Communism still matters liberty still matters

Those who grew up in East Germany seem to have a harder time cottoning to the realities of capitalism:

We analyze the long-term effects of living under communism and its anticapitalist doctrine on households’ financial investment decisions and attitudes towards financial markets. Utilizing comprehensive German brokerage data and bank data, we show that, decades after Reunification, East Germans still invest significantly less in the stock market than West Germans. Consistent with communist friends-and-foes propaganda, East Germans are more likely to hold stocks of companies from communist countries (China, Russia, Vietnam) and of state-owned companies, and are unlikely to invest in American companies and the financial industry. Effects are stronger for individuals exposed to positive “emotional tagging,” e.g., those living in celebrated showcase cities. Effects reverse for individuals with negative experiences, e.g., environmental pollution, religious oppression, or lack of (Western) TV entertainment. Election years trigger further divergence of East and West Germans. We provide evidence of negative welfare consequences due to less diversified portfolios, higher-fee products, and lower risk-adjusted returns.

That is from a new NBER paper by Christine Laudenbach, Ulrike Malmendier, and Alexandra Niessen-Ruenzi.

But if you are looking for a contrary point of view, consider this new paper by Sascha O. Becker, Lukas Mergele, and Ludger Woessmann:

German separation in 1949 into a communist East and a capitalist West and their reunification in 1990 are commonly described as a natural experiment to study the enduring effects of communism. We show in three steps that the populations in East and West Germany were far from being randomly selected treatment and control groups. First, the later border is already visible in many socio-economic characteristics in pre-World War II data. Second, World War II and the subsequent occupying forces affected East and West differently. Third, a selective fifth of the population fled from East to West Germany before the building of the Wall in 1961. In light of our findings, we propose a more cautious interpretation of the extensive literature on the enduring effects of communist systems on economic outcomes, political preferences, cultural traits, and gender roles

That said, I still believe that communism really matters, and durably so, even if the longer history matters all the more so.  And now there is yet another paper on East Germany and political path dependence, by Luis R. Martinez, Jonas Jessen, and Guo Xu:

This paper studies costly political resistance in a non-democracy. When Nazi Germany surrendered in May 1945, 40% of the designated Soviet occupation zone was initially captured by the western Allied Expeditionary Force. This occupation was short-lived: Soviet forces took over after less than two months and installed an authoritarian regime in what became the German Democratic Republic (GDR). We exploit the idiosyncratic line of contact separating Allied and Soviet troops within the GDR to show that areas briefly under Allied occupation had higher incidence of protests during the only major episode of political unrest in the GDR before its demise in 1989 – the East German Uprising of 1953. These areas also exhibited lower regime support during the last free elections in 1946. We argue that even a “glimpse of freedom” can foster civilian opposition to dictatorship.

I take the core overall lesson to be that the eastern parts of Germany will experience significant problems for some time to come.

And speaking of communist persistence, why is it again that Eastern Europe is doing so well against Covid-19?  Belarus is an extreme case, with hardly any restrictions on activity, and about 14,000 cases and 89 deaths.  You might think that is a cover-up, but the region as a whole has been quite robust and thus it is unlikely to be a complete illusion.  And no, it doesn’t seem to be a BCG effect.

Does communism mean there is less of a culture of consumption and thus people find it easier to just stay at home voluntarily?  Or have all those weird, old paranoid communist pandemic ministries persisted and helped with the planning?  Or what?

Double credit on this one to both Kevin Lewis and Samir Varma, neither less excellent in his conjunction with the other.


Comments for this post are closed