Moral Effects of Socialism

by on July 19, 2014 at 7:25 am in Books, Economics, Philosophy | Permalink

Dan Ariely and co-authors have an interesting new paper looking at moral behavior, specifially cheating, in people who grew up in either East or West Germany.

From 1961 to 1989, the Berlin Wall divided one nation into two distinct political regimes. We
exploited this natural experiment to investigate whether the socio-political context impacts
individual honesty. Using an abstract die-rolling task, we found evidence that East Germans
who were exposed to socialism cheat more than West Germans who were exposed to
capitalism. We also found that cheating was more likely to occur under circumstances of
plausible deniability.

…If socialism indeed promotes individual dishonesty, the specific features of this socio-political
system that lead to this outcome remain to be determined. The East German socialist regime
differed from the West German capitalist regime in several important ways. First, the system
did not reward work based to merit, and made it difficult to accumulate wealth or pass
anything on to one’s family. This may have resulted in a lack of meaning leading to
demoralization (Ariely et al., 2008), and perhaps less concern for upholding standards of
honesty. Furthermore, while the government claimed to exist in service of the people, it failed
to provide functional public systems or economic security. Observing this moral hypocrisy in government may have eroded the value citizens placed on honesty. Finally, and perhaps most
straightforwardly, the political and economic system pressured people to work around official
laws and cheat to game the system. Over time, individuals may come to normalize these types
of behaviors. Given these distinct possible influences, further research will be needed to
understand which aspects of socialism have the strongest or most lasting impacts on morality.

It’s interesting that Ariely et al. try to explain cheating as a result of socialism. My own approach would look more to the virtue ethics of capitalism and Montesquieu who famously noted that

Commerce is a cure for the most destructive prejudices; for it is almost a general rule, that wherever we find agreeable manners, there commerce flourishes; and that wherever there is commerce, there we meet with agreeable manners.

See Al-Ubaydli et al. for a market priming experiment and especially McCloskey on The Bourgeoise Virtues for more work consistent with this theme.

1 Z July 19, 2014 at 7:41 am

Big government turns all of us into weasels. That’s the greatest crime these nuts have committed against humanity. The economic damage can be fixed. The cultural damage takes generations to repair. It’s why Germans are the worlds most evil race. By starting two world wars, they made the managerial state possible.

2 jack1473 July 21, 2014 at 12:57 pm

Is this an admission that you are, in fact, a weasel?

Is there a difference between “big government” and Stalinism?

I was under the impression that Japan started World War II when it invaded Nationalist China in 1937.

Would you want to fix the damage done by Germany? You mean the Mercedes and Porsches? Allianz? Siemens? Thyssen? The Mittelstand?

Or Germany’s disastrous decision to oppose the Iraq invasion in 2003?

Or is it their managed capitalist economy and its reckless .9% inflation, 3,000 Euro per capita health care costs, or their whopping budget deficit of 1% of GDP?

You want a highly skilled producer goods economy, then you need cooperation between the state, industry and labor.
You want a Walmart economy with lots of “creative destruction” and high labor turnover and low wages, then you get what fools or crooks call neoliberalism.

There is not a single German under the age of 85 who has anything like Abu Ghraib on their conscience. Time to turn off “Inglorious Bastards” and move on. How about Tony Judt’s Postwar?

3 Donny July 22, 2014 at 5:57 pm

The best reply I’ve seen in awhile. Bravo.

4 F. Lynx Pardinus July 19, 2014 at 7:41 am

I was told that gun ownership was the cause of an agreeable society, not commerce. Perhaps free commerce in guns is the most agreeable society?

5 TMC July 19, 2014 at 12:23 pm

You are probably correct, most likely by accident.

6 Steve Sailer July 20, 2014 at 2:47 am

P.J. O’Rourke wrote about a visit to Afghanistan, where everybody was selling all the time, especially guns.

7 RSaunders July 19, 2014 at 7:47 am

This feels like an experiment with one observation per cell. A particular draw of capitalist and socialist governments, even if the shared German-ness helps.

8 Barry July 21, 2014 at 8:38 am

“This feels like an experiment with one observation per cell. A particular draw of capitalist and socialist governments, even if the shared German-ness helps. ”

Don’t worry; it also has massive confounding of a very large number of factors.

This blog post is just another example of George Mason economics.

9 Jim S July 19, 2014 at 7:49 am

It’s also worth considering that those in East Germany were raised in an officially atheistic country. For the atheist, there’s no idea of being responsible to a higher being for our actions.

10 Das July 19, 2014 at 10:20 am

Also East Germany was mainly protestant whereas West Germany had a catholic majority.

11 jon July 19, 2014 at 7:57 pm

Yes I was going to mention religion too, but in the opposite way: one of the secondary papers re-interpreting Weber’s ‘Protestant Ethic and Spirt of Capitalism’ I read recently, suggested that Catholicism may be more likely to basically sin, because they can be forgiven, whereas for some denominations of Protestant, things are quite different; and that this difference accounted for, e.g. Protestants working harder for the same money, and possibly building bonds of trust upon which commercial networks later thrived.

12 Arjun July 19, 2014 at 11:48 am

Ah yes, which is why the Bible Belt has the highest rates of teenage pregnancy in the US, right?

13 Careless July 19, 2014 at 12:23 pm

the Bible Belt has the highest rates of teenage pregnancy in the US

ITT: we learned that New Mexico is in the bible belt. Also, that believing you’re responsible to a god means teens shouldn’t get pregnant

14 TMC July 19, 2014 at 12:25 pm

You get pregnant from being dishonest? Amazing what I learn here.
My wife and I are going to stick with the old method though.

15 Oakchair July 19, 2014 at 12:14 pm

Actually studies find that countries with less religion and less people actively practicing religion have more crime.

