A PAINFUL TRANSITION: From Command to Free Market
LESSON DESCRIPTION
Students will participate in a series of production and consumption activities, designed to
reveal first the differences between a command and a free market economy, then the
consequences for people living in the command economy when they are suddenly granted
economic freedom.
INTRODUCTION
Since the inception of the Soviet Union in 1922, most economies in the world have been
classified as primarily “command” or “free market” in their structures. The command
economies, including Soviet Russia and the Eastern Bloc (until 1989), North Korea,
Vietnam, China and Cuba, have been characterized by a strong central economic
authority. In a command economy, the government controls ownership of most resources
and makes most production and distribution decisions.
The market economies, including the United States, Western Europe, Canada, Japan,
Hong Kong, and Australia, have been characterized by a large degree of economic
freedom. In market or capitalist economies, individual households and firms control
ownership of resources and make most production and distribution decisions.
In the second half of the 20th Century, market economies outperformed command
economies in terms of economic growth and innovation, and people living in market
economies enjoyed a greater diversity of goods and services and a higher standard of
living, but also greater income disparity and less job security. By the late 1980s, people in
the Soviet Union and Eastern bloc were demanding change, and many (though not all) of
the command economies collapsed. The people living in these nations were forced into a
difficult economic transition. The reunification of East Germany (the German
Democratic Republic) and West Germany (the Federal Republic of Germany) in 1990
offers a particularly vivid example of the difficulties faced by people in a former
command economy as they transitioned to a free market.
COMPELLING QUESTION
How does the sudden transition to a market economy impact people who have lived their
entire lives within the constraints and security of a command economy?
CONCEPTS
Command economy
Market economy
Production
Consumption
Circular flow
Currency exchange
Unemployment
OBJECTIVES
Students will be able to
• Identify key differences between command and market economies
• Explain the attraction of economic freedom to people living in command
economies
• Explain the difficulties of integrating a command economy into a market system
• Explain how individual economic decisions can create negative consequences for
people accustomed to living in a command economy
CONTENT STANDARDS
SS6E5 The student will analyze different economic systems.
a. Compare how traditional, command, and market, economies answer the economic
questions of 1 -what to produce, 2-how to produce, and 3-for whom to produce.
TIME REQUIRED
55 minutes (1 class period)
MATERIALS
• A Painful Transition Powerpoint presentation (slides available by request)
• Masking tape
• 2 tables or desks near the front of the room, one for the East market and one for
the West market
• Solo 2 oz. paper portion cups (sold in packs of 250 for $4.25)
• Plastic spoons for handling food (1 per student)
• Large packages of oyster crackers
• Large packages of assorted items, including gum, M&Ms, Sweet Tarts, licorice,
stickers, small toys
• Copies of Activity 1 Instructions
• Activity 1 signs for East and West
• Copies of Easties and Westies currency, about 5 per student of each **copy onto
different colors of paper and laminate if possible
PROCEDURE
**Teaching tip: Where student questions are indicated, use a randomization strategy,
cold-calling, or think/pair/share to ensure that all students are engaged.
1. Divide the class in half at an arbitrary place. Place masking tape on the floor to
identify the division, and move desks away from it. Explain to students that they
are being divided, just as the people of East and West Germany were divided in
the aftermath of World War II. They are not permitted to cross the line for any
reason.
2. Show Slide 1 and explain that although Germany was initially divided into four
sectors – Soviet, American, British and French – the American, British and
French sectors were united into West Germany by 1949, and only the Soviet
sector (red) remained separate. Explain that the two parts of Germany had
dramatically different economic systems between 1949 and 1989.
