Ulbrichtian Communism: Economy of the Iron Fist Part II

In my last article I went over some of the crucial economic factors that emphasized the failures of the “iron-fist” economic policies that decimated the German Democratic Republic’s growth capabilities as well as its repressive policies that forced its population into political submission.  I find it striking how they hadn’t learned their lesson from their Nazi past by trading one form of tyranny for another under the auspices of Stalinist communism.  I find it even more intriguing that there were actually those who believed that the GDR would eventually become a successful nation.  Even though I’m writing this piece decades after the fact, it is astounding how anyone could believe that the GDR would recover from Ulbricht and the Politburo’s oppressive statism.  However, I think it’s important to highlight the way of thinking that led academics to think the way they did about the GDR’s propensity to compete with its Western adversary over the Berlin Wall.  But then again, what makes that period anymore different than the socialist acolytes in the high offices of government, media, universities and bureaucracy today that are once again trying to pander to people’s low self-esteem and weakness by proclaiming the apparent goodness of a government-run economy, aside from the “virtues” of a nanny state (big understatement) that typically accompanies the Communist paradigm.

I wish people in my generation knew a little bit more about history, so we can actually try to avoid repeating it.  To err is human indeed, but to repeat the same error over and over again expecting a different result exemplifies Albert Einstein’s definition of insanity.  No matter how much a tyrannical state is “powder-puffed” to make it look like a fluffy, social justice warrior paradise, its stench will still find a way to escape its dungarees, and pretty soon we ALL pay the price for it.  The people of the GDR experienced this first hand, and we should all take a page from their book and ensure such a monstrous form of government never rears its head in the United States.  Let us begin Part II of my assessment of the GDR.

Jean Edward Smith’s Defense of Ulbricht’s Communism:

The seemingly desperate effort to consolidate control via fiat was revealing of Ulbricht’s loosening grip on the loyalty of his own citizens, let alone communism’s failure to provide any working conditions and economic developments that would have attracted or legitimately supported a reunification on the premise of communist rule.  According to Jean-Edward Smith of the International Journal in 1967, “By 1961 every indication pointed to the growing instability in East Germany, and it was to arrest that instability that the Berlin Wall was constructed.  The Wall provided eloquent testimony to communism’s failure.  The refugee exodus was draining the GDR’s most productive elements, and popular unrest clearly was on the upswing.”

The irony of Jean Edward Smith’s assessment is that he continues on to make a case for how the wall would later contribute to a consolidation of the East German identity, and thereby force the populace to accept the conditions of living underneath a Communist regime providing more stable economic development.  As businesses began to be more profit-oriented and trade relations were established with underdeveloped countries in the Eastern Soviet bloc, the GDR would begin to see impressive gains as its populace began to accept its new identity as “true-Germans”.  As citizens began to see national per-capita income grow and more commodities being available under the New Economic System (NES), the supporters of the GDR’s political transitioning would use these years of “pale light” as evidence of the GDR’s evolving stability.  This led Smith to later conclude that Ulbricht, for all his “infamy”, would never be ousted from office but would in fact have paved the way for future GDR success through his eventual successor.  Its understandable that Smith wouldn’t have been able to anticipate what would happen just four years later when Ulbricht was finally deposed of his position as the head of state nor would he have been able to comprehend that the policing policies under the Stasi intelligence bureaucracy that had been expanding significantly would be responsible for mass surveillance of millions of East Germans to enforce his predicted “national stability”; this also led to the prosecution of many under the auspices of “political-ideological subversion” simply because the citizens of the GDR sought a better, freer life.  This argument would also have held more weight, if the GDR citizens didn’t once again begin to leave in droves following the relaxation of border restrictions in Hungary and Czechoslovakia in 1989, whose borders East Germans would use to once again escape to the West through Austria and other routes at a pace that even the “stable” GDR couldn’t control.

