Why was the NÖSPL system replaced in the German Democratic Republic?
In 1963 after thirteen years of central planning the GDR instituted a set of economic reforms. The
New Economic System of Planning and Management (NÖSPL) intended to introduce price structures,
profit mechanisms, capital stock measures and improved incentives structures (viz. bonuses). The
reform improved a number of economic indicators and by 1969 the GDR was seen as the most
prosperous Eastern Bloc state by a significant margin. It faced a number of challenges however and I
will examine these causes as to why it was that NÖSPL was replaced between 1968 and 1971 (when
Ulbricht was eventually ousted). The essay will broadly be split into three areas of investigation;
Internal Political Conflicts, International Problems and Economic Problems. The Internal Political
Conflicts stemmed from resistance to reform but also political opposition to the role of technocrats
within the new system. Elements of the Sozialistiche Einheitspartei Deutschlands (SED or ‘the Party’)
resisted the changes for ideological reasons but also fearing a loss of control over economic matters
may lead to a loss of control over political matters. The International Problems consisted of the rise
of Breshnev and the strained relationship between the USSR and the GDR over ideological matters;
the GDR moving towards reform as the USSR opposed it. It also refers to the Eastern Bloc reaction to
the Prague Spring of 1968, with the GDR restraining aspects of reform in response to the events in
Czechoslovakia. The Ostpolitik of the Bundesrepublik (West Germany) also led to problems as it
increasingly isolated the GDR and the Ulbricht Doctrine. Combined these international issues
affected the GDR’s attempts at reform greatly. The final set of problems were primarily economic;
the reforms created a series of bottlenecks that were only exacerbated by the Economic System of
Socialism (ESS) from 1968 onwards. The problems surrounding consumer goods in the late 1960s
and the political discontent that this brought led to many in the regime questioning the wisdom of
the system of reforms. The focus on technology and science and an unrestrained ambition led to
problems that made the system seem dysfunctional. Arguably these problems were not simply for
primarily economic reasons or the fault of the reforms but that will be discussed in detail hereafter.
The question over the primary cause of the replacement of NÖSPL and which thrust of discontent
led to its demise is not a simple one, however the combination of problems certainly accelerated the
downfall.
There were a series of Economic Problems caused by the accelerated reform and failure of
administrative functions to keep up with both the pace and scope of reforms. The reduction of
vertical power structures did not transition as smoothly as originally planned. The aim of the
Perspektiveplan had been to replace a series of annual diktats from the State Planning Commission
(SPK) but the negotiations between firms (VEBs and VVBs) and the SPK led to confusion as to the role
of the Perspektiveplan. The constant updating and dialogue between firms and the SPK led to annual
revisions that rendered the supposed benefits of a long term plan obsolete. These problems were
most acute when the system was first introduced but importantly were not eradicated as time went
on. Attempts to improve incentive structures through bonuses were flawed as they allowed
increases in bonuses far greater than the respective productivity or profit increase. The
implementation of the reform was not helped by the Soviet Union reducing raw material imports in
1963, steel and number of other goods were reduced by up to 35%. These import shortages severely
affected growth at a time when the reforms were being judged by critical members of the
Ministerrat (discussed further below). Limits to reform were in place for political purposes; for
example a firm that changed its name for export purposes was reprimanded by the Party for its
actions. The economic bottlenecks caused problems regarding consumer goods especially, coming to
a head in the late 1960s with wide discontent reported at the lack of progress in consumer goods.
