GERMANY: The Deutschland Dynamic.

GERMANY: The Deutschland Dynamic. - Some West Germans may sneer at the East but the Ossis have a hunger for success and a yearning for challenge - two stimuli that promise to revitalise the whole German nation.

by Peter Wilsher.
Last Updated: 31 Aug 2010

Some West Germans may sneer at the East but the Ossis have a hunger for success and a yearning for challenge - two stimuli that promise to revitalise the whole German nation.

The euphoria has long since evaporated. Three years after the breaching of the Berlin Wall, the two far-from-united halves of recession-struck Germany snarl and grumble at each other. Even the normally up-beat economics minister, Jurgen Mullemann, now admits that East Germany is still far from self-sustaining recovery. The West Germans increasingly believe that they are carrying all the burdensome costs of reunification - with transfers and subsidies currently running at an astonishing £53.7 billion a year - while the Easterners do nothing but whine and hold their hands out for more. "Besser Wessis; jammer Ossis" is the sneering slogan you often see scrawled on walls in comfortable Munich and arrogant Frankfurt, meaning roughly "West best; East bleats".

Yet there is already much evidence to support the controversial notion of Volker Ruhe, Bonn's outspoken and iconoclastic defence minister: that it is high time his complacent and conservative-minded fellow-Wessis had a thorough-going shake-up, with the strong likelihood, as he himself puts it, that "Germany will be modernised from the East".

This is not always an easy concept to grasp, as you idly window-shop among the gilded temptations of down-town Dusseldorf, or drive your top-of-the-range BMW down the still excellent motorways of BadenWurttemburg. Your impressions of what is going on in the "new regions" like Saxony and Thuringia can hardly fail to be coloured by the television pictures of neo-Nazi skinheads fire-bombing yet another refugee hostel, or the latest set of what the news magazine, Der Spiegel, chooses to call "horror statistics" about the 40% unemployment levels, spiralling wage costs and plunging production figures to be found in the grimy polluted towns and cities beyond Unter den Linden and the Brandenburger Tor.

The facts are accurate enough, of course. There is no doubt about the shambles to which East Germany's once world-class industrial base was reduced by 50 years of Nazi war-effort and communist misrule, or the herculean task faced by those who are now trying to sort out the mess. But the many well-documented sagas of economic woe, bureaucratic obstruction and managerial ineptitude do not tell anything like the full story.

East Germany and its people are waking up after a long nightmare, and undoubtedly there was a lot of rather foolish early optimism about the time it would take to get the sleep out of their eyes. But although recovery, after that misleading early prospectus, is proving agonisingly slow, there are now real signs of positive movement. History suggests that the most significant business innovations tend to originate in conditions of economic slump, and among people who are not only capable and ambitious, but hungry. Those factors are all present, in abundance, in the long-blighted lands on the far side of the Elbe.

What the East provides is opportunity - for companies to meet its almost unlimited needs; for managers to try out new approaches and techniques; and for local entrepreneurs to show what they can do now they are freed from the dead hand of the central planners. What has been so disappointing is the time it is taking for these seeds to fructify, as the area's old Soviet bloc markets vanish and the new ones, which should be developing in the West, have so far largely failed to materialise.

This applies most forcefully, though, to those who tried to jump the gun by buying a ready-made slice of what was oversold as the East German miracle. Disentangling a profitable enterprise from the remains of one of those vast state-run conglomerates, the Kombinats, into which virtually the whole of East Germany industry had been forced, has often proved an on-going nightmare. Life has turned out much more straightforwardly for those - small as well as large - who chose the green-field approach. The only problem there is that, in the nature of things, there is a delay before the results start to come through. But it is among them that it is easiest to detect the promise in the pipeline.

So far it appears to be the automotive manufacturers who have made the most ambitious eastern commitment. The car came right at the top of the list of consumer products that the Ossis were determined to replace and it is already quite hard to find one of those smelly, misfiring Trabants or ponderously old-fashioned looking Wartburgs on an East German road, among all the highly-polished new BMWs, Mercedes and Fords. In fact a white taxi bearing the nostalgic message "Rent-a-Trabi" is now the first tourist attraction you see as you enter East Berlin through what used to be Checkpoint Charlie, and a hilarious film called Go Trabi Go! (whose very own sequel Go Trabi Go! II - The Wild East has just opened to packed houses) turned out to be the biggest and record-breaking hit of the post-unification German cinema industry.

