Does democracy foster trust?

Journal of Comparative Economics 37 (2009) 251–269

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Does democracy foster trust? Helmut Rainer a,∗ , Thomas Siedler b,c a b c

University of St Andrews, St Salvator’s College, St Andrews KY16 9AL, United Kingdom DIW Berlin, Mohrenstraße 58, 10117 Berlin, Germany Institute for Social & Economic Research, University of Essex, Colchester CO4 3SQ, United Kingdom

a r t i c l e

i n f o

a b s t r a c t

Article history: Received 7 August 2007 Revised 12 June 2008 Available online 13 September 2008 JEL classification: P51 Z13 Keywords: Social trust Institutional trust Political regimes

Rainer, Helmut, and Siedler, Thomas—Does democracy foster trust? The level of trust inherent in a society is important for a wide range of microeconomic and macroeconomic outcomes. This paper investigates how individuals’ attitudes toward social and institutional trust are shaped by the political regime in which they live. The German reunification is a unique natural experiment that allows us to conduct such a study. Using data from the German General Social Survey (ALLBUS), we obtain several interesting results. We first show that, shortly after reunification, East Germans displayed a significantly less trusting attitude than West Germans. We then show that the experience of democracy by East Germans since reunification did not serve to increase levels of social trust significantly. In fact, we cannot reject the hypothesis that East Germans, after more than a decade of democracy, have the same levels of social distrust as shortly after the collapse of communism. In trying to understand the underlying forces, we show that the persistence of social distrust in the East can be explained by negative economic outcomes that many East Germans experienced in the post-reunification period. Interestingly, and in sharp contrast to social trust, we also find that the levels of institutional trust in the East significantly converge towards those in the West. Journal of Comparative Economics 37 (2) (2009) 251–269. University of St Andrews, St Salvator’s College, St Andrews KY16 9AL, United Kingdom; DIW Berlin, Mohrenstraße 58, 10117 Berlin, Germany; Institute for Social & Economic Research, University of Essex, Colchester CO4 3SQ, United Kingdom. © 2008 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved.

1. Introduction

In 1990, East and West Germany were reunited after more than four decades of separation. Before reunification, East Germans were governed by a communist regime that systematically violated the basic rights of many citizens. The freedom that people had was further undermined by the German Democratic Republic’s State Security Service (“Stasi”). The Stasi kept files on an estimated six million people, and built up a network of civilian informants (“unofficial collaborators”), who monitored politically incorrect behavior among other citizens. By 1995, 174,000 East Germans had been identified as unofficial collaborators. This amounts to 2.5 percent of the total population (Koehler, 1999) and constitutes one of the highest penetrations of any society by a security apparatus. In fact, the ratio of “watchers” to “watched” in East Germany

*

Corresponding author at: School of Economics and Finance, University of St Andrews, St Salvator’s College, St Andrews KY16 9AL, United Kingdom. Fax: +44 (0) 1334 462444. E-mail addresses: [email protected] (H. Rainer), [email protected] (T. Siedler). 0147-5967/$ – see front matter doi:10.1016/j.jce.2008.09.003

© 2008 Association

for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved.

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was even higher than that of the Soviet Union under communism.1 Since reunification, East Germans have experienced life in a market-based democracy, an environment West Germans had experienced since 1945. This paper examines whether the levels of social and institutional trust have changed in response to the reunification of Germany.2 Our main aim is to understand how individuals’ trust in other people and in legal and political institutions are shaped by the political regime in which they live. Taking such political economy factors seriously in understanding how trust evolves or disintegrates is important for several reasons. First, there is now widespread evidence that social trust can have a positive impact on a wide range of macroeconomic and microeconomic outcomes (Knack and Keefer, 1997; Alesina and La Ferrara, 2002; Slemrod and Katuscak, 2005). Second, trust in the core institutions of a political system matters for whether people become politically active, whether they favor policy reforms, and whether they are willing to comply with binding decisions of policy makers (Levi and Stoker, 2000). We begin by asking whether the communist regime in East Germany affected individuals’ social and institutional trust. To investigate this, we make the identifying assumptions that East and West Germany were indistinguishable until the exogenously imposed separation in 1945 (Fuchs-Schündeln and Schündeln, 2005; Alesina and Fuchs-Schündeln, 2007) and that the collapse of the Berlin Wall in 1989 was an unanticipated political event (Bach and Trabold, 2000; Frijters et al., 2004).3 Thus, if one observes different levels of trust between East and West Germans shortly after reunification, one can attribute them to the opposing political, economic and social histories in the two parts of Germany. Given that people are more ready to trust other people and institutions if the system in which they live ensures them against breaches of trust, and given that democracy provides exactly this kind of insurance (Sztompka, 1997), it might be expected that trust was more likely to appear under democracy in the West than under communism in the East. We investigate this using data from the German General Social Survey (ALLBUS). The data allow us to control for individual and social characteristics likely to influence trust (Alesina and La Ferrara, 2002). We also use adequate institutional controls as identified in the theoretical literature on trust (Zak and Knack, 2001). We find that individuals who lived under communism in East Germany are much more likely to distrust other people, legal institutions, and political authorities than individuals who lived under democracy in West Germany. Having established this, we then ask whether the experience of democracy by East Germans since reunification served to increase levels of trust. Given the repressive character of the communist rule, it might be expected that democracy encouraged trust by a process of disassociation from the communist past. Indeed, whatever else the new democratic environment was, it was certainly not communist or communist controlled. That, by itself, might have increased the levels of trust (Mishler and Rose, 1997). Contrary to this expectation, we obtain some striking results. The most intriguing is that there is no significant increase of social trust among East Germans. In fact, we cannot reject the hypothesis that East Germans, after more than a decade of democracy, have the same levels of social distrust as shortly after the collapse of communism. Thus, being moved from a repressive communist regime (with low collective levels of social trust) to a liberal democratic system (with comparatively high collective levels of social trust) does not lead to more social trust. To put it differently, there are no complementarities between democracy per se and attitudes towards social trust in East Germany. In trying to understand the underlying mechanisms, we show that the culture of persistent social distrust in the East can be explained by the economic and social problems that have troubled many East Germans in the post-reunification period. Interestingly, and in sharp contrast to social trust, we also find that the levels of institutional trust in the East significantly converge towards those in the West. The convergence of institutional trust can partly be explained by the fact that East Germans are inclined to trust new democratic institutions despite economic hardships, whereas they react more negatively when revising attitudes towards social trust in similar circumstances. The paper proceeds as follows. Section 2 generates hypotheses and discusses the related literature. Section 3 provides background on the German separation and reunification. Section 4 describes the data, and Section 5 presents the results. Section 6 presents concluding remarks. 2. Hypotheses and related literature The German separation and reunification is a unique natural experiment that allows scholars from different disciplines to get at fascinating questions to do with economic and political systems. In this paper we investigate whether living under a specific politico-economic system leads to an adaption of attitudes towards social and institutional trust. To do so, we use the terms “communism” and “democracy” to describe the opposing political, economic and social histories in the two parts of Germany, and focus on the following two questions. First, what were the effects of living under a communist regime on attitudes towards social and institutional trust? Second, did the trust attitudes of East Germans converge towards those of West Germans in response to the reunification of Germany?

1 It is estimated that the Soviet Union’s KGB employed 480,000 full-time agents to oversee a nation of 280 million, which means there was one agent per 5830 citizens. The ratio for the Stasi was one secret policemen per 166 East Germans. When unofficial collaborators are added, there would have been one informant watching every 66 citizens (Koehler, 1999). 2 When we say “social trust” we mean how much people are trusting of each other. By “institutional trust” we refer to citizens’ confidence in certain political authorities and institutions, such as the parliament or the legal system. 3 See below for a detailed discussion of these identifying assumptions.

