The Institutionalised Transformation of the East German Economy

One Research Objectives, Methodology and Layout.- 1.1 Field of Analysis and Research Objectives.- 1.2 Methodological Discussion.- 1.3 Structure of Analysis.- Two Theoretical Approaches to System Analysis and the Institutional Framework.- 2.1 Introduction.- 2.2 General System Theory.- 2.2.1 System Segmentation.- 2.2.2 The Institutional Framework.- 2.2.2.1 The Economic System as a Partial Social System.- 2.2.2.2 Social Goal Functions.- 2.2.3 The Organisational Framework.- 2.2.3.1 Hierarchical Organisational Structures.- 2.2.3.2 The Coordination Structure.- 2.2.3.3 The Decision-Making and Information Structure.- 2.2.3.4 The Motivation Structure.- 2.3 Evolutionary Approaches of System Transformation.- 2.3.1 Non-Deterministic Approaches of System Transformation.- 2.3.1.1 The Ordo-Liberal Theory of Economic Systems.- 2.3.1.1.1 The Morphological Methodology of the Approach.- 2.3.1.1.2 The Pure Forms of Economic Systems.- 2.3.1.1.2.1 The Exchange Economy.- 2.3.1.1.2.2 The Centrally Directed Economy.- 2.3.1.1.3 The Course of Action on the Basis of the Economic System.- 2.3.1.2 The Property Rights Theory.- 2.3.1.2.1 The Structure of Property Rights and Transaction Costs.- 2.3.1.2.2 The Evolution of Property Rights.- 2.3.1.2.3 A Critique of the Transaction Cost Approach as Part of the Property Rights Theory.- 2.3.1.3 Liberal Economics.- 2.3.1.3.1 The Natural Order of Freedom and Evolutionary Competition.- 2.3.1.3.2 The Concept of Spontaneous Orders.- 2.3.2 Deterministic Approaches of System Transformation.- 2.3.2.1 The Schumpeterian Theory of Economic Development.- 2.3.2.1.1 The Theory of Creative Destruction and Business Cycles.- 2.3.2.1.2 The Inevitable Transformation of the Capitalist System into Socialism.- 2.3.2.1.3 The Economic Order and the Feasibility of Socialism.- 2.3.2.1.4 The Phase of Transition and the Role of Democracy.- 2.3.2.2 The Marxist Law of Motion.- 2.3.2.2.1 The Philosophical Basis of Dialectic Materialism.- 2.3.2.2.2 The Basis-Superstructure-Theorem as Methodological Foundation.- 2.3.2.2.3 The Historic Development of Communism.- 2.3.2.2.4 A Methodological Critique.- 2.3.2.3 The Development Theory of Rostow.- 2.3.2.3.1 Stages of Sectoral Growth.- 2.3.2.3.2 An Incomplete Analysis of the Transition Phase.- 2.3.2.4 The Convergence Theory.- 2.3.2.4.1 The Open Approach.- 2.3.2.4.2 The Closed Approach.- 2.3.2.4.2.1 The Necessity of Planning in the Industrial Society.- 2.3.2.4.2.2 The Convergence of Industrial Societies.- 2.3.3 Classification of the Two German Economies and Theoretical Relevance of Dynamic Approaches.- 2.4 The Institutional Structure of Control Inside the Firm and Organisational Efficiency.- 2.4.1 The Organisational Form and Input Factor Monitoring.- 2.4.2 The Codeterministic Form of Participation and Input Factor Productivity.- 2.4.2.1 Mandatory Codetermination.- 2.4.2.2 Voluntary Codetermination.- 2.4.3 Empirical Studies of Participatory Organisational Forms - Misinterpretation and Lack of Differentiation.- 2.4.3.1 Existing Empirical Studies.- 2.4.3.2 The Need for Differentiation within the Analysis of Codetermination.- 2.4.3.2.1 Self-Management as Opposed to Ill-Defined Property Rights.- 2.4.3.2.2 Constraints of Codetermination within the German Participatory Laws.- 2.5 Constitutional Economics and the Theory of the Democratic Firm.- 2.5.1 The Conventional Employment Contract and Ethics.- 2.5.1.1 The Rights-Based Versus the Utilitarian Normative Theory.- 2.5.1.2 Positive and Negative Control Rights.- 2.5.1.3 The Labour Theory of Property.- 2.5.1.4 The Inalienable Rights Theory.- 2.5.1.5 The Appropriation Critique.- 2.5.2 The Theory of Economic Democracy and the Firm.- 2.5.2.1 General Democratic Principles.- 2.5.2.2 The Democratic Firm.- 2.5.2.2.1 Property Rights and Personal Rights.- 2.5.2.2.2 The Democratic Principle of Self-Governance.- 2.5.2.3 The Financing of Democratic Worker-Owned Firms.- 2.5.2.3.1 The Net Asset Value of the Firm and Internal Capital Accounts.- 2.5.2.3.2 External Financing.