The initial problems with the Perspektiveplan were that the growth rates that it predicted and
worked towards were far too low. Ironically by 1968 the reported growth had been higher than
initially predicted and led to a shift in policy. The switch in focus with the transition to the Economic
System of Socialism (in 1968) hampered the effectiveness of reform. By returning to central planning
in ‘structure-determining areas’ the focus on technology sector growth created the bottlenecks that
would later be blamed on NÖSPL as a whole. These sectors were given priority in raw materials and
foreign currency and despite a lack of productivity growth or competitiveness they consumed
resources that the light industrial sectors (that had been responding positively to the NÖSPL
reforms) needed to continue productivity growth and capital reform. Ultimately the resources
priority given to these centrally controlled sectors crowded out consumer goods producers and
strained the ‘economic levers’ created by NÖSPL. The extent to this was due to 41% of industry
being defined as ‘structure-determining’ in 1969. The priority for growth given to these centrally
controlled firms ultimately made the NÖSPL system unviable in that form. The remaining firms found
the decentralisation undermined due to lack of available resources. These bottlenecks became an
increasingly important political issue because of the Sonderschichten (enforced overtime) to make
up for shortages in key areas. The level of discontent due to Sonderschichten though not especially
high at this point was feared due to the memory of the uprising of 1953. There was more discontent
due to consumer goods shortages but the fear that continued disorganisation might lead to a repeat
of 1953 certainly affected policy makers. The political consequence of this discontent was to return
to central planning to ensure consumer goods production was at a satisfactory standard. Ulbricht’s
unrealistic attitude towards growth in the technological sector as opposed to reform per se had
been detrimental to the cause of reform. Had reform been institutionally implemented in a more
ordered manner than it could have potentially been viable. But the ESS in particular put strains on
the country economically and politically. This shift marked the end of reform and it did not solve the
underlying problems at hand. However, it shows how the economic problems faced in the
implementation of NÖSPL contributed towards its repeal.
As well as economic problems, there were an increasing number of political conflicts between
‘technocrats’ and ‘ideologues’. The shifts in factional attitudes can be split into two major phases;
‘Hierarchic reaction’ and ‘Ideological and Party reaction’. The original shift in policy had only been
possible due to a redefinition of the factors of production (to suit the reform and remain in line with
Marxist theory). At first there were few problems with this shift; it allowed greater investment in
technology and didn’t hugely threaten hierarchies. The decision to introduce NÖSPL took place in
the period immediately after the construction of the Berlin Wall. A number of ‘working groups’ on
economic reform were established, the most important undertook its work throughout 1963. There
was a working group headed by Willi Stoph (the Prime Minister) but the most important had
younger, economically minded members; notably Erich Apel who would spearhead the reform. The
aim of the reform was to become more competitive and introduce price-style structures alongside
an advisory plan. This would work with increased horizontal relationships between firms and
reducing the vertical nature of central planning. The new, longer term plan would be the
Perspektiveplan and it would be a guide rather than a diktat. Early indications suggested the reform
would not be easy, and this was not helped my ministerial structures.
Economic policy in the GDR was more complicated than in most Western systems of government. As
a stand-alone statement this seems obvious due to the central planning system but the problems
extended beyond that. A series of economic ministries maintained powerful political roles and were
horizontally related to one another. Despite the centrally planned system these ministers had the
power to undermine one another and appeal to Ulbricht and the most senior members of the
regime for complaint. In Table 1, the series of economics ministries and their hierarchies are
outlined. This troika was problematic for reform because the practical effects of reform meant more
complex organisation for the VWR and the Ministry of Finance. This represented the ‘Hierarchic
reaction’ Neumann and Rumpf resisted the attempts to change but these were primarily from a
functional perspective rather than an ideological one. Rumpf resisted budgeting and price decisions
and delayed cooperation with the SPK over the Perspektiveplan. Ulbricht was informed and rebuked
Rumpf for this action (or lack of it) but the resistance to the changes did not end. Both Rumpf and
Neumann complained over the difficulties in financial planning and resource allocation to
autonomous firms. These more practical concerns, however, would be replaced with political and
ideological ones. The increasing trend in the NÖSPL system to promote qualified technocrats came
at the expense of those who had served in the Party. There was no outright conflict between these
technocrats and the conservative party leadership but there was a debate that took place as the
reforms progressed as to whether it would become a problem in the decentralised system. Specific
examples of overzealous firms taking actions beyond the autonomy granted them under NÖSPL
certainly affected the leadership’s psyche. In 1965 there was increasing critiscism of Apel and the
SPK; the Perspektiveplan had not provided the growth levels deemed acceptable by Ulbricht and the
lack of immediate success led to criticism from the heads of the other economic ministries. Ulbricht’s
response left Apel isolated and (along with a trade mission to the USSR that will be discussed later)
led to his suicide in the same year. In December 1965, the SED party plenum led to a debate
between Rumpf and Ulbricht over whether profit retention by firms was ideologically compatible
with socialism, and whether the investment decided centrally would be more appropriate. There are
two important points here: one is that Rumpf felt he had the political backing to make such remarks
without serious ramifications and the other is that it marked a clear divide between Ulbricht (and
those in favour of continuing the core tenets of the NÖSPL) and conservative members of the Party
who wished to return to an increased central planning system. NÖSPL was still continuing at this
stage, there was a reduction in targets from the central planning organ and vertical control was
Table 1
Economic Ministries in the GDR
State Planning Commission (SPK)
Erich Apel (1963-65)
Gerhard Schürer (1965-89)
Volkswirtschaftsrat
Alfred Neumann (1961-65)
Ministry of Finance
Willi Rumpf (1955-66)
Siegfried Böhm (1966-80)
The Volkswirtschaftsrat existed from 1961 to 1965. It was the head of a series of 15 industry
specific ministries. Before 1961 and after 1965 these ministries were under the control of the
SPK.
