Berlin After the Cold War

FT WEEKEND MAGAZINE
Berlin cool comes in from the cold
Sixteen years after the Wall came down, the German capital looks like a mess: it's virtually bankrupt, unemployment is rampant and the property market is dismal.
To all intents the city is a failure - but its reborn creativity makes it a fabulous failure

Had things turned out as planned, Detlef Steffens and I would be standing on the roof of the Kaufhof department store on Alexander- platz, one of Berlin's largest squares, looking over a crown of skyscrapers with Art Deco spires steaming in the low January sun. Down in the distance, hyper-modern trams would be gliding through a cosmopolitan crowd going about its business in the German capital, a humming powerhouse of six million people at the juncture of old and new Europe.

Instead, the Kaufhof managing director and I freeze in a biting Berlin wind and gaze over a mess of patched pavements, naked trenches and dull scabs of frozen snow. Beer kiosks, sausage stands and piled containers dot the vastness. On our right is the gutted skeleton of the Berolina Haus, a pre-war modernist building wrapped in grey scaffolding. Below us, clusters of punks, beggars and dogs huddle amid broken bottles and stray newspapers. Ahead, the view extends to the shoe-boxy Haus des Lehrers, with its belt of socialist frescoes, and past a social housing estate to the squat twin towers of Strausberger Platz, the gate to what used to be called Stalin Alley.

It is more than 16 years since the wall that cut Europe in two fell, but Alexanderplatz looks much the same as then, only dirtier and more run-down. The one skyscraper, if it can be called that, is the 39-storey Park Inn Hotel, which has been earmarked for demolition for more than a decade.

The utopian skyscraper plan was one of many developments that the senate, Berlin's local government, and private investors dreamed up in the early 1990s, as they laid down their vision of what the German capital should look like today. The project's central premise, supported by economists, was that the population would double as corporate giants flocked to the city to serve the virgin markets of eastern Europe. In June 1991, parliament decided with a six-vote majority to move the federal government from its leafy exile in Bonn back to the capital, taking the first step towards restoring the old Prussian garrison city to its role as the political, cultural and economic lighthouse of the German-speaking world.

Fifteen years on, the civil servants and politicians are over their Rhineland homesickness, but with 3.39 million people, Berlin is not any bigger. Its unemployment rate, at 18 per cent, is the highest of large German cities. Since 1995, employment has contracted by 5 per cent and its economy has shrunk by a tenth. Berlin was the birthplace of German industry and in 1925 had 1.7m manufacturing jobs. This number was down to 350,000 in 1991 and is fewer than 100,000 today. With less than half of its e20bn budget covered by tax, and debts of e60bn rising by more than e3bn a year, it is practically bankrupt.

Scanning the pockmarked face of Alexanderplatz, you might find it hard not to conclude that the Berlin experiment - the most daring political and economic engineering venture "since the opening up of Japan in the 19th century", in the words of a local politician - has failed. But has it?

After a year of revamping, Steffens is about to reopen the Kaufhof on the unfinished square. When the veil is lifted, it will be the chain's flagship store nationwide. In his corner office, which smells of fresh paint and boasts a singular view over the communist-era television tower, Steffens oozes optimism. A perfect cube clad in attractive grey stone, the Kaufhof will be the largest shopping destination in Berlin's historic centre when it opens in May, says Steffens. The future of the store lies not just in the 4,000 people who pass through the nearby train station every hour. A new market of high-worth buyers is emerging behind its back. North of the platz, over the four-lane Karl-Liebknecht-Strasse, lies the Scheunen-viertel, one of new Berlin's most appealing neighbourhoods, a narrow cobbled maze brimming with concept stores, 24-hour coffee shops and marketing agencies. Where bullet-ridden facades ruled 15 years ago, playful architecture now mixes with restored 18th-century houses in a marriage of glass, steel and ornamental stucco.

Home to blue-collar workers and east-European Jews up until the war, the neighbourhood is the heart of the Neue Mitte - the New Centre - a part-geographical, part-demographic label for the young, dynamic and successful Berlin whose existence is hard to infer from the city's alarming macro-economic data. Since 1998, according to the DIW economic institute, Berlin's software industry has doubled in size; the advertising sector has grown 66 per cent; and high- tech, media and tourism are booming. In 2004, the capital's creative industry overtook Hamburg and Munich in size.