The Rise of the Honecker Regime and the Ineptitude of “Conservative Consumer Socialism”:

In 1971, just three years following the invasion of Czechoslovakia by the Soviets after the Prague Spring of 1968 (a backlash against the bureaucratic rule of the state), Ulbricht was stripped of power and deposed.  The cohesion of GDR affairs alluded to by Smith were undone as the SED and the Soviet Union began to grow weary of Ulbricht’s policies, some of which circumvented the authority of the party leadership over the state and its economy (such as the New Economic System).  Problems also ensued when Ulbricht continued to push for a technological breakthrough that would have allowed the GDR to “leapfrog” past the FRG, leading to massive government spending into research that caused lapses in different sectors of the economy.  This turn of events provided a different outcome than the positive future Jean Edward Smith predicted would come to pass.

Now under the leadership of newly installed Chairman Erich Honecker, the era of Ulbricht’s Communism was officially coming to a close.  However, the effects of it would still carry into the 70s and 80s and not even Honecker’s “conservative consumer socialism” would be enough to undo the damage that Walter Ulbricht had done.  For Ulbricht’s leadership, the economy always took second place to political power arrangements.  After normalizing relations with West Germany via the Basic Treaty of 1972, Honecker sought to incorporate policies that were geared more towards production of goods and services as well as increasing employment.  However, as Sperlich analyzed, most of the employment apparatus of the state was incredibly fraudulent, when businesses were encouraged to prevent visible unemployment by “hoarding” workers, or hiring more labor than what was actually needed.  Although there was technically no “poverty” in East Germany, 15% of the worker population were said to be part of the GDR’s “hidden unemployment”.  As previously mentioned, the “consumer-focus” of the Honecker regime did little to improve conditions.  Most of the welfare, retirement and medical care services provided by the state were of consistently poor quality and income inequality continued to expand at stimulated rates.  In fact, the state’s focus on consumer goods was funded largely by credits and payments made by the FRG after the newly established Basic Treaty of 1972 (normalized relations between the FRG and the GDR), which was arguably the only reason the GDR managed to remain afloat in the international arena for as long as it did.

The oil shocks of the 1970s proved to be a defining moment for both the FRG and the GDR in terms of adaptation.  As prices of oil and energy peaked internationally, The GDR’s massive state-run industrial apparatus wasn’t able to adapt as the Soviet Union also then began to make cuts in oil deliveries and subsequently raise their oil prices.  Other shifts in the economy such as a newly vamped focus on the “service” industry also proved detrimental for GDR economic adaptation.  According to analysis from Konrad Jarausch and Helga Welsh, The GDR’s industrial enterprise, dubbed the Kombinate, “…proved unable to adapt to a changing international economic environment, and the extension of welfare benefits and the shift to consumer goods overtaxed the system.  While regulated competition allowed the Federal Republic to make a painful transition from a high-industrial to a post-industrial economy, GDR planning failed in the transformation to high technology.”


The experiment of a pure Soviet-style German had failed miserably.  Collectivization of the economy, as well as the forced suppression of private industry, led to nothing but bankruptcy and societal failure for the GDR.  What Ulbricht, the SED and the Soviet Union had done in crafting a state where nearly every aspect of life is governed by the state inhibited any chance for the country to grow and develop at the same pace as the Federal Republic of Germany.  Compounded by the erection of the Berlin Wall, the forced silencing of opposition and forced acquiescence to the communist body politic proved that the experiment of complete and absolute power of the state overall economic, political, family, education and social affairs was weak and virtually incapable of being sustained on its own.  The transition that took place in the GDR was so extreme that even the Soviet Union stressed the need for a relaxation on the purist, socialist endeavors of Walter Ulbricht and the Politburo.

Communism in the East proved to be nothing more than a quest to consolidate power in the hands of the few.  Such initiatives cost the GDR dearly and would eventually lead to its eventual dissolvement in 1989 when the two Germanies finally reunified.  Soviet-style economies like the GDR in the Eastern bloc proved only that economic decisions in such systems are quintessentially designed by virtue of their political rationale, having nothing to do with real economic sensibility that could produce real results.  As Professor of Economics and Philosophy at George Mason University Peter J. Boettke concluded, “Soviet-style economies, thus, do not conform to the ideal picture of a rationally planned Communist economy because that system is a hopeless and unachievable utopia.  Instead, the Soviet-style economy is a vast military bureaucratic system designed to yield profits to those in positions of power.”  This couldn’t be any more true in the case of the Soviet-style communism Walter Ulbricht was zealously trying to establish in the GDR as a “magnet” for reunification.  If anything, Ulbricht created the environment that chased away a huge portion of the GDR’s working population to the FRG, of which a substantial majority of the refugees received gainful employment.

