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European integration and business

Compare and contrast regional inequalities that exist between the former East Germany and West Germany. To what extent are EU policies providing a solution to reducing these different levels of economic and social development?

During the years of 1945 – 1990 Germany has been divided between capitalism on the west and communism on the east. Initially, in terms of economic growth, both the west and east shared similarities as well as the prosperities (Alesina and Fuchs-Schündeln 2007) due to the lack of infrastructure that had been damaged during the second world war. However, reparations taken by the allied forces of Soviet Russia and Capitalist American forces caused the start of what is the divide between the two zones (gethard, 2020). East German GDP per capita was less than half of that of West Germany. This came around during the 1950s when the western German GDP rose almost 8 percent from the years 1950-1959. This rise in GDP lead to double in the standard of living within the western zone of Germany (Eichengreen, 2008). By the time it was 1960, west Germany had become fully restored again and was also acknowledged as one of the most influential financial and economic powers within Europe. On the other hand, eastern Germany the recovery time, post war, seemed longer and strenuous as opposed to the west. Due to the zone working under the regime of socialism, whereby needs of workers are meant by collectivism of production (Mitchell, 2019) this led to things such as factories, banks and even housing being placed on a national scale, leading to strain on the central planning which led to the needs of individuals within the zone to go unheard, thus, inequality within the eastern zone, cause by the states existence of communism. Given prominent changes among the political and economic structures of West and East Germany, a large fiction has claimed that the communist familiarity had lasting impacts on the population in the East, comprising their economic consequences, political outlooks, cultural personalities, and gender roles (e.g. Alesina and Fuchs-Schündeln 2007, Campa and Serafinelli 2019, Laudenbach et al. 2019, Goldfayn-Frank and Wohlfart 2020, Lippmann et al. 2020). Thirty years on from the inevitable reunification of both west and east Germany, there are still some outstanding inequalities between both regions. Therefore, the question is how is the German government, with help from the European union, trying to combat these issues that are still prominent today to limit inequalities that still exist between the two regions?
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During reunification, the communist system was eradicated within a very short period. The western institution was adopted by those in the east which is the process of reunification (Zuma et al, 2004). Whilst there have been dubious amounts of research on income inequality and the labour markets during reunification, it is still clear that little is studied around equal opportunity in the eastern region in comparison to the western counterpart. For example, compensation, gross wages and salaries have always been seen as lower in the east in comparison to the west (Federal Government commisioner for the New Federal States , 2018). The disposable income per capita in the western region in 2017 was £23,283 per year, whereas the eastern regions disposable income was only £19,909. Therefore, eastern Germany on average was only earning 87% of post-tax income from an average of the typical western German income. Therefore, indications of income inequality are still existing recently, even though both countries are now reunited as one. Therefore, it could suggest that the divide between the two regions has caused a lag between income equality due to the expansion and rise in capitalism in the west as opposed to the socialism that occurred in the eastern region. However, we could argue that the equality between the two could become more equal as in 1991 the per capita disposable income was only 61% of that from the western region (appendix 1). In addition, we also see a lag between east and west Germany when it comes to productivity. The gross domestic product, per capita, in the year 2018 was £42,900 in the western region, in comparison to eastern Germany’s £32,100 (Gramlich, 2019). This also concludes that eastern Germany’s productivity was only 75% of what western Germany’s productivity was. The question we ask is therefore, why? There are many reasons for these inequalities, for example western Germany has a population nearly four times that of east Germany and as a consequence of the west being capitalist, a well-developed welfare state had been established with rising GDP , as well as a strong position of trade unions in the labour market (biewen, 2002). Furthermore, major corporations and companies do not have headquarters situated in the eastern region of Germany, as well as no eastern Germany company listed on the DAX-30 which is Germany’s leading stock exchange for both regions. The lack of infrastructure invested in things such as multi-million euro companies setting up in eastern Germany only adds to inequality as the western region will see more infrastructural expansion, thus gentrification becomes a big part in making cities more refined and helps government income from the companies to build on the land.

There is also an absence in the eastern region of technological infrastructure in comparison to those in the west. This could be linked to the fact that east Germany sees less productivity and headquarters that would need such technologies for their factories, headquarters and working spaces, thus, east Germany lags behind the west with simple things like broadband (appendix 2). This is a serious issue as the world we lead today, things such as technology and broadband play a big role within our societies and the way we function as humans, as well as how businesses are developed today, the use of more technology as opposed to manual labour. There have however been some technological expansions to try help with inequalities between the regions. For example, the broadband in the eastern countries is not on the same level as that on the west, but the government has pledged around £4.5 billion in funding for the regions which needs desperate networking expansions. The funding will be carried out by private firms for 3 years. The government has already agreed upon a big chunk of the given amount and is already being exercised within the newly governed federal states within eastern Germany (Federal ministry of the interior, building and community , 2020). Furthermore, these projects to improve the lagging infrastructure of east Germany should give benefit to the surrounding communities and the smaller businesses residing in the log-term. This will also help invigorate multi-million euro companies as well as other small businesses to try and start operating more in the eastern region try and help promote connectivity with the rest of the country and try to ‘equal out’ the country from its divides. in addition, businesses in the east have been given £43 million in able too put into struggling companies. The money was also used to help start up business’ (3006) as well as buyouts, or newly founded businesses within the Eastern Region (KFW, 2015). However, the only downfall to this plan is that infrastructure takes time, meaning the lag from the western zones will only be furthered and prolonged until the foreseeable future. because cities in the western region such as Frankfurt are already so technologically ahead compared to cities in the east, businesses would still be apprehensive as to whether it would be a wise choice o try and set up new locations in the east as advancements in the west are far more superior, therefore a lot of incentives for big businesses to expand east would have to be put in place by the government to try and equal out the already growing inequalities.

Type of service: Academic Paper Writing
Type of assignment: Essay
Subject: Business
Pages/words: 8/2000
Number of Sources: 5
Academic level: Undergraduate
Paper Format: Harvard
Line spacing: Double
Language style: UK English