Such dynamism has not nearly made up for the violent shrinkage of industrial capacity that continues today. What these figures suggest, though, is that Berlin is in the midst of accelerated change. While not without pain, the city is building a post- industrial economy that could become a plausible prototype for the Germany of tomorrow. If the Berlin experiment has failed, it has failed in a very interesting way.

And here is the Palm Court," exclaims Frank Angrik, beaming with excitement. I hold on to my yellow builder's helmet as we cross from a dusty hallway into a cavernous hall covered in scaffolding on all sides. I see no palms, but as we step into a cone of light from a hanging halogen spot, I make out rows of sandstone Ionic columns. Angrik, a project manager at Hochtief, has agreed to walk me through the construction company's latest development, the Opern Carree, or Opera Square.

I struggle to keep up as we rush on, neck twisted to survey the flaking canopy of deep coffered ceilings. The drilling and hammering are deafening, and the heat that cooks the wet plaster nearly unbearable. "Isn't that one ugly doorframe?" Angrik asks. Grasping a bunch of keys, he scratches the brown beam, revealing a patch of milky glitter beneath the peeling paint. "Marble," he says. "It's everywhere".

The 19th-century block at the eastern end of the Unter-den-Linden boulevard, in Berlin's historic quarter, is one of the few to have survived the war relatively unscathed. Next summer it will reopen as the Hotel de Rome, one of three extravagant properties Britain's Rocco Forte Hotels is developing in Germany. Its original incarnation was as the headquarters of Dresdner Bank. The "Palm Court" was its Wechselstube, or bureau de change, while the hotel's underground spa, with its massive granite pillars, will be in the bank's former vault.

The intimidating steel doors in the basement are a reminder of the neighbourhood's past as a banking district. But the cigar-puffing board members and the wood-panelled rooms have given way to civil servants, lowered ceilings and neon lights. The former commercial and administrative centre of the Prussian metropolis has become a playground for tourists.

Berlin's malaise is often blamed on the shock of reunification. This is a superficial explanation, for its origins go back at least to the second world war, which put an end to the most extraordinary boom in industrial-revolution Europe. A backwater up to the mid- 19th century, Berlin became the imperial capital with German unification in 1871. The city had been built in fewer than 100 years - as Thilo Sarrazin, the city's finance minister, told me: "The White House is older than most Prussian government buildings."

In 1850, Berlin had fewer than 500,000 inhabitants. By the end of the 19th century, it had become continental Europe's largest manufacturing centre. And by the beginning of the second world war, its population had grown to 4.5 million. Most of Germany's oldest corporate empires were founded here: engineering groups AEG and Borsig, electronics companies Siemens and Osram, and chemicals concerns Agfa and Schering. Pre-war Berlin was Germany's largest trading and financial centre and home to Europe's most modern film studios, at Babelsberg. Despite massive land development, the city was permanently creaking at the seams.

Berlin's near-obliteration in the war and its division into Allied and Soviet zones, culminating in the Wall being built in 1961, put an end to it as an economic entity. Big business departed: Siemens to Munich, the banks to Frankfurt. In the western half, subsidies and tax incentives ensured cigarettes continued to be rolled and coffee roasted. In the east, industry was nationalised and sensitive production moved to Thuringia and Saxony, away from the enemy.

By the time Walter Momper, West Berlin's Social Democratic mayor, appeared on the world's television screens on November 9 1989, urging Berliners to "rejoice" at the collapse of the wall, east and west had long been rid of their bourgeois elites. As the subsidies that used to make up half the (western) city's budget dried up, both sides faced the same problem: bloated bureaucracies and artificial state-financed industries. The adjustment in the private sector hit hard and fast. "At first we thought we could keep half the GDR's (East Germany's) industry workers in their jobs," Momper told me. "Within months it was a quarter, then 10 per cent." Things took longer to settle in the public service. The West Berlin civil service, Sarrazin told me, "was 30 per cent slower, 40 per cent more staffed, and half as business-friendly as in other parts of the Republic".

By 1995 it had become clear that neither Siemens nor Deutsche Bank would be coming back. Nor was Europe's enlargement delivering the expected boost. The collapse five years later of the BGB, the regional public-sector bank, in a property scandal that cost the city billions of euros merely underlined the point: if Berlin was going to emerge from its hole, it would have to drag itself out on its own.