3. Show Slide 2 and explain the definitions of market economy and command
economy. Then show Slide 3 and compare the characteristics of market and
command economies. Explain that West Germany functioned under a market
economy, and East Germany functioned under a command economy. Ask
students: How do you think the lives of West Germans were different from the
lives of East Germans under this divided system? (possible answers: West
Germans had more freedom, they were able to make more decisions about
their own careers, they were able to buy a greater variety of goods and
services, they were able to trade with Western nations) Ask students: Can you
think of any ways that life in East Germany might have been better? (students
might struggle with this, since they are unfamiliar with life in a command
economy; you may need to explain that job security, daycare, cheap food and
greater income equality were some advantages)
4. Show Slide 4 and review the Circular Flow diagram. The Circular Flow, a
fundamental concept in Macroeconomics, shows the interactions of households
(who are resource owners and consumers) and business firms (producers) in a
market economy. Point out that in a market economy, households own the factors
of production (land, labor, capital and entrepreneurship). The households sell their
resources (primarily labor) to firms in the factor market, and this is how they earn
income. Then, the households spend their income (consumption expenditures) in
the product market. Explain that in a command economy, households also work to
earn income, which they can spend on products. The difference is that they have
little choice over where to work, what to produce, or what products to buy. The
government makes many of these key decisions.
5. Remind students that they are divided into two nations, then identify which group
is West and which is East by posting the signs from Activity 1 on the appropriate
walls. Explain that the students in West will simulate an economy like West
Germany, while the students in East will simulate an economy like East Germany.
In both cases, students will perform a task, earn income, and have the ability to
buy goods and services. Hand out the Activity 1 West Instructions to the West
group and the Activity 1 East Instructions to the East group. Remind them that
they may not interact with the other half of the classroom or cross the line. Give
students 2-3 minutes to read the instructions. (If possible, select a student to be
your assistant, to collect the finished cups and distribute payment to the students
in East.)
6. Announce that it is now time to form production groups. Once students are in
production groups, distribute the 2 oz. Solo cups, spoons and items to each group.
All students in East will receive Oyster crackers. Each group in West should
receive a different item -- gum, M&Ms, Sweet Tarts, licorice, stickers, small toys.
The diversity of items in West is critical to the simulation.
7. Give students 1 minute for their production period (the time can be extended, as
needed). Monitor closely to ensure that there is no interaction between West and
East and that no one is eating or taking any of the food items. Call time when 1
minute is over. Students should re-seal unused resources and turn in their finished
cups for payment in Easties or Westies. In both nations, each finished cup is
worth 1 unit of currency. In East, all cups should be gathered together, and the
teacher or assistant should pay the group, with the payment to be divided equally
among group members (extras should be kept by the teacher). In West, each
individual is paid for the number of cups he or she produced. Place all finished
items on the tables designated as the East market and the West market.
8. Refer to Slide 4 and the Circular Flow diagram. Remind students that they have
acted as households, selling their labor for income. Now they will have a chance
to use that income to buy products in the product market. Announce that both
markets are open for consumers but that consumers must behave in an orderly
fashion. If you do not have a student assistant, run the East Market before opening
the West Market. If you have a student assistant, put the student in charge of the
East Market.
In the East Market, each cup of Oyster crackers costs 1 Eastie. Students may buy
as many Easties as they can afford, and they may now eat them.
In the West Market, each cup of items costs 1 Westie. Students may also buy as
many Westies as they can afford, and they may now eat them. Have students with
the highest incomes go first.
Once students have finished making their purchases, they should return to their
seats.
9. Ask students the following questions for debriefing:
a. What were the differences between East and West? (West had a lot more
items to choose from; everyone in East had to buy the same thing; the
product in East was boring; some people in West didn’t get what they
wanted; everyone in East had the same income)
b. Why did everyone in East produce the same items and have the same
income? (because it was a command or Communist economy; the
government decided what would be produced)
c. Why did workers in West have different levels of income? (because it
depended on how many cups they filled)
d. Did students have more incentive to work hard in East or West? (answers
will vary, especially since students in East may not have realized they
were all going to get paid the same; help students understand that
higher potential incomes would probably stimulate more effort in
West)
e. Would you rather be in East or West? (answers will vary, some students
will feel that West was unfair because of unequal incomes, but others
will prefer the chance to earn more and the variety of goods. Remind
students that everyone in East did get “food”)
f. Ask the students in East: Do you want to buy able to buy the items in
West? (most will say yes) Do you think the people in East Germany
wanted to buy West German (and other European and American)
products? (most will say yes)
g. Did anyone in East try to steal or trade for the items in West? (if you are
monitoring carefully, they were probably unable to, but they may
have tried; explain that smuggling did take place and that Western
items were highly valued in East Germany and other Eastern bloc
countries)
10. Explain that you will now run a second production period, and students will
follow the same guidelines as the first production period. Ask students to put
away or dispose of any food items they did not consume from the first production
period. Give students 1 minute to produce items, then collect finished items and
distribute payments (same as in Step 7). Students in East may produce less, since
they now realize they are sharing income, and students in West may produce
more, since they know it will give them an advantage.
