In 1946, the Soviet zone had a slight total factor productivity lead; wartime industrialization had contributed more to the eastern economy, and the destruction caused by the war was lighter than in the west.

While the dismantling of industrial capacity had a significant effect, the most important factor in explaining the initial divergence in economic performance was the separation of the eastern zone from its traditional West German market.

[4] The East German economy was dominated by consumer-goods manufacturers, and depended on raw materials and intermediate goods found exclusively in the West.

[citation needed] The agrarian reform (Bodenreform) expropriated all land belonging to former Nazis and war criminals and generally limited ownership to 1 km2 (0.39 sq mi).

Malenkov's policy, which aimed at improvement in the standard of living, stressed a shift in investment toward light industry and trade and a greater availability of consumer goods.

This led to a reduction of delivery quotas and taxes, the availability of state loans to private business, and an increase in the allocation of production material.

[6] An extensive economic management reform by the SED in February 1958 included the transfer of a large number of industrial ministries to the State Planning Commission.

Decentralization involved the partial transfer of decision-making authority from the central State Planning Commission and National Economic Council to the Associations of People's Enterprises (Vereinigungen Volkseigener Betriebe—VVB), parent organizations intended to promote specialization within the same areas of production.

The central planning authorities set overall production goals, but each VVB determined its own internal financing, utilization of technology, and allocation of manpower and resources.

The NES stipulated that production decisions be made on the basis of profitability, that salaries reflect performance, and that prices respond to supply and demand.

[6] The SED emphasis on managerial and technical competence also enabled members of the technocratic elite to enter the top echelons of the state bureaucracy, formerly reserved for political dogmatists.

It too provided general guidance, but over a longer period, fifteen or twenty years, long enough to link the five-year plans in a coherent manner.

Consumer socialism—the new program featured in the Main Task—was an effort to magnify the appeal of socialism by offering special consideration for the material needs of the working class.

In some cases, the owner of the company would continue as its director with a salary provided by the state, which bore no automatic resemblance to the operating efficiency of the enterprise.

[15] The sale of Soviet crude oil, previously an important source of hard currency, became less profitable due to changes in the world economy.

[16] A long period of underinvestment in research and capital goods made East German products uncompetitive on Western markets, leaving the country more reliant on the Soviet Union.

[15] The GDR faced insolvency in the early 1980s, but was able to delay bankruptcy through negotiating oil imports with the Soviet Union and export loans from France and Austria.

[16] The debt-to-GDP ratio reached 20% in 1989, a manageable level, but large in relation to the GDR's capacity to export sufficient goods to the West to provide the hard currency to service those debts.

The fall of the Berlin Wall in November 1989 further worsened the economic situation by draining the workforce and making it harder for state enterprises to obtain supplies.

The collapse of the central planning authority caused a fall in production, bringing about shortages which in turn led to increasing levels of emigration.

[20] In the early 1990s the kombinats were handed over to the Treuhandanstalt (Public Trustee), a German federal agency responsible for reprivatizing former government-owned industrial assets.

Intended to be replacements for the Associations of Publicly Owned Enterprises—the largely administrative organizations that previously served as a link between the ministries and the individual enterprises—the Kombinate resulted from the merging of various industrial enterprises into large-scale entities in the late-1970s, based on interrelationships between their production activities.

The Council of Ministers supervised and coordinated the activities of all other central bodies responsible for the economy, and it played a direct and specific role in important cases.

[6] In addition to the basic structure of the industrial sector, a supplementary hierarchy of government organs reached down from the Council of Ministers and the State Planning Commission to territorial rather than functional subunits.

An interlocking web of plans having varying degrees of specificity, comprehensiveness, and duration was in operation at all times; any or all of these may have been modified during the continuous process of performance monitoring or as a result of new and unforeseen circumstances.

Beginning with the 1981 plan, the state added assessment of the ration of raw material use against value and quantity of output to promote more efficient use of scarce resources.

After internal consideration and discussion had occurred at each level and suppliers and buyers had completed negotiations, the separate parts were reaggregated into draft plans.

Efforts were also made to promote a common sense of purpose through mass participation of almost all workers and farmers in organized discussion of economic planning, tasks, and performance.

An East German journal reported, for example, that during preliminary discussion concerning the 1986 annual plan, 2.2 million employees in various enterprises and work brigades of the country at large contributed 735,377 suggestions and comments.

But given the abundance of money in circulation and frequent shortages in luxury items and durable consumer goods, most people were perhaps occasionally tempted to provide a "sweetener", particularly for such things as automobile parts or furniture.