It is 8am and I have just got off the S-Bahn, 10 stations south of Alexanderplatz. I might as well have alighted at a Siberian settlement. The naked earth is permafrost and a winter sun the size and colour of a tangerine lights the mist into a pink blaze. A crowd of commuters proceeds in slow motion over the icy path towards a sprinkling of low-rise barracks.

Under the Soviets, the Adlershof estate was a forbidden city; a typical GDR mix of intellectual and martial, home to the eastern Academy of Sciences - as an East Berlin physicist in the 1980s, Angela Merkel, now Germany's chancellor, had her office here - and to the Felix Dzerzhinsky battalion of the dreaded Stasi police. Nowadays, Adlershof calls itself a "city for science, business and media". With six university faculties, 7,000 students, 676 companies and a payroll of 11,000, no one would think of calling the technology park a failure. Yet, like post-reunification Berlin, it did not quite turn out as expected.

"A lot is happening in Berlin, but it is not always easy to see," says Hardy Schmitz as we sit down for coffee. "It really is an "experiment" in the scientific sense, meaning that you do not really know what will come out of it."

Schmitz, a former IT executive and consultant, runs Wista Management, which was set up by the city-state to market the development. The idea of Adlershof was born as a political project 15 years ago when the reunited city found itself with 5,500 scientists on its hands, many of them reverse-engineers who had been studying and copying the smuggled western hardware that now sits on the bargain shelf at the Saturn electronics store on Alexanderplatz.

Anxious to keep the best talents captive, the senate first created 12 institutes, each sponsored by a national research institution. These then rehired 1,500 scientists from the dissolved Academy. Wista took care of the rest, building infrastructure that gave under-capitalised would-be entrepreneurs - "the over-40, Russian- educated engineer", as Schmitz puts it - a platform to start a business.

Only e1.3bn in subsidies was spent, the amount the park's businesses generate in sales every year. As landowner, Wista is now self-financed, living on rents and services fees. Today, the park's annual job and total turnover growth is comfortably in the two digits and the insolvency ratio stood at 1 per cent in 2005. As Peter Strunk, Wista's head of communications, takes me on a tour of the estate - "double the size of Monaco", and most of it still undeveloped - I realise how good a metaphor it is for the broader city stretching on the horizon.

"We had something of a wake-up call in the mid-1990s," he says as we negotiate the icy tracks in his minivan. "Our original plan was that the big guys would rush in, the land would double in value, and we'd make a fortune selling to developers. Then it dawned on us that Daimler-Chrysler and Sony would not be relocating their R&D to Adlershof. Why would they? We had no subsidies to give away. So we thought we'd start small; we'd put two hamsters in a cage and see what happened.

"Do you know what your computer display will look like in 20 years? Neither do I, but it might not be a monitor. Maybe some 3D thing made up of microscopic mist. Chances are it's being developed here. Some guys around the corner have come up with a video camera that records sound and can be used in car manufacturing to build soundproof cockpits. We didn't have the success we'd expected. We've had a different success."

A few days later, I stand before a brick shed, sandwiched between a turn-of-the-century mansion and the white elegance of the old Hamburger Bahnhof, the former train station that is now Berlin's modern art museum. The functional structure is an incongruous, though not unusual, sight in the architectural mixed bag of former East Berlin. I knock. A young woman opens the door, revealing a hall filled with hanging mobiles vaguely reminiscent of communications satellites. She escorts me into a second hall where I find myself staring at an expensive-looking kitchen that looks straight out of a designer brochure, but being made up of paper, down to the espresso machine, it would not survive a spilled glass of water.

I have come to find out what makes Berlin so attractive, not just to scientists but to the Scandinavian designers, Italian dancers, American writers and the 50,000 people who make up its creative industry - the largest in Germany and among the most dynamic in the world. Thomas Demand, a star of German photography whose pictures of paper constructions were shown at MoMA last year, seemed like a good person to ask, which is why I am in his apartment.

