Tilburg University
The East German planning system reconsidered
Boot, P.A.
Publication date:
1982
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Citation for published version (APA):
Boot, P. A. (1982). The East German planning system reconsidered. (Research Memorandum FEW). Faculteit
der Economische Wetenschappen.
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7626
1982
119
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In the literature 1' on planning in the German Demo-cratic Republic (GDR) the impression is often giver. that, after a short period of reforms in the 1960s, in the beginning of the 70s the planning system reverted to a more or less traditional 'centrally planned economy'.
In this article I want to underline that the formation of so-called Combines in the GDR meant quite an impres-sive change in the process of economic planning in the GDR. Since 1979, the typical Combine has had a greater say in its own functioning than enterprises (VEB, Volks-eigene Betriebe) in the heyday of the New Economic
System in the sixties. I shall try to elucidate this proposition on two grounds:
a. a comparison between the former Associations (VVB, Vereinigungen Volkseigener Betriebe),
b. the relation between Combines and Industrial Minis-tries.
Associations and Combines
On the surface one may have the impression that Combines are more os less the same as the former Associations
(WB). The Combine is an amalgamation of enterprises (VEB) too. It is no coincidence that GDR authors con-sider the Soviet 'Production-associations' to be an example to the development of their own organization of planning 2'. On closer inspection however, some
consi-derable changes stand out:
a. The former Associations had to be public bodies more than anything else. They were supposed to have two impor-tant functions: to support enterprises (with, for example, research) and to 'break down' plan-targets to
enter-prises. In this way the Associations had an ambiguous position: they could be considered neither enterprises
nor real central bodies.
The Combines are supposed to be 'fully integrated bo-dies'. Forward and backward linked enterprises, belong-ing to a sector quite different form the main enterprise of the Combine, may be part of it 3'. In this way one tries to diminish problems with coordination between enterprises not belonging to the same Industrial Mi-nistry; as is well known those problems cause managers considerable trouble in Eastern Europe. One could say
'entropy' has been increased in Combines. This has some advantages. Enterprises delivering final products may not be dependent on external suppliers any more, but obtain their inputs from enterprises belonging to the same Combine. Macro- economically, the problem of
shortages has not been diminished, but micro-economical-ly they may have. Combine management cannot re-organize production in such a way that shortages are orevented, but it may influence the p ace where shortages will comel through. Some production lines will be stimulated,
others will disappear as snow off the roof; production for other Combines may have low priority.
A disadvantage is that Combines, more than the former VVB, tend to be monopolies. The main problem with these monopolies is not price formation, as in Hungary 4'. The danger of monopoly lies in the way Combines are able to reshuffle shortages and the pressure they can put on central planners.
Another reason may be that now at least the Combine is assured of 'reasonable' machines. This reason tends to be still more important because engineering enter-prises are put under pressure to export their highest quality products. At the same time it is very difficult
to obtain import allowances for (western) machinery. Enterprises will try to produce some improvised ma-chinery for themselves. The RMB strengthens tendencies towards monopolizing.
Further, the RMB is supposed to redesign old machinery and tools. In most instances all the RMB do s is carry-ing out repairs 6', which are paid for rather well becakse Combines have a right to get to work those labourers, who have been laid off by rationalization in an enterprise, at other places.
In a recent estimation ~' 20 percent of rationalization activities appear to be repairs, 60 percent substitu-tion for import and 20 percent improvement of machine-systems because of specific use.
On the whole, there are some considerable changes. Because of the improved integration of Combine-enter-prises, especially in teh spheres of research, develop-ment and production, ther e tends to be a more 'unified outlook' in the material sphere. Because of a better internal organization of Combines - strong management, research centres, project bureaus to prepare investments and so on - national planning should be better organized. Central planners do not want to bother about all the details 8'. Of course, this was an important motive for introducing the New Economic System as well, so it is necessary to investigate how the 'dialogue of planning' is organized nowadays.
