The economics of Berlin

The city continues to deindustrialize:

Most of the problems date back to the end of World War II when most large companies moved their headquarters to West Germany — for example, Siemens moved to Munich and the banking industry fled to Frankfurt.

After German reunification in 1990, East German industry collapsed when state subsidies were cut. Also, Berlin failed to stop spending at a rate it was used to, especially when federal payments were slashed in 1995 from almost 8 million euros to 2 million euros.

As a result, since 1991, Berlin's debt has risen nearly six-fold, from 10 billion to 61 billion euros, giving it the highest per capita debt level of any state in Germany. The city has lost about 100,000 industrial jobs since 1990.

Here is the full story.  Here is a related article.  This also explains why Berlin finds it so hard to privatize its arts support; the private sponsors simply are not there.

As I've noted before, neither land nor labor are remarkably scarce here, and so most items and apartments are very cheap, especially by European standards but even by south German standards.  Could it be that marginal cost pricing reigns at the retail level?

The cheapness makes Berlin a magnet.  I am told that large numbers of people — especially foreigners — live here part of the year but earn most of their money elsewhere.  Think of a twenty-something writing a novel or a dancer or singer in training.

Did you know that only about forty percent of the German population is employed?  I would be surprised if it were that much in Berlin.  You can view that figure as a realization of (temporary) utopia, the result of screwy anti-work economic policies, or a bit of both.

I thank Sebastian T. for the pointer and also Ines for a useful discussion.


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