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2.1. The effects of communism on trust The first hypothesis we analyze posits that, all other things being equal, social and institutional trust were less likely to appear under communism than under democracy. Theories of why democracy has a significant trust-generating advantage over other political systems come from a variety of sources across different disciplines. One common view is that people are more ready to trust other people and institutions if the system in which they live insures them against potential breaches of trust. For example, if individuals know that governmental or administrative agencies are able and ready to sanction the violations of binding rules, they feel protected and secure, and the level of trust is raised accordingly. An even stronger positive effect of such enforcement is to be expected when the enforcing institutions are not merely efficient but operate to some moral standards, e.g., giving citizens the credit of trust and abstaining from permanent scrutiny, invigilation and control (Sztompka, 1997). Democratic institutions work precisely to these kind of standards. On the other hand, when individuals are met with discrimination, intolerance and neglect, then a culture of distrust can easily arise. An extreme case of this is denying citizens any credit of trust and approaching them indiscriminately as potential violators, with permanent checks and controls, demands of alibis and harsh penalties for minor infractions (Sztompka, 1997). That is exactly what happened under communism in East Germany. Because of the prolonged absence of a trust-generating context, we would expect the degree of trust that developed in East Germany to be much more limited than the trust that developed in the West.4 We investigate whether communism was inimical to social and institutional trust by comparing the trust levels of East and West Germans immediately after reunification. We should be clear, however, that this comparison only allows us to tease out the extent to which the entire panopoly of economic, political and social conditions in East Germany reduced trust. Which particular aspects of the communist regime mattered cannot be examined by simply comparing East to West Germans: whether it was the intensely monitored police-state; whether it was the “shortage society” with a generally low standard of living; whether it was the closed state with little in- and out-migration; whether it was the lack of democratic codetermination; or whether it was the persecution of opponents of the communist regime. To get at this issue, we make use of a question that was posed in the ALLBUS survey in 1991. In that year respondents who lived in East Germany before reunification were asked to identify the most troubling aspects of life under communism. We are therefore able to provide some descriptive evidence about which specific facets of the communist regime were most inimical to trust (more about this below). 2.2. Convergence of trust in the post-reunification period? The second question we study is whether East Germans acquired similar levels of social and institutional trust as West Germans in the post-reunification period. What we currently know theoretically about the formation of social and institutional trust comes mainly from the economics and political science literatures. Social trust theories emphasize that the formation of social trust involves rational individuals assessing the risk and returns from trusting other people. Guiso et al. (in press) study the conditions under which a society initially trapped in a “low trust” equilibrium becomes more trusting.5 The Guiso et al. (in press) model predicts that if the negative consequences of trusting an untrustworthy individual are severe, or if the fraction of untrustworthy types in the population is high, then a society will be trapped in a distrust equilibrium. Given that East Germans experienced one of the most extensive police infiltrations of a society in history, and given that wrongly placed trust could have consequences as severe as torture and imprisonment, this prediction lends further support to our hypothesis that social trust was less likely to appear in the East than in the West. Starting from a distrust equilibrium, the Guiso et al. (in press) model then predicts that an exogenous reduction in the risks of trusting is a precondition for trust to emerge. However, for trust to become more widespread, it is also necessary that the returns from trusting are sufficiently high. In the East German context, the dismantling of the police state reduced the risk of trusting others, but the introduction of the market economy arguably also raised the potential returns to trust. From a theoretical viewpoint, one might therefore hypothesize that social trust increased in the East after reunification. Institutional trust theories are also built on the assumption of individual maximizing behavior. They emphasize that institutional trust and distrust are the rational responses by individuals to the performance of institutions (North, 1990).6 In established democracies, institutional theories typically emphasize the importance of policy performance, including especially economic performance (Przeworski et al., 1996). In new democracies, however, the political character of new

4 See Ingelhart et al. (1998) for cross-country evidence that is in line with our first hypothesis. An experimental study that is related to our paper is that by Ockenfels and Weimann (1999). Comparing East and West Germans in a public good game and a solidarity game, they argue that cooperation and solidarity behavior among East Germans were negatively influenced by the political, economic and social history in the eastern part of Germany. 5 Relatedly, Tabellini (in press) examines a model of cultural transmission of values of cooperation. 6 In the political science literature, cultural trust theories compete with institutional trust theories as explanations for the evolution of political trust in post-communist societies (Mishler and Rose, 2001). In contrast to institutional theories, cultural theories hypothesize that trust in institutions is exogenous to institutional performance. Indeed, the existence of untrustworthy institutions is hypothesized to result in a socialization process in which individuals learn to distrust political institutions. As a result, a predisposition to distrust institutions is inherent in authoritarian cultures such as those of most postcommunist societies of Eastern and Central Europe (Mishler and Rose, 2001). Moreover, the distrust learned through exposure to and participation in an authoritarian regime is hypothesized to persist for decades or generations beyond the collapse of the old regime (Dahl, 1971; Putnam, 1993). Cultural theories have been criticized for their failure to acknowledge the importance of institutional performance to public trust in institutions. Moreover, they are not easily linked to rational individual behavior.

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institutions can matter as much as their policy outputs (Mishler and Rose, 1997, 2001). In East Germany, for example, individual liberty and the rule of law were systematically repressed for decades. One would therefore expect that East Germans valued those institutions that succeeded in reducing corruption, removing restrictions on individual liberty, and providing increased freedoms (e.g., the police, the legal system). Other institutions (e.g., the parliament) might have been trusted or distrusted to the extent that they produce desired economic outcomes.7 Overall, one might hypothesize that the new democratic institutions generated increased trust amongst East Germans through consistent institutional performance in the post-reunification period. From the above discussion, it is not unreasonable to expect that both social and institutional trust increased in East Germany in response to reunification. Contrary to this expectation, we obtain some surprising results. On one side, our results confirm that East Germans acquired similar measures of institutional trust as West Germans in the post-reunification period. What is surprising, however, is that we find no significant increase in social trust, i.e., the social trust levels in the East did not significantly converge towards those in the West after reunification. The central question therefore is this: What caused the patterns of social and institutional trust to evolve differently from one another? A possible explanation is as follows. The formation of social trust hinges on inter-personal relationships; it involves an element of strategic interaction among many uncoordinated individuals. Institutional trust, in contrast, is about an individual and its evaluation of different state entities; within months after the fall of the Berlin Wall, East Germans were dealing with a new set of institutions which performed fairly consistently from the first year after the collapse of communism well into the new millennium. Personal relationships, however, were different: cities and towns in the East shrank with emigration (Uhlig, 2006); westerners came in and did not mix well with easterners; superiors in the workplace changed; easier emigration reduced the costs of easterners of reneging on inter-personal agreements with each other; and conditions in the marriage market changed (ZUMA, 2005). Taken together, these factors indicate that personal interactions were thrown into turmoil causing social trust to remain relatively low, while improved institutional performance led to a “good” equilibrium with high public trust in institutions. There are several implications resulting from the above explanation. Most importantly, it suggests that it is regime change per se and not the legacy of the communist past which drives the slow convergence of social trust in East Germany. Put differently, East Germans remained distrusting after reunification not because of their past communist experiences, but because the social environment in the new regime turned out to be difficult for inter-personal relationships. In that respect, our story may also cast some new light on the findings of Alesina and Fuchs-Schündeln (2007), who show that communism in East Germany led to strong preferences for redistribution. If East Germans trust institutions of redistribution, but do not trust other people, they may be more likely to prefer to tax other people to increase their own incomes. But this means that it is not necessarily communism which is responsible for the diversity of redistributive preferences between East Germans and West Germans. It would be of interest, therefore, to examine the implications of our story for Alesina and Fuchs-Schündeln (2007). 2.3. Related literature Ever since the contributions of Fukuyama (1995) and Putnam (1993, 1995, 2000), a lot of thought has gone into understanding the factors that influence trust. Examining individual determinants of social trust, Alesina and La Ferrara (2002) have shown that social trust is related to individual characteristics such as income and education, community characteristics, and discrimination. This paper makes two contributions to the literature on the determinants of trust. The first is to open up a new avenue of research into the effects of political regimes on individuals’ trust in other people and in legal and political institutions. Understanding the extent to which trust is contingent on the political regime in which people live is important in itself, especially in the post-communist societies of central and eastern Europe, where social and institutional trust is vital for democratic and economic consolidation (Mishler and Rose, 1997). The second main contribution lies in our identification strategy. Following Alesina and Fuchs-Schündeln (2007), we use the German separation and reunification as a natural experiment to estimate the causal effect of having lived under a communist regime on social and institutional trust. In contrast, the identification strategy employed by Alesina and La Ferrara (2002), which relies on standard linear regression inference techniques, does not allow them to distinguish causal effects from correlations.8 Our paper also provides new insights by looking at how fast institutions affect social trust. Knack and Keefer (1997) have argued that well-functioning institutions are associated with the formation of social trust. One of our contributions is to demonstrate that, despite consistent institutional performance and fast-growing public trust in institutions, the growth of social trust in East Germany was relatively slow and insignificant after reunification. This seems to suggest that institutional rules that constrain the government from acting arbitrarily are necessary but not sufficient conditions for social trust to emerge. Relatedly, the present paper also enhances our understanding of the relationship between social and institutional trust, an issue which is not relevant to the standard trust literature. Much research on social capital hypothesizes that social and institutional trust are correlated and that social trust tends to create or reinforce institutional trust (see, e.g.,

7 For example, individuals who have suffered economically from what they perceive to be policies “rubber-stamped” by the parliament are likely to be less trusting in the parliament than are those in better economic circumstances. We will therefore also investigate the extent to which the evolution of institutional trust amongst East Germans depends on individual economic outcomes. 8 For a thorough discussion of identification in regression models see Angrist and Krueger (1999).