- 2.5.2.4 Examples of Worker Ownerships.- 2.5.2.4.1 Traditional Worker Stock Cooperatives.- 2.5.2.4.2 Yugoslav-Type Worker Cooperative.- 2.5.2.4.3 Mondragon-Type Worker Cooperatives.- 2.5.2.4.4 The Employee Share Ownership Plan.- 2.5.2.4.5 The Chinese Responsibility System.- 2.5.2.4.6 Hungarian New Economic Mechanism-Reforms of 1968.- 2.5.2.4.7 Soviet-Type Cooperatives.- 2.5.2.5 Reform Suggestions.- 2.6 An Alternative Allocation of Control within the Codeterministic Firm and the Democratic Firm.- 2.6.1 Individual and Corporate Objectives.- 2.6.2 The Principle of Free Choice of Participation and Primary Control Rights.- 2.6.3 Performance Related Income and Secondary Control Rights.- 2.6.4 The Wage Committee, the Representative Board and Wage Negotiations.- 2.7 Theoretical Synthesis.- 2.8 Modelling of a Dynamic Transformation Approach.- 2.8.1 Basic Assumptions.- 2.8.2 The Adjustment Model.- 2.8.3 Conclusions from the Adjustment Model.- Three The Institutionalisation of the East German System Transformation.- 3.1 Introduction.- 3.2 The Former East German Economic Structure of a Socialist Planned Economy.- 3.2.1 Principles of the East German Political Economy.- 3.2.2 The Structure of Planned Economic Operation.- 3.2.3 The Organisational Structure of Combines.- 3.2.4 The Ownership Doctrine of Marxism-Leninism.- 3.2.4.1 The Three Phases Of Expropriation.- 3.2.4.2 Constitutional and De Facto Significance of Socialist Property.- 3.2.5 Insufficient Reform Efforts (NES, ESS).- 3.3 Transformation of the Centralised Structure of Organisation and Decision-Making.- 3.3.1 Corporatisation of Nationally-Owned Enterprises.- 3.3.2 The Assignment of Limited Private Property Rights to the Treuhandanstalt and TH-Corporations.- 3.3.3 The Decentralised Structure of the Treuhand.- 3.3.4 The Organisational Structure of Newly-Corporated Enterprises.- 3.4 Deconcentration of Combines as Basis for Competitive Market Structures.- 3.4.1 Competition Law and Policy: Principles and Assumptions.- 3.4.2 Pragmatic Deconcentration Sanctioned by the Separation Law - Spaltungsgesetz —.- 3.5 Establishment of Unambiguous Property Rights.- 3.5.1 German Political Unification and its Constitutional Property Rights Implications.- 3.5.2 Re-Privatisation of Peoples’ and State Administered Property.- 3.5.2.1 Restitution: Benchmark Figures.- 3.5.2.2 The Principle of Injustice of National Separation: Restitution and Return of Property to the Previous Owners.- 3.5.2.3 Restitution to Local Authorities and Corporations under Public Law.- 3.5.2.4 Enterprise Restitution: Some Empirical Results.- 3.5.2.5 Synopsis and Economic Implications.- 3.5.3 New-Privatisation Through the Sale of Corporate Shares.- 3.5.3.1 Market Simulation by the Treuhand.- 3.5.3.2 Methods of Privatisation.- 3.5.3.2.1 Evaluation of Peoples’ Property.- 3.5.3.2.2 The Principle of Mass Privatisation.- 3.5.3.2.2.1 Outsider Privatisation.- 3.5.3.2.2.2 Insider Privatisation in the Form of MBOs.- 3.5.3.3 Incorporation of a Selected Behaviour Function.- 3.5.4 Record of the Privatisation by the Treuhand.- 3.6 Concluding Remarks: Institutionalised System Change and Room for Transitional Economic Policy.- Four Transitional Privatisation Policy: Objectives, Instruments and Theoretical Implications.- 4.1 Introduction.- 4.2 Open Property Issues: Institutionalised Support of Capital Investment.- 4.2.1 The Principle of Restitution and the Restraint of Disposal.- 4.2.2 Initial Regulations: Property Transactions in the Case of Restitutional Claims.- 4.2.2.1 Simple Regulations for Transactions.- 4.2.2.2 Super Regulations for Transactions.- 4.2.3 Final Regulations: The Precedence of Capital Investment over Restitution.- 4.2.3.1 Forms of Capital Investment and Investment Purposes.- 4.2.3.2 Formal Procedure and Interpretation.- 4.3 Property Rights-Theoretical Implications.- 4.3.1 Transaction Costs as Public Costs.- 4.3.2 Re-Definition of Some Property Rights-Theoretical Assumptions.- 4.3.2.1 Value of the Property Right as Allocative Force.