Economic Recovery: A New Germany Rises

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Eastern Germany continues to be one of them. Since unification in 1990, the people of the former East Germany have certainly had their confidence tested. The German government's $1.46 trillion helped build railways, highways, schools and communications networks. But the money did relatively little to create permanent jobs; unemployment is above 18%, more than double the jobless rate in western Germany. Two-thirds of the funds are used to pay unemployment and retirement benefits to people who never contributed to the system. "Everything was concentrated on social policy," says Joachim Ragnitz, an economist with the Institute for Economic Research in Halle. "There was not a policy to attract foreign investors." Ragnitz warns it could take 20 to 30 years for living standards in eastern Germany to reach the level of those in western Germany.

Klaus von Dohnanyi, a former mayor of Hamburg, headed a commission looking at the future of the former East that recommended the government switch to spending on "economic clusters" of local educational skills to help create jobs. That idea has proved a success in Dresden, where the state government has created a cluster devoted to computer chips. More than 20,000 people now work in the chip sector, helping reduce Dresden's unemployment rate to 13.5%. U.S. chipmaker Advanced Micro Devices (AMD) built a factory there in 1999 and completed another in June. The key was $663 million of federal and state assistance toward the $2.4 billion cost of the facility. But AMD says it wasn't only about money. "The people here are highly motivated, and some have experience of microelectronics from the former East German times," says Hans Deppe, general manager of AMD's Dresden operations. "The Dresden [factory] has proved itself very successful."

In 1991, after unification, there were 4,000 private enterprises in Dresden; now there are 240,000, of which 40,000 were launched in the past year. "We succeeded by building some economic lighthouses," says Mayor Ingolf Rossberg. Dresden is the scene of another dramatic rebirth: the reconstruction of the 18th century Frauenkirche, destroyed by Allied bombers in February 1945. The rebuilding has taken 10 years and $158 million so far, most of it private donations. "There is a feeling--not pride, not entirely joy--but a deep satisfaction linked to the knowledge that all of us have created something lasting," says Ludwig Guttler, a trumpeter who is leading the effort.

Another upbeat promoter of Germany is Wolfgang Grupp, CEO of leisure-clothing company Trigema, Germany's largest T-shirt manufacturer. Although many clothing firms have moved production to cheaper Asian factories, Grupp keeps all 1,200 of his employees in Germany, in the western town of Burladingen. "There is no reason to go abroad," Grupp maintains, saying his German work force allows him to produce orders within 48 hours of receiving them. It's an example of how Germany's high productivity can compete against lower wages abroad. "I need employees who are flexible, well trained and who think while they are working," Grupp says. "I can't get that if I produce in a country thousands of miles away."