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Putnam, 2000). Our evidence suggests that social and institutional trust are not necessarily related, nor is institutional trust a consequence of social trust. Indeed, while East Germany witnessed a sharp increase in institutional trust after reunification, social distrust has largely maintained itself. Therefore, assumptions that social and institutional trust necessarily go together or are somehow causally related do not seem justified.9 Finally, our paper also contributes to a growing body of research that examines correlations between political economy factors and human behavior and well-being. Besley and Kudamatsu (2006) examine the link between democracy and health using data from a cross section of countries. Their findings indicate that there is a positive correlation between democratic institutions and health policy interventions, resulting in greater life expectancy in democracies. Alesina and Fuchs-Schündeln (2007) examine whether individuals’ preferences for redistributive policies are affected by the political regime in which they live. Using the natural experiment of German reunification, they show that East Germans are more in favor of redistribution than West Germans. The difference in preferences is shown to be mainly a direct effect of communism. 3. German separation and reunification: A natural experiment A recent literature uses the separation of Germany after World War II and the reunification of East and West Germany in 1990 as a source of exogenous variation to study preferences for redistribution, economic behavior and to test economic theories. Alesina and Fuchs-Schündeln (2007) study preferences for redistribution among East and West Germans during the post-reunification period; Redding and Sturm (2007) investigate the importance of changes in market access for West German cities following separation on population growth and economic development; Fuchs-Schündeln and Schündeln (2005) study precautionary saving behavior among East Germans; Frijters et al. (2004) examine changes in life satisfaction among East Germans following reunification; finally, Fuchs-Schündeln (in press) studies differences in saving behavior among East and West Germans to validate the life cycle consumption model. Together, these papers provide detailed evidence that the reunification of Germany was a widely unexpected political and economic shock and that the two parts of Germany were indistinguishable prior to the separation in 1945. 3.1. Germany prior to the separation in 1945 Our key identifying assumption is that East and West Germany showed the same patterns of trust prior to the exogenously imposed separation in 1945. However, it is important to note that absent trust data from before World War II showing equal trust across Germany, it can only be argued that it is unlikely that trust diverged, based on the homogeneity of East and West Germany in other respects prior to the war. Alesina and Fuchs-Schündeln (2007) show that there were no systematic differences in the average per capita income between the regions of East and West Germany prior to separation in 1945. The authors also stress that there were no systematic differences in the proportion of the population working in industry, agriculture or commerce between both regions, and that physical destruction during World War II occurred in both East and West Germany alike. In addition, the authors report that a similar number of constituencies in the later East and West Germany voted for the Social Democrats in the 1898 election. Redding and Sturm (2007) point out that the political decisions that determined the run of the inner-German frontier during separation are unlikely to be correlated with prewar characteristics of certain areas or cities in Germany. The above evidence suggests that the areas that later became East and West Germany were very similar in terms of economic conditions. Hence, our identifying assumption seems justified on economic grounds. However, despite the homogeneity of East and West Germany prior to the war, we cannot rule out the possibility that pre-separation trends in social and institutional trust confound our results, and we acknowledge the possibility. 3.2. The reunification of Germany Bach and Trabold (2000), Frijters et al. (2004), Fuchs-Schündeln and Schündeln (2005) and Fuchs-Schündeln (in press) argue that the collapse of the Berlin Wall was a largely unanticipated event. For instance, Fuchs-Schündeln (in press, p. 4) argues that the “German reunification came as a surprise, and thus East German households did not plan ahead with German reunification in mind before 1989.” Frijters et al. (2004, p. 730) point out that “it is well acknowledged that the falling of the wall was widely unanticipated in Germany (Bach and Trabold, 2000), and thus it provides some useful exogenous variation with which we can more firmly establish causality in empirical analysis.” In line with this evidence, this paper uses the German separation and reunification as an exogenous event to estimate the causal effect of communism and subsequent experience of democracy on individuals’ social and institutional trust. 4. Data Our main data source is the German General Social Survey (ALLBUS). The ALLBUS is a biennial survey on attitudes, behavior and social structure in Germany. Each cross-section is a nationally representative survey of the population aged 18

9

Based on cross-country data from the World Values Survey, as similar conclusion has been reached by Newton (1999).

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and above of the Federal Republic of Germany. The data used in this paper come from the 1991, 1994, and 2002 ALLBUS surveys. We restrict our analysis to native Germans who were born in either the German Democratic Republic or the Federal Republic of Germany and have finished their general education. This leaves us with a sample of individuals who were born between 1898 and 1983.10 The ALLBUS provides two types of survey-based trust questions: a question about social trust and a question about institutional trust. As will become apparent below, the social trust question refers to inter-personal trust, while the institutional trust questions refer to trust in specific state entities. As for social trust, in 1991 and 2002 respondents were asked a question that reads: “Some people say that most people can be trusted. Others think that one can’t be careful enough when dealing with other people. What is your opinion about this?” As in Alesina and La Ferrara (2002), we define as “socially trusting” those respondents who answer that “most people can be trusted,” and distrusting those who answer “one can’t be careful enough” or “it depends.” Our first dependent variable, social trust, is therefore a variable which equals one if the respondent is socially trusting, and zero otherwise. In line with Putnam (2000) and Alesina and La Ferrara (2002), we make the interpretive assumption that responses to the social trust question tell us about individuals’ evaluations of the environment in which they live—whether people around them behave in a trustworthy fashion.11 Moving on from social trust to institutional trust, we make use of a question that was asked in 1994 and 2002. It reads: “I am going to read out a number of institutions and organizations. Please tell me for each institution or organization how much trust you place in it. Please use the scale: 1 means you have absolutely no trust at all; 7 means you have a great deal of trust.” We used the respondents’ evaluation of the legal system, the constitutional court, the police, and the parliament. Our four institutional trust measures take the value one if an individual responds with a five, six or seven on the relevant seven point scale, and zero otherwise. Our interpretive assumption is that questions about the major representational and judicial institutions tap evaluations about the regime or system as a whole (system-focused judgments).12 Among the explanatory variables we use several individual socio-economic controls. Our key explanatory variable East is a dummy variable which equals one if the individual was born in East Germany before reunification, and zero otherwise. We also include age, age squared, year of birth, gender, marital status, educational attainment, employment status, and household income. Educational attainment is measured by the highest completed academic qualification, and it is grouped into three categories in ascending order: technical college entrance qualification (“Fachhochschulreife”) or less; higher education (“Hochschulreife”)13 ; and university degree. To control for a person’s employment status, we include dummies for full time employment, part time employment, other employment (e.g., short time work, side jobs), and non-working. Household income is net monthly household income expressed in 2002 Euros. To capture differences in economic performance, income distribution and living standards between East and West Germany after reunification, we include adequate controls for the institutional and economic environment in which the respondent lives.14 Because egalitarian distributions of income are likely to enhance trust (Zak and Knack, 2001), we include the Gini coefficient at the federal state level computed with data from the German Socio-Economic Panel (SOEP) using postgovernment household income for the years 1991, 1994 and 2002. We use the proportion of foreigners in the population at the federal state level (Federal Statistical Office Germany, 2006) as an explanatory variable to capture differences in ethnic composition across federal states and over time. In light of the work of Zak and Knack (2001), one might expect respondents from less homogeneous states to exhibit lower levels of trust. As institutional control variables we use the number of solved crime cases as a percentage of all registered crimes (Federal Criminal Police Office Germany, 2002) and education expenditure as a percentage of GDP (Federal Statistical Office Germany, 2006) at the federal state level. Finally, we also control for state-level GDP per capita and the state-level unemployment rate as a measure for the economic conditions where the respondent lives. Summary statistics for all variables used in the paper are in Tables A.1 and A.2 in Appendix A. 5. Results 5.1. The effects of communism on trust We now analyze the relationship between trust and the opposing political, economic and social histories in the two parts of Germany. In order to have a baseline against which we can compare subsequent findings, we begin by running separate

10 We excluded individuals who indicated that they had migrated from the GDR to the FRG between 1945 and 1989. As a result, 221 respondents (around 4 percent of individuals in our final sample) were dropped. 11 See Hardin (1993), Putnam (2000), Glaeser et al. (2000), and Alesina and La Ferrara (2002) for measurement issues associated with the social trust question used in this paper. 12 See Levi and Stoker (2000) for measurement issues associated with institutional trust questions. 13 “Fachhochschulreife” is a certificate fulfilling the entrance requirements to study at a polytechnical college. “Hochschulreife” is a certificate entitling holders to study at university. 14 This is important because it is well documented that GDP per capita, income inequality and proportion of foreigners living in East Germany is considerably lower in eastern than in western federal states (Frick and Goebel, 2008).

