For a brief moment in the 1960s, it seemed as though West and East Germany might be on a partial path to convergence, since the social market economy was introducing aspects of planning, and the planned economy was resorting to market incentives. In Bonn, the conservative-liberal coalition government continued to support the “social market economy,” successfully instituted by Ludwig Erhard, against leftist criticism. But the first recession not only led to Erhard’s fall from the chancellorship, it also prompted a more dirigist approach by the new economics minister Karl Schiller, who tried to coordinate the different economic players in a “concerted action” and attempted to enshrine a Keynesian counter-cyclical approach to public spending in law. At the same time, SED leader Walter Ulbricht realized that the structural transformation of the East German economy was finished and that it could maintain its dynamism only through a partial reintroduction of “economic levers” based on market elements within an overall state plan. The Communist hope to overtake the capitalist West without first catching up by leapfrogging its lead with new technologies, however, turned out to be illusionary.
The successor to Ulbricht, Erich Honecker, introduced the slogan “the unity of economic and social policy” during the SED’s 8th Party Congress in order to try to revive East German economic growth through social spending. At the same time, the combining of separate state-owned enterprises into gigantic corporations, called Kombinate, sought to increase efficiency by eliminating redundancies and organizing an entire chain of production in a single company with tens of thousands of workers. Nonetheless, daily life in the GDR remained beset by shortages in “a thousand little things,” because the plan proved less flexible than the market in directing production, so that Christmas shopping remained an adventure. The Soviet reduction in oil deliveries and price increases also impaired the GDR’s ability to export refined petroleum products and increased its energy costs. As the East German economic czar Günter Mittag admitted, Honecker’s policy proved ultimately illusory, because it borrowed increasing sums from the West in order to satisfy short-term consumer demands instead of putting them into capital investments that would have increased productivity in the long run.
In contrast, the social market economy of the Federal Republic was more successful in meeting the double challenge of the energy crisis and the post-industrial transition. The first and second oil shocks of 1973 and 1979 also wreaked havoc on the Western economy, because they doubled or tripled energy costs, leading to an immediate recession and a pronounced jump in unemployment, which proved to be structural rather than merely seasonal. But a combination of shifting back to more traditional energy sources and cutting oil consumption by reducing automobile use eventually reduced the dependency upon OPEC production. Moreover, the social-liberal government led by Helmut Schmidt also decided on counter-cyclical spending financed by public borrowing to restart the economy. At the same time, the sale of industrial goods to oil producing countries managed to recycle petrodollars and investment in renewable energy sources such as solar and wind power helped develop acceptable substitutes. In 1989, Chancellor Helmut Kohl could look back on his overcoming the recession of the early eighties as part of an almost unbroken success story of the social market economy at the very moment when the economy of the GDR was nearing its final collapse.