Germany: Treuhandanstalt Sold Productive Companies Mainly to the West

“After the Treuhandanstalt’s main activity concluded in 1995, around 51 percent of East German state-owned companies analyzed in the sample, accounting for 64 percent of sales and 68 percent of jobs, were held by West German majorities,” Mergele and Lubczyk summarize. The more productive the companies, the higher the proportion of West Germans among the owners.

The researchers explain this result as follows: “At the time of reunification, West German investors had better access to financial capital. They were more experienced in managing companies in a market economy. In addition, they probably also enjoyed better economic and political connections than investors from East Germany. By the criteria set by the Treuhandanstalt, West German investors may therefore have been better suited as future company owners. But the redistribution of company ownership from East to West must be noted.

Regarding the allegations that the Treuhandanstalt had wound up productive companies, the researchers write that “there were indeed closures of productive firms. However, our results show that more productive companies were closed less often.” The Treuhandanstalt privatized less than 40 percent of the least productive companies. Among the most productive, this proportion rises to over 70 percent.

On average, the Treuhandanstalt also achieved higher employment and investment commitments for more productive companies, the researchers continue. However, based on the data available, it could not be determined whether the Treuhandanstalt had indeed achieved the best possible result for the public authorities in negotiations with potential investors.

“Companies with higher productivity initially were also more likely to be commercially active 20 years after privatization,” Lubczyk and Mergele say.

The study’s findings are based on statistical evaluations and describe trends on average across all companies. “It is therefore impossible to draw conclusions about the privatization of individual companies,” the authors note. The data tracks ownership only to the second degree. Ownership is classified according to majority interests, with minority interests not included. The “small privatizations” of shops, restaurants, and hotels, most of which were acquired by East Germans, are not included in the data.