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Fig. 1. By how much is an East German less likely to trust other people and institutions than a West German (ALLBUS)? Notes: Estimates are marginal effects from probit regressions computed at the average values of all variables used. *** Significance at 0.1 percent. ** Idem, 1 percent. * Idem, 5 percent. Non-reported controls included in each regression are: age, age squared, female, higher education, and university degree.

regressions for each survey year. The model we estimate is our minimal specification and only includes age, age squared, female, and educational attainment as a set of basic controls. We run five latent probit regressions of the form: y ∗i = φ1 Easti + φ2 X i + i with

 trusti =

(1)

1 if y ∗i > 0, 0

if y ∗i  0,

where y ∗i is the latent variable and trusti represents one of the five trust outcomes: social trust, trust in the legal system, trust in the constitutional court, trust in the police, and trust in the parliament. The vector X i includes age, age squared, female, higher education and university degree as basic controls. The East i dummy is the variable of main interest. It captures people who lived under communism in East Germany before 1990. The error term i is NID(0, σ 2 ) and captures all other omitted characteristics. Fig. 1 illustrates our baseline results. While the regressions include age, age squared, female and educational attainment, the figure only reports marginal effects for the East dummy. We first look at the data that were collected immediately after reunification in 1991 (social trust) and 1994 (institutional trust). For all trust questions, the estimates suggest that eastern respondents displayed a significantly less trusting attitude than did western respondents. Indeed, the estimated coefficients on the East dummy are significant at 0.1 percent for all trust questions. The quantitative meaning of our results is as follows: the incidence of social trust was roughly 10 percent lower for East Germans than for West Germans; trust in the legal system was 20 percent lower; trust in the constitutional court was 25 percent lower; trust in the police was 27 percent lower; and trust in the parliament was 13 percent lower. These first results suggest that people who have lived on average more than 30 years under communism are much more likely to distrust other people and institutions than people who have lived under democracy. While there are significant differences between East and West Germans shortly after reunification, we can so far only argue that the entire panopoly of economic, political and social conditions in East Germany reduced trust. We now provide some descriptive evidence about which specific facets of the communist regime were most inimical to social trust. In 1991, the ALLBUS survey not only asked a question about social trust, but also identified four frequently criticized aspects of the East German communist regime: (a) the low standard of living; (b) the lack of freedom to travel; (c) the lack of democratic codetermination; and (d) the persecution of regime opponents. Respondents who lived in East Germany prior to reunification were then asked to choose from this list the most troublesome aspect of life under communism. We create four dummy variables which equal one if a specific facet of communism was identified as the most critical aspect, and zero

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Table 1 East Germans’ critique of communism and social trust. Dependent variable Age Age squared (×102 ) Female Higher education University degree Low standard of living Lack of freedom to travel Lack of democratic codetermination Persecution of regime opponents Pseudo-R 2 Log-likelihood value Number of observations

Social trust (1991) 0.012*** (0.003) 0.001 (0.003) −0.057*** (0.019) 0.047 (0.040) 0.101*** (0.041) −0.131*** (0.019) −0.103*** (0.020) −0.094*** (0.20) −0.040 (0.037) 0.05 −754.02 1644

Notes: Estimates are marginal effects from a probit regression. Standard errors are in parentheses. *** Significance at 1 percent.

otherwise.15 In Table 1 we re-estimate Eq. (1) after replacing the variable East with East Germans’ evaluations of the most critical aspect of the communist regime. The results suggest that the manner in which East Germans critically evaluated the old regime is substantially linked with social trust. Three of the four criteria for assessing the communist regime are not only statistically significant, but also show large marginal effects. The largest negative influence on social trust is the extent to which East Germans thought that the standard of living was low in the communist past. East Germans who were most troubled by the closed state with restricted freedom to travel also were much less likely to trust other people than West Germans. The same is true, to a lesser extent, of those who thought that the lack of democratic codetermination was the most troublesome aspect of the communist regime. Finally, East Germans who identified the persecution of regime opponents as the most critical aspect of the old regime were not significantly less trusting than West Germans. Comparing the R 2 statistic from Table 1 with the R 2 of a probit regression without the four regime assessment measures reveals that they account for 66 percent of the explained variation in social trust. Finally, we return to the evidence displayed in Fig. 1, and take a first look at the extent to which the levels of trust in the East have changed in the post-reunification period. To do so, we compare the data that were collected in 2002 with that from shortly after reunification. Our idea is that by 2002 the democratic regime has existed long enough for many eastern respondents to differentiate contemporary experiences from those of the communist past and to form judgments about the differences. We find that the East–West gap in institutional trust decreased by roughly between 37 percent (trust in parliament) and 68 percent (trust in police) between 1994 and 2002. This means that the levels of institutional trust in the East converge quite strongly towards those in the West. Indeed, assuming that the complete cycle of convergence is linear, we can expect full uniformity of institutional trust between East and West Germans roughly 12 to 24 years after reunification, depending on the institutional trust question. In sharp contrast to institutional trust, there seems to be a persistent culture of social distrust surviving among East Germans in spite of fundamental democratic transformations since reunification. The East–West gap in social trust decreased by only 28 percent between 1991 and 2002, and one would expect the full circle of convergence to be around 42 years. This suggests that social distrust is much less subject to revision than institutional distrust. Indeed to get rid of pre-existing social distrust, which is a legacy of the communist past, will require roughly two generations. 5.2. Convergence of trust in the post-reunification period? This section examines in more detail whether the trust levels of East Germans converge towards those of West Germans. We also explore the role of both migration and socio-economic factors in determining the trust convergence patterns in East Germany.

15 Overall, 24 percent of East Germans said that they were most troubled by the low standard of living, 32 percent mentioned the lack of freedom to travel, 34 percent the lack of democratic codetermination, and 10 percent criticized the persecution of regime opponents.

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259

5.2.1. Baseline results In our basic specification, we estimate probit regressions of the form16 y ∗i = ϕ1 Year02 + ϕ2 East i + ϕ3 (Easti × Year02) + ϕ4 X i + i with

 trusti =

(2)

1 if y ∗i > 0, 0

if y ∗i  0,

where trusti is one of the trust outcome variables for individual i, and Year02 is a year dummy which is one in 2002, and zero otherwise. The Year02 dummy captures the change in social trust (respectively, institutional trust) of West Germans between 1991 and 2002 (respectively, between 1994 and 2002). The East ∗ Year02 interaction term tells us how East Germans have changed their attitudes towards trust in the post-reunification period. It thus represents a rough measure of convergence of trust among East Germans. The vector X i now comprises a broad range of socio-economic characteristics at the individual and household level (e.g., employment status, household income) and at the federal state level (e.g., GDP per capita, unemployment rate). Table 2 shows the results for (2). The coefficients on the East dummy indicate that East Germans are significantly less likely to trust other people, the legal system, the constitutional court, the police and the parliament than West Germans. This is in line with our findings for (1). Our main results concern the change in trust of East Germans in the post-reunification period, which is captured by the interaction between being from the East and the 2002 dummy. The intriguing coefficient is that on the social trust outcome: it is positive but statistically insignificant.17 This means that we cannot reject the hypothesis that East Germans have the same levels of social distrust as shortly after the collapse of communism. A different argument applies to institutional trust: the coefficients on the four institutional trust questions are positive and statistically significant at the 1 percent level and much larger in magnitude compared to social trust. This suggests that the levels of institutional trust of East Germans significantly converge towards those of West Germans. Finally, note that there were no statistically significant changes in social and institutional trust over time among West Germans since the coefficient on the dummy Year02 is never precisely estimated. As for the socio-economic controls, women are less likely to be socially trusting than men and education shows a positive and statistically significant relationship with all trust measures. Household income is positively correlated with trust. The coefficient on Gini suggests that social trust is negatively correlated with income inequality, which suggests that egalitarian income distributions enhance social trust. Institutional trust, in contrast, is positively associated with Gini, which might be explained by government policies privileging federal states with high income inequality. Overall, these patterns are consistent with the findings of Alesina and La Ferrara (2002) for the United States. We also re-estimated our model by including variables that capture the religious affiliation of the respondent, controlled for the presence and number of children in the household and the number of adult household members. We found that including these variables did not change the estimates. We have subjected the above results to a battery of additional robustness tests. First, Eq. (2) assumes that the relationship between trust and the socio-economic factors captured by X i is the same in the two parts of Germany. This might not be the case. To allow the various socio-economic factors to influence trust differently in the East than in the West, we interacted all the individual right-hand side variables with the variable East. Second, Eq. (2) also assumes that the relationship between trust and the socio-economic factors captured by X i was stable over time. To allow for the possibility that the relationship between trust and the socio-economic factors changed over time, we also interacted the individual right-hand side variables with the time dummy Year02. We obtained similar results when we estimated these more flexible specifications, using both bivariate probit and ordered probit models. Third, one might be concerned that unobserved changes in policy that affect trust were more pronounced in the East than in the West. For example, the convergence of institutional trust in the East may be driven by government transfers privileging the East rather than by democracy experience per se.18 In unreported regressions, we examined this potential bias by including two important types of financial transfer payments at the federal state level. The first includes annual payments between federal states from the German regional transfer system (“Länderfinanzausgleich”) and the second consists of special payments by the German federation to under-performing states (“Bundesergänzungszuweisungen”).19 There exist substantial variations across federal states in both types of transfers.20 Overall, all East German states were beneficiaries of the transfer system. In the majority of the regressions, the two financial transfer measures had no statistically significant influence on social and institutional trust and the inclusion of these two

16 As a robustness check, we estimated ordered probit regressions on the original trust variables. The results, which are reported in Table A.3, are in line with the probit estimates. 17 In ordered probit regressions, the coefficient on the East dummy even becomes negative (see Table A.3). 18 Similarly, if shocks that negatively affect trust were more pronounced in the East, then we would spuriously find lack of trust convergence, when in fact the problem is that the negative shocks are keeping trust down. 19 We used financial transfer payments for the years 1995 and 2002 because the statistical office does not provide information for East Germany prior to 1995. 20 For example, in 2002, Bavaria contributed 2047 million Euros to the regional transfer system and Berlin received 2677 million Euros in financial transfers (Federal Statistical Office Germany, 2006).