11. Now announce to students that this time, they will be able to go shopping in either
market. Ask if they have any questions. (students should realize that they have
different currencies, which presents a problem) Explain that students will need
to exchange currencies before shopping in the other market. For example, a
student from East will need to find a student from West who wants to exchange
currencies before they can go shopping in the West market. Ask students from
East who want to exchange currencies to stand up. (most will stand up) Ask
students from West who want to exchange currencies to stand up. (few will stand
up, since they already have a greater variety of goods to buy in West, and
Easties can only be used to buy Oyster crackers) Give students 2-3 minutes to
make currency exchanges at whatever rate they negotiate, then ask them to sit
down again. How many currency exchanges were made? (most likely very few,
students in West are not obligated to trade their money) Announce that you
will now provide a 1:1 exchange rate for any students wishing to trade currencies.
Give students 3-5 minutes to exchange currencies, since most East students will
probably exchange Easties for Westies.
12. Announce that both markets are again open for consumers. Again, let individuals
with more money shop first in the West; most likely, these will be the West
workers. Give students 5 minutes to complete their shopping; when they are done,
they should sit down. They can eat any food items they have purchased. Collect
back all unused materials.
13. Ask students the following questions for debriefing:
a. Did workers in East and West work equally hard this time? (probably
not, because workers in East had less incentive)
b. What happened in the West market? (the market should run out of
goods, since there are now more Westies than cups)
c. What would likely happen, if this continued? (prices in West would rise,
causing inflation)
d. What happened in the East market? (goods should be left over, since
many people in East spent their money in West instead)
e. Ask students in the East: Are you happier now that you were permitted to
buy the goods from West? (many will say yes, although they may not
have been able to afford very much; they might perceive the West
workers as greedy)
f. Ask students in the West: Are you happier now that you were permitted to
buy the goods from East? (most will not care, since they already had a
wide variety of goods; they may be unhappy because now the East
workers are buying their goods, and they are running out)
14. Explain that in 1990, as part of reunification, East German citizens were able to
exchange their East German marks for Deutschmarks at a 1:1 ratio. East German
citizens flooded across the border, both to shop for items they had been unable to
buy and to permanently relocate. David Alfhader, a German citizen who grew up
in East Germany, says food in East Germany was plentiful but lacking in taste,
and he said items such as “bananas and chocolate were really rare.”
15. Show Slide 5 and ask students to consider this quote from Dr. Wolf Wagner, a
professor at Fachhochschule Erfurt University of Applied Sciences in Berlin. Ask
students: What do you think he means? (students will probably be puzzled
because they think of reunification as a good thing) Refer back to Slide 4, the
Circular Flow. Point to the Product Market and ask students: What will happen in
the East German product market if no one is buying East German products any
more? (there will be no revenue to business firms)
16. Ask students to consider what would happen if you ran the simulation a third
time, given the lack of demand for products from East. (the East workers would
not get paid; they would lose their jobs) Would East workers be happier, now
that the two nations are “reunited”? (no) Explain that about 25% of East Germans
aged 31 to 54 lost their jobs in the period after German reunification. Many of
them never recovered, in terms of their careers. Even today, almost 25 years after
reunification, incomes are lower and poverty rates are higher in the East. Show
Slide 6. Ask students: Do you think the blending of the two economics systems
could have been done differently, with fewer negative results? If so, how?
