Treuhand Sold Productive Firms Mainly to West German Buyers
Research
When East German companies were privatised after German reunification in 1990, the ‘Treuhandanstalt’ – the agency entrusted with the sale of formerly state-owned enterprises – was quicker and more likely to sell productive firms than unproductive ones, and to gain more money in the process. These are the results of a recent study conducted jointly by a team of researchers from the ifo Institute, ZEW Mannheim and the Université libre de Bruxelles. At the same time, the Treuhand was also more likely to sell these firms to West German investors. “Especially productive East German firms were less likely to remain in the hands of East German owners,” explains ifo researcher Lukas Mergele.
“By 1995, when the Treuhand had concluded its main activities, 51 per cent of the firms, 64 per cent of the turnover and 68 per cent of the jobs analysed in the sample had fallen into the hands of West German investors,” summarises ZEW economist Moritz Lubczyk. The sample further shows that the more productive the companies were, the higher was the ownership share of West German buyers.
Ifo researcher Mergele explains this result as follows: “At the time of German reunification, West German investors had better access to financial capital and more experience in managing companies in a market economy. In addition, they most likely had better ties to economic and political stakeholders compared to the investors from East Germany. Considering the sales criteria of the Treuhand, these factors probably made West German investors better candidates for future company ownership. But the redistribution of company ownership from East to West must be noted.”
Productive firms were economically active for a longer time
Regarding the accusations that the Treuhand unnecessarily closed profitable companies, ZEW expert Lubczyk comments that, “some productive companies were indeed closed down. However, our results show that productive companies were less likely to be shut.” Among the least productive companies, the share of firms that were privatised under the Treuhand was less than 40 per cent. This share was more than 70 per cent for the most productive companies.
The researchers also found that the Treuhand achieved, on average, higher commitments with regard to the investment volume and the number of staff to be retained for firms with higher initial productivity. However, based on the data available, it cannot be determined whether the Treuhand was able to achieve the best possible outcome for the public sector in the negotiations with potential investors.
“Companies that were more productive in the beginning were also more likely to be economically active 20 years after the privatisation,” says Mergele.
These results are based on statistical analyses and describe trends on average across all firms. It is therefore not possible to draw conclusions about the decisions regarding the privatisation of individual firms. The data cover information on firm ownerships only at the first and second level. Firm ownerships are classified in terms of majority shares, while minority shares have not been taken into account. ‘Smaller privatisations’ including shops, restaurants and hotels, the majority of which were sold to East German buyers, are not included in the data.