Combines and ministries
at the formal ones. Formally a Combine five-year plan is formulated in the followíng way 9'. The starting point is the so-called 'Combine draft'. This is "a private point of view of the long-term development in the field of responsability (of the Combine, PB), of several
aspects of the process of r~roduction respectively" 10., Such a draft comprises:
- development of inputs and their determining factors, - situation of the market: possible saturation of the market for some products, possibilities for export and
so on,
- outline of scientific development,
- a strong~weak profile: which products have possibi-lities for growth, which do not have a future.
The layout of this draft precedes whichever assignment 11. and of course there is some discussion about the desira-bility of this sequence 12'. The draft takes into
account the possibilities the Combine sees for its own development. At the moment when the draft is conceived the Combine does not know which means it will have at its disposal and what demands from central planners are to be expected. "General managers of Combines have to take decisions on the process of reproduction, indepen-dently of the existence of qualified and balanced instruc-tions from Industrial Ministries" 13'. Of course, the Combine has access to several guide-lines on the desired ratio of growth of production and usage of energy, mate-rials, imports and so on. It does not reckon with all linds of conditions imposed by others, like specific shortage of foreign currency 14'. Since the beginning of the 1980s, this procedure has been used for foreign economic affairs as well. "Even before the Planning Com-mittee makes proposals about the core of possible develop-ment Combines have to make their planning projects con-cerning foreign economic affairs" 15.
Finance and Ministry of Foreign Trade have worked out their planning drafts. In these procedures three issues are important. First, the starting-point of these central planning organs is the so-called 'ratio-nalization draft plan'. This is a model which shows, for example, which extensive national projects will be started and carried out (residence building, energy supply and so on), how much labour and how many mate-rials these projects will require and in which way they are to be supplied. The second issue concerns the balan-ce of payment and the contracts in the sphere of
'socia-list economic integration'. The third issue is the expected development of 'science and technical science'
(main points: new products, use of materials, energy consumption). The central planning organs translate these central drafts into some indicators. Together these indicators form the conditions of production and emphasize central points in the national economic poli-cy (at the moment central points are in the sphere of materials, f oreign economic affairs and development of efficiency). In turn, Combines work out these indi-cators, adapt their drafts and conclude contracts with supplying enterprises, transport organizations, banks, local offices and so on. In this phase of planning most decisions are negotiated in so-called 'complex meetings'
(banks - public authorities - Combine; buitlding enter-prise - public authorities - Combine and so on). In the 'complex meetings', each party's draft is more or less a limiting condition for the other partners. One could say the conceptual preparation of planning starts at two levels: The central planning organs make drafts 'for tasks of national interst'. These are for example: development of micro-economics, information processing and energy techniques. The Combines make drafts for all tasks that are not explicitly part of
The procedure above is different from the traditional system of planning. The very start is within the Com-bine. Of course, in its draft-plan the Combine takes into account the 'atmosphere' in the national economy. It realizes, for example, that in the eighties it will be impossible to double its import-volume within one year. It realizes agressive export- and innovation pro-posals will be cosidered 'important' by central plan ners
too. Of course, the Combine labour productivity has
to increase annually by a certain percentage. More impor-tant, however, is that only the Combine can make propo-sals concerning new products. From basic research to investment projects, all things are prepared by the Combine itself. On the one hand, the Combine determines its own development, but on the other hand it needs approval to carry out its intentions. In the end, central planners may reject planning proposals by Combines, but they cannot determine which alternatives will be offered the day after. Central planners may ban, but will hardly stimulate proposals. New ideas, new products and an insatiable demand for materials and investments come from the Combine. The Combine tries to have the lowest possible production- and delivery-plans. The investments and materials should enable them to achieve a positive net result. This net result is not so much necessary to expand the enterprise, but a financial source for pre-miums. Because of the considerable shortage of labour in the GDR, there is a severe competition for labourers. Enterprises try to offer the highest possible premiums
and most favourable working conditions. The Ministry ín its turn tries to control these industrial plans as well as possible.
