Tuesday marks the 32nd anniversary of the fall of the Berlin Wall, which not only served as a barrier bisecting the city, but also a physical representation of the oppressive Soviet policies imposed on half of the country. The barricade, erected in 1961 to prevent mass defections from East to West Berlin, underscored the vast disparities in the living conditions and welfare of the two cities. Under capitalist policies, West Berlin flourished, while socialism forced East Berlin into destitution and poverty.
Notably, defections were not the only issue facing the East German government. Free travel allowed East Berliners to compare the dilapidation and indigence of their home with the development and prosperity of the West, which, noted Soviet Ambassador Mikhail Perukhin, did “not always turn out in favor of” the communists.
After the fall of the Berlin Wall in 1989 and the reunification of Germany in 1990, the country suffered meager economic growth throughout the ’90s and early 2000s. Growth was hampered by costs and inefficiencies associated with the technological and industrial underdevelopment of East Germany, high unemployment brought on by artificially inflated wages and generous unemployment benefits, and sharp increases in taxes to finance immense social spending programs.
However, in the early 2000s, under the leadership of Chancellor Gerhard Schröder, Germany made drastic changes to its fiscal and economic policy, cutting taxes, reducing welfare, and eliminating constricting worker protections. The result was a reinvigorated German economy marked by robust growth and low unemployment. Scröder famously proclaimed, “For a long time we were the sick man of Europe. Now we are the healthy Frau of Europe.” German economic success continued under the conservative leadership of Angela Merkel. Much like her predecessor, Merkel presided over a steadily rising GDP, shrinking unemployment, and increasing disposable income. Now, the once floundering German economy is the largest in Europe. (READ MORE: When German Workers Revolted Against the German Workers’ Paradise)
However, the country may soon be headed in a vastly different direction. The preliminary results from last September’s German election, which are currently in dispute, show the country’s left-leaning Social Democratic Party narrowly beating Angela Merkel’s conservative Christian Democratic Union, which has led the country for the past 16 years. Social Democrats, who hope to form a coalition with the country’s progressive, environmentalist Green Party and the more market-oriented Free Democrats, have voiced support for the institution of a wealth tax, increasing the tax rate on the country’s high earners and corporations, and levying “greening” taxes on firms thought to have a negative ecological impact as a means of fighting climate change.
While the institution of such policies would certainly constitute a considerable leftward shift of the German economy, the election yielded a far more notable and radical result. Berlin citizens voted overwhelmingly for the government to seize hundreds of thousands of private properties from their owners. Berliners, dissatisfied with rising rent prices, voted in favor of a non-binding referendum for the city to expropriate and socialize some 240,000 apartments. Franziska Giffey, who will become the next mayor of Berlin after the Social Democrats retained control of the city’s government, has stated that she is not in full support of the measure, but will respect the referendum and has asked the Berlin government to draft and review legislation on the matter.
The group responsible for the referendum seeks to utilize an eminent domain clause in the German constitution to seize hundreds of thousands of units from large landlords and pay “well below market value” for them. Not only would this do very little, if anything, to solve the underlying issues inflating rent across the city, but it would likely cause the housing crisis to worsen. Such an action would disincentivize developers from building new units, as they would rightly fear that the city may simply expropriate their property.
This is far from the first time government intervention has been proposed as a solution to the city’s housing dilemma. The Senate of Berlin previously attempted to freeze rents on apartments built before 2014, causing the prices of unregulated units to soar. Increased regulation and socialization would only serve to further cripple the industry and harm Berliners. If the government truly wishes to ease rent prices, they should incentivize the creation of new units and complexes through lower taxation and less burdensome regulation.
The people of Berlin seem to have forgotten the disastrous consequences of socialized industry and government seizure of private property. The new generation has no recollection of the catastrophic effects the socialist policies of the Soviet Union had on half the country. To this day, a vast disparity still exists between the economic health and development of East and West Germany. Yet, shortsighted and impetuous Berliners are voting for the same ill-conceived and ill-fated policies. As Winston Churchill once stated, “Those that fail to learn from history are doomed to repeat it.”
Kyle Reynolds studies public policy analysis at Indiana University. His work has appeared in the Washington Examiner, Washington Times, and the Daily Caller.
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