Honecker, though more consumer-oriented after he had usurped Ulbricht’s position as the head of state, exacerbated his predecessor’s mistakes by placing too much emphasis on consumer goods over capital investment that were heavily subsidized by foreign loans, which would ultimately lead the GDR to economic bankruptcy and upheaval before reunification in 1989.

By show-casing the power of the state in its ability to govern the economy and the working populace with an “iron-fist”, the GDR doomed itself to defeat to its Western counterpart in the game of superiority by willing to kill, imprison, torture and surveil its own people to prove to the world that communism was greater than the “imperialism” of the West.  Ulbricht, his successor Honecker and the Soviet Union for that matter couldn’t have been more wrong.  Totalitarianism and the vice-gripping of production and economic development under the state’s power in the GDR crumbled under the impersonal forces of the Communists’ own political clout.  Ulbricht’s Communism would show itself to be one of the greatest economic failures of the 20th century.  It is one that should be forever noted as a constant reminder of the dangers a society enters when a state attempts to use tyranny to govern its economy, its society and its people.  The GDR in effect traded one form of tyranny in the 1930s for another in the late 1940s.  From this case-study one can make this prophetic conclusion: No matter what form of tyranny a state uses, it is almost always guaranteed to fail.




Bernstein, Richard “In East Germany, 1953 Uprising is Remembered”. The New York Times, June. 16, 2003.

Boettke, Peter. 1990. “Soviet Admissions: Communism Doesn’t Work.” Foundation for Economic Education. February 1. Accessed October 8, 2017. . https://fee.org/articles/soviet-admissions-communism-doesnt-work/

Dearden, Lizzie. 2014. “Berlin Wall: What You Need To Know ABout the Barrier That Divided East and West.” Independent. November 7. Accessed October 7, 2017. http://www.independent.co.uk/life-style/history/berlin-wall-what-you-need-to-know-about-the-barrier-that-divided-east-and-west-9847347.html.

Engelhard, Stephanie. (2010). “Constructing Socialism in East Germany: An Early History of the GDR; 1945-1955.” 2009-2010 Penn Humanities Forum on Connections.

Gregory, Paul, and Gert Leptin. “Similar Societies under Differing Economic Systems: The Case of the two Germanys.” Soviet Studies 29, no. 4 (1977): 519-42. http://www.jstor.org.proxygw.wrlc.org/stable/150534.

Harrison, Hope. 2005. Soviet-East German Relations, 1953-1961: Driving the Soviets Up the Wall. Princeton: Princeton University Press.

Jarausch, Konrad and Helga Walsh. “ Two Germanies: 1961-1989″. German History Through Documents and Images, vol. 9,  4-10.

Miller, Dorothy. 1962. “The Food Situation in East Germany.” Open Society Archives. July 16. Accessed October 7, 2017. http://osaarchivum.org/files/holdings/300/8/3/text/24-5-79.shtml.

Smith, Jean. “The German Democratic Republic and the West.”. International Journal 22, no. 2 (1967): 233, 248-251. http://www.jstor.org.proxygw.wrlc.org/stable/40200082.

Sperlich, Peter. 2006. Oppression and Scarcity: The History of the Institutional Structure of the Marxist-Leninist Government of East Germany and Some Perspectives on Life in a Socialist System. Westport: Greenwood Publishing Group.

Turner Jr., Henry. 1992. Germany from Partition to Reunification. New Haven and London: Yale University Press.

2017. “Berlin Wall Fast Facts.” CNN. August 20. Accessed October 5, 2017. http://www.cnn.com/2013/09/15/world/europe/berlin-wall-fast-facts/index.html.

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