16 Oakchair July 19, 2014 at 12:18 pm

Massive typo… i meant countries with more religion have more crime
http://moses.creighton.edu/JRS/2005/2005-11.html

17 TMC July 19, 2014 at 12:29 pm

Causation runs the opposite way that you imply, of course.

18 Willitts July 20, 2014 at 2:10 pm

Studies show that Oakchair frequently relies on uncited “studies” to support specious claims.

Studies show that this is an indication of mental illness.

19 jack1473 July 21, 2014 at 1:01 pm

“Oh, Papa Homer, you are so learned. | Learn’d, son. It’s pronounced learn’d”

Here you go…
http://www.georgefox.edu/ree/Goeckel_Evangelical_articles_previous.pdf

The Evangelical-Lutheran Church has long represented a key element in civil society in
the German Democratic Republic and a key actor in political change. Following the
Stalinization process, the church remained the only institution independent of the
Communist state. Even after the curtailment of intense atheistic propaganda by the state
in the 1960s, this independent status thrust upon the church a role of political opposition.
Thus the church served as a defender of German unity in the 1960s, a function it formally
sacrificed in 1969, yet has retained informally until the present day. Similarly in the
1980s, the church became by default the advocate for dissent on issues such as peace,
human rights, and the environment. The church became the training ground in
democracy, compensating for the deficit in such democratic processes in society at large.

20 Donny July 22, 2014 at 6:01 pm

So, by your own tortured logic East Germany should have been a libertarian paradise since no one felt responsible to a central authority?

America is officially secular, what implications does that have to your “argument”?

Maybe, just maybe, the fervent belief in a proposition without sufficient evidence (also known as faith) isn’t the best environment to make rational, lucid decisions about governance.

21 Michael Foody July 19, 2014 at 8:00 am

I imagine scarcity and low social trust better explain dishonesty, arguably these could inevitably follow from socialism and in Eastern Germany scarcity did seem to follow from socialism, but it was also a very corrupt authoritarian government that actively pursued policies that atrophied social cohesion. Indeed it seems perverse to treat the east west split of Germany as a natural experiment where socialism/capitalism is the independent variable.

22 dan1111 July 19, 2014 at 9:17 am

Surely “a very corrupt authoritarian government that actively pursued policies that atrophied social cohesion” is not an independent cause, but simply one of the effects of socialism.

23 Michael Foody July 19, 2014 at 9:49 am

I disagree, of course strong ideological precommitments that result in policies that produce obviously suboptimal outcomes would necessitate authoritarian systems to maintain their legitimacy and certain strains of absolutist socialism suffer from exactly this problem. However, where socialism works (or where capitalism doesn’t) we don’t observe these problems.

24 Michael D. Abramoff July 19, 2014 at 1:11 pm

Where socialism works? Show me where.

25 Michael Foody July 19, 2014 at 2:03 pm

No entirely socialized economy has been successful. However certain industries like television or radio broadcasting, natural resource extraction, telecommunications, electricity, waterworks, and health services have all been socialized, in different places and times, with good results, often better results than private free market firms.

26 dan1111 July 19, 2014 at 3:46 pm

@MichaelFoody, “a very corrupt authoritarian government that actively pursued policies that atrophied social cohesion” has been a hallmark of every socialist regime. Therefore, claiming that it is an independent factor confounding the experiment is absurd.

27 Michael Foody July 19, 2014 at 4:56 pm

dan1111: The word ‘regime’ itself carries a negative connotation, implying an authoritarian government or dictatorship so you are begging the question. There are a number of mixed economies that successfully socialized major industries.

28 Rahul July 19, 2014 at 5:15 pm

+1

This seems more like a scarcity effect. is there a way to control for scarcity? Among capitalist societies are the better off ones, in general, more ethical than the poorer ones?

29 jon July 19, 2014 at 7:58 pm

I think you’re mistaking a particular species of command economy without political accountability, whereas there exist socialist governemnts *with* political accountability and economic success, e.g. France.

30 Chip July 19, 2014 at 8:18 am

Socialism uses coercion to replace virtue.

31 Ian July 19, 2014 at 8:19 am

As somebody who grew up in Eastern Europe I do not find these results surprising at all. And I agree with the comment above that the moral/social destruction of Eastern Europe by the communists is far worse than the economic one.

As for the mechanisms of the demoralization there are many.

First of all, the regime was constantly requiring people to show the loyalty for the system they mostly hated thus requiring normal people to be dishonest all of the time to some degree – I believe it was Arieli’s finding that once you cross the line it is easier to be dishonest next time.

There was not a visible victim of the small crimes – everything belonged to “the people” hence when the people were stealing there were just “stealing from themselves”.

Some thing were available only through black market/connections. Hence dishonestly was the only way to achieve some things. In fact, people were jokingly saying “those who do not steal [from the public] steal from their family”, implying that not being dishonest will hurt your family.

The regime itself was criminal and the only people who were allowed to advance in this regime were its supporters. This means that the entire “elite class” including politicians, middle to upper management in all the state run companies and to some degree all public figures (actors, musicians) was already of questionable moral standards or at least somewhat “morally tainted”.

32 Ian July 19, 2014 at 8:38 am

I should also add that socialism had a terrible effect not only on moral standards but also on the work ethic of the population in general. Doing a good job was rarely way to become successful. The system often felt like the exact opposite of a meritocracy.

On the other hand, I should perhaps also add that there were some good parts: the women were (and still are) pretty emancipated (in spite of the lack of all the feminist and gender-study vocabulary BS) – BTW I believe that there was no other wage gap other than that typical women professions were paid less in general (e.g. factory worker made more than a cleaning lady, cashier or a teacher). STEM fields were doing pretty well (at least the theoretical aspect of them) because they were isles of free thinking untainted by the regimes ideology (unlike most of the other sciences).

33 Z July 19, 2014 at 9:04 am

If you look at socialism as a secular religion, their war on Christianity makes sense. Religions are covetous, at least if they have any hope of expanding. Socialism as religion replaces the traditional, multi-generational relationships with transactional relationships. It inevitably replaces altruism with the cold calculus of the immediate transaction. You end up with a society of sociopaths.