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Table 2 Did East Germans change their attitudes towards trust in the post-reunification period? Dependent variable

Social trust

Trust in legal system

Trust in constitutional court

Trust in police

Trust in parliament

Equation

(1)

(2)

(3)

(4)

(5)

Individual determinants East Year02 East ∗ Year02 Female Single Divorced Separated Widowed Higher education University degree Part time Other work Nonworking Household income/1000a

Economic environment GDP per capita/10,000b Unemployment ratec

Institutional environment Expenditure for educationd Solved crime casese

Ethnicity and inequality Proportion of foreignersf Gini income inequalityg

Pseudo-R 2 Log-likelihood value Observations

−0.238** (0.122) −0.104 (0.508) 0.118 (0.113) −0.142*** (0.048) 0.036 (0.070) −0.102 (0.094) 0.222 (0.171) 0.149 (0.102) 0.374*** (0.074) 0.334*** (0.071) −0.031 (0.103) −0.091 (0.098) −0.013 (0.060) 0.043*** (0.020)

−0.331*** (0.104) −0.125 (0.336) 0.296*** (0.087) −0.042 (0.040) −0.029 (0.057) −0.059 (0.077) −0.073 (0.149) 0.102 (0.084) 0.232*** (0.066) 0.121** (0.065) −0.109 (0.080) −0.098 (0.090) −0.015 (0.049) 0.034*** (0.017)

−0.494*** (0.105) −0.225 (0.346) 0.371*** (0.088) −0.367*** (0.040) −0.056 (0.058) −0.064 (0.077) −0.164 (0.150) −0.141 (0.087) 0.363*** (0.069) 0.277*** (0.068) 0.027 (0.082) 0.004 (0.092) −0.051 (0.050) 0.057*** (0.019)

−0.401*** (0.102) 0.146 (0.339) 0.422*** (0.086) 0.034 (0.039) −0.054 (0.057) −0.263*** (0.076) −0.069 (0.146) 0.052 (0.087) −0.008 (0.066) −0.217*** (0.065) −0.046 (0.080) −0.079 (0.089) 0.006 (0.049) 0.021 (0.017)

−0.431*** (0.114) −0.389 (0.358) 0.229*** (0.095) −0.035 (0.042) 0.016 (0.062) −0.101 (0.085) −0.101 (0.163) −0.099 (0.090) 0.284*** (0.069) 0.183*** (0.069) −0.082 (0.088) −0.085 (0.100) 0.014 (0.053) 0.012 (0.018)

−0.069 (0.135) −0.024 (0.016)

0.105 (0.106) −0.014 (0.012)

0.032 (0.110) −0.015 (0.013)

0.106 (0.107) −0.009 (0.012)

0.183 (0.112) −0.005 (0.013)

−3.476 (4.934) −0.008 (0.006)

−0.050 (3.857) 0.005 (0.004)

6.714* (3.833) −0.007 (0.04)

−6.903* (3.781) 0.001 (0.004)

1.290 (4.293) −0.008* (0.004)

0.006 (0.017) −2.753** (1.302)

−0.014 (0.011) 2.026** (0.968)

0.001 (0.012) 1.726** (0.982)

−0.021* (0.012) 2.267** (0.969)

−0.030** (0.123) 0.510 (1.004)

0.05 −2081.34

0.03 −3286.68

0.06 −3132.25

0.05 −3238.06

0.03 −2742.50

4582

4989

4869

5004

4964

Notes: Estimates from probit regressions. Standard errors are in parentheses. Regressions also control for age, age-squared and year of birth. *** Significance at 1 percent. ** Idem, 5 percent. * Idem, 10 percent. a Household income is net monthly household income (in 2000 Euros). Missing values are imputed via multivariate imputation using regression switching (van Buuren et al., 1999). b GDP per capita (in 2000 Euros) in federal state where respondent lives. Source: Volkswirtschaftliche Gesamtrechnung der Länder. Date of computation: August 2005/February 2006. c Unemployment rate in federal state where respondent lives. Source: Federal Statistical Office Germany, Wiesbaden, 2006. d Education expenditure as a proportion of GDP in federal state where respondent lives. Source: Federal Statistical Office Germany, 2006. e Solved crime cases as a percentage of all registered crime cases in federal state where respondent lives. Source: Federal Criminal Police Office Germany, Wiesbaden, 2002 (Polizeiliche Kriminalstatistik). f

Proportion of foreigners in federal state where respondent lives. Source: Federal Statistical Office Germany, 2006. Gini coefficient in federal state where respondent lives. Computed with SOEP data using post-government household income (in 2000 Euros) including household imputed rent. g

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261

Table 3 Cohort effects. Dependent variable

Social trust

Trust in legal system

Trust in constitutional court

Trust in police

Trust in parliament

Equation

(1)

(2)

(3)

(4)

(5)

−0.318 (0.169) 0.039 (0.154) 0.099 (0.117) 0.026 (0.128) 0.248 (0.180) 0.372 (0.234) 0.633** (0.292) 0.093 (0.162) 0.060 (0.146) 0.198 (0.182) 0.059 (0.236) *

East Year02 East ∗ Year02 Born 1931–1945 Born 1946–1965 Born 1966–1975 Born after 1975 Born 1931–1945 ∗ East Born 1946–1965 ∗ East Born 1966–1975 ∗ East Born after 1975 ∗ East Pseudo-R 2 Log-likelihood value Observations

−0.228 (0.146) −0.083 (0.087) 0.307*** (0.090) 0.032 (0.108) −0.078 (0.153) −0.159 (0.194) −0.292 (0.244) −0.222 (0.140) −0.068 (0.126) −0.129 (0.145) −0.133 (0.199)

−0.492 (0.151) 0.018 (0.090) 0.374*** (0.091) 0.187* (0.112) 0.095 (0.158) 0.020 (0.199) 0.028 (0.251) −0.097 (0.143) 0.016 (0.130) 0.075 (0.149) −0.054 (0.206)

−0.385 (0.146) −0.018 (0.088) 0.448*** (0.089) 0.043 (0.113) −0.057 (0.158) −0.068 (0.197) 0.024 (0.248) −0.070 (0.140) 0.038 (0.127) −0.085 (0.147) −0.198 (0.201)

***

***

−0.241 (0.157) −0.083 (0.092) 0.270*** (0.099) 0.222* (0.114) 0.107 (0.163) 0.043 (0.208) 0.364 (0.261) −0.294** (0.148) −0.242* (0.135) −0.103 (0.158) −0.437** (0.213)

0.05 −2077.30

0.03 −3281.46

0.06 −3129.56

0.03 −3236.01

0.05 −2736.57

4582

4989

4869

5004

4964

Notes: Estimates from probit regressions. Standard errors are in parentheses. Non-reported covariates are as in Table 2. *** Significance at 1 percent. ** Idem, 5 percent. * Idem, 10 percent.

financial variables did not change any of the results. Forth, the ALLBUS sampling probabilities differ between East and West Germans. Indeed, East Germany is oversampled to guarantee a large enough sample size. To account for differences in sample inclusion probabilities, we re-estimated the regressions using the East–West sample weights provided by the ALLBUS. We obtained very similar results to the ones reported in the paper. The only notable exception was that the coefficient on the East dummy in the bivariate probit regression on social trust lost significance. However, this result was not confirmed when we estimated weighted ordered probit regressions.21 To summarize our findings so far, we have seen that East Germany witnessed a sharp increase in institutional trust after reunification, but social distrust has largely maintained itself. As discussed above, one possible explanation is that many aspects of reunification turned out to be difficult for inter-personal relationships, while consistent institutional performance let to an equilibrium with high public trust in institutions. However, it should be re-emphasized that we cannot conclusively rule out the possibility that the non-convergence of social trust is related to pre-war trends in the two parts of Germany. Moreover, given that social trust in the East was relatively high compared to institutional trust immediately after reunification, convergence in the social trust variable might have been expected to be slower. 5.2.2. Cohort effects In Table 3, we re-estimate our regressions by distinguishing between five different cohort groups: born after 1975, born between 1966 and 1975, born between 1946 and 1965, born between 1931 and 1945, and born on or before 1930. The key result that one may extract from the table is that older birth cohorts are not significantly more distrusting than younger birth cohorts in the East. This finding might seem counterintuitive at first. Indeed, it may not be unreasonable to expect that individuals who have lived their entire life under communism are less trusting than individuals who have only spent their childhood or early adolescence under communism. However, recent research by Dohmen et al. (2006) suggests that parents pass on their attitudes towards trust to their children. So individuals who have only spend their childhood or early adolescence under communism may be just as distrusting as older birth cohorts because of the intergenerational transmission of trust attitudes.

21

The results from all robustness checks are available upon request.

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Table 4 East–West migration and trust. Dependent variable East East living in West Year02 East ∗ Year02 East living in West ∗ Year02 Pseudo-R 2 Log-likelihood value Observations

Social trust

Trust in legal system

−0.233* (0.137) 0.410 (0.361) −0.121 (0.508) 0.160 (0.116) −0.691 (0.421)

−0.422*** (0.128) 0.623** (0.265) −0.125 (0.337) 0.343*** (0.090) −0.750*** (0.303)

Trust in constitutional court

Trust in police

−0.495*** (0.129) 0.374 (0.267) −0.243 (0.346) 0.417*** (0.090) −0.687*** (0.301)

−0.418*** (0.126) 0.342 (0.263) 0.136 (0.340) 0.458*** (0.088) −0.543* (0.294)

Trust in parliament

−0.514*** (0.139) 0.624*** (0.278) −0.400 (0.359) 0.283*** (0.098) −0.817** (0.328)

0.05 −2079.97

0.03 −3281.16

0.06 −3129.56

0.05 −3236.35

0.03 −2741.13

4582

4989

4869

5004

4964

Notes: Estimates from probit regressions. Standard errors are in parentheses. Non-reported covariates are as in Table 2. *** Significance at 1 percent. ** Idem, 5 percent. * Idem, 10 percent.

