Levelling up: don’t copy the Germans

‘Germany has succeeded in levelling up where we have not,’ Boris Johnson claimed back in July last year, when talk of pork pie putsches lay far off in the future. But as the government unveils its levelling up plans today, the promise of a German-style investment package is unlikely to materialise. And that’s probably a good thing. Germany’s economic and social reunification is not the miracle it is claimed to be.

In many ways, East Germany and the left-behind regions of Britain have similar economic problems, if for different reasons. When the Berlin wall fell in 1989, East Germany’s largely nationalised economy was sold-out to private investors at breakneck speed. Industrial production fell by two thirds within the first two years. Accordingly, the region’s GDP shrank by 13 per cent in the first year, followed by another 20 per cent contraction in 1991. As unemployment rose to eight per cent within six months, socialist subsidies on rents, childcare provision and food prices were scrapped, flinging hundreds of thousands into destitution.

The initial shine of reunification came off very quickly in the cold light of the economic realities. Similar changes, if perhaps not quite as abrupt, happened in the North of England where the closure of the coal mines in the 1980s saw the loss of nearly 200,000 jobs. Decades of deindustrialisation caused unemployment rates that sometimes exceeded ten per cent — consistently the highest in the country.

That said, in the following decades Germany seems to have enjoyed some success in fixing its eastern economy. As Johnson put it: ‘Thirty one years after German unification, the per capita GDP of the North East of our country, Yorkshire, the East Midlands, Wales and Northern Ireland are now lower than in what was formerly East Germany.’ The land ‘of strange little cars with two stroke engines and fake coffee’ that Johnson remembered from a visit in 1990 is now wealthier than many regions in Western Europe. Surveys have shown that East and West Germans now give very similar ratings for life satisfaction and life expectancy has levelled out completely for women and is very close for men.

However, much of this can be put down to the strength of the German economy as a whole — there are still deep disparities. The pay gap between East and West German workers, for example, has stayed at roughly 17 per cent with no sign of narrowing, and yet those in the East work much longer hours for their lower salaries. Around six million people have left the region since 1990 — mostly skilled and highly educated young people who have since helped the West German job market boom further, reinforcing regional imbalances rather than alleviating them. The unemployment rate in East Germany is also around 40 per cent higher than in West Germany.

The economic imbalances between East and West Germany remain despite long-term investment in the region. For over three decades German workers have paid a ‘Solidarity Tax’ of 5.5 per cent on top of their income tax to fund the domestic levelling up programme. As a result, a staggering two trillion euros was invested into the former East Germany since reunification. Over 10,000 extra kilometres of road network has been added; train stations were adapted and integrated into the high-speed lines; telephone and internet connections were extended and modernised — a total infrastructure package of around 40 billion euros. Yet 478 of Germany’s 500 largest businesses have chosen to stay and invest in West Germany, draining the East further of talent and opportunities.

Many East Germans are frustrated and feel that these changes were done to them, not with them. They had hoped reunification would bring opportunities and freedom. Instead many got unemployment, economic deprivation and were made to feel as though it was their fault that they had become a drain on West German resources. 

A staggering two-thirds of East German respondents said in a recent survey that they now felt like second-class citizens. This leads to political anger and even apathy, which is reflected in higher numbers of people voting for far-left and far-right parties. In turn, this earns them the scorn of many West Germans. Last year even the minister of state for East Germany claimed that many former GDR citizens should be written off as they were simply ‘lost to democracy’.

If there are lessons for the UK in Germany’s attempt at levelling up then it is perhaps to ensure that investment is targeted and decided upon with regional representatives. Not only do the last three decades show what vast sums of investment can sink into the ground without much effect, but also how much resentment this can cause. Despite all the spending, East Germans still feel left behind. Given the failures of the federal state to engage them, who can blame them?