The Situation before 1989

Despite the aforementioned inhibiting factors—planned economy in the East and the peripheral location of Vienna and West Berlin on the edge of the Western world, lacking their traditional hinterlands—all the cities compared here were privileged. Planned economies were centrally organized; the countries’ notoriously scarce resources were allocated from the capitals—Warsaw, Prague, Budapest, and East Berlin. Austria, like Germany, is federally organized. But Vienna, often mocked within Austria as the “bloated city” (“Wasserkopf Wien”), profited from Austrian neutrality and its status as the capital and a federal state in its own right. In the postwar years, the United Nations and affiliated organizations such as the International Atomic Energy Agency (IAEA) and OPEC set up headquarters in Vienna. That was not possible in West Berlin because of the Cold War, but the western outpost was kept afloat by massive government subsidies, and thus got its share of West Germany’s economic miracle.

East Berlin was given a modern face to show that the communists were keeping pace with the West. Special attention was paid to the buildings close to the Wall that were visible from West Berlin. They were freshly painted and renovated, though just one block behind them, the plaster was crumbling from the houses. The city center also bore the stamp of system rivalry. The Centrum Warenhaus department store on Alexanderplatz was designed as a counterpart to West Berlin’s KaDeWe and offered a wider range of consumer goods than any other socialist store.

Other Eastern Bloc capitals also received preferential treatment, partly because many functionaries lived there. In Prague, oranges were available at Christmastime in the late eighties (at the black market rate, they were far cheaper than in Germany); East Berlin was a magnet for commercial tourists from all socialist “brother nations”; shelves in Warsaw stores were not as empty as they were in the Polish provinces. Moreover, at special stores in the capitals and large cities (Intershop in the GDR; Pewex and Baltona in Poland; Tuzex in the ČSSR; Beriozka in the USSR), Western products could be bought for foreign currencies. Shopping trips to the capital became a firm part of socialist consumer culture, as did trips from the capital to deliver provisions to the provinces. Financially, however, the capitals’ inhabitants were not privileged. Wages and salaries were standardized and fixed nationwide; rents and prices for food and consumer items were regulated by the state. The result, to the bewilderment of tourists from the West, was prices such as 1.13 marks for a beer or 5.67 marks for a schnitzel in East Berlin.

The communists promised a classless society, and indeed, a leveling tendency arose from the rubble of World War II. The heavy bombing of Berlin, and the almost complete destruction of Warsaw, reduced or destroyed the property of industries, tradesmen, and homeowners. With Jews forced to emigrate or murdered, a large part of the urban elites were lost. In their efforts to create classless societies, communists allocated housing to laborers and members of the lower classes first, often expressly in middle-class districts. Similarly, Vienna’s subsidized-housing program changed the city’s social structure, building homes for blue-collar workers even in upper-class districts. Although the Wall placed West Berlin in an exceptional situation, here, too, there were no longer traditional working-class quarters or exclusive uptown areas. Furthermore, with the exception of West Berlin and, to some extent, Vienna, all the major cities attracted large-scale migration from rural areas. When economic reforms were introduced in 1989, the capital cities were therefore more homogenous than ever before in their histories.

The social cuts of 1989–90 hit postcommunist city dwellers harder than rural populations at first. Subsidies for staple goods were canceled and food prices decontrolled, resulting in sharply rising prices. Poland and Yugoslavia experienced hyperinflation with three-figure price increases; the situation in Bulgaria and the Soviet Union was only slightly better. In comparative terms, the inhabitants of Prague were best off, but even they faced price increases of over 50 percent for basic foodstuffs such as sugar.3 In East Berlin, too, real incomes dwindled over the fall and winter of 1989. One indicator was the drop in the black market value of the East German mark—by early 1990 it had almost halved.

The advocates of the Washington Consensus had a standard recipe against high inflation, which the Americans and British also got to know in the early Reagan and Thatcher years: the central bank was to limit the amount of money while the government imposed austerity measures. A third element was added in the postcommunist countries: wages and salaries were frozen, or de facto lowered. In late 1989, as part of the Balcerowicz Plan, the Polish government introduced penalty taxes for “exaggerated” pay raises; Czechoslovakia followed suit in 1990. In addition, Poland, like Yugoslavia, stopped index-linking wages and other incomes to the rate of inflation.4 In real terms, these two measures reduced the already low wages in Poland by almost half; in more affluent Czechoslovakia, by a sixth.5 In other words, inflation was fought largely at the expense of workers and public servants. The GDR was an exception. Incomes there appreciated considerably in value due to currency union with the FRG in summer 1990.

One immediate consequence of the cutbacks was a drop in consumption. The storefront lines of waiting customers disappeared—few could afford to buy the goods on display. Official statistics show how dramatically incomes dropped in 1990. In the greater Warsaw area, the average monthly wage was 587,000 złotys. This sum would have been a small fortune a few years previously, but inflation had reduced the value to the equivalent of only sixty dollars by that point. Statistics for the Warsaw voivodeship (province) show that the population spent nearly half their per capita income on food. The residents of Warsaw, then, lived literally from hand to mouth.6 Shampoo, detergent, cosmetics, clothing, and other basic consumer items became luxuries; the majority of the population could only dream of eating out or traveling on vacation. Citizens of Budapest and Prague were not exposed to such extreme vagaries, as inflation in Hungary and Czechoslovakia did not accelerate as rapidly as in Poland. But here, too, the equivalent of $100 ranked as a reasonable monthly wage. Unsurprisingly, then, Poles, Czechs, Slovaks, and Hungarians looked on with envy as GDR citizens collected their gift of 100 deutschmarks “welcome money” (Begrüßungsgeld) dished out by the West German government after the fall of the Wall.

In spring 1990, stores everywhere began to fill with previously scarce items. But now, particularly in Poland, the customers were missing. The new service sector, which had been supposed to propel the postcommunist economy, was struggling with low demand. The only thriving sector was the farmers’ markets and open-air bazaars selling cheap homegrown produce, and kiosks offering a wide range of consumer goods within tiny spaces. In addition to food items, real ground coffee (not the adulterated, pre-1989 kind) and the type of Western products that had previously been sold at the state-run foreign currency stores—myriad cosmetics, shower gels, and shampoos—were available to be taken away in brightly colored plastic bags. The sanitary products were so much in demand and so costly that their proud owners displayed them conspicuously in their bathrooms. In Prague, the population had more fundamental needs: here, restaurants locked and chained their rolls of toilet paper to the holders to prevent guests from taking them.

For the first two or three years, the grayness of state socialism more or less persisted. The inhabitants of the capital cities grew initially poorer, not richer. Having a “big brother” in the West placed Berlin and the former GDR at a considerable advantage, while the other former Eastern Bloc countries were initially left to fend for themselves. Moreover, the political future of countries such as Poland remained uncertain for longer. The last soldiers of the defunct Red Army did not leave their East Central European headquarters in Lower Silesia until 1993. The Polish capital Warsaw had additional disadvantages to contend with. For one, infrastructure was weak; the city did not even have a subway. The hyperinflation of 1989–90 had obliterated nearly all monetary assets. However, Warsaw had a huge resource of human capital, including a rising class of self-employed craftsmen, service providers, and entrepreneurs, who had built up livelihoods under state socialism back in the 1980s.

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