34 Oakchair July 19, 2014 at 12:21 pm

The USSR and those under its control were against Christianity because the Russian church supported the Czars.

35 TMC July 19, 2014 at 12:34 pm

Explains China and every other communist state real well. Try again.

36 ZC July 20, 2014 at 1:21 pm

China was never religious in the first place. The rest were mostly subordinate to the USSR.

37 mm July 19, 2014 at 9:56 am

PJ ORourke nailed it when he said something along the lines of you could tell that communism wasn’t going to work- it managed to make Germans lazy workers.

38 Peter Schaeffer July 19, 2014 at 4:06 pm

Ian,

In a bygone era, I knew quite a few folks from the former Soviet Union. Based on what they told me…

“I should also add that socialism had a terrible effect not only on moral standards but also on the work ethic of the population in general.”

They would have (strongly) agreed with the latter, but not the former.

“Doing a good job was rarely way to become successful”

True.

“The system often felt like the exact opposite of a meritocracy”

Too strong. However, party influence was pervasive.

“the women were (and still are) pretty emancipated (in spite of the lack of all the feminist and gender-study vocabulary BS)”

True on both points.

“factory worker made more than a cleaning lady, cashier or a teacher”

True.

“STEM fields were doing pretty well (at least the theoretical aspect of them) because they were isles of free thinking untainted by the regimes ideology (unlike most of the other sciences).”

Yes and no. Theoretical fields did quite well. However, the regimes were supportive (after Lysenko and the like), not neutral.

39 Maciste July 19, 2014 at 8:27 am

The forced elimination of religion is the biggest reason. You can see it not only in this cheating, but in the placing of very little value on human life. Witness the shooting down of the Malaysian plane or the millions sent to Siberia and purged. The fundamental values of Christianity that were eliminated by force is the KEY issue in socialist and formerly socialist countries.

40 Ian July 19, 2014 at 8:46 am

I completely disagree on this point.

This might be controversial but going back to America, it is generally christian republicans who support wars and leftist white urban population that is generally more pacifistic. (And support for human rights of unicellular human organisms doesn’t change that too much).

41 Ian July 19, 2014 at 8:48 am

I meant “leftist white atheistic urban”. As much as I disagree with them in many ways, the atheism one of the aspects I like about them.

42 Art Deco July 19, 2014 at 8:57 am

it is generally christian republicans who support wars

They favor justice, which requires force from time to time, both domestically and internationally. The left’s preference for injustice is systematic.

43 Ian July 19, 2014 at 9:13 am

I understand your argument but Maciste was talking about the value of human life not the value of justice.

44 dan1111 July 19, 2014 at 9:20 am

The two go hand in hand.

45 Z July 19, 2014 at 9:22 am

The Left is currently dovish in America and Europe, but that’s not a permanent feature. One only has to look at the 20th century to see that quite clearly. The heirs of Rousseau racked up quite a body count. When it comes to “the value of human life” the Left has proven to be as ruthless as any barbarian. The words of Oliver Wendell Holmes, Jr in Buck v. Bell are inscribed on the heart of every Progressive. They call it pragmatism while the rest of us call it genocide.

46 Ian July 19, 2014 at 9:33 am

Z: I have no problem with your comment. I am just saying that all of this has IHMO very little to do with religion.

dan1111: The context was a discussion about going to a war to enforce justice.

47 Art Deco July 19, 2014 at 10:34 am

I understand your argument but Maciste was talking about the value of human life not the value of justice.

If you value human life, you put murderers and tyrants in front of firing squads where they belong.

48 Ian July 19, 2014 at 11:51 am

If you value human life, you put murderers and tyrants in front of firing squads where they belong.

You basically prove my point, your religion (I’m guessing Catholic from your blog), doesn’t prevent you from supporting violence. To the contrary, it provides justification for such deeds under certain circumstances.

You know, the communists and nazis did all of their horrible deeds in the name “justice” too.

Disclaimer: I’m an atheist, I value human life but I also agree that murderers and tyrants should be shot.

49 Careless July 19, 2014 at 12:28 pm

The words of Oliver Wendell Holmes, Jr in Buck v. Bell are inscribed on the heart of every Progressive.

And in Z’s heart, it’s “three generations of imbeciles are never enough!”?

50 Art Deco July 19, 2014 at 2:05 pm

You basically prove my point, your religion (I’m guessing Catholic from your blog), doesn’t prevent you from supporting violence. To the contrary, it provides justification for such deeds under certain circumstances.

No, I do not prove your ‘point’. You demonstrate that you care nothing for guilt or innocence or the tasks necessary to maintain peace and order in society; that includes force because there are ugly characters out there. You just strike attitudes while others do the work.

51 Ian July 19, 2014 at 3:29 pm

Art Deco, somehow you failed to read or understand my disclaimer and decided to attack me for positions I do not hold.

52 Moreno Klaus July 19, 2014 at 4:24 pm

They favour justice? you mean revenge?

53 Barry July 22, 2014 at 9:50 am

“They favor justice, which requires force from time to time, both domestically and internationally. The left’s preference for injustice is systematic. ”

No, the christian right rarely has problems with war, and doesn’t care about justice.

54 Maciste July 19, 2014 at 9:12 am

I’m not making an argument at the level of the state, but at the individual level and about the values that each individual is taught to uphold growing up. Socialism as an institution wiped out by force the Christian values that had prevailed in these countries, so several generations grew up with the view that human life is expendable for the good of the collective and cheating is OK if it helps oneself. Prior to socialism they would have been taught that every human life is valuable and to be respected as we are all God’s creation. Of course there are many people that violate these commandments in Christian countries, but most follow these fundamental values.

