Why Can’t East Germany Catch Up?

In the 20 years since the fall of the Berlin Wall, the dirty little secret among German politicians is that East Germany would still have a hard time standing on its own two economic feet, says Wolfgang Hummel, deputy director of the State Ministry of Finance for Berlin. Hummel writes in The Wall Street Journal that "East Germany is still fed intravenously by its western half." West German aid to the east has totaled $1.9 trillion since 1990, yet East Germany still produces very little. After the wall came down, the West German government tremendously overvalued the eastern mark. Labor costs soared, effectively diminishing the competitiveness of the East German workforce. Lost jobs followed, and today most East German companies have fewer than 50 employees. Hummel advocates for wage subsidies, which have proven effective, as opposed to job-creation programs, which bloat the public sector, and warns against a cushioned welfare system.