- 4.3.2.2 Positive Transaction Costs and the Creation of Private Property Rights.- 4.4 Interpretation: Integration of a Selection Function.- 4.4.1 Definition of Political Objectives and the “Best” Private Owner.- 4.4.2 Truncation of Property Rights and Internalisation of Social Costs.- 4.4.3 Income and Distribution Effects.- 4.4.4 First-Best and Second-Best Solutions.- 4.5 Conclusions.- Five Economic Implications and Post-Institutionalisation Policy.- 5.1 Introduction.- 5.2 The Initial Economic Reorganisation Shocks.- 5.2.1 Fundamental System Modifications Restated.- 5.2.2 Capital Depreciation Shock.- 5.2.3 Currency Appreciation Shock.- 5.2.4 Wage Shock.- 5.3 Mediation of the Process of Forming New Economic Structures.- 5.3.1 The Ordo-Liberal Concept and the Scope of Central Action.- 5.3.2 Implications of the Policy of Institutional Transformation.- 5.3.2.1 Concentration of Sectoral Adjustment Deficiencies.- 5.3.2.2 Concentration of Regional Adjustment Deficiencies.- 5.3.3 Post-Institutionalisation Policy.- 5.3.3.1 Transitional Investment Policy.- 5.3.3.1.1 Tax-Based Programmes.- 5.3.3.1.2 Investment Support under Regional Development Schemes.- 5.3.3.1.3 Loan Programmes for “SMEs”.- 5.3.3.1.4 Effectiveness of Investment Policy.- 5.3.3.2 Instruments of Transitional Labour Market Policy.- 5.3.3.3 Research Policy and Technological Progress.- 5.4 Growth Perspectives.- 5.4.1 Capital Accumulation and Capacity Effect.- 5.4.2 Endogeneous Business Cycles Expressed as Accelerator.- 5.4.3 The New Theory of Growth and Human Capital.- 5.5 Conclusions.- Six Application of the Adjustment Model to the East German Transformation.- 6.1 Introduction.- 6.2 System Change and Rigidity Analysis.- 6.2.1 Low Reaction Flexibility Defined Un-Sustainability of Previous System.- 6.2.2 Rigidity Analysis of System Transformation.- 6.2.2.1 Some Principles Restated.- 6.2.2.2 Norm Changes and Interactions of Economic System Participants.- 6.2.2.3 Adaptation of a New Societal Goal Function.- 6.2.2.4 Compatibility of Norm Changes with Partial Societal System Changes.- 6.2.3 Grade of the New Economic System’s Order.- 6.3 Adjustment Deficiencies of Economic Behaviour.- 6.3.1 “Marginal Product of System Change” as Adjustment Elasticity.- 6.3.2 Time-Lag of Behavioural Adjustment.- 6.3.3 X-Inefficient Decentralisation of Organisational Structures.- 6.3.4 Concentration of Ownership and Intercorporate Control.- 6.3.5 Company and Market Restructuring: Decision-Externalisation.- 6.4 Conclusions.- Seven The Welfare Concept of the East German Transformation.- 7.1 Introduction.- 7.2 Non-Comparatibility of Interpersonal Utilities, and Social Welfare Concept.- 7.3 Definition of the Welfare Feasibility Frontier and the Social Welfare Function.- 7.4 Axioms of the Social Welfare Function and Definition of Social Welfare Improvements.- 7.5 Mathematical-Theoretical Formulation of the Social Welfare Function, its Shape and Distributional Parameters, and its Growth Function.- 7.6 Social Welfare and Behavioural Selection Function.- 7.7 Welfare and Property Value Relationship.- 7.8 Welfare Ambiguity: Partial Welfare Elasticities and Growth Rates of Consumers’ and Producers’ Surplus.- 7.9 Conclusions.- Eight Synopsis and Conclusions.- 8.1 Relevance of the East German Case Study for Transformational Economics.- 8.2 System Theory Restated and Refined.- 8.2.1 The Adjustment Model as Modification of System Analysis.- 8.2.2 Organisational Framework and Identity of Rights Holders.- 8.3 Evolutionary Approaches Restated and Refined.- 8.3.1 Applicability of the Ordo-Liberal Theory and Liberal Economics.- 8.3.1.1 Terminological Differentiation between Transformation and Evolution.- 8.3.1.2 Refined “Institutional Structure-Conduct-Performance” Approach.- 8.3.1.3 Economic-Ethical and Economic-Democratic Principles.- 8.3.2 Applicability of the Property Rights Theory for Transformational Economics.- 8.4 Limitations of the Analysis.- 8.5 Institutionalised Transformation: The Right Approach?.- Footnotes.- Abbreviations.- List of Tables, Figures and Diagrams.- Legal References.