55 Ian July 19, 2014 at 9:26 am

I am just saying that I do not view Christianity particularly incompatible with collectivism (at last in the practice).

56 Brian Donohue July 19, 2014 at 9:42 am

See, for example, The Acts of the Apostles.

57 TMC July 19, 2014 at 12:37 pm

Ian, check who was in charge throughout the last century when the US entered a war.

58 Jan July 19, 2014 at 8:36 am

For someone who grew up in a post-socialist country this finding is nothing new. People who grew up under socialist regimes in eastern Europe are more dishonest, credulous, servile, selfish, close-minded and lazy than their western counterparts. To be fai,r socialism may not be the only thing to blame. Being slavic probably also played a role (perhaps why they became socialist in the first place).

59 TMC July 19, 2014 at 12:38 pm

See, everyone is a bit racist eventually.

60 Spruance July 19, 2014 at 8:44 am

And there was the daily dishonesty of having to pay lip services
to the obvious lies of the regime. Cognitive dissonance was a
feature of daily life. This could hardly induce trust and cheating
becomes a behavior.
But this is not constrained to socialism – it exists where free speech
is suppressed.

61 Art Deco July 19, 2014 at 8:58 am

Perhaps one cause is as follows: when you dispense with markets as an allocator, connections replace those markets.

62 Ryan July 19, 2014 at 5:52 pm

Correct

63 jon July 19, 2014 at 8:09 pm

I can interpret your post as saying “when you ALTOGETHER dispense with markets, then you get corruption”. But if I read it literally, I get “when you depart from pure market processes for allocating any goods, moral degeneracy results”.

Markets don’t efficiently allocate goods according to desert, or need, in mixed economies. In fact their continued failure to do so is precisely what INSPIRED the likes of Marx, and forced democracies to create redistributive policies, and inspired others to go socialist.

Your argument “departures from unfettered markets produce moral degeration”, would hold that because non-market processes create corruption, no public goods or redistributive policies are acceptable, for the moral degeneration which they create. I think that’s an unacceptable ethical result intuitively, and also a counterfactual argument. It’s counterfactual, i.e. based on stuff which has never existed, because there is no society on earth where markets are the sole allocator.

64 Alistair July 20, 2014 at 12:07 am

I do not think you know what the word “need” and “desert” means. Or rather, you use them without thinking.

65 joan July 19, 2014 at 8:59 am

You only have to encounter the Russian immigrants in the US in the US to see the effect of the regime there had on them. However he social welfare states of Europe like West Germany is what most Americans call Socialism not the USSR.

66 Patster July 19, 2014 at 8:59 am

How about the same type of study comparing
Taiwanese with Fujianese?

67 Yphster July 19, 2014 at 9:03 am

With regards to being a natural experiment, this does not pass the smell test. The key feature of an experiment is internal validity. That seems to be missing here

68 dan1111 July 19, 2014 at 9:23 am

Could you please explain what your problem is with it?

69 Barry July 22, 2014 at 9:51 am

“Could you please explain what your problem is with it? ”

Can’t you figure it out?

70 chuck martel July 19, 2014 at 9:17 am

“From 1961 to 1989, the Berlin Wall divided one nation into two distinct political regimes.”

Maybe the Kaiser and later statists thought it was one nation but even today “Germany” is made up of individual populations that are united only in their zenophobia toward the non-German speaking world.

71 David H. July 19, 2014 at 9:28 am

I haven’t run across any people in Europe who are less xenophobic than the Germans. But then again, I haven’t been everywhere.

72 Das July 19, 2014 at 10:27 am

But apart from him being prejudiced about supposed levels of xenophobia he is right about the fact that there are still strong regional differences that are older and in some regards more powerful than the relatively new and short lived east-west divide.

Those differences should be tested for and eliminated in a study like this.

(To be clear: There is now relevant secession movement in Germany like there are in the UK, Spain, Belgium or even to some extend France. The differences are more like a culture undercurrent, think west coast v. east coast, New England v. the South.)

73 Jermaine July 19, 2014 at 7:59 pm

Hilarious. Could the United States have mustered the strong sense of solidarity to pull off reunification? If Germany isn’t one nation than practically no country is.

74 dearieme July 19, 2014 at 9:24 am

When I was young it was pointed out to me that Britain was run on the assumption that everybody was at least middling honest unless proved otherwise, whereas the US was run on the assumption that everyone was a crook, unless proved otherwise. But Britain was plainly more socialist.

75 Art Deco July 19, 2014 at 2:12 pm

Pointed out to you by whom? What was their base of information? Where I grew up, there were have a dozen sorts of people generally distrusted: street hoodlums, auto mechanics, employees of insurance companies, employees of public utilities, politicians, lawyers, and (more intermittently) reporters. The stock of auto mechanics, claims adusters &c., and the phone company have gone up; that of politicians and journalists has gone down.

76 David H. July 19, 2014 at 9:25 am

I know that you’re economists here, but if I were seeking an explanation for the data, I’d focus more on the totalitarianism vs. personal liberty angle rather than the capitalist/socialist angle. Under a totalitarian regime (socialist, capitalist, theocratic or whatever), cheating “the system” is an important way to affirm personal autonomy.

Some other possibilities to consider:

The fact that East Germany was a *failed and collapsed* socialism which lost all sense of perceived legitimacy is important to the outcome. Maybe the citizens of all failed states (socialist or capitalist) that rode out the collapse are more pragmatically cynical and less moved by abstract principles. (Are Greeks bigger liars than other Europeans?)

Maybe East Germans were not made more cynical by their socialist history, but rather by the disappointing process of German re-integration, which felt (and feels) very differently from the two sides of the divide. Maybe the focus should not be on how things were, but on how they are now.

To some extent, these different explanations are testable. So for example, if socialism is the causal ingredient, we should be able to find culturally similar countries that differ in degree of socialism, and test whether that’s predictive of a different degree of truthfulness. Are Canadians bigger liars than Americans? Now I’m curious.