In the 1974 Planning Order, for example, the Planning Committee and Ministries proposed a combined draft plan
to the Council of Ministers and then negotiations
started with Combines. In the 1979 Planning Order, how-ever, it was stated that first of all Planning Committee, Ministers and Combines had to draw up their own drafts
- at that moment Combines only had to reckon with a rather limited number of indicators like consumption of energy, some important materials and imports. The central planning draft, which is based on the preceding ones, is submitted to the Council of Ministers. This Council has to choose from a number of alternatives, which are prepared in co-operation with the Combines. The above procedure is, as said, the five-year planning process. Year planning is simpler. Since the 1970-75 plan period, the starting-point has been a fixed part of the five-year plan. In most cases, the Combine has laid down the most important items in binding contracts with supplying and buying partners. The Industrial Ministry is only allowed to break these contracts if it provides the means to compensate for the difficulties which arise in this way. At the same time, it is rather difficult
for an Industrial Ministry to lower its planned rate of growth as compared with the corresponding part of the
five-year plan. A lowering of planned rates has to be defended in the Council of Ministers, in which meeting
the Planning Committee will take up a contrary posi-tion 16..
Some parts of the planning process are schematized in the following figure. After the indicated preparation of the plan, final decisions by the Council of Ministers and the Parliament will follow.
Figure: structure of preparations of the plan, 1979 17' (see next page):
- the numbers represent the sequence of time, - the arrows give the direction of initiative,
- for the sake of simplicity foreign trade and regional planning have been omitted,
- the dates of the foregoing tasks and negotiations have been gathered from the laws concerning planning in the year 1979. I bfinistry of Finance Plani~ing Coou~~ittee ---~---- ` draFt (first part of year~O required credit ~ I icators r (until 25~9) required investments --(until 21~9~ ~-plani~roposition; want of í material and energy ~~
(until 5~11~ indicators (until 25~9) ``
r
-i '~ ' ,' ' d u --~~, p lan- r~ propos l: proposition production (until 23~10~ , (unti1~25~9~~
O
'
i ~. --~1~~ n~iations~COMDINE ~on purchase;
negotiations (until 12~10~ instructions~~~ to build (first part of year~ consumption of' materials (until 5~10 Industrial~ 1`linistry adjust-ment ~ Tlinistry of i Isnergy; Ministry of Materials required investments (until 11~9~ engineering Combine; building enterprise a ~ , ment~~l ~
year, the main points in which a Ministry is interested in the defence of planning propositions fluctuate. This is a source of tension. Therefore, some Combines pay only little attention to real ldig-term planning. If the norms of judgement change to often, long-term planning costs them a considerable amount of work and does not yield anything. Nevertheless, in some instances a
vicious circle may start: the less thorough a long-term draft of the Combine, the worse the results of
enter-prising will be and the less weight will be attached to this Combine in the next negotiations with the Ministry. A practical solution to this problem is to propose the long-term draft in variants. Variants may have several advantages:
a. The Ministry experiences a feeling of having 'cho-sen'; at the same time an enterprise dodges the risk of being involved in a possibility it did not propose. b. A Combine gets much deeper insight in its own strong~ weak profile.
A condition of working with variants is that at least the criteria on which a certain variant will be chosen have to be known beforehand 18'. If this is not the case
- a well-known situation 19' - there will never be a situation of real long-term planning by Combines: if there are no hard long-term plans, it is senseless for Combines to propose long-term production drafts because
they never will be sure that there are enógh materials. Often, an enterprise is able to develop a completely new product within one year, but on average the time of delivery of materials is more than two years 20'. To solve this problem state plan 'science and technical science' has been developed. On the basis of drafts of the technically most developed Combines (Carl Zeiss
for example, Robotron is appointed 'Auftragsleiter' (first manager) in working out a part of the state plan 'Science and technical science' (in certain cases a deputy minister will be 'Auftragsleiter'). Some Combines get less room for manoeuvring, others (in this example
Robotron) are better off 21'.
The results of negotiations are not clear in advance. We have already made clear that formally an enterprise
(Combine) has more power than in the past but it is not sure at all whther long-term planning, with or without restraints, will be successful. Apart from the quality of its own long-term plan, especially the weight of contracts already agreed upon with other enterprises are important in the negotiations 22'.
