The Welfare Concept of the East German Transformation

Abstract

It will be argued in this chapter that — according to the findings in previous chapters (in particular chapters 3 and 4) — a specific welfare concept has been employed in the process of East German transformation. Any analysis of welfare implications of structural transformation is linked with several conceptional problems. However, such modelling is relevant because it can be argued that a particular social welfare function was pursued within the East German process of transformation. The model which will be presented is a very static and neoclassical approach. The approach is deliberately designed in this form (because the previous findings suggest that the transformation approach was designed in this way) and can be justified because it portrays the particular short-term concept of East German transformation, and in particular the short-term effects the privatisation policy has aimed to achieve. This East German transformation model is very limited and its limitations will be exposed in the concluding chapter (section 8.4). This model helps to identify the major weaknesses of the chosen approach of transformation which supplement particular weaknesses of the transformation which have been pointed out in the previous chapter. Specific assumptions are set to allow a modelling of the approach and allow a comparison of different points in time. It is suggested that this is achieved by limiting the model to comparisons of situations postliberalisation.