Co-Ordination and the Structure of Physical and Human Capital in Transition: An Austrian Perspective on the Case of East Germany‪.‬

The German government's approach to unification is examined. While recognizing the need for restructuring in the former German Democratic Republic, the belief of the German government had been that stimulative fiscal policies combined with a policy of raising eastern wage levels to those of the west would ease the integration of the formerly two Germanys. In short, the problem of transition was treated as a problem of insufficient aggregate demand. But the problem of transition was a problem of thwarted market adjustment and of structural discoordination. This policy failure both prolonged and worsened the adjustment process. INTRODUCTION