being relinquished. The battle between Rumpf and Ulbricht at this stage was over more accurate
pricing in industry which Ulbricht was pushing to be introduced but that was suffering from the
method of introduction. The plan at this point did not foresee price liberalisation but simply an
alteration of currently fixed prices. They would become obsolete without a true price structure
(based on allowing a market style equilibrium to develop) or by linking them to productivity but both
of these suggestions were deemed too radical a loss of control. The implementation of most of the
original ideas in the NÖSPL system had been implemented in some form from 1963 to 1967, but
these had come at the cost of internal discord and parallel and conflicting policy making. From 1967
the NÖSPL was replace with the Economic System of Socialism. Theoretically it would allow for the
progression of decentralisation. Measures such as introducing the credits system and continuing the
reduced number of vertical declarations show this. But in the ESS was the guarantee of central
planning in sectors deemed significant; notably science and technology. As already mentioned this
lead to a series of economic problems which rather than synthesising the arguments of
conservatives and reformers lead to increased discord between them. Importantly, the Soviet Union
criticised Ulbricht’s ideas, including Political Economy of Socialism and its Application in the GDR,
arguing that they were not effectively theoretically unsound. This signalled to the ideologues that
they had the support of the USSR in this regard. The transition from ‘Hierarchic reaction’ to
‘Ideological reaction’ took place from 1967 to 1968 and the inability of Ulbricht to counter their
growing confidence showed a victory for the ideologues. A lack of support for NÖSPL within the
senior ministers from the start certainly contributed towards its downfall.
As the USSR had changed leadership from Khrushchev to Brezhnev, the economic policy framework
also changed. The focus on reform under Khrushchev and the theories of reform from Liberman
were completely disregarded and replaced by a renewed focus on central control and the
importance of GOSPLAN. Brezhnev increased pressure on the Soviet satellite states to move away
from reformed models, with increased concern after the events of the ‘Prague Spring’. In 1962 the
CPSU plenum had been expected to be on the topic of Evsei Liberman’s economic theories. Liberman
had written about potential decentralising reforms for the Soviet Union that Kosygin would go onto
to implement but on a much smaller scale and retaining the importance of GOSPLAN. These ideas
would influence Apel and the theoretical basis of the NÖSPL but, primarily due to the deposition of
Khrushchev, they were not favoured in the Soviet Union. After NÖSPL’s creation in 1963 Brezhnev
had already warned Ulbricht over the introspected nature of GDR reform and that they should
remember to focus attention on the rest of COMECON as well. From the launching of NÖSPL
onwards there were a series of trade disputes with the Soviet Union (the most infamous of which
contributed towards Apel’s suicide in 1965). These disputes were incredibly one sided; in the late
1950s the Soviets had requested the GDR creates an aviation sector, which it unduly did only for the
Soviet Union’s policy to have shifted by the time the sector had been create leaving the GDR with
over 20,000 people being employed by an industry without the economic use that had been
expected of it. In the early period of the NÖSPL the GDR was forced to run a more independent
economic foreign policy because of the increased conservatism of Brezhnev’s USSR. Under the
Brezhnev regime the GDR under Ulbricht struggled to create an independent economic policy
despite its obvious dependence on the Soviet Union. The reduced Soviet imports (as mentioned
earlier) made this task incredibly difficult. The GDR found itself entirely politically isolated when
West Germany began Ostpolitik, the notion that it could ‘catch up’ without even the support of the
Soviet Union led to discontent within the Party. It partly explained the focus on increased growth in
the post-1968 period despite the lack of capabilities in doing so. Rather than support the GDR in this
endeavour the Soviet Union saw it as an obstacle. The ‘Prague Spring’ changed the Soviet Union’s
opinion of COMECON states who wished a more independent foreign and economic policy. The
Crisis had first started due to the Soviet Union refusing a loan to the Czechs for development and
they sought the funding from the West Germans. The political changes that followed in the ‘Spring’
led to Soviet involvement but more importantly Soviet discontent with out of line states. Though