What the Munich-born Demand, a balding 41-year-old, found when he arrived from New York 10 years ago, was "an empty, dislocated city", he says as we sip cappuccinos at an antique wooden table. "You have this feeling that you can do something with the city. It has so much vacant space. That gives it plasticity. Look at Rome, for instance. It's ossified. It's ossified in a beautiful way, but it's stopped evolving. Of course, the flipside of Berlin is that the art being produced here is not being shown here."

Nor is it being sold here. "Berlin has no market... People come here for the subcutaneous feel. There are recurring themes: the provisory, the transient, the unfinished object," says Demand, who shares a studio with his friend Olafur Eliason, another superstar who gate-crashed British mainstream culture three years ago with his sun installation at the Tate Modern.

Berlin's gritty chaos and loose social control are undoubtedly part of the appeal. The city is uncontrived, cool and sexy in a way that Dusseldorf or Frankfurt are not. If being German means having street sweepers who wash the autobahn, then shaggy Berlin is very unGerman. Since reunification, it has reinvented itself as a post- apocalyptic version of its 1920s self: laid-back, scandalous and slightly scary.

There is a club in a disused factory near the Ostbahnhof station that can only be reached by foot via an industrial estate and an overgrown field. There is hardly an inch on the bouncer's face not covered either in beard or tattoos. Over the bar stands a giant Polaroid close-up of a vagina. Try finding this in Stuttgart.

When Demand points to Berlin's scores of empty buildings, however, he puts the finger on another important factor behind the steady inflow of media, marketing and advertising talent. "You get a four- bedroom flat here for the price of a basement studio in London," he says. "And it will stay that way. This city was built for five million and has only two-thirds of that. A friend of mine bought the store below his flat just to have peace in the morning. Same with the people. Berlin is crammed with designers and graphic artists, good people, well trained. Olafur employs 25 in his workshop."

The cheap rents and the over-qualified jobseekers tell the same story: Berlin is brimming with unused capacity and has made this structural weakness a comparative advantage. The fact that office rents have fallen by 70 per cent since 1991 and that 100,000 flats stand empty may be bad news for real-estate investors, but it is a boon for everybody else.

With its low costs and generous welfare net, Berlin is an entrepreneurs' heaven, where barriers to entry are low and failure rarely entails personal ruin. In the past two years, 27,000 companies were created, and they are overwhelmingly one-person businesses. Though the city's population has stagnated at about three million since reunification, a million people have left while another million settled in.

I asked Lukas Kircher, of Kircher-Burkhardt, why he had opted for Berlin when he set up his newspaper design and corporate publishing boutique six years ago - he was working in Hamburg at the time. He had no choice, he told me. "I needed the best people in the field and they would only work for me if I were in Berlin."

With its cool offices in the Scheunenviertel, its comfortable profit margin and its five-fold rise in sales to e5m over the past two years, KircherBurkhardt is a Berlin success story. According to the DIW economic institute, it is the face of the future for a country that, for all the hand-wringing about the loss of engineering excellence and the offshoring of production, is reinventing itself as a services and technology economy. In a study last year, the institute showed that productivity growth between 1998 and 2000 had been concentrated in the country's largest services hubs. In the past four years, employment in these urban centres rose by 1.5 per cent while it fell by 3.5 per cent elsewhere. "It appears that services are the engine of urban growth," the study concluded.

If planners and investors got one thing wrong in the early 1990s, said finance minister Sarrazin, it was history. They took it as a template for the future, not as a cautionary tale. "The basic mistake was to look to the past for clues about the future. We took the Berlin of the 1930s as the model," he said. "But the industrial era has come and gone. We are in a de-industrialisation phase... It is precisely because we lack this economic foundation that we are called upon to try new things. And that is happening independently of the senate."

A good place to get a feel for the travails of history is the high- ceilinged office of Hans Stimmann, housed in the former Deutsche Bank headquarters not far from the future Hotel de Rome. An eloquent architect with a silver moustache, the man that newspapers call Berlin's Baron Haussmann will retire next month after a 15- year reign as head of the senate's planning department. When I ask him about the city in May 1945, he pulls three maps of central Berlin from his extensive bookshelf.

The "black plans", which he commissioned, are a striking visual summary of recent history. These are not ordinary maps; they show neither parks nor waterways but the footprint, in black, of all buildings higher than one metre. On the first sheet - Berlin in 1940 - black dominates. By 1953, white, which represents open space, has taken the upper hand. The last map - 2010 - is a mixture of the first two, with empty land coexisting with extensive reconstruction.

