Economic Theory

An alternative history: what ‘democratic socialism’ would have looked like


Society and Culture
Lifestyle Economics

I’ve got an idea for an alternative history novel, an alternate timeline in which the fall of the Berlin Wall never happens. (It’s been done before, but, I’d argue, not that well.) The alternative-historical backdrop I have in mind looks, roughly, like this:

East Germany, spring 1989. The socialist regime is finding it increasingly difficult to control the population. Spontaneous mass protests are breaking out all over the country. People escape to the West in unprecedented numbers. The economic situation deteriorates. Even the Soviet Union is no longer the reliable ally it once was. [And from here on, it becomes fictional.]

In a rare moment of lucidity, the GDR’s establishment finally ends its collective denial of reality, and admits to itself that the game is up. They realise that they now only have two options left: cling to power for a few more months, and wait for things to turn violent, or resign now, and rescue some of their dignity (and, perhaps more importantly, their pensions). They opt for the latter. To the great disbelief of observers in East and West, the fat cats of socialism resign en bloc, leaving a gaping power vacuum at the heart of the socialist state.

Far from calming down the protests, this show of weakness at the very top fans the flames of resistance even further. Positions of power are up for grabs, but everybody realises that these have all become poisoned chalices. The SED [the Socialist Unity Party] is in meltdown.

Amidst this all-around chaos, a group of radical reformers rises to the top; people who are passionate about socialism as a general idea, but not about the GDR as it is currently constituted. The reformers, who have no vested interest in the status quo, believe in a version of socialism that is less rigid and less hierarchical, more open and more relaxed. The West German press describes them as ‘Glasnost and Perestroika on steroids’.

The reformers’ provisional ad-hoc government immediately ends the persecution of the protest movements, and even actively extends a hand to the movements’ leaders. They recognise that the majority of the protesters are not ‘enemies of socialism’, as the old establishment had dubbed them. They fight for democratisation and civil liberties, but they seek neither a unification with the Federal Republic, nor a restoration of capitalism. After some initial distrust, reformers and protest leaders get on like a house on fire. Several leading resistance figures take up senior posts in the interim government.

Together, they draft a radical plan for democratisation. The much-hated Stasi is dismantled. Freedom of speech, freedom of the press and freedom of assembly are introduced. Border controls are relaxed. Genuine opposition parties are allowed. The first-ever democratic election of the Volkskammer [the GDR’s parliament], as well as the complete opening of the inner-German border, are scheduled for March 1990.

The West German government watches gleefully as the socialist government seemingly digs its own grave. But on Election Day, a miracle happens: the SED remains the strongest party, winning nearly 40% of the votes. This enables them to form a coalition government with the recently re-established Social Democratic Party and the newly formed Green Party. Just as astonishingly, the expected flood wave of emigration turns out to be a rivulet. Despite all the unsolved problems, the citizens of the GDR decide to give socialism another chance.

The newly elected red-red-green coalition immediately embarks on a programme to democratise the economy. “In theory, all the productive assets in the country are owned by the public”, the new Economy Minister explains. “But ask a member of the public whether they feel that these assets are truly ‘theirs’, in a meaningful way, and they will give you a bewildered look. This is where we have gone wrong. What we have now is state ownership, but what we need is true public ownership.”

Over the next two years, the government creates numerous opportunities for public participation in the running of economic life, from public consultations to petitions, signature campaigns and referenda. The drafting of the five-year plans, which has so far taken place behind closed doors, is opened to the general public. From now on, the chairperson of the SPK [the state planning committee] and their deputies are to be democratically elected. Under the new system of ‘People’s Planning’, the SPK is obliged to regularly publish its minutes, and to consult with civil society stakeholder groups at various stages of the planning process. The final draft of every five-year plan has to be approved by a referendum.

VEBs [state-owned enterprises] are also internally democratised. Democratically elected Workers’ Councils take over the main management functions. Management meetings are opened to the general public, and the management is obliged to consult regularly with external stakeholder groups, such as Consumer Councils.

During this reform period, the GDR becomes a magnet for democratic socialists and anti-totalitarian communists from abroad. “In the past, West German socialists like me were denounced as hypocrites”, one of the recent arrivals explains. “People would say, ‘If you love socialism so much, why don’t you just move over to the other side?’, to which I would respond that what happens in the East was not real socialism, and that real socialism has never been tried. But what can I say – they are trying it now, so here I am”.

The appeal of the experiment reaches beyond West Germany. Plenty of British socialists, disgruntled with Margaret Thatcher’s new settlement and what they see as the betrayal of the Labour Party, relocate. East Berlin soon becomes home to a British expat community, dubbed the Inselkommunisten (‘the communists from the island’) by the locals. One of the first Inselkommunisten is Jeremy Corbyn, a Labour backbencher who already knows the GDR from a recent motorcycle trip. In the 1994 election, Corbyn will run for a seat in the Volkskammer, becoming the GDR’s first British-born MP. Paul Mason, a member of the Trotskyist Worker’s Power group, also joins them. In 1992, he publishes the book The Road Away from Serfdom. How the GDR’s democratic transformation refutes the neoliberal attack on socialism, which, like most anti-capitalist books, wins a battery of awards.

