workers had more rights, some lost their jobs. This was a harsh introduction to the unification process, and many had similar fates. Less glorious again were the brutal lessons free-marketeers from the West dealt these new companies. I remember cases where interested investors from Western Europe came over to Eastern Germany. Rather than privatising going concerns, they set up new companies, purchased old trademarks and company names inexpensively and hired people from the old businesses.

The Swiss watchmaker IWC obtained the wellknown trademark Lange & Söhne from the old Glashütte Company in this way. The difference in business practice remains readily apparent between East and West even now in the current recession. Ex-GDR companies are now hard to come by. Survivors, such as motorcycle manufacturer MZ Motorräder, have been through insolvency three times, others even more, before they changed sufficiently to survive. Few developed the business tenacity to compete, and many companies and factories in Eastern Germany are now arms of multinational or West German enterprises. Yet one anomalous fact has brought some relief to the current recession: people are more sympathetic to insolvency now than in the intervening years. The early years of reintegration were hampered by many things, including an unfair exchange rate between the two currencies.

A lack of stimuli, such as lowered VAT rates, did not give Eastern Germany a chance to catch up. But in spite all the challenges, some of those laid off in Eastern Germany embraced the challenge of the new economy and started new businesses. The successful examples showed us all that it is possible to come back from the brink and reinvent oneself commercially. It is a lesson many companies need to hear now. Europe has many other examples of switching from planned to market economies. Many did this more successfully, but then Germany had to reintegrate two countries into one at the same time. If we were to do it again, we could certainly do it better. But what the East and West rightly celebrate together today (9 November) is the fact that we will not ever have to repeat this again.