General Motors Europe, which, unlike its troubled US parent has been enjoying huge success and hefty profits for the past five years, was quicker than any of its rivals to realise what would happen when the 1990 monetary-union agreement suddenly flooded the impoverished East with windfall Deutschmarks. It set up dealerships, almost overnight, in every city and town with more than 10,000 inhabitants, took the first commercial ever to appear on East German television, and distributed a million free booklets telling the Ossis how to buy a car. Its reward was to become the instant market No 1, even ahead of Volkswagen, and it has succeeded in holding on to that lead. Now it is ready to take the next step. It has just raised the curtain on the DM 1 billion investment (£360 million) with which it aims to demonstrate that, in the backward and underrated former East Germany, it is still possible to beat the Japanese at their own productivity game.

Eisenach is an ancient market town in Thuringia, where Johann Sebastian Bach was born and Martin Luther went to school. It has been in the automotive business since 1897 (as a huge stained glass window in the station proudly proclaims), building the Dixi, the first German car capable of doing more than 60 kilometres an hour, and most of BMW's early sports models, as well as the Wartburg, named after the nearby hilltop castle which Wagner took as the setting for his opera Parsifal.

Wartburg's cataclysmic, post-unification sales collapse threatened to blight the local economy for decades. But it released a pool of skilled, if traditionally-trained labour, which both BMW (once again) and General Motors Opel have been quick and grateful to exploit. Both are seizing the chance to introduce new methods and targets in Eisenach that would have been quite unattainable today in Germany's high-wage, tradition-bound, union-dominated West.

The plant which GM has just unveiled there (built on the foundations of a never-completed Wartburg facility) upends almost every received idea about production design. There is not a conveyor belt or a storage bin to be seen, and the delivery trucks which drive in at one end of the huge, brightly lit assembly area, drop their cargo of parts or components just yards from where they will be needed. They then drive straight out through a second set of doors without wasting a second backing in and out of loading bays. All the more onerous and mechanical aspects of working by-the-clock have been deliberately and systematically minimised. The partially-completed cars move on only when the workers at the next station signal that they are ready to receive them. The mainly young workforce, which will ultimately rise to 2,000, has cheerfully embraced these "lean" innovations (many of them pioneered at GM's Canadian joint venture with the Japanese firm Suzuki) and is already meeting the company's objective of "higher production with less inventory and fewer errors". When the plant reaches full capacity, at the end of 1993, it is scheduled to turn out 150,000 Opel Astras a year, representing a full 75% improvement in the output-per-man achieved at the company's main West German unit in Russelsheim.

Reaching that target is of tremendous importance, not only to Opel but to the whole future of the five "new Lander" which now make up the area formerly fenced off by the shoot-to-kill frontier guards of the old DDR. In the words of Louis B Hughes, GM Europe's 43-year-old president: "If we can take a workforce in a former Communist country and make it the most efficient in Europe, it will send an incredibly strong signal to our organisation." And not only to Detroit. That message, if and when it comes, will be received and noted in boardrooms and corporate headquarters round the world, and with luck help to release, at last, the torrent of new investment that the East so desperately needs.

A hundred miles south-east of Eisenach, at Mosel close to the Czech border, an even more potentially significant demonstration is under way. In the biggest corporate commitment so far to Germany's flickering Eastern promise, Volkswagen is spending DM5 billion (£1.8 billion), with the aim of rolling out an annual 250,000 vehicles by end-l995 from what the general-manager-in-charge, Gerard Heuss, calls "an investment which will set entirely new standards of technology and equipment".

It may not turn out, however, to be the hardware that in the end makes the biggest contribution. As major new developments like VW and Opel get under way, with just-in-time delivery of extensively prefabricated units playing a central role in their strategic planning, they pull along with them a swelling tide of component suppliers and other specialist concerns who are virtually compelled to locate substantial operations more or less on the doorstep. Siemens, France's Alibert and Britain's GKN are among the internationally-known groups who have already taken the plunge. But possibly even more important is the arrival of a host of new subsidiaries representing Mittelstand,the enormous group of medium-sized, mainly family-owned companies which have always provided the backbone for Germany's economic success.