People’s Planning is taken up with a great, but short-lived enthusiasm. Most GDR citizens attend a few SPK and VEB management meetings, mostly out of curiosity, but then quickly lose interest. In the abstract, people love the idea of ‘us’ running ‘our’ economy collectively, all of us together. But they quickly realise that as soon as you dig just a little bit below the surface, these issues immediately become very technical, wonkish, and rather dry. Quite understandably, most people are not hugely interested in the nuts and bolts of economic life, be it the day-to-day running of a steel mill, or calculating how many tractors the economy requires. So after an initial spike, participation in the economic planning process plummets to levels not much higher than before 1990. With most ‘normal’ people dropping out of People’s Planning, the process soon becomes dominated by a mix of obstructionists, trainspotters and attention-seekers. Planning authorities quickly realise that effective planning is impossible under those conditions. Slowly and quietly, the GDR reverts to its old technocratic, elitist mode of economic planning.

It also turns out that the architects of People’s Planning underestimated the heterogeneity of people’s preferences. Some of the new ‘Consumer Councils’ do manage to influence the planning process, but this is a zero-sum game, in which well-organised groups divert resources towards their own pet projects. The most celebrated success story is the Biertrinkerkoalition, a group of beer aficionados set up with support from the British Campaign for Real Ale (CAMRA). The Biertrinker manage to pressurise the SPK into dedicating more resources to brewing, and indeed, the quantity, quality and variety of beer in the GDR improves. GDR beers become quite popular in the UK, especially among urban hipsters, and the Guardian headlines: ‘The GDR’s beer revolution: Socialism plus People Power beats Western capitalism’. What the paper does not mention is that the ‘beer revolution’ comes at the expense of the quantity, quality and variety of other products which use the same inputs (such as bread), but which do not have a vocal advocacy group.

Anyway: the socialist honeymoon does not last forever. Democratisation and civil liberties are all well and good, but they do not make the GDR’s economic problems go away. People now do begin to move to the West in larger numbers. “When confronted with the economic failures of socialism in the East, left-wingers in the West always used to say that Soviet-style socialism was not real socialism, and that it was therefore unfair to hold its failures against the left”, explains a West German economist who studied the GDR’s transition. “But what precisely does that mean, ‘real socialism’? In what way was GDR-socialism ‘unreal’? Left-wingers would never say, they just used this not-real-socialism meme as a get-out-of-jail card. When pushed, they would mutter something about the lack of democracy: ‘real socialism’ is democratic, the GDR was not. Fair enough – but the GDR’s economic failures had nothing to do with the fact that it was not a democracy. South Korea was not a democracy until recently, but that did not stop their economy from growing at phenomenal rates.”

Essentially, the problem is that while the GDR has now undoubtedly become a democracy, it still has the same old failing socialist economy. And that is why people emigrate.

The free press experiment, meanwhile, does not last long. West German newspapers such as Bild and Die Welt, which are now freely available in the GDR, ruthlessly expose the failures of the East German economy, and endlessly bang the drum for a reunification with the West. The new government and its supporters at home and abroad are furious about this. They are convinced that the West German press is deliberately trying to turn the population against the experiment of socialist renewal. They are also convinced that people would not emigrate in such large numbers if they were not constantly fed with lies by the press.

This prompts the government to place restrictions on foreign (which includes West German) ownership of newspapers. “Of course we support freedom of the press”, argues the new Interior Minister, a former protest leader. “But we also believe that the press should serve the people, not foreign billionaires.” A new ‘Balanced Reporting Act’ is passed, under which newspapers which criticise conditions in the GDR are obliged to also highlight some of the social problems in the Federal Republic or other capitalist countries. The ‘Level Playing Field Act’, which intends to tackle the ‘excessive’ concentration of the press, introduces a maximum market share per newspaper group, which effectively amounts to a sales cap on a number of popular West German papers.

Border controls are also tightened once again. In 1994, the government introduces a ‘temporary’ exit fee. “We respect every citizen’s right to leave our republic, and settle wherever they see fit”, explains the new Foreign Minister, a former civil liberties campaigner. “But if people have benefitted from years of free education, free healthcare, free infrastructure etc, and then decide that they no longer want to contribute to our republic, then we think it is only fair to ask them to pay some of that back.”

Initially, some people try to raise loans in order to pay the exit fee, but the government – which owns all the banks – changes lending practices to put an end to that. “Of course everybody is free to leave”, explains the Finance Minister, a former political prisoner liberated in 1989. “But the funds in our banks must be reserved for financing the investment which our economy so badly needs. Up and down the country, there are factories crying out for investment. And you ask me to splash out on the idle extravaganzas of a privileged few?”

The public mood sours again. An embryonic new protest movement begins to form. The government denounces them as capitalist stooges, and bans the receipt of any funding from West German, British or American sources.

Anyway, so much for the alternative-historical background. The novel will also be, somehow, about a mysterious murder, a well-kept secret, a fast-paced manhunt, espionage, love, betrayal, revenge – that kind of stuff. But let’s not bother too much with the details.

Dr Kristian Niemietz is the IEA’s Head of Health and Welfare. Read his paper ‘20 Years After: The Fall and Rise of Socialism in East Germany’ here.

Head of Political Economy

Dr Kristian Niemietz is the IEA's Editorial Director, and Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).

1 thought on “An alternative history: what ‘democratic socialism’ would have looked like”

  1. Posted 27/05/2016 at 13:28 | Permalink

    Democracy is a process that (in simplistic terms) reflects the will of the people. If the people’s will is to avoid economic knowledge then they’ll suffer the consequences.

    But if you have a society where all people agree that capitalism (you can provide a definition) is a good idea, I’d suggest a deliberative democracy is probably a good system to decide how to implement that capitalism, rather than any single expert.

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