Germany

In Germany, Old East-West Split Gives Way To North-South Economic Divide

While Bavaria leaps forward, Berlin languishes. Germany’s south is on the rise, thanks in large part to tech investments and shifting migration patterns.

Munich's Bauma construction trade fair. (Piero Fix)
Munich's Bauma construction trade fair. (Piero Fix)


BERLIN - Germany's economy is booming, but in Berlin, the change is barely palpable. While the country's southern cities are enjoying close to full employment, nearly 14% of Berlin's labor force is out of work, and more than one in three children under the age of 15 relies on welfare benefits.

"Berlin is the only capital in the world that has a wealth level below the national average," says Reiner Klingholz, head of the Berlin Institute for Population and Development.

Berliners aren't the only Germans that need to worry. Across the country, the wealth gap is increasing – though not along the traditional East-West divide. That axis has shifted, by about 90 degrees, as Germany is now fracturing into a dynamic south and a lagging north: two halves that differ widely when it comes to economics, employment, education and population.

Particularly strong at the moment are the states of Bavaria and Baden-Wuerttemberg. Between Lake Constance and the town of Bad Tolz, a mixture of well-known corporations and solid middle-class populations are driving growth. Saxony, Thuringia and Hesse, which boasts the financial capital of Frankfurt, are also part of Germany's power center.

The other former eastern states, as well as Lower Saxony, Bremen, Schleswig-Holstein and North Rhine-Westphalia, are less equipped for the future. The only exceptions to the north-south division are Saarland and Hamburg. The small southern state of Saarland, with its old coal-mining regions, belongs to the have-nots, while Hamburg in the north sits atop the prosperity ladder.

Population "theft" fuels southern boom

Of the 20 counties and cities with the best prospects in terms of economic momentum, labor, and population, 15 can be found in Bavaria and three in Baden Wuerttemberg, according to a study by the Berlin Institute. Two of the cities, Jena and Postdam, are located in former East Germany.

Potsdam was able to make considerable advancements in recent years by attracting mostly well-heeled families from the nearby capital of Berlin. And Jena, along with Dresden, Leipzig and Erfurt, are among the few East German cities with a promising economic development. In the rest of the east, things still look gloomy.

Because the south currently has the best job opportunities, it attracts hordes of young people from other parts of Germany. Klingholz refers to this phenomenon as "demographic theft." After reunification, more than a million East Germans have moved west. Many are on the move again, this time heading south. The western region of Lower Saxony, for example, has lost nearly 470,000 people.

Bavaria, in contrast, has gained some 670,000 citizens, according to current data from the Federal Institute for Population Research (BIB). "It is mainly the 18- to 30-year-olds who move south, either to study or because of a job," says BIB researcher Stephen Kühntopf.

Most are well-educated women. As a result, northern regions are not only losing workers but also potential mothers. This is a looming demographic catastrophe: many communities are aging, and as a result, playgrounds are left deserted, schools closed. It is no wonder that young doctors in the north are unwilling to take over practices that are opening up. As they lose out on families and doctors, regions such as Eastern Harz or Prignitz are becoming less and less attractive to newcomers.

Of course the fast-growing regions in the south are not only benefiting from internal migration. They are also attracting immigrants from abroad. The Federal Statistical Office forecasts a net immigration of 640,000 people to Bavaria by 2030.

The role of R&D

One of the most important factors in determining the future viability of a site is investment in research and development. In this regard, the North-South divide is only increasing, according to data gathered by the Donors' Association for German Science. Bernd Keuels, the author of a study called "Germany as a Divided Research Country," refers to this as the Matthew Effect: "To him who hath, shall be given," he explains.

The states of Baden-Wuerttemberg, Bavaria, and Hesse, Keuels explains, are home to intensive research. In these areas, economic growth significantly boosted research spending between 1997 and 2007.

Despite the economic differences, the German government is still attempting to create uniform living conditions across Germany. In 2010, nearly 7 billion euros from Bavaria, Baden-Wuerttemberg, Hesse, and Hamburg were re-allocated to the 12 other states.

But financiers are frustrated. The Bavarians, who had to shell out nearly 3.5 billion euros last year, are pushing for change. "We can't have other states receive this compensation money and spend it on benefits that we don't even allow ourselves," said Bavaria's finance minister George Fahrenschon (CSU).

This criticism is aimed primarily at Berlin, which receives almost 3 billion euros – by far the largest slice of the financial pie, part of which it uses to waive student fees and fund numerous social programs.

Is there any hope that the historically poorer states will ever catch up? So far, Bavaria is the only solid example.

Family businessman Randolf Rodenstock, who ran a long-established optical group in Munich for many years, has seen Bavaria rise from a backward agricultural country to an economic powerhouse. "An important factor in this growth was the post-war immigration from the East," he explains.

"Those who were displaced were mostly well-qualified. Many established their own farms and contributed to the rise of today's middle class structure," recalls the 63-year-old. "Even companies like Siemens settled here. Later on, the government supported the development of new industries, such as aerospace."

In any case, the Bavarian state has always been interested in economics. Additionally, business and entrepreneurship have always been valued by its citizens. "In the 60s and 70s, these were by no means universal values throughout the Republic," says Rodenstock.

Today, the state boasts 28 universities, including two leading universities, 12 Max Planck Institutes, seven Fraunhofer Institutes and three Helmholtz Institutes. The research landscape is only matched by that of Baden-Wuerttemberg, Bavaria's eternal rival.

Population expert Reiner Klingholz does not believe that Bavaria's rise can be copied. "Bavaria got on board at a time when growth was guaranteed throughout Germany." Baden-Württemberg, instead, long ago recognized the incredible potential of immigrants. In Stuttgart, there has even been a "Pact for Integration" for the last decade.

Still, the South's continued ascendance is far from guaranteed. "We must not sit back and be complacent," says Rodenstock, who is also president of the Bavarian Business Association. "We can do a lot of things better. What also matters is how we stand in terms of global competition, not just within our own country."

Successful states in Germany, in other words, would do well to compare themselves to California and Shanghai, and not just to Mecklenburg-Western Pomerania and Bremen.

Read the original story in German

photo - Piero Fix

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