The Germanys A Westerner for the East

By Lisa Beyer

Question: In a country that for more than four decades has known nothing but central planning and its attendant inefficiencies and sluggishness, where do you find a manager who can transform the economy into a free market, bustling and lean?

Answer: You don't. You look abroad.

That is the conclusion reached by Lothar de Maiziere, the leader of the Christian Democratic Union, who is likely to become East Germany's Prime Minister when a newly convened parliament forms a government next week. For the post of Economics Minister, De Maiziere has designated Elmar Pieroth, a + prominent economist in West Germany and stalwart of that country's CDU. "De Maiziere told me he sought an experienced market economist and couldn't find one in a planned economy -- would I give it a try?" says Pieroth. "I said yes."

It was an answer characteristic of the affable Pieroth, 55. A scion of West Germany's pre-eminent family of wine merchants, Pieroth is a model of can-do spirit. Despite the immensity of the task before him, he is confident that, once unshackled, the East Germans will build for themselves a vibrant new economy just as surely as their West German counterparts did after the devastation of World War II. "In the coming years, we can harness the idea of keeping up with the Joneses," he says. "The East Germans want to show the West Germans that they can do just as well."

Pieroth's first priority will be to eliminate the absurdities that now infect the system. Some 85% of East Germany's economy is controlled by 220 unwieldy state Kombinate (conglomerates), whose production has been dictated by ill-conceived five-year plans rather than by supply and demand. Heavy- industry manufacturers, for instance, have had to shoehorn consumer goods into their production lines, so that TuR, East Germany's largest producer of electrical transformers, also makes appliances for melting cheese at home.

To reduce the role of the Kombinate, Pieroth aims to spawn a healthy Mittelstand, the sector of small and medium-size businesses that is the backbone of West Germany's economy. There is a great need for such firms in the East, which suffers a dearth of everything from corner restaurants to car dealerships. In the past two months, some 40,000 East Germans have applied for a share of the $3.5 billion that Bonn will make available to them over the next three years for loans to start small enterprises.

Obviously, the move from big and bungling to small and snappy will not be painless. Even those Kombinate most likely to survive the rigors of a free market, such as optics manufacturer Zeiss-Ikon Jena, will have to cut their bloated payrolls. Officials in Bonn have estimated that the ranks of the East German jobless will grow from 26,000 today to an estimated 2 million (out of a work force of 8 million) by next year.

Yet Pieroth insists that unemployment can be kept to a manageable 500,000, or 5.5%. Part of his strategy is to encourage Westerners involved in joint ventures to retrain workers whose skills are made obsolete. Pieroth also plans - to generate new jobs by pumping up to $12 billion in public and private funds annually for several years into rebuilding East Germany's decrepit infrastructure.

Ironically, the transition to a sleeker economy will be eased further by the estimated 1 million East German workers who will be occupied over the next two years filling orders placed by the Soviet Union. Bonn has pledged that a unified Germany will honor those contracts. "The Soviets cannot generate economic success on their own," says Pieroth, "and it is in no one's interest for them to fail."

Private investments from West Germany will fund most of East Germany's makeover, but the Bonn government will bear the huge costs of swapping the East's nonconvertible currency for deutsche marks and establishing social benefits, like unemployment insurance, in the East. But Pieroth insists that those expenditures will be offset by an additional one to two percentage points of economic growth he reckons will be created in West Germany by new business opportunities in the East.

To many East Germans, Pieroth is a trenchant symbol of an unwanted West German economic anschluss with East Germany. "The process of developing our own character won't be advanced by flying in experts with their own agendas," says Wolfgang Templin, a member of the parliament from the leftist, ecology- minded Initiative for Peace and Human Rights. To develop a free-market economy, Templin and other critics maintain, East Germany does not have to ape the economy of West Germany. But that is precisely what East Germans voted for overwhelmingly last month, Pieroth responds. Says he: "We can't dictate to the East things that we think should be different if what they want is what we have." In Pieroth's view, the mandate is anything but ambiguous.

With reporting by James L. Graff/Berlin