one would expect this to benefit the GDR at this point (as it diverged from the Czech model) it did
not precisely because Brezhnev recognised that West German technology could be useful in some
key sectors, leaving the GDR politically isolated. The 1970 trade agreement between the
Bundesrepublik and the USSR solidified this. The ideological departures by Ulbricht (mentioned in
the previous section) were also aggravating the Soviets in a post-Czech Crisis Warsaw Pact. Brezhnev
was placing increased importance on ideological unity, détente with the West and an economic
policy more based on the Soviet model. And this framework left very little room for the Ulbricht
model but it also left little room for NÖSPL either. The International Discontent led to the repeal of
NÖSPL precisely because it added to the domestic discontent amongst the elites of the SED. As early
as 1964 Brezhnev had made his discontent clear but it was the growing discrepancy between Soviet
and GDR policy that made the domestic opposition to NÖSPL grow. Rumpf’s increasing belligerence
and open criticism of Ulbricht did not take place in 1963 but from 1968 onwards. And by 1970
Mittag and other initial reformers were opposing the system as implemented in the Economic
System of Socialism precisely because of the effect it was having on GDR-Soviet relations. The
domestic pressure against economic decentralisation grew because of Soviet opposition rather than
being effectively dealt with by Ulbricht and it was this international discontent with the diverging
policy of the GDR that contributed towards a shift in policy towards the priorities of the Soviet Union
and COMECON.
The greatest failure, in terms of NÖSPL’s repeal, was that it was not given enough time for many of
the positive benefits to be seen. The bottlenecks that were caused by the state’s involvement in the
science and technology sector masked the increased export links and growth in light industry and
other sectors (for example, the growth of the optics sector and its international exposure
throughout the period). Many sectors were becoming internationally competitive but this was
eschewed as the effects were not as acute as the simultaneous bottlenecks. Ultimately a policy that
reduces control and is evolutionary rather than revolutionary should be given increased time for the
positive effects to manifest themselves and this was something that due to a changing international
political scenario and series of acute domestic economic problems was ignored. The idea that NÖSPL
was ever going to be a quick fix was flawed but the impatience of policy makers and the political
conflicts (mentioned above) made the likelihood of a fair chance for NÖSPL slim indeed.
To conclude, the NÖSPL system had internal resistance, economic incompetence and
maladministration to contend with. Yet there were signs that the increased exposure to price
structures and export mechanisms aided some firms in becoming more competitive. Nevertheless
the factors mentioned in the bulk of the text, the Internal Political Conflicts, International Problems
and Economic Problems, combined to contribute to both Ulbricht’s downfall and its replacement.
The International Problems were, however, the ultimate reason for its replacement. The political
situation in which the reform was formulated was completely different to the one that existed when
it was replaced. Even its most ardent supporters recognised that the bumpy political road it faced
was barely viable by 1971. The USSR under Brezhnev had been an unstable economic ally, and many
of the economic problems the GDR faced in this era were because of input shortages because of the
USSR. The Internal Political Conflicts certainly played a role, but the increased centralisation took
place as the USSR politically began distancing itself from GDR policy and criticising Ulbricht
specifically. The asymmetric power balance in trade relations between the GDR and the USSR
hampered what would have been a difficult transition anyway. The economic ‘green shoots’ that can
be seen in specific sectors and increased Western export links were not helped by interference from
the hierarchy but it was the international factors that led to its repeal. Hungary enacted similar
reforms and continued them throughout the 1970s until the Communist regime fell. ‘Goulash
Communism’ suffered the same internal political problems as NÖSPL and the similar bottleneck
issues and shortages. However, it was conceived in a different manner and with a different response
from the USSR that allowed it to develop and reform. As an international comparison it is fair to say
that though one cannot compare the two like for like, but the hostility from the USSR certainly
hampered NÖSPL more than other issues which could have been overcome- as we see in the case of
Hungary.