Formal and informal position
In 'traditional' as well as 'reformed' economies of state socialism, both formal and informal contacts are important. By 'informal contacts' I mean pressure, dia-logue and trade outside the official planning process as sketched above. Informal contacts are often more important than formal ones. This is caused by rather poor tracing of formal responsabilities. The 1979 'Law on Combines' allows a rather broad interpretation of the rights of
the Minister and the Combine management respectively. In the past, this vagueness would have been used by formal-ly higher-placed officials to interfere in day-to-day business of lower organs. Present-day Combine managers, however, have a better possibility to turn to account
this 'informal latitude' at the cost of higher placed officials. With respect to the result of these 'nego-tiations', importantaspects are: the position of a Com-bine, the status of a Combine and the position of a General Manager.
inter-nal restructuring has taken place. In principle, a
Combine working in a priority branch (exports and energy in the 1981-85 plan) is supplied with more materials than one which is not in this position. Furthermore, a Combine capable of showing that differ-ent parts of the Combine ('divisions') form an efficient team, with only small differences in productivity, can get more mate-rials than a Combine in which some 'divisions' are poorly developed so that internal restructuring could greatly increase productivity. To judge the degree of interna-structuring a system for grading efficiency has been developed. A criterion is, for example, the extent to which turnover between 'divisions' grows faster than the total sales to industries not forming part of the Com-bine. This is because rapid growth of mutual turnover is an indication of the degree of specialization of different parts of a Combine. To create this favourable situation, Combine top management has been given broader possibilities. It has a right to transfer production
from one factory to another 23' and has some power in the field of personal policy (removal of incompetent junior managers for example), which in most cases is even more important.
Second, the status of a Combine is important. A Combine which has been able to demonstrate a good implementation of the plans and high efficiency for years and years, is given more 'credit' when it asks for materials than a Combine that did not fulfil its plans.
Position of managers
Granick 24' drew attention to the important function and favourable structure of GDR-management. The GDR was the first country in Eastern Europe where inefficient
-tho~h politically acceptable - managers had been dismiss-ed at a considerable scale 25'. At the introduction of
qua non for economic reforms 26'. 'Scientific management' found a favourable reception with party leaders. After 1970 the exuberance of phraseology diminished, but the interest in good management hardly changed. In fact, the continuing upgrading of the quality of management contributed to the important position of the Combines. Especially the position of senior management is further strengthened because more and more flexible 'crisis mana-gers' have been appointed. These crisis managers are paid for restructuring an enterprise in a short period. Tofulfil this task, they have their own staff accompany-ing them from Combine to Combine. Moreover, they have the power to degrade and upgrade division managers - in other words te erode so-called 'obtained rights'. These crisis managers are assured of a relatively good supply of materials. This is not because they have to work with indicators deviating from other enterprises, but be-cause of their personal positions. Acknowledged crisis managers are, for example, Biermann of Carl Zeiss Jena and Muller of the Leuna Works. Both are members of the Central Committee of the SED (the Communist Party of the GDR) and influence economic policy in their own branch of trade. Biermann is generally hailed 'the best organi-zational economist in the GDR' and it will be clear that a manager with position carries a lot more weight in negotiations with the formally higher placed industrial minister than any given country manager 27'.
Negotiations
In fact there is a mutual dependence. The planning pro-cess is a dialougue in which both sides of the table use all their powers to create the result they want to
achieve. These negotiations are influenced by several factors.
him - but an enterprise has much more information than the Minister. This may be information both about the actual possibilities of an enterprise at one parti-cular point of time and about possible results of
technical research. The Combine may exploit this advan-tage by the abundant delivery of - indeed required but not binding - so-called 'economic planning information'. For example, the enterprise delívers as frequent and as much computer output as possible too much to read -with only very favourable 'information' as a kind of
'conclusion'.
