Comment on: Government Support For Restructuring the East German Economy: Capital or Labor Subsidies

Abstract

The paper by Klodt contains one central policy recommendation about how to subsidize the economic assimilation of East Germany while keeping workers from leaving the territory that, until recently, comprised the GDR. This recommendation deserves to be examined carefully. It is of interest not just for Germany. Rather, it may apply to analogous movements toward economic integration of high-productivity and low-productivity economies when mass movement from the latter to the former is not desired by policymakers. For instance, the economic integration of Mexico and the United States that will start to be formalized in the North American Free Trade Area may also raise the issue of choosing subsidies to discourage labor flight. Indeed, with confidence, that state planning and rigging can serve as an effective engine of development, waning all over the world, more low-productivity countries have become prepared to seek rapid development through economic integration with advanced industrial countries.