Philip Wright knows them well, in his role as head of corporate finance for Price Waterhouse in Berlin. "You can imagine what it is like," he says, "being a 40-year-old middle-manager in one of those long-established, heavily panelled head offices in Bavaria or the Ruhr, with all the portraits of the uncles, great-uncles and grandfathers who built up the business and the knowledge that you will probably never have the chance to try out any of your own ideas until you are almost ready to retire." But now dozens of them are being packed off to Saxony, or Brandenburg, or Thuringia, to start up the new state-of-the-art branch factory and given the chance to show what they can really do. The hope is that, between them, they will score a series of major successes, and show German industry the way into the 21st century.

Rudiger Thiele counts himself as one of them. He gave up a top job in Bonn to become chief economics secretary for the state of Saxony (where not only VW, but a string of other major players, like Bosch, MAN, Degussa, Philips, Tarmac, Elf-Aquitaine, Asea-Brown Boveri and America's Philip Morris have already been persuaded to establish a presence). He made his own move to take part in what he sees as the "invigorating and essential task" of restoring prosperity in the East, and he sees no reason to regret his decision. "In West Germany," he says, "people have become rather smug and self-satisfied. Years of prosperity made people lethargic. Here people are hungry to succeed, and tough enough to withstand the established systems and structures which give such a built-in advantage to the West."

It is the rejected systems and structures of the East, however, which are presenting so many intractable obstacles to rapid success. Clearing away Communism's legacy is proving a formidable task, whether the problem is cleaning up the sparkling emerald lakes south of Dresden which turn out to be radio-active slurry ponds left behind by the brutally-negligent Soviet uranium miners, or just looking for political and business leaders untainted by the stigma of working with the Honecker administration or the hated Stasi secret police.

Among other things, this has greatly hampered the work of the Treuhandanstalt, the agency charged with returning to private hands the 9,000 odd state-owned and shambolically-managed concerns that made up East Germany's industrial base. Even sorting out the good bits and putting a price to them has proved an on-going headache. So, too, has finding acceptable new owners who would simultaneously be prepared to pay a good price, guarantee to preserve the maximum number of jobs, and present no embarrassing political problems. As the organisation's head, Birgit Breuel, complained on a recent visit to London: "Half our critics accuse us of favouring West Germans, the other half of being too kind to ex-Communists. You can't win." In statistical terms the Treuhand record looks pretty respectable. Of the original 9,000 names in its disposal-catalogue, only some 1,500 remain on the books. But thanks to a lethal combination of official caution, collapsing markets and steeply rising wage costs, there has been much disappointment with the results. Of the 10 biggest privatisations, where the buyers included such normally self-sufficient giants as Siemens, BASF and the cream of the West German energy producers, all but one have failed, by a large margin, to realise their initially-planned performance (The one big exception, Klingbeil, which bought the Interhotel group and now expects to recoup its DM one billion investment within two years and create 1,000 more jobs than it promised, achieved this mainly by a shrewd exploitation of real estate assets which many believe were not properly factored into the original purchase price.).

The rest, like Siemens's large-scale ventures into cables in Schwerin and generator-building in Leipzig, have found themselves bogged down by a mixture of antiquated work practices, low productivity, poor sales experience and painfully slow planning procedures. But the company's just-about-to-retire chairman, Karl Heinz Kaske, vigorously defends his decision to make Siemens "as big in the East as it is in the West" (which implies an annual turnover from the group's 11 plants there of well over DM six billion). He still regards the longer-term vista as "mouthwatering", once Western cash starts flowing freely into upgrading the Ossi infrastructure, most of which is still based on standards not amended since 1939. "The telephone system alone will cost DM 60 billion," he says, "and a lot of people besides us are licking all 10 fingers at the prospect." All that is needed, he argues, is patience. And once you have discounted the gloom which seems endemic to German political and economic commentators, it is hard to ignore the transformation, moral and spiritual as well as physical, that has taken place during the just-over-two-years since Chancellor Helmut Kohl signed the unification agreement.