There may well be a tendency towards a more intensive contact between Combine and the Planning Committee, in which the Ministry is ignored. This is not quite clear in all branches of trade (for example, the Ministry of Energy recently obtained more powers), but surely in most of them 28'. In those branches, the Planning Com-mittee not only has subdivisions for each Ministry, but even for each Combine 29'. An economist like Garscha argues that "the connexion of Combines and ministries has to be thought out in an new way" 30'. The East german theorist Knop 31' shares this view. Undoubtedly a tendency may be seen:
- towards some restriction in directive planning, in which Ministries confine themselves to legislative acti-vities (for example, thinking out and introducing new indicators for each sector) and to prepare investment decisions,
- towards a division of tasks in the sense that minis-tries concentrate on balancing the most important pro-duct groups, while the Combines take the responsability for all 'details'.
This does not mean that the extent of specification of economic planning diminishes, but that the Combines have a bigger say in the plan they have te implement.
process. Because the 'balances' are still inconsistent and plan tasks often contradictory 32', ministries still intervene in situations they consider problematic. As
long as Combines are formally subordinated to Industrial Ministries there is no guarantee that the ministries will only be engaged in main lines of economic policy.
Conclusion
In most literature on economic planning in the GDR the impression is given that after a short period of reforms in the síxties the planning system more or less returned to the old situation in 1970. Often this reaction is called 'recentralization', even 'recentralization without concept' 33.
This picture has to be modified. The number of enter-prises has been reduced. They have greatly expanded and created their own planning departments. With the creation of Combines in recent years, this tendency has become stronger. Compared with the New Economic System, there are two differences. Combines have a bigger say in the completion of the national plan than former state-owned enterprises (VEB). The intermediate levels of planning
(the Associa tions) have disappeared. The Combines have taken over their functions, but are not the same as just an amalgamation of former enterprise and Associa-tion. More than ever, GDR-planners have to take into consideration a high degree of monopoly in industry. For Combines, the most important planning instruments are the 'private drafts'. These are rather detailed ideas about the desired development of the Combine. Materially, the relatively small VEB at the end of the sixties were not in the position to create drafts in such a way that they were influential in the negotiations with minis-tries.
Combines have gained a stronger position.
notes
1. F'or example: ~1. Keren, The return of the ancien regime, in: East European Economies post-Ilelsinki, A Compeiidium of papers submitted to the Joint Economic Committee, Washington DC, 1977; G. Leptin and b1. ?ielzer, Economic reform in '~ast German industry, Uxford, 1g78. Very recent ivest German
iiterature is sometimes more uiodified. Compare A. Scherzinger, Aspekte der neuen Planungsordnung in der LllR, in: 1)IW,
Vierteljahrheft 1981 no. 1 and Ai, 1`lelzer, Combine formation in the Glllt, in: ~oviet Studies 1981 no. 1.
2, For example Autorenkollektiv, óur Vervollkormm~unf; der Leitung, Ylanung und Organisation der hombinate, Berlin Ost 1~)~~1, p. 12. An important difference with the Soviet
'Production-.~ssociations' is~ however, thclt the Last ~erman enterprises are 'on kiiozraschet', while the Soviet ones are not,
3, For example, a factory of' di~sel-engines was taken out of a'VVB engineering' and plated into the 'Combine ship buildinh'. In this way some problems of' co-ordination
diminished, but a new one came into being: how to guarantee the regular teclinical improvement of this factory?
4, T, Bauer, The contradictory position of' the enterprise under the new Hungarian Lconomit System, in: Eastern European I';conomics, i all 1976, p. 3 ff.
5, Compare H.D, Haustein a.o, I,eitung und Planung in der Konsumgitterproduktion, Alimeographed, Berlin Ust, 1979~ p. 151 f'f.
6. Haustein, op. cot., p. 131
7, Autorenkollektiv, op, c~t., p, 84 8. Autorenkollektiv, op. cit „ p. 21
9. F'ormal procedures are described in the so-called Planungsordnung, i.e, Plannin~; Order (Gbl,Sonderdruck 775, 20-11-74 and Gbl, 5ond~rdruck 1U20, A- O, 'L8-11-7y) and the so-call-ed Rahmenrichtlinien, i.e, Framework
directive (Gbl, Sonderdruck 780, 28-11-74 and Gbl. Sonder-druck 1U21, 28-11-79 . All f'ormal riglits oz the Combines are described in the 'Verordung tiber die volksei,menen hombinate hombinatsbetriebe und volkseimenen ~etriebe',
i.e, 'Law on state-owned Combines' C~bl. Tl. 1, 1`r. 38, 13-11-'79) .