5.2.3. East–West migration Following the collapse of the Berlin Wall, there was significant migration from East to West Germany. For instance, in 1989 and 1990, the East–West migration flows represented 2.5 percent of the East German population (Hunt, 2006). We now examine whether there are differences in levels and convergence of trust among East Germans living in the East and those who migrated to the West after the fall of the wall. In doing so, we include a dummy variable East living in West into our regressions which equals one for individuals who lived in East Germany before reunification and report living in West Germany afterwards, and zero otherwise.22 Table 4 reports the results. The coefficient on the East dummy variable in Table 4 now captures trust levels of East Germans living in the East. The estimates show that, shortly after reunification, East Germans living in the East had significantly lower levels of social and institutional trust than West Germans. In contrast, East Germans who migrated to the West report trust levels which are larger in magnitude compared to West Germans, and the estimates are statistically significant for two regressions (trust in legal system and trust in parliament). There are also considerable differences in the convergence of trust between East German movers and stayers. Over time, East Germans living in the East became more trusting towards institutions, but their social trust did not converge significantly towards West German levels. In contrast, social and institutional trust of East Germans who migrated to West Germany decreased over time. An explanation for these findings is as follows. If those easterners who emigrated had the best economic opportunities in the west, they would have also had the strongest reason to invest in trust relationships (à la Guiso et al., in press), and their social trust would have increased. However, if our story about inter-personal relationships is correct, they would have found themselves plunged in a sea of strangers and dealing with an unfamiliar social environment, and their trust would not have increased and might even have decreased. The institutional trust results for East German movers is more puzzling. It might be that the expectations of emigrants were overly optimistic (hence, they emigrated), and therefore they were more likely to be disappointed, leading to lower institutional trust. Overall, our migration results suggest that the differences in trust between East and West Germans as reported in Table 2 are mainly driven by East Germans living in the East, rather than by those who moved to West Germany. 5.2.4. Socioeconomic factors The result that stands out so far is that the democracy experience of East Germans did not have a significant positive effect on social trust while institutional trust was subject to positive revision. Our next step is to examine the underlying causes for the observed evolution of trust in the East, that is, to dissect the influence of exposure to and participation in democracy on individuals who have formerly lived under a communist regime. What are the forces that have kept social trust levels low in the East? Why does it seem that social trust is less subject to revision over time than institutional trust? How significant are the economic outcomes of individuals in determining the evolution of alternative trust measures? These are important questions which to our knowledge have not yet been addressed in the trust literature. Our hypothesis is that East Germans gained several, if sharply different, kinds of freedom after reunification. On one side, there was the freedom to enjoy civil and political liberties. But reunification also brought with it a new economic environment build on competition and personal achievement. It is well understood that the socio-economic aspects of reunification turned out to be difficult. For example, the unemployment rate in East Germany almost doubled between 1991 and 2004 from around 10 percent to 20 percent (Snower and Merkl, 2006). It is therefore interesting to examine whether

22

We also interact this variable with the variable Year02, to capture potential differences in convergence among East Germans.

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263

Table 5 Convergence of trust among East Germans by gender, employment history, and household income. Group

Women

Men

Unemployeda

Not unemployeda

Low incomeb

High incomeb

Equation

(1)

(2)

(3)

(4)

(5)

(6)

−0.246 (0.179) 0.413 (0.736) −0.088 (0.165)

−0.256 (0.171) −0.510 (0.707) 0.342** (0.158)

0.419 (0.417) 0.170 (1.734) −0.234 (0.378)

−0.100 (0.174) −0.388 (0.734) 0.207 (0.167)

−0.182 (0.158) 0.249 (0.715) −0.051 (0.156)

−0.411* (0.242) −0.531 (0.732) 0.360* (0.220)

2358

2224

476

2214

2612

1970

−0.355** (0.146) −0.172 (0.480) 0.302** (0.124)

−0.304** (0.148) −0.085 (0.473) 0.287** (0.123)

−0.087 (0.261) 1.779* (0.995) 0.283 (0.228)

−0.273* (0.155) −0.407 (0.503) 0.263* (0.137)

−0.230** (0.146) 0.246 (0.508) 0.372*** (0.121)

−0.362** (0.153) −0.431 (0.452) 0.233* (0.134)

2500

2489

674

2200

2427

2562

−0.423** (0.151) −0.762 (0.493) 0.452*** (0.135)

−0.432 (0.264) 0.360 (0.966) 0.589** (0.233)

−0.505*** (0.156) −0.597 (0.521) 0.390*** (0.137)

−0.474*** (0.148) −0.002 (0.516) 0.315*** (0.123)

−0.546*** (0.154) −0.413 (0.469) 0.432*** (0.134)

2459

653

2171

2361

2508

−0.436*** (0.144) 0.916 (0.489) 0.422*** (0.122)

−0.354** (0.146) −0.599 (0.475) 0.421*** (0.121)

−0.421 (0.259) 0.379 (0.937) 0.410* (0.225)

−0.424*** (0.152) −0.037 (0.504) 0.265** (0.133)

−0.457*** (0.144) 0.367 (0.508) 0.510*** (0.120)

−0.333*** (0.151) −0.078 (0.460) 0.339*** (0.132)

2508

2496

674

2210

2438

2566

−0.360 (0.161) −0.595 (0.514) 0.103 (0.137)

−0.494** (0.163) −0.202 (0.502) 0.322** (0.135)

−0.275 (0.292) −1.061 (1.059) −0.023 (0.262)

−0.399*** (0.170) −0.545 (0.535) 0.382** (0.151)

−0.340** (0.158) −0.423 (0.540) 0.100 (0.132)

−0.564*** (0.171) −0.303 (0.481) 0.340*** (0.148)

2482

2482

672

2196

2414

2550

Social trust East Year02 East ∗ Year02 Observations Trust in legal system East Year02 East ∗ Year02 Observations

Trust in constitutional court −0.530** East (0.147) Year02 0.302 (0.489) East ∗ Year02 0.268*** (0.124) Observations 2410 Trust in police East Year02 East ∗ Year02 Observations Trust in parliament East Year02 East ∗ Year02 Observations

Notes: Estimates from probit regressions. Standard errors are in parentheses. Non-reported covariates are as in Table 2 except of a female dummy in Eqs. (1) and (2) and household income in Eqs. (5) and (6). a Dummies indicating whether respondent has experienced unemployment in the last 10 years or not. b Dummies indicating whether respondents’ income is below or above the mean income in the German population. *** Significance at 1 percent. ** Idem, 5 percent. * Idem, 10 percent.

the pattern of non-converging social trust in the East is attributable to the negative socio-economic effects often associated with reunification. To do so, we partition the population of East Germans into three different subgroups. The first partition distinguishes East Germans by gender. The second partition distinguishes East Germans by whether they have experienced unemployment in the post-reunification period or not. Finally, the third partition distinguishes respondents by whether their household income is below or above the mean household income in the German population. In Table 5 we re-estimate previous models after stratifying the sample by gender, employment history, and household income.23 Before we discuss our results, we should be clear that the estimated coefficients do not identify the causal effects of employment and income on levels and convergence of trust since more trusting individuals may be more employable (Slemrod and Katuscak, 2005). However, our method is informative of whether levels and convergence of trust amongst East Germans are correlated with socio-economic factors, and so follows a strategy similar to Alesina and La Ferrara (2002).

23

The corresponding results from ordered probit regressions are shown in Table A.4.