(answers will vary; this is a difficult question to answer) What lessons does
German reunification hold for other nations moving from command to market
economies? (a gradual transition may be better than a sudden one, people
living in the command economy should be trained and prepared to work in a
competitive environment before being thrown into it)
17. Show Slide 7. Ask students: What is Matthias Platzeck, the Brandenburg state
premier, saying? (the economic disruption from reunification is still causing
discontent today) Do you think the people of East Germany are happy that
reunification happened? (most are, but according to an article titled “The dark
side of German reunification” by Erik Kirschbaum, published on
Reuters.com on Sept. 29, 2010, about 50% of people in the East do not
believe they are part of a united Germany, and 1 in 13 would prefer the wall
was still in place)
CLOSURE
Pose the following questions for review:
1. What are the key differences between command and market economies? (who
owns the resources, who decides what is produced, how goods and services
are distributed)
2. Why did people living in command economies, such as East Germany, seek more
economic freedom? (they wanted access to a variety of goods and services;
they wanted to make more decisions about their own lives)
3. What happened to the East German economy when the two countries were
reunified? (people in East Germany lost their jobs, the economy was
destroyed)
4. Why did this happen? (people stopped buying East German products, and
with no demand for their products, there was no demand for their labor
anymore)
5. Are people in former East Germany better off after reunification? (answers
should be varied; they have more economic and political freedom, but many
have not recovered their standard of living; people should not assume that
the transition between a command and market economy will be painless or
quick)
Sources
Alfhader, David. “Eyewitness to History.” Gaesa. 27 July 2013. Lecture.
Bofinger, Peter. "The German Monetary Unification: Converting Marks to DMarks."Research.stlouisfed.org. Federal Reserve Bank of St. Louis, 1990. Web.
Kirschbaum, Erik. "The Dark Side of German Reunification." Reuters.com. Reuters, 29
Sept. 2010. Web. 25 Aug. 2013.
"Leipzig. A Demographic Analysis." Leipzig A Demographic Analysis. N.p., n.d. Web.
25 Aug. 2013.
"The University of British Columbia." UBC Wiki. N.p., n.d. Web. 25 Aug. 2013.
Wagner, Wolf. "Current Issues in Mainstream German Discourse." Munich. 22 July
2013. Lecture.
Activity 1 East and West
Instructions for East
You are a resident of East, and you will work in a factory preparing Oyster crackers for
sale. Residents in East should divide themselves into groups of 3-4. Each group will get a
several spoons, a supply of Oyster crackers, and a supply of 2 oz. Solo cups. Your job is
to place 5 Oyster crackers in each cup. You will have a 1-minute production period to fill
cups, so you may fill as many cups as possible during that time. You are encouraged to
work together. You may not eat any Oyster crackers during the production period. Any
workers found stealing contraband will lose their jobs and the ability to purchase items
later.
At the conclusion of the production period, all of the residents of East will give all of the
Oyster cracker cups to the teacher (or assistant), and the group will be paid 1 Eastie per
cup, to be divided equally among the group.
Instructions for West
You are a resident of West, and you will work in a factory preparing some type of food or
small item for sale. In a true market economy, you would be able to choose which one of
these items to produce, but for this simulation you will be randomly assigned. Residents
in West should divide themselves into groups of 3-4. Each group will get several spoons,
a supply of your item, and a supply of 2 oz. Solo cups. Your job is to place 5 of your item
in each cup. You will have a 1-minute production period to fill cups, so you may fill as
many cups as possible during that time. You may not eat or take any items from the
simulation during the production period. Any workers found stealing contraband will lose
their jobs and the ability to purchase items later.
At the conclusion of the production period, you will deliver your finished cups to the
teacher, and you will be paid 1 Westie per cup that you have produced.
Easties currency – Print 5 per student (laminate to reuse)
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EAST
You are now entering
WEST
You are now entering