2025 marks the 35th anniversary of German reunification. A central chapter in this history is the work of the Treuhandanstalt, the government agency which decided in the early 1990s which GDR companies should be privatised and which should be closed down. These decisions had direct consequences for millions of employees and continue to shape the economic structure of eastern Germany to this day.
A recent study by researchers at the ROCKWOOL Foundation Berlin (published in the Journal of Public Economics) examines how successful the Treuhand was in this role. Specifically, it addresses the question: Did the Treuhand privatise the ‘right’ companies?
The method
To answer this question, the researchers compare the Treuhand’s actual decisions with hypothetical alternatives. To do this, they use machine learning methods: based on data on the size, productivity, organisation and industry of the companies from the period before privatisation, they calculate how high the chances of survival for each company would have been in the market for the first ten years after privatisation if it had been privatised.
It is important to note that such simulations are only possible in retrospect. Today, it is possible to examine which companies actually survived and which characteristics played a role in this. This information was not available to the Treuhand in the early 1990s. The study therefore does not show what the authority could have known at the time, but rather how its decisions compare to possible alternatives in retrospect.
The procedure works in a similar way to a prognosis in medicine: known patient data can be used to estimate the probability of a therapy being successful. Here, the same principles were applied to companies in order to simulate which companies would still have existed after ten years.
The results
The results are mixed. The Treuhand avoided the worst-case scenario: if it had selected the companies with the lowest chances of survival, only around 55 per cent would have remained on the market after ten years. In fact, the survival rate among privatised companies was just under 67 per cent.
At the same time, however, the Treuhand fell far short of the best-case scenario. If it had specifically selected the companies with the highest chances of survival, almost 97 per cent of the companies would still have been on the market after ten years. The difference is particularly clear when it comes to jobs: in reality, the surviving companies had around one million jobs at the beginning. In the best-case scenario, according to the simulation, there would have been about a third more – almost three hundred thousand additional jobs. However, it remains unclear whether these jobs would actually have been preserved in the long term, as even the ‘best’ companies are subject to unpredictable developments in the future.
Productivity as a guideline
It is striking that the Treuhand often made its decisions based on the productivity of the companies: companies with higher productivity were more likely to be privatised. This was not only a pragmatic rule of thumb, but also reflected the Treuhand’s legal mandate, which stipulated that it should focus on the competitiveness of the companies.
Head office better than the regions
The study also shows clear differences within the Treuhand. The headquarters in Berlin was more successful in its selection than the regional branches: privatised companies there survived more often and secured more jobs. The headquarters probably had better resources, more expertise and closer contacts than the regional offices, which suffered more from time and staff shortages.
The conclusion – a school grade for the Treuhand
Thirty-five years after reunification, the picture is mixed: the Treuhand prevented major mistakes, but also fell far short of the best possible results. If the Treuhand were to be given a school grade, the authors say that on a scale from ‘insufficient’ to ‘very good’, it would probably be a ‘satisfactory’.