77 CD July 19, 2014 at 2:56 pm

Yep. The tyranny part seems important. Note also that by the standards of this blog, West Germany was pretty socialist.

78 Thin-Skinned Masta-Beta July 19, 2014 at 9:35 am

Another angle on deception in socialism:

In communism, the media lies to the public, that everything is just super dandy.

In capitalism, commercial media deceives the public, that everything is awful and terrifying.

“Will that sandwich you made kill your kids? More at 11…”

79 Thin-Skinned Masta-Beta July 19, 2014 at 9:37 am

In a democracy, citizens say they prefer honest politicians for leaders.

Based on how they vote, it’s obvious the citizens are lying.

80 Martin Chuzzlewit July 19, 2014 at 9:39 am

“wherever there is commerce, there we meet with agreeable manners”

If you really believe that, I’ve got a few AAA-rated collateralized debt obligations and mortgage backed securities (all 2006 vintage) I’d like to sell you. And how about a liar’s loan so you can buy that mansion you always coveted but can’t afford, while we’re at it? I’ve already had all the paperwork robo-signed…

Anyway, seems to me that Dickens’ Martin Chuzzlewit offers more interesting insights into capitalism and (dis)honesty than Montesquieu – as you may recall, it is full of cunning men who prosper by persuading people to buy property in snake-infested swamps with pleasant names like “Eden”, and so forth.

81 Steven Kopits July 19, 2014 at 9:41 am

I spent the post-communist years in Hungary (1990-2005), and so had an opportunity to see the transition up close and personal.

It all comes down to principal-agent issues. The individual always faces a conflict between desires as a principal and duties as an agent. In a socialist economy in which the prices of goods and labor are set by fiat rather than by the market leads to a number of anomalies which will end up in cheating of some sort.

First, if prices are set below market levels, black markets will emerge. They emerge quite quickly, which we can actually see in the aftermath of Hurricane Sandy. If you see the news footage, you’ll notice inner city boys showing up with cans at gas stations to get their ration at $4 / gallon, and then walking around the corner to sell this same gasoline at $11 / gallon to a needy motorist. It’s simple arbitrage in a shortage economy; it’s only illegal or immoral because the government artificially sets the price of the product. There are similar stories of shortage goods (toilet paper) in Venezuela actually being sold Columbia. This is all cheating, created by government policy. (See my comment on gasoline price gouging at NPR: http://www.marketplace.org/topics/economy/weather-economy/youre-price-gouging-thank-you-very-much)

In a store, if prices are below market, then goods will be in shortage. This transfers tremendous power to the store clerk, who can decide to whom to allocate these goods. Thus, a customer requiring toilet paper, knowing that the clerk controls this good, will offer a bribe to the clerk to gain priority access to the toilet paper. The clerk may take this in money or in kind, in a favor bank. Thus, the term ‘protekcio’, meaning favoritism or contacts, becomes an important concept and an everyday word in the vocabulary. Want a car or telephone line? You need ‘protekcio’, connections, to insure you can get one in a timely fashion. And in a socialist system, these connections are primarily in the government. Since this phenomenon is endemic, everyone accepts this as normal. Everyone is corrupt, by the nature of the system. The principal is assumed to dominate the system. Nothing is about what it appears to be.

This is also visible on the labor side. Wages are kept low and egalitarian. Thus, employees have little incentive to exert themselves. On the other hand, they are virtually impossible to fire. Therefore, productivity is low, employee theft is high. It’s the way things work.

In order to compensate for this situation, employers and the state will use both rhetoric and coercion. The state will talk about the ‘worker’s paradise’ where the average person is poor and stealing, and the decision-makers are all corrupt. Employers will treat employees as bad, as shiftless and thieving–which, in fact, they are in that system. Everyone is cynical. Cynicism is also a principal-agent issue. It means that one is showing one objective function (in this case, conservative, that everyone is accepting their nominal social role as agent) but acting in a way that is completely liberal (maximizing their own welfare as individuals without regard to their nominal obligations). Everyone reads between the lines, because no one believes anyone else is actually assuming their nominal social obligations.

In economics terms, socialism causes a rift between the individual as agent and as principal. Doing good and doing well are entirely divorced. Business relationships are not Pareto optimal.

Now, the most interesting thing I observed is that communist attitudes become ingrained. I dealt with many communist managers, and very, very few survived the transition to a market economy. They were so used to reading between the lines (ie, assuming the domination of the agent by the principal), that they could not read the lines themselves. Everything was assumed to occur because of some ulterior motive. It is not just a matter of incentives, but ingrained attitudes with respect to these incentives. Values matter.

I could write a book about this (actually, I have). There’s quite a lot to it, and unfortunately the economics profession largely wasted an opportunity to see the effects of moving a society from one objective function (egalitarian) to another (liberal, more or less).

82 Nathan W July 19, 2014 at 12:03 pm

I would like to add that black markets can do a lot to help fill demand when formal markets are not meeting the needs of the market.

Your coverage is highly reminiscent of stuff I learned a course I took in uni from the first go-to guy by (imo) the most credible national media outlet for foreign coverage when the Ukraine crisis was breaking out. The guy who got almost the whole page beside the editorials.

I’m not so sure that it is correct to say that the objective was specifically an egalitarian society. Beyond the rhetoric, there was patriotism of some form (in Russia, not Eastern Europe, I think), a general desire for a future where people generally had the ability to make something of themselves, and the propaganda that this long term gain made the short term gain worth it. But I wasn’t there, and that’s the most important thing for me to know when wondering how people thought about it at that time 🙂

83 Shenpen July 22, 2014 at 9:18 am

As a Hungarian, I don’t think you understand the situation fully. It is all true, especially the reading too much between the lines part is quite insightful, but it is more of a result of 500 years of foreign occupation, rather than the last 40 years of it. Rampant corruption was exposed already in books like Móricz’s 1934 Rokonok, and so on. Basically your very insightful “agents expect domination from principals” is a general attitude of countries under foreign occupation, and when in 1700 a Habsburg general could requisition food, transportation for soldiers without any compensation, or when in 1600 a Turkish pasha could just order the people to work on the fortress, they exhibited the kind of dominant attitudes you are talking about. Hence, they became ingrained, it was understood that the boss, the higher-up is your enemy, literally, the occupying force.