East Germans, as the opinion polls consistently show, have started to feel good about themselves again. The privatisation of shops, which took place outside the Treuhand framework, appears to have been an unadulterated success, with queues a thing of the past, windows full of attractive goods, and no shortage of customers, even when the nominal price-tags represent a couple of weeks' average wages. Indigenous enterprises have started to spring up and prosper, like the excellent Reinhard chain of East Berlin-based restaurants and pavement cafes. Ingenious new ways are being found to provide desirable services at affordable cost, like the group which is mobilising the savings of individual West Germans (often doctors and dentists) to fund the installation of the combined-heat-and-power units which are springing up everywhere.

Management buy-out proposals proliferate, as frustrated Ossis, like East Berlin's Michael Zack, in rubber glove manufacture, or Barchfeldt's Karin Treisch and Gisela Weinberger, in traditional Thuringian sausage-making, get bored with the bureaucratic haggling that is clouding the future of the businesses they run and seek to strike out on their own. Even the occasional ex-Communist is winning his way back to favour, like Rainer Potte, once the local party secretary near Saalfeld, who has turned a former 7,400-acre collective farm into a flourishing agricultural co-operative. It all runs on unbridled capitalist lines and is jointly owned by its increasingly self-confident village members.

Clearly it will take a long time to replace the endlessly dreary estates and factories to which Marxist-Leninism consigned its workers. But the town and city centres are already changing out of all recognition. In Dresden, for example, a bright, spanking-new pedestrian precinct has sprung into existence between the main railway station and the still bomb-scarred churches and palaces of the old city which would not look out of place in affluent Hamburg or stylish Cologne: three hotels, a McDonald's, two high-fashion dress shops, a 200-ft-1ong hairdressing and beauty parlour, a similarly-sized music and electronics store, and a circular multi-screen cinema, shortly to be joined by a second, less than 200 yards away.

The dress shops are largely stocked from the West - the East's once-extensive textile industry has been one of the worst hit victims of reunification. Who wants to be seen in one of the sacks (male or female version) that passed for chic when the Stasi were still in charge? But that, too, is starting to change. Ingrid Radetsky is the top designer for Marchesa-Moda in Chemnitz (the town that for the past four decades was forced to call itself Karl-Marx-Stadt, but has now reverted). This spring she took her collection to Munich and was bitterly hurt at the pitying looks she received. She soon realised why. "I lost out hopelessly. Everything I showed looked like what it was, a traditionally-designed peasant blouse. They wouldn't look at it there, and now they won't look at it here either."

But she refuses to accept defeat. In the intervening months she has rustled up £100,000 of new investment and backing from a Nuremburg fabric-manufacturer, Rolf Riedel, and is ready to launch her new, "youth style" line with which she hopes to take both East and West by storm. All she needs now is to get her costings right: Riedel reckons that it takes 98 minutes to make a trenchcoat in Bavaria, whereas in Lower Saxony it takes at least 148. But they are determined to find ways to close the gap.

First of all, though, they must win their seal of approval from what could be East Germany's most surprising and entertaining business success story. Jutta von Brunkhaus was once one of the Democratic Republic's top models. Now she and her partners in East Berlin run something called Atmeum Image Beratung, whose aim, as one admiring observer puts it, is "to re-tool dowdy East Germans into sleek western fashion statements". Founded by Torsten Schlingelhof (who, in bygone days, used to be a popular singer of impeccably socialist folksongs), it sets out, in exchange for a basic fee of DM 600 (£220), to tell its clients - male or female, and many of them forced to make a fresh start - just how to ensure that their appearance is an asset, not a turn-off.

There is no shortage of trade. Young and old come in a steady flow, seeking to throw off all those outward indications that make Wessis see Ossis as a standing joke. The staff, which is made up of hair stylists, make-up artists, fashion consultants (many are ex-employees of the old UFA film studios, now being revamped with French money into a theme-park), have learned to recognise their clients characteristic mix of aspiration and trepidation.

But if change is required, the East Germans are ready for the challenge. As one of them put it, as she handed over her DM 600: "I'm a PhD and my job these days is selling research contracts to West Germans on behalf of all those eastern universities and institutes who have lost their state funding and need to battle for a living. I certainly can't do that successfully if I look like a lump of bread."

Volker Ruhe need look no further. This is exactly the the attitude, and the personality, required to carry out his vision: if Germany is indeed to be modernised from the East, you can be sure that Dr Tanya Jasch, in her new smartly-tailored suit, will be one of the standard-bearers.

For reprints of this article, contact Anne Oakley (071) 413 4336.

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