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A key message that one may extract from Table 5 is that negative socio-economic outcomes such as unemployment and low income were inimical to the convergence of social trust in the East. Moreover, there are significant differences in the convergence of social trust between men and women. To see this, consider the social trust outcomes. We first examine whether East German men and women exhibit different convergence patterns. Such an examination is interesting for two reasons. First, it is well understood that trust is negatively related to belonging to discriminated-against groups, especially women and minorities (Alesina and La Ferrara, 2002). Second, it is widely perceived that the social and economic position of East German women disproportionately worsened after reunification. For example, many women in the East have seen the erosion of equal pay, job opportunities, and widely available affordable childcare. As a result, many East German women were forced to return to traditional gender roles (Alsop, 2000). Because discrimination is negatively related to trust, and because the economic situation of women in the East disproportionately worsened after reunification, one might expect East German women to exhibit different convergence patterns in the post-reunification period than East German men. This hypothesis is confirmed by our results: the estimates indicate that East German women have become more distrusting than they were shortly after reunification, although the negative coefficient on the interaction East ∗ Year02 (−0.088) is not significant; in contrast, the coefficient on East German men (0.342) is positive and statistically significant at 5 percent, implying that the social trust levels of men in the East converge towards those in the West. Second, we look at whether convergence in trust is driven by adverse employment shocks. Strikingly, we find that East Germans who experienced unemployment in the post-reunification period have become even more distrusting than they were shortly after the collapse of communism, although the negative coefficient on the interaction East ∗ Year02 (−0.234) is not precisely estimated. In contrast, the trust levels of those who did not experience unemployment converge towards western levels, although the estimated coefficient (0.207) is not statistically significant at conventional levels. Third, East Germans who report having a household income above the mean income in the German population have significantly changed their attitudes towards social trust since reunification. Indeed, the coefficient on the interaction East ∗ Year02 for individuals with high incomes is positive (0.360) and statistically significant at the 10 percent level. In contrast, East Germans who report having a low household income are currently as distrusting as they were shortly after the collapse of communism since the coefficient on East ∗ Year02 is close to zero (−0.051) and statistically insignificant. In sum, the results suggest that the transition to democracy did not uniformly foster social trust in East Germany. There exists considerable heterogeneity in the evolution of social trust across different subgroups of the population. Indeed, East Germans who suffered economically from reunification are presently as distrusting as they were shortly after the collapse of communism. However, when exposure to democracy was coupled with personal economic success, then the experience of democracy in the post-reunification period lead to significantly more individual social trust. In sharp contrast to social trust, the evolution of institutional trust follows a very different pattern. Consider first the estimates for trust in the legal system, the constitutional court, and the police. All coefficients on the interaction East ∗ Year02 are positive, the majority is statistically significant, and they show broadly similar magnitudes across the different subgroups. This means that these institutional trust measures uniformly converge toward western levels across the different subgroups of the East German population. This, in turn, implies that personal socio-economic factors are not the basis by which East Germans have re-evaluated their attitudes toward the legal system, the constitutional court, and the police. One possible explanation is as follows. The guarantee of civil rights may be taken for granted in established democracies, but East Germans were accustomed to state interference with many aspects of private life, from the practice of religion, to the right to travel, to the right of freedom of speech or the freedom of forming and joining organizations. Where individual liberty and the rule of law were repressed for decades, many democratic institutions are likely to be perceived to remove restrictions on individual liberty and provide increased freedom. If individuals value basic civil rights and personal freedom, it can be expected that trust in the legal system, the constitutional court, and the police increases independent of personal economic outcomes. Interestingly, however, this argument cannot be applied to trust in the parliament. Indeed, our estimates suggest that economic outcomes matter for whether individuals significantly changed their attitudes towards the parliament. As we mentioned earlier, one possible explanation is as follows. While some institutions might generate increased trust simply by abstaining from repressive and corrupt practices (the police, the legal system), others might be trusted or distrusted to the extent that they produce desired economic outcomes. If individuals have suffered economically from what they perceive to be policies enacted by parliament, they might be less likely to be trusting in the parliament than are those who experienced better economic outcomes. 5.3. Evidence from the German Socio-Economic Panel In unreported regressions, we also examined data from the German Socio-Economic Panel (SOEP). The absence of institutional trust questions in the SOEP limited our attention to social trust. Moreover, the SOEP asked specific social trust questions only at one point in time, namely in 2003. Of course, the results of a single survey wave did not allow us to identify time trends. However, the data allowed us to look for different levels of social trust between East and West Germans more than a decade after the democratic transition started. Hence the results we obtained provide a basis for informed speculation about the long-term effects of communism in East Germany versus democracy in the West on social trust. Our main findings, which are reported in Rainer and Siedler (2006), can be summarized as follows. First, we regressed the social trust levels observed in 2003 against the East dummy and a set of socio-economic controls. In line with our results from the ALLBUS, we found that East Germans displayed significantly lower levels of social trust than West Germans. The

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other significant estimates were also as expected and in line with Alesina and La Ferrara (2002): education was positively associated with trust, being economically “unsuccessful” in terms of labor market outcomes was negatively correlated with trust, as were occurrences of past misfortunes such as a divorce or separation; the coefficient on income was as expected and confirmed the common view that “haves” are significantly more trusting than “have-nots” (Putnam, 2000). Second, we partitioned the East German population into economically advantaged and disadvantaged groups, and examined whether social trust levels were heterogeneous across different groups. We found that there were clear differences in social trust according to individuals’ economic circumstances. For example, East Germans who reported not being concerned about their own economic situation were not significantly less trusting than West Germans. In contrast, those who reported being very concerned about their economic situation were significantly less trusting than Westerners. Distinguishing East Germans by their employment status and income generated results that were qualitatively similar. Overall, the picture that emerged more than a decade after reunification was the following: on the hand, East Germans who did not experience negative economic outcomes in the post-reunification period displayed trust patterns that were not too dissimilar from West Germans; on the other hand, East Germans who experienced economic hardship were much less trusting than West Germans. 6. Conclusion Our research shows that communism in East Germany had a strong negative effect on individuals’ social and institutional trust. However, while the transition to democracy led to a sharp increase in institutional trust, it did not foster social trust significantly. Indeed, East Germans who suffered economically from reunification are presently almost as distrusting as they were shortly after the collapse of communism. When exposure to democracy was coupled with personal economic success, then democracy lead to significantly more social trust. Overall, our results suggest that political economy factors need to be taken seriously in understanding how trust evolves and disintegrates. Acknowledgments We thank John Ermisch, Felix FitzRoy, Stephen Jenkins, Oliver Kirchkamp, Stephen McKnight, Ian Smith, Uwe Sunde, and Mark Taylor for useful comments and discussions. We are also grateful to two anonymous referees and the editor for very helpful comments and suggestions. Appendix A Table A.1 Summary statistics for the dependent variables. Dependent variable

Social trust

Trust in legal system

Trust in constitutional court

Trust in police

Trust in parliament

Sample

East

West

East

West

East

West

East

West

East

West

1991/1994a 2002

0.102 0.164

0.208 0.241

0.272 0.374

0.478 0.474

0.355 0.520

0.606 0.646

0.358 0.567

0.623 0.653

0.151 0.230

0.275 0.313

a

Social trust is observed in 1991 and institutional trust is observed in 1994.

Table A.2 Summary statistics for the independent variables. Dependent variable

Social trust

Sample

East Germans

Year

1991

2002

1991

2002

1994

2002

1994

Age

43.07 [15.16] 1947 0.521 0.703 0.138 0.094 0.008 0.057 0.833 0.060 0.107 0.543 0.031 0.129

44.63 [16.35] 1957 0.504 0.565 0.279 0.079 0.015 0.062 0.771 0.112 0.117 0.522 0.034 0.029

43.22 [16.84] 1947 0.520 0.608 0.247 0.050 0.015 0.080 0.813 0.109 0.079 0.481 0.068 0.047

46.31 [16.30] 1955 0.510 0.597 0.261 0.066 0.021 0.054 0.765 0.125 0.110 0.472 0.076 0.065

44.91 [16.05] 1948 0.507 0.666 0.161 0.075 0.016 0.082 0.840 0.061 0.099 0.533 0.052 0.025

44.50 [16.26] 1957 0.500 0.568 0.280 0.078 0.014 0.060 0.768 0.114 0.118 0.524 0.034 0.028

44.29 46.27 [16.58] [16.29] 1949 1955 0.491 0.509 0.613 0.596 0.242 0.261 0.054 0.068 0.012 0.021 0.079 0.054 0.846 0.762 0.083 0.125 0.071 0.113 0.525 0.473 0.072 0.075 0.054 0.065 (continued on next page)

Year of birth Female Married Single Divorced Separated Widowed No higher education Higher education University degree Full time Part time Other work

Trust in legal system West Germans

East Germans

West Germans 2002

266

H. Rainer, T. Siedler / Journal of Comparative Economics 37 (2009) 251–269

Table A.2 (continued) Dependent variable

Social trust

Sample

East Germans

Year

1991

Nonworking Household income/1000 GDP per capita/10,000 Unemployment rate Expenditure for education Solved crime cases Proportion of foreigners Gini income inequality

Observations

Trust in legal system West Germans 2002

0.297 1.077 [0.639] 0.599 [0.265] 0.156 [0.018] 0.053 [0.010] 0.559 [0.025] 0.016 [0.026] 0.236 [0.027] 1187

1991

0.415 2.045 [1.254] 1.959 [0.297] 0.172 [0.028] 0.039 [0.007] 0.558 [0.028] 0.034 [0.039] 0.238 [0.024]

0.404 1.751 [0.892] 1.805 [0.302] 0.068 [0.026] 0.027 [0.005] 0.530 [0.066] 0.088 [0.025] 0.274 [0.018]

786

1159

East Germans 2002

1994

0.387 2.578 [1.510] 2.830 [0.454] 0.081 [0.026] 0.026 [0.004] 0.538 [0.067] 0.099 [0.023] 0.275 [0.028] 1450

0.390 1.539 [0.806] 1.315 [0.259] 0.172 [0.023] 0.047 [0.010] 0.561 [0.026] 0.023 [0.028] 0.211 [0.019] 936

