East Germans Invest and Vote Differently. Here's Why.

(Bloomberg Opinion) -- At first look, it seems too obvious to need saying: Long after a Communist regime’s fall, people who lived under communism remain different from those who didn’t. It’s possible, however, that the differences between them have even deeper historical roots than merely the Communist experience.

In a recent paper, Christine Laudenbach of the Goethe University in Frankfurt, Ulrike Malmendier of University of California, Berkeley and Alexandra Niessen-Ruenzi of the University of Mannheim show using German brokerage data that east Germans’  financial behavior is still, in part, determined by their past in the German Democratic Republic. The investing environment for them and their west German peers is exactly the same, and so are the financial literacy levels of those who become brokerage clients. But the easterners are less likely to put money in the stock market or take risks on margin,  and they would rather invest in former state companies than in the financial sector.

Even the geography of their investments is different: They are more open to opportunities in countries that used to be the GDR’s allies – Russia, China, Vietnam – than in the U.S.

These effects, according to the Laudenbach paper, get stronger the longer an investor has lived in the GDR and the further away from the West German border. The eastern “investing identity” is more pronounced in communities that were home to East German Olympic champions, national heroes and sources of pride in Communist times.  It is also amplified in election years, when people tend to be more focused on their political beliefs.

Other researchers have pointed to even more substantive behavioral differences between east and west Germans. A 2014 paper  by Duke University’s Dan Ariely and collaborators showed that the easterners were more likely to cheat in a game – evidence that the experience of constantly playing games with the oppressive Communist regime stayed with people even a quarter of a century after the Berlin Wall was dismantled. It also has been shown that east Germans are less trusting than westerners. 

The obvious reaction to these observed differences is to link them to communism’s pervasive influence: The blanket propaganda (the explanation favored by Laudenbach and her collaborators) or a planned economy’s corrupting effect on morality (discussed in the Ariely paper). No doubt there’s much to this. However, that isn’t the whole story. Turns out that it’s also likely that experiences that predate communism are influencing behavior. 

Last year, Davide Cantoni of the University of Munich and his two collaborators, Felix Hagemeister and Mark Westcott, demonstrated that, as the anti-establishment Alternative for Germany (AfD) switched from anti-euro to nationalist rhetoric, it received more electoral support in the same communities that backed the Nazis in 1928, 1930 and 1933. Almost no one who voted in those elections is still among the living – but somehow the patterns hold.

In a similar vein, maps that superimpose the borders of old empires, which ceased to exist after World War I, onto the map of modern Europe show that modern voting patterns follow those old borders. Poland’s western regions, which were part of the pre-1918 German Reich, tend to support centrist candidates, while the east, once part of the Russian empire, votes nationalist and populist. In the Romanian presidential election of 2014, the “Austro-Hungarian” regions backed liberal Klaus Iohannis, while others were mostly in favor of Social Democrat Viktor Ponta. 

Sascha Becker of the University of Warwick in the U.K. and University of Munich’s Luger Woessmann concluded in 2011 that the legacy of the Austro-Hungarian Empire still manifests itself as higher levels of trust in state institutions and between citizens, as well as in lower corruption levels, than in regions that were part of the Russian or Ottoman empires. 

The Communist experiment was, of course, a traumatic event wherever it took place. But a search for the historical roots of people’s behavior leads down a deep rabbit hole, especially in central Europe with its constantly warring, shape-shifting empires. It’s possible that in some places, people were made more susceptible to communism by centuries of belonging to a communitarian strain of Christianity, as Simeon Djankov and Elena Nikolova suggested in a recent controversial paper for the World Bank.

Whether that’s true or not, identities are shaped by extremely complex historical influence mixes. Relatively recent influences may appear to provide eminently logical explanations, but they are themselves only points in chain reactions that started in the distant past.

To contact the editor responsible for this story: Therese Raphael at traphael4@bloomberg.net

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