Saturday, September 7, 2013

East Germany: a primer in nation-building

“An estimated 1.3 trillion euros ($1.7 trillion) have flowed from the former West Germany to the former East Germany over the last 20 years. And the tab is still running. To this day, the East is gobbling up subsidies estimated between 70 and 80 billion euros a year. That lifeline will continue for at least another nine years . . . Even then, structurally poor states . . . can expect to receive further cash infusions . . .” [Eastern Germany is western Germany's trillion euro bet,, 24th Sep 2010] 
Wikipedia: “Its population declined from more than 18 million in 1950 to 16 million in 1990 . . . Although the GDR (informally known in English as East Germany) had to pay substantial war reparations to the USSR, it became the richest economy in the Eastern Bloc. Nonetheless it did not match the economic growth of West Germany . . . In 1989, a peaceful revolution in the GDR led to the destruction of the Berlin Wall and emergence of a government committed to liberalization. The following year, free elections were held, and international negotiations led to the signing of . . . the status and borders of Germany. The GDR was dissolved and Germany was reunited on 3 October 1990.[N.B. Germany today has a population of 81,147,265.]
In the meantime, “The Philippine energy sector will need at least P3 trillion [roughly equivalent to $68 billion] in fresh investments between now and 2030, to ensure adequate power to support the growth of the local economy.” [Philippine Daily Inquirer, 20th Dec 2012] What can we learn from East Germany about development and nation-building? Clearly we need tons of money; and international institutions have said that it would take at least a generation for PHL to approximate a developed economy. In the meantime, instead of doggedly pursuing development, we have been siphoning off whatever little treasure we have to benefit a few? We may have a budget of over a trillion pesos but that doesn’t make us financially equipped to carry out the demands of nation-building. It looks relatively big especially against a few beneficiaries –  i.e., the 50 richest Filipinos own over a quarter of GDP, and add them to the network of legislators and NGOs and their friends, that is where our treasure has been finding its way, our version of the 1% or Occupy Wall Street? What else can Germany teach us?
[D]id reunification come too fast and cost too much? There were so many uncompetitive industries. But the costs of shutting them down, of unemployment and the many recovery programs all added up quickly. Reunification hasn't come cheap . . . There were, however, plenty of mistakes made along the reunification path. For example, numerous eastern German cities, often in isolated regions, used funds to build huge water recreational venues that now struggle to find paying guests. One of them uses as its main structure the once massive hanger built by a . . . subsidized venture that had hoped to build huge industrial cargo airplanes but went bankrupt.”
“Then there are the billions that went to renovating dwellings in inner-cities, with the backfiring effect that people fled their apartments in pre-fabricated high-rise buildings on the outskirts for nicer places in the city centers. Now many of these buildings are being torn down . . . Yes, some money went to the wrong projects . . . But you can't wait 20 years to know what is right; then nothing happens . . . If infrastructure projects consumed billions of euros, social programs devoured billions more. Taxpayers' money is best invested where it can achieve the most productivity and this certainly hasn't been the case . . . Maybe too much money went into social programs, like the work creation program . . . which was later dropped . . . Despite all the hiccups that the reunification process has suffered along the way, a general mood of optimism about the future prevails . . . Like every investment, it's a burden in the beginning when you have to finance it . . . But hopefully it pays off later on . . . We're already seeing that.”
Bottom line: East Germany benefited from the experience and wealth of West Germany – and they still made lots of mistakes. We Pinoys don’t have that benefit of wealth and experience in economic development and nation-building. The timing of at least one generation for us to approximate developed economy status is looking too optimistic everyday as we read about how we keep messing things up? Experience- and wealth-wise we're way off, what about our head and our heart and our gut? One columnist hates that we're a lapdog of the US; what about standing on our own two feet? And it’s not about donating $250K to Hurricane Sandy? 

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