84 ktel July 19, 2014 at 9:43 am

Wow, people really want to project their own views onto the “results” of this study. “Germans made the managerial state possible” – So there were no statist societies before the 20th century? “Lack of Christian values?” You toss around atheism and Christianity as if it’s a binary choice. I’m an atheist who certainly feels responsible to a higher power, just not “God.” There are plenty of virtuous people of Islamic and Hindu lineage, and “Christians” are among the most morally corrupt people in history (I always recall the baptism scene from The Godfather). I imagine more people have been killed in the name of “God” than for any other reason.

Here’s what we can conclude: East Germans are more likely to cheat than W. Germans. Full stop.

Defenders of socialism would argue that it wasn’t truly practiced there. Government corruption is not a part of the model.

By the way, corruption corrupts in all economic systems, and lack of a sense of upward mobility pushes people toward cheating. We’re already seeing this in the U.S., and it’s not because we’re becoming socialist- it’s because we’re becoming an oligarchy.

85 Z July 19, 2014 at 10:50 am

“I imagine more people have been killed in the name of “God” than for any other reason”

You’re right. That is imaginary.

Repeating slogans from the Progressive catechism is not the same as thinking. The temptation is understandable, but inexcusable.

As to Germany: http://tinyurl.com/nhexrk5

86 Nathan W July 19, 2014 at 12:12 pm

Now we use economic rather than religious systems as the basis upon which to demonize the other and mobilize for war.

People should be educated to be impervious to demonizations which may serve as a mobilization factor contributing to support for, or even active involvement in, a war.

For example, when someone says “they are evil, we need to undermine them”, we should have already been educated to look for specific pieces of information, and to ask questions like “what is the legitimacy to the explanations they offer? Is it propaganda or does it reflect genuine underlying issues?”

87 Nathan W July 19, 2014 at 12:16 pm

I think if we analyze the last five minutes in sufficient detail, we may be able to piece back together the entirety of history.

But on the off chance that we missed something important, or that some events don’t come around so often, perhaps we should extend the analysis to the last 24 hours or week or two.

By the time you get back to 50 years ago, well, now we can answer everything, right? We have a suitcase of snapshots and maybe we even have some tidbits of information about what was going on when they were taken.

88 Oakchair July 19, 2014 at 12:30 pm

So becoming an oligarchy results in more cheating. This is a nice theory given that the Socialists run states of Eastern Europe were basically oligarchies only instead of CEO’s the oligarchs were the leaders of the communist party. This could also explain the massive amounts of fraud and lies in the banking sector that caused the current crissis

89 Willitts July 20, 2014 at 3:54 pm

Governments caused the housing and financial crisis. Banks were the willing cat’s paws as were carpenters, electricians, mortgage brokers, realtors, retailers and many others.

90 Barry July 22, 2014 at 9:57 am

“Governments caused the housing and financial crisis. ”

100% wrong. The banks happily made bad loans, knowing that they could sell them to the financial companies, who happily diced them up into financial products, which the rating companies rated as AAA, and then the financial companies sold them to anybody they could con.

91 TMC July 19, 2014 at 12:48 pm

“(I always recall the baptism scene from The Godfather) ”

Cool, glad you have good sources to build your beliefs upon.

92 genauer July 19, 2014 at 10:47 am

I am a western German, who has lived for many years in the US, and now for 11 years in Eastern Germany.

First I got a little agitated about the gross nonsesne of statistically irrelevant tiny differences, which would depend on al kinds of side effects,

wondering whether I should say some words about arrogant american academics, who know nothing,

and then I smiled, that was just too crass,

and I looked at the author list , and just laughed

“Center for Advanced Hindsight” and the sole German author Lars Hornuf,

like Lars Rinström and Hörner aufsetzen …… ROFL

it is a Hoax, and no one of you did get it : – )

imbeciles

93 Nathan W July 19, 2014 at 12:09 pm

Wit.

94 TMC July 19, 2014 at 12:49 pm

I think what you say may be right, but how do I really know?

95 Odoacer July 19, 2014 at 2:25 pm

There really is a Center for Advanced Hindsight at Duke:

http://advanced-hindsight.com/about/

As for Lars Hornuf, he has 12 papers published, according to the SSRN.

96 Nathan W July 19, 2014 at 10:54 am

Ironically (to many in the Americas), in Eastern Europe it is often the socialists who are most skeptical of government.

But I think it probably had as much to do with a continuation of tradition of patronage, small and large, in greasing wheels. Many other places have since replaced this approach with better grease, imo.

97 Quite Likely July 19, 2014 at 11:23 am

Did the study not even consider the far more obvious explanation that the reduction in honesty is the result of living under a police state? This is the explanation that I’ve heard from actual Eastern Europeans (admittedly Czechs not East Germans) discussing the effects of that era on their culture.

98 Nathan W July 19, 2014 at 12:08 pm

I agree. If I lived in a police state I would feel very strongly inclined to anything that could possibly undermine the state, especially if it brought personal profit.

Stealing from a police state is an obviously easy to rationalize pursuit.

99 Moreno Klaus July 19, 2014 at 4:18 pm

I agree 100%… It is not about socialism or fascism or right/left issue, it is the fact that they live in dictatorial police state. Dictatorships could be efficient in short run(?) , but in long run, it becomes a gigantic corruption orgy… (the key issue here is: there is no accountability in a dictatorship/one party state !)