West Germans 2002

1994

0.414 2.059 [1.262] 1.960 [0.298] 0.172 [0.028] 0.039 [0.007] 0.558 [0.028] 0.034 [0.031] 0.228 [0.024] 783

2002

0.350 2.018 [1.056] 2.167 [0.268] 0.093 [0.017] 0.027 [0.004] 0.533 [0.066] 0.099 [0.025] 0.270 [0.020]

0.387 2.581 [1.508] 2.830 [0.454] 0.081 [0.026] 0.026 [0.004] 0.538 [0.067] 0.093 [0.024] 0.275 [0.028]

1813

1457

Notes: Standard deviations for continuous variables in brackets. Means on the sample trust in constitutional court, trust in police and trust in parliament are similar to the ones reported for the sample ‘trust in legal system.’ Table A.3 Ordered probit regressions (1). Dependent variable

Social trust

Trust in legal system

Trust in constitutional court

Trust in police

Trust in parliament

Equation

(1)

(2)

(3)

(4)

(5)

Individual determinants East Year02 East ∗ Year02 Female Single Divorced Separated Widowed Higher education University degree Part time Other work Nonworking Household income/1000a

Economic environment GDP per capita/10,000b Unemployment rate

c

Institutional environment Expenditure for educationd Solved crime casese

−0.264*** (0.090) 0.074 (0.390) −0.034 (0.084) −0.088** (0.036) 0.028 (0.053) −0.057 (0.068) 0.103 (0.139) 0.125 (0.081) 0.432*** (0.058) 0.444*** (0.058) −0.042 (0.078) −0.032 (0.069) −0.107** (0.045) 0.039** (0.016)

−0.403*** (0.083) −0.063 (0.270) 0.330*** (0.069) 0.001 (0.032) −0.021 (0.046) −0.112 (0.061) −0.129 (0.119) 0.131 (0.068) 0.179*** (0.052) 0.124** (0.052) −0.102 (0.064) −0.104 (0.072) −0.019 (0.039) 0.031** (0.014)

−0.500*** (0.084) −0.222 (0.275) 0.347*** (0.070) −0.271*** (0.032) −0.048 (0.047) −0.086 (0.062) −0.266** (0.120) −0.138** (0.070) 0.321*** (0.054) 0.263*** (0.053) −0.048 (0.065) −0.086 (0.074) −0.043 (0.040) 0.043*** (0.014)

−0.471*** (0.083) 0.172 (0.271) 0.485*** (0.069) 0.076** (0.032) −0.053 (0.046) −0.232 (0.061) −0.199 (0.118) 0.079 (0.068) −0.090 (0.053) −0.176* (0.052) −0.038 (0.064) −0.089 (0.072) 0.001 (0.039) 0.017 (0.013)

−0.427*** (0.083) −0.127 (0.271) 0.199*** (0.069) 0.006 (0.032) 0.011 (0.046) −0.121 (0.061) −0.290** (0.120) −0.051 (0.068) 0.231*** (0.052) 0.182*** (0.052) −0.024 (0.064) −0.054 (0.072) −0.034 (0.040) 0.026* (0.014)

0.101 (0.107) 0.023 (0.012)

0.008 (0.085) −0.013 (0.010)

0.014 (0.087) −0.008 (0.010)

0.016 (0.086) −0.019 (0.010)

0.122 (0.086) −0.004 (0.010)

−4.581 (3.572) 0.003 (0.004)

−1.546 (3.016) 0.004 (0.003)

3.125 (3.050) −0.008** (0.003)

−5.367 (3.025) −0.003 (0.004)

−1.712 (3.041) −0.005 (0.003)

H. Rainer, T. Siedler / Journal of Comparative Economics 37 (2009) 251–269

267

Table A.3 (continued) Dependent variable

Social trust

Trust in legal system

Trust in constitutional court

Trust in police

Trust in parliament

Equation

(1)

(2)

(3)

(4)

(5)

Ethnicity and inequality Proportion of foreignersf Gini income inequalityg

Pseudo-R 2 Log-likelihood value Observations

0.010 (0.013) −0.574 (0.992)

−0.003 (0.003) 0.607 (0.773)

−0.020 (0.009) 1.139 (0.775)

0.003 (0.010) 1.353 (0.783)

−0.023** (0.009) −0.240 (0.776)

0.03 −4627.82

0.02 −8812.64

0.03 −8474.64

0.03 −8428.27

0.02 −8501.03

4582

4989

4869

5004

4964

Notes: Estimates from ordered probit regressions. Non-reported covariates are age, age squared, and year of birth. *** Significance at 1 percent. ** Idem, 5 percent. * Idem, 10 percent. a Household income is net monthly household income (in 2000 Euros). b GDP per capita (in 2000 Euros) in federal state where respondent lives. Source: Volkswirtschaftliche Gesamtrechnung der Länder. Date of computation: August 2005/February 2006. c Unemployment rate in federal state where respondent lives. Source: Federal Statistical Office Germany, Wiesbaden, 2006. d Education expenditure as a proportion of GDP in federal state where respondent lives. Source: Federal Statistical Office Germany, 2006. e Solved crime cases as a percentage of all registered crime cases in federal state where respondent lives. Source: Federal Criminal Police Office Germany, Wiesbaden, 2002 (Polizeiliche Kriminalstatistik). f

Proportion of foreigners in federal state where respondent lives. Source: Federal Statistical Office Germany, 2006. Gini coefficient in federal state where respondent lives. Computed with SOEP data using post-government household income (in 2000 Euros) including household imputed rent. g

Table A.4 Ordered probit regressions (2). Group

Women

Men

Unemployeda

Not unemployeda

Low incomeb

High incomeb

Equation

(1)

(2)

(3)

(4)

(5)

(6)

−0.224* (0.127) 0.273 (0.547) −0.214* (0.118)

−0.319** (0.129) −0.094 (0.557) 0.174 (0.120)

−0.133 (0.295) 0.843 (1.268) −0.053 (0.275)

−0.204 (0.128) −0.245 (0.555) 0.081 (0.125)

−0.227** (0.115) 0.273 (0.526) −0.225** (0.115)

−0.475** (0.178) −0.169 (0.588) 0.286* (0.160)

2358

2224

476

2214

2612

1970

−0.405*** (0.116) −0.289 (0.386) 0.343*** (0.097)

−0.395** (0.118) 0.162 (0.380) 0.315*** (0.098)

−0.288 (0.205) 0.993 (0.752) 0.314* (0.180)

−0.359*** (0.124) −0.195 (0.405) 0.304*** (0.108)

−0.327*** (0.117) −0.004 (0.405) 0.342*** (0.096)

−0.503*** (0.121) −0.095 (0.365) 0.360*** (0.106)

2500

2489

674

2200

2427

2562

−0.499*** (0.120) −0.373 (0.386) 0.408*** (0.099)

−0.381* (0.209) −0.569 (0.765) 0.382*** (0.183)

−0.594*** (0.125) −0.148 (0.413) 0.463*** (0.109)

−0.381*** (0.119) −0.191 (0.413) 0.215*** (0.098)

−0.645*** (0.123) −0.230 (0.372) 0.480*** (0.107)

2459

653

2170

2361

2508

−0.579*** (0.116) 0.495 (0.388) 0.494*** (0.098)

−0.345** (0.119) −0.123 (0.381) 0.474*** (0.098)

−0.417** (0.206) 1.214 (0.755) 0.378** (0.180)

−0.444*** (0.125) 0.134 (0.406) 0.322*** (0.108)

−0.532*** (0.117) 0.038 (0.406) 0.569*** (0.096)

−0.365*** (0.121) 0.228 (0.367) 0.372*** (0.106)

2508

2496

672

2209

2438

Social trust East Year02 East ∗ Year02 Observations Trust in legal system East Year02 East ∗ Year02 Observations

Trust in constitutional court East −0.475*** (0.118) Year02 −0.070 (0.394) East ∗ Year02 0.267*** (0.100) Observations 2410 Trust in police East Year02 East ∗ Year02 Observations

2566 (continued on next page)

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Table A.4 (continued) Group

Women

Men

Unemployeda

Not unemployeda

Low incomeb

High incomeb

Equation

(1)

(2)

(3)

(4)

(5)

(6)

−0.402*** (0.117) −0.213 (0.388) 0.122 (0.098)

−0.429*** (0.119) 0.001 (0.381) 0.251*** (0.098)

−0.350* (0.206) −1.408 (0.756) 0.179 (0.181)

−0.472*** (0.125) 0.172 (0.406) 0.251** (0.108)

−0.342** (0.117) −0.061 (0.407) 0.126 (0.097)

−0.544*** (0.122) −0.157 (0.367) 0.286*** (0.106)

2482

2482

674

2196

2414

2550

Trust in parliament East Year02 East ∗ Year02 Observations

Notes: Estimates from ordered probit regressions. Standard errors are in parentheses. Non-reported covariates are as in Table 2 except of a female dummy in Eqs. (1) and (2) and household income in Eqs. (5) and (6). a Dummies indicating whether respondent has experienced unemployment in the last 10 years or not. b Dummies indicating whether respondents’ income is below or above the mean income in the German population. *** Significance at 1 percent. ** Idem, 5 percent. * Idem, 10 percent.

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