,
11. -iutorenkoliektiv, op. cdt., p. 195 12. Il~~licki and ~chmich, op. cit., p. 23 13. .lutorenkollektiv, op. cit., p. 226
14. tI. SteeGer a.o., Volkswirtschaft in der uLR, Berlin Ost 1970, p. 135
l~, tó. Lngelmann a,o,, itechtsfra~en der Leitunf; und . T-'ti;;keit von liomhinats-Aussenhandelsbetrieben, in: li'irtsci~aftsrecht, 1980, IIeft -3, p. 154
16. Ylannin~.-Order 1979, part A 17. Compare Gbl. 1, Nr. 26, 22-8-79 1~ . ~ome of' them are:
a. whether or not the propositions of the enterprise are satisfacorily directed at 'rn~dernizing the economy' b. wiiether or not iiome-made mciterials are used more
intensively than ir~ the precedin~; year,
c. whether or not the proposals of Lhe enterprise are
flexible enougl~ to cope with clia:~,~;in~ market situations. Compare H.D. HaustZin, op, cit.
19. J. Garscha, ~tauilit~it und i~lexibilit~t in der sozia-listischen idirtschaft, I~erlin Ost, 1980, p. 1211
20. Cornpare K, atterne and ~. Tannh~user, Lie t;rundrnittel-wirtschaft in der sozialistischen Industrie der UliR,
Berlin Ost 1978, p. 231. Also: Akademie der tn~issenschaften, 7ur Leitung und Planung der Kombinate, Ver8f1'entlichungen der Wissenschaftlichen Rl~te der Akademie, Nr. W 3, Berlin Ost 1980, in which it is claimed that the average term of delivery in DUIt-industry for materials is 24 - 30 months (p. 73).
21. Compare Planning Urder 1979, part L.
2J;'. Zn the first months of 1982 the reforms in the CaR have continued. The Combine drafts on science and technique have to be delivered to the ministries before the end of ~iarch (in 1982) and even bef'ore the end of January (from 1983) (Anordnun Nr. 2 vom 2-1-82 tiber die Er ~nzun der Ordnun der Planung der V"olswirtschaft. Gbl. 1 Nr. 5. This new instruction makes drafts on science and technique still more important. The contracts already agreed upon will have a heavier weight in each year plan ~H. Rost, Zur Yervoll-kommnun~ der materiallen Bilanzierun~, in: die Wirtschaft 1982 no. 4, p. 17 . One may assume these 1982 reforms will strengthen the tendencies towards both a big;;er Sqy in the completion of plans bY Combines and closer supervision on carrying out these plans.
23. Law on ~tate-owned Combines,~7
24, ll, Granick, Enterprise .uidance in I;astern Europe, Princeton 1976, chapters 5- 7
26. Compare for example the Preceedings of the ~ixth Party Con~;~ress ol the SLll in 1963.
27, In East German literature it is stated that the long term drafts of the Carl Zeiss Jena Combine "are uncondition-na~taken over ín five-year and y,ar planning" Autoren-koliektiv~ op. cit „ p. 195; underlined by Y.B.~
2i). In a recent evaluation of the :.llR planning system it is skated: "The ~linister too is unable tot take any
decision with respect to the branch of trade (.. ~ withouE the irreplacable support of Combine mana~,eruent" (Autoren-kol~ektiv, op, cit., p. 231~.
29. Compare Berliner Zeitung, 22-12-80
30. Garsclia, op, cit„ p. llll, ~arscha is an influential economist at the University of Lconomics in lrastern Berlin.
31. Yrofessor at the University of Economics in Eastern Berlin, personal communication.
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