208 WINFRIED SÜß
would have on labor productivity. Their caution was not unfounded: in-
creasing government price subsidies derailed the economy over the long
term while fostering changes in consumer behavior and cracks in the
foundation of political loyalty that proved to be disastrous in the end.
Hopes for an increase in productivity were soon dashed in the wake of
these policies because it had not been possible to link employee self-
interest with the economic goals planned for the country as a whole.^41
Three aspects in particular proved to be problematic. First, the subsi-
dies ate up an ever-larger percentage of the country’s accrued wealth.
In 1981, for example, approximately a fourth of the economic output of
the GDR went into subsidies, which meant that it could not fl ow into
productivity-enhancing investments. As a result, the percentage of the
GDR’s economic output that went toward investments sank noticeably
from the mid-1970s onward (from approximately 33 percent in 1977 to
22 percent in 1985). Second, price subsidies led to rather dysfunctional
consumer behavior because low prices did not encourage the thrifty use
of limited resources (such as energy). Third, these subsidies did not en-
courage better performance because they were sprinkled about here and
there in a scattershot approach that did not really take diff erences in need
or demand into account. Rather, the combination of a strong social se-
curity system with slight improvements in living standards that could be
achieved without individual eff ort put a damper on employee motivation.
In those areas in which the SED leadership focused on popular con-
sumption, it drew attention to the living standards in West Germany as
a reference point, propelling the rivalry between the two systems to the
next level. As a result, the party found itself treading on thin ice. In reality,
there was a wide discrepancy between the high-quality products typical
of individualized consumption that were most desired by GDR consum-
ers and the simple, standardized, and cheap goods that were available in
East Germany.^42 Moreover, these policies raised expectations among the
population that would have cost the SED leadership legitimacy if it be-
gan to backpedal on the consumption front. It therefore blocked any sug-
gestions to deal with the intrinsic weaknesses of the GDR economy that
would have shifted the focus toward more investment rather than con-
sumption. In the end, the GDR’s increasing social expenditures “capped
economic capacity and presented a threat to the political system.”^43
Scholars have accordingly interpreted social policy developments in
the GDR and the FRG as two diff erent ways of responding to the industrial
decline unleashed by the “third industrial revolution,” which generated
a new kind of rationalization crisis. While the West was generally able
to overcome this slump following a series of severe adjustment crises,
industrial decline only served to accelerate the collapse of state socialism