Allied bombs alone were not responsible for the destruction of Berlin. Once city planners in both east and west had cleared the rubble, Stimmann tells me, they made a political decision to do away with the past. Scores of historic buildings that could have been restored were bulldozed away. The Hohenzollern Castle, seat of the Prussian monarchs in the old town. the ornate stock exchange on the bank of the Spree and countless churches and all the main train stations were pulled down to make way for high-rises and multi-lane highways, such as the A115 autobahn that still spits traffic right into the city centre.

Even the synagogue on Fasanenstrasse, having survived both the pogroms and the bombings, had to go. Entire neighbourhoods, from Potsdamer Platz - Berlin's Piccadilly Circus - to the medieval Fischerinsel district vanished. Like ancient Rome, pre-war Berlin exists only in vestiges. The only extensive restoration was carried out by the Communists in the historic core. "The Stalinists had been through the camps," says Stimmann. "They had less trouble with the past than the westerners, who had a bad conscience: to them, a Doric column was not a Doric column, it was Hitler and Auschwitz and everything else they wanted to forget."

When over-eager investors returned after reunification, he recalls, they brought plans for a "Shanghai of Europe. There couldn't be enough skyscrapers and they couldn't be tall enough." The blueprint for Alexanderplatz, with its retro high-rises, is a legacy of this excitable era. For all the Flash-Gordon imagery, however, the plans were an inflated, futuristic version of 1930s Berlin. By the mid- 1990s, the souffle had fallen. With a 50-year delay, politicians and businessmen woke up to the fact that Berlin was no longer there. Resuscitation was not an option.

Like Stimmann, who had East Berlin's gap-toothed skyline filled with trophy architecture by Rem Koolhaas, Jean Nouvel, Frank Gehry, Daniel Libeskind and other superstars, the ruling coalition of Socialists and Communists has now begun to perceive emptiness as an opportunity.

The senate is more dynamic and more pragmatic than at any time since 1989. To cross-party acclaim, Sarrazin is presiding over the most conservative fiscal policy to be conducted in any German state. Berlin's increasingly lean bureaucracy has set up a one-stop shop for investors and a new economic marketing agency. As Harald Wolf, the economics minister, told me: "We are rolling out the red carpet."

Even Klaus Wowereit, Berlin's flamboyant mayor, a fan of society parties and official tours who delights in picking fights with big business, is facing reality. "For years we sat in a glass bubble," Wowereit told me after I tracked him down in Rostock, the Baltic Sea resort, following several aborted attempts at meeting him in Berlin. "We were poor but we thought everyone would help because we were the capital. That bubble has now burst. Mentalities are changing. There is no sitting around any more."

After weeks of icy blue sky, it is snowing again on Alexanderplatz. From the top floor of the Haus des Lehrers, I peer into a trench where workers are laying the foundations for Alexa. Due to open next year, the 60,000 sq m shopping mall is the baby of Alvaro Portela and Sonae Sierra, his Portuguese mall operation.

Portela, a corpulent man with a gentle delivery, is adamant that he has picked the perfect time and place for his mammoth project. "I would not build anywhere else in the city. This is where its two sides meet," he says, pointing not east and west, but to the low- rent housing estates to the south and the Scheunenviertel district to the north.

Dusty, cheap, coarse and smelly Alexanderplatz did not turn out as planned, but it is very much in the making. The Kaufhof is nearing completion. C&A, the clothing chain, whose first store opened on the "Alex" in 1911, has secured the Berolina Haus, and rival P&C is about to start work on a new flagship store on the square. Officially, the skyscrapers are still on the cards for Alexanderplatz, but two years ago the senate quietly let it be known that developers should go ahead with whatever projects they had, with or without towers. The city is now settling into a permanent state of flux.

About a century ago, art historian Karl Scheffler described Berlin as "a city that never is, but is always in the process of becoming". That remains true. Portela nods. "Things will not settle here for another 10 years at least." But as I prepare to leave, an unwelcome thought clouds his face. "Of course, that also brings risks. Suppose these skyscrapers do get built. We could spend years with a giant building site right at our gates. Now that would not be good."

Bertrand Benoit is the FT's bureau chief in Berlin.>