Are the Supporters of Socialism the Losers of Capitalism? Conformism in East Germany and Transition Success

Abstract

The empirical literature is inconclusive about whether a country's democratization goes
hand in hand with a reallocation of economic resources. With newly available individual-level
data of former residents of the socialist German Democratic Republic (GDR), we analyze
how supporters and opponents of the socialist system performed within the market-based
democracy of West Germany after reunication. Protesters, those who helped to overthrow
the socialist regime in the Peaceful Revolution show higher life satisfaction and better labor
market outcomes in the new economic system. Former members of the ruling socialist party
and employees in state-supervised sectors become substantially less satised. These results
do not seem to be driven by individual reactions to the transition, but rather by the removal
of discriminatory practices in the GDR. Additional results indicate that conformism in the
GDR also explains political preferences over the almost three decades after the reunication
of Germany.

Keywords: East Germany, state socialism, transition, labor market, life satisfaction

JEL Classification: H10, N44, P20, D31