100 prior_approval July 19, 2014 at 11:38 am

‘it failed to provide functional public systems or economic security’

Not a single East German I have known (whether more than a dozen work colleagues, or in-laws, or several East Germans I’ve known socially) would agree with that statement, especially the economic security part. The ‘functional public systems’ is a bit more diffuse, obviously – but to the extent one was talking about things like schools or daycare or a basic sense of security in terms of minimal crime, then those East Germans felt the older system was superior to what replaced it.

Again, just anecdata from somewhere around 25 East Germans, most of whom are quite critical of how lazy West Germans are in terms of problem solving, and who tend to look very askance at the West German practice of measuring social worth using external possessions. This group includes people penalized by the East German for their Lutheran faith, a DDR punk fan (his 1988 picture of him and his other mohawked friends is amusing), a former naval officer, a doctor who never belonged to the SED, among others. Of course, most of them have lived in West Germany for a couple of decades at this point.

101 jack1473 July 21, 2014 at 1:19 pm

I married a Czech who grew up under the Czechoslovak police state. There was no civic culture, but relations between people (individuals, families, sports groups, etc.) were as normal as any I’ve seen in the west. Material deprivation forced the people I know to practice extraordinary thrift: they grew their own vegetables and fruit (and canned them); they knew how to make good clothes on a sewing machine; they became adept auto mechanics who could keep a Skoda on the road for decades. They also spent time with family and friends at their chatas and spent as much time outdoors as possible (skiing, bicycling, hiking). Their pub culture and literature also thrived. My wife’s grandfather was arrested by the state for being the “wrong” kind of partisan during the Second World War, and in no way do I believe Stalinism was anything but state-directed evil, but the cultural conclusions in this study are nonsense.

102 genauer July 19, 2014 at 11:46 am

this blog thread of this hoax is actually a perfect example how you get stupid english language arrogants to act out their racist prejudices

thank you : – )

103 TMC July 19, 2014 at 12:52 pm

Socialist are a race now?

104 Nathan W July 19, 2014 at 12:04 pm

I would like to add that black markets can do a lot to help fill demand when formal markets are not meeting the needs of the market.

Your coverage is highly reminiscent of stuff I learned a course I took in uni from the first go-to guy by (imo) the most credible national media outlet for foreign coverage when the Ukraine crisis was breaking out. The guy who got almost the whole page beside the editorials.

I’m not so sure that it is correct to say that the objective was specifically an egalitarian society. Beyond the rhetoric, there was patriotism of some form (in Russia, not Eastern Europe, I think), a general desire for a future where people generally had the ability to make something of themselves, and the propaganda that this long term gain made the short term gain worth it. But I wasn’t there, and that’s the most important thing for me to know when wondering how people thought about it at that time 🙂

105 Ed July 19, 2014 at 12:08 pm

As ktel and genauer are getting back, what this study is capturing is the loss of legitimacy of government and other important institutions. It doesn’t actually measure the effects of the government being organized around one ideology or another, though some ideologies may offer quicker paths towards corruption and the loss of legitimacy.

For example, you could do the same study not between countries at the same time, but within the same country and same regime at different times, and get substantially the same results. I think a study comparing behavior in the US between 1985 and 2014 would show much the same.

106 TMC July 19, 2014 at 1:00 pm

I would have said 1995 to 2014, but I see not sign in the US that the loss of government’s credibility has lead to more dishonesty (among the regular citizens).

107 TallDave July 19, 2014 at 12:50 pm

Incentives matter.

108 Randall Parker July 19, 2014 at 1:17 pm

The Democrats are using immigration to drive the electorate to the left to build up support for electing Democrats. Then the Democrats expand the welfare state. This has moral effects similar to Socialism.

109 Moreno Klaus July 19, 2014 at 4:19 pm

Vive le Fox News! 🙂

110 Chris Herbert July 19, 2014 at 1:22 pm

Communism is an extreme form of socialism, and social programs are in just about every country on the planet. As to cheating, Capitalism is hardly my first reference when seeking virtue. That said, I think liberals like me are justifiably wary of ‘free market’ ideologues. The simple fact is there are no ‘free markets.’ Never have been and never will be. The markets we have are those governments have made possible with regulations and interventions. The concept of market fundamentalism came from Malthus and Ricardo, who believed we are just like all animals. We work to eat and then we rest. Not good for Capitalism, these two surmised, because capitalism needs labor, the cheaper the better. Give labor food stamps and the next thing you know, they ‘takers’ don’t show up. Any person with that kind of belief, in a liberal’s opinion, is someone you cross the street to avoid.

111 Moreno Klaus July 19, 2014 at 4:22 pm

“Communism is an extreme form of socialism” I don’t agree. Communism is just a dictatorship, and like in any one-party regime there is no … accountability. Lack of free speach/ police state is itself a generator of corruption.

112 Thomas July 19, 2014 at 7:50 pm

“justifiably wary” – Then justify it. I could say that I am justifiably wary of someone who approaches a study demonstrating that the pinnacle of their ideology is dishonesty, destruction of social cohesion, widespread corruption, and mandatory cognitive dissonance, by saying, “yeah, but the iron law of wages!!11!”. The difference is that my statement provides it’s justification – your absurd reaction to new information you don’t like is to respond with information plainly wrong.

113 genauer July 19, 2014 at 1:42 pm

The interesting question is now,

how many of the turing automatons here are in fact still running with human blood?

yeehah

114 Tim July 19, 2014 at 4:03 pm

Not really sure why you would use East Berlin as a model of socialism. Is a ruling class, colonial-style remote ruling government and secret police normally part of socialism?

115 Thomas July 19, 2014 at 8:06 pm

This discussion is not complete without referencing Hayek, who aptly detailed the road to serfdom. There are many supporters of socialism here to chide the authors for making this about capitalism and socialism. They would rather this be blamed on totalitarian or authoritarian governments – not socialism. Of course, the refusal to recognize that socialism is analogous with force, and capitalism is analogous with freedom, plainly identifies their bias. Whether your own vision of socialist utopia uses moderate or extreme force, unless everyone voluntarily agrees to live in this system and bear the consequences, some amount of force will be necessary. The Berlin Wall is one lesson among many that people never unanimously choose to live in these systems.

116 Moreno Klaus July 20, 2014 at 5:47 am

“Of course, the refusal to recognize that socialism is analogous with force, and capitalism is analogous with freedom, plainly identifies their bias.” Vive le Fox News !
What do you mean by “capitalism”? You could say it is a quadratic function, at some point more capitalism is not more freedom but less… same with socialism (i mean welfare states).

117 Thomas July 20, 2014 at 6:17 am

There is an argument to be made against capitalism increasing/being freedom, but you haven’t made it.

Instead of capitalism I will define freedom (Google):
1. the power or right to act, speak, or think as one wants without hindrance or restraint.
2. absence of subjection to foreign domination or despotic government.
3. the state of not being imprisoned or enslaved.

Now unless you are going to teach me how socialism is freedom (and war is peace, freedom is slavery, and ignorance is strength), I think we are done here, Klaus.

118 jack1473 July 21, 2014 at 1:30 pm

“unless everyone voluntarily agrees to live in this system and bear the consequences, some amount of force will be necessary”. –
And what is the name of the anarcho-capitalist paradise you call home?

The British TUC held the nation hostage to its whims in the 1970s and the people voted in Margaret Thatcher. Parliamentary democracy seems to have done the trick.

119 Bl July 19, 2014 at 11:52 pm

The Montesquieu quotation doesn’t quite seem germane. One can both have good manners and be dishonest.

If I understand it correctly, the study attempts to determine the effects of economic systems on character, not on outward personality.

120 dirk July 20, 2014 at 12:27 am

Correct me if I’m wrong, but didn’t the Soviets and East Germany go a bit further than mere socialism? If I recall, it was no Norway.

121 dirk July 20, 2014 at 12:34 am

Or, if you are right, when Norway runs out of all that oil wealth, the Norwegians will be a bunch of lazy bums unable to make an honest living or even catch a whale.

122 prior_approval July 20, 2014 at 4:11 am

Well, the 5 million of them currently jointly are the proud participants in this – ‘The Government Pension Fund – Global (Norwegian: Statens pensjonsfond – Utland, SPU) is a fund into which the surplus wealth produced by Norwegian petroleum income is deposited. The fund changed name in January 2006 from its previous name, The Petroleum Fund of Norway. The fund is commonly referred to as The Oil Fund (Norwegian: Oljefondet). As of the valuation in June 2011, it was the largest pension fund in the world, although it is not actually a pension fund as it derives its financial backing from oil profits and not pension contributions. As of December 31st 2013 its total value is NOK 5.110 trillion[1] ($853.9 billion), holding one percent of global equity markets’ http://en.wikipedia.org/wiki/The_Government_Pension_Fund_of_Norway

Why anyone would want to dismiss such the owners of an actually noticeable fraction of the entire globe’s equity markets as ‘a bunch of lazy bums unable to make an honest living’ is beyond me, as such holders of massive wealth bestowed on them merely through an accident of birth are apparently the very cream of a world where average is over.

123 Alexander July 20, 2014 at 3:48 pm
124 Rich July 21, 2014 at 1:37 am

Like only a few people above have mentioned, how about the fact that this case study of ONE example ignores how the East Germans lived under a totalitarian police state? Sweden is fairly socialist in practice, has a robust democracy with civil liberties, and does not have a vastly different culture from at least parts of northern Germany. How about they compare places that have many fewer external variables. Socialism vs. capitalism simply does not compute here because they are not holding the other variable constant at all! How about they compare Israelis who grew up on on kibbutzes vs. capitalist ones? How about Canadians vs. Americans (considering the differences in things like healthcare). The entire study seems ridiculous and silly. There is simply no data to even imply socialism caused cheating while capitalism encourages not cheating. I’m a total capitalist and this seems like a bonkers case.

125 eccdogg July 21, 2014 at 10:36 am

What makes you say that Sweden is fairly socialist in practice? What percentage of the means of production are owned by the Swedish state (the definition of Socialism)?

Denmark, Sweden, Finland all score in the top 20 of the Heritage Fund Index of Economic Freedom and Norway checks in at 32 (ahead of Belgium, France, Spain, Portugal). The Nordic counties combine strong free market capitalism with heavy redistribution not socialism.

Socialism by its very definition requires heavy state control of resource allocation in the way that free market social democracy does not.

126 Barry July 21, 2014 at 8:37 am

http://www.samefacts.com/2014/07/economics/does-socialism-cause-dishonesty/

Money quote: “Here’s an interesting natural experiment.

For external, historical reasons, workers in one half of a culturally and linguistically unified but politically divided country had the right to organize unions to defend their interests against employers, while in the other half of that country workers’ organizations were state-controlled in the interests of management, and genuine union activity was punished by firing if not worse. After that country was reunified, randomly chosen people from the union half and the non-union half were subjected to a standard psychological test measuring the propensity to cheat. Those who had grown up under conditions were ordinary people could defend themselves openly from oppression by their bosses turned out to be more honest than their peers from the non-union part of the country.”

Conclusion: Unionization makes people behave well, while union-busting makes them behave badly. ”

I would say that even for you, Alex, this is bad, but unfortunately it isn’t.

127 Lawrence July 21, 2014 at 12:32 pm

About this:

“West Germans who were exposed to capitalism”

West Germany, in the 1960s and 1970s and 1980s, was not a capitalist economy. It had the strongest labor unions in the world, which gained seats on the boards of all of the major corporations. It had a broad system of social welfare. The government was deeply involved in the running of the economy.

This division of Germany into 2 countries can teach us things, but it won’t teach us much about capitalism, as neither country was capitalist.

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