Economic Theory

The fall of the Berlin Wall, and Millennial Socialism

On 28 November, the IEA organised a panel discussion on the fall of the Berlin Wall, and the rise of “Millennial Socialism” today. One of the panellists was the IEA’s Head of Political Economy, Dr Kristian Niemietz. The article below is a (slightly extended) version of Kristian’s talk.


I remember ten years ago, around the 20th anniversary of the fall of the Berlin Wall, I also gave a talk on socialism. That was at a smaller venue than this one, and it was quite poorly attended.

At that time, it was very hard to fill a room with an event on socialism. There was very little interest in it. Socialism was seen as a topic of the past. Yes, of course, in 2009, everyone was saying that “casino capitalism” had failed, that the banking sector had to be reined in, that financial speculation had to be stopped, and so on. But this had not yet led to a renewed interest in socialism. In 2009, mainstream opinion was anti-capitalist – but it was not specifically socialist.

Today, the situation is very different. Today, as you can see, you just need to stick the word “socialism” into the title of an event, and the room will fill itself. Socialism is now all the rage, and even its opponents have to engage with it. Ignoring it is no longer an option.

So what are the lessons from the fall of the Berlin Wall, the lessons from the experience of the GDR and the old Eastern Bloc, that today’s Millennial Socialists refuse to learn?

Socialism: an economic experiment

First of all, the division of Germany was a gigantic natural economic experiment. If you wanted to test the impact of an economic system, ideally, this is the way you would do it: you would split a country into two parts, have one set of economic policies in one part, and a different set of economic policies in the other part. Then after 40 years, you would check back, and compare the results.

In this case, the results speak for themselves. Around the time of reunification, West Germany was three times richer than East Germany, in terms of GDP per capita. That is an absolutely colossal difference, if you bear in mind that the division only lasted for 40 years.

If it had been a gap of 20%, or 30%, or 40%, I would have more patience with people who claim that the GDR just did socialism wrong, and that “their” version will be better. But if we’re talking about a gap of that magnitude, you cannot just brush it aside, and say, “Oh, but that’s not the kind of socialism I want! I want a nice and cuddly socialism! I want democratic socialism!” What’s that got to do with anything? The GDR’s poor economic performance had nothing to do with the fact that it was not a democracy. It had everything to do with the fact that it was a socialist economy.

Socialism: a political experiment

Secondly, the GDR was also a gigantic political experiment. Around the time the GDR was founded, a lot of Western intellectuals were falling out of love with the Soviet Union, but they could not bring themselves to give up on socialism. So they were looking for reasons to convince themselves that Soviet socialism was just an atypical example.

They did so by blaming the Soviet Union’s totalitarian character on its starting conditions. The Soviet Union just shows that you cannot build a proper, democratic socialism in a country of illiterate peasants, they said. You need the right conditions. You need a highly developed economy, and a highly educated working class, with enough experience in democratic self-organisation.

Well – East Germany had all that, and more. It ticked all those boxes. And look how little difference it made in the end. It turned out that blaming the starting conditions was a red herring.

Soviet-style socialism and Millennial Socialism

Of course, a Millennial Socialist would not accept that the experience of the Eastern Bloc tells us anything about socialism. A Millennial Socialist would say: no, you just don’t understand. What happened in the Eastern Bloc had nothing to do with what Marx and Engels wanted. Where did Marx ever say, “Build a wall, and shoot everyone who tries to escape”? Where did Marx ever advocate a secret police like the Stasi that spies on a third of the population? Show me the passage in Marx or Engels where they advocate Gulags, or mass executions. They never did. How can you blame them for things that people have done in their name? Do you blame your Catholic neighbour for the Inquisition, or the Crusades?

This sounds superficially persuasive. But it is total nonsense.

Of course, Marx never specifically advocated Soviet-style totalitarianism. But that does not mean that it has nothing to with him. Marx simply did not anticipate the difficulties that socialist projects would face; he did not anticipate the difficulties that came with implementing his ideas under real-world conditions. And it was those difficulties that triggered the totalitarian responses.

Take the Berlin Wall. Did Marx advocate anything like this? Of course not. But then, he simply did not foresee the possibility of a mass exodus of workers from a “workers state”. This was just not supposed to happen. In Marxist theory, socialism is supposed to be a qualitatively higher stage of development than capitalism, in the same way in which capitalism was a step up from feudalism. If that is the case, then there can be no voluntary migration from a socialist society to a capitalist society. Why would anyone voluntarily move from a higher stage of development back to a lower stage? Did people move from capitalist societies to feudalist societies? Did freed slaves move back to a society which still practiced slavery? Obviously not.

If you just assume away, or fail to anticipate, any difficulties, then it’s very easy to talk about socialism without advocating totalitarian measures. If I simply assumed that in “my” ideal type of society, nobody will ever commit a crime, then I could very easily describe a society without a police force, without a penal code, and without a prison system. Now imagine somebody tried to implement my ideas, and then found out that some people do commit crimes, and that you do need a police, laws and prisons. Would you then say that they have “distorted” my ideas? Would it be much of a defence to say “But Niemietz never advocated any of this! Niemietz specifically talked about a society without prisons, and without a police!”

Socialists never specifically advocate totalitarian methods before they come to power. But in power, they learn that that is the only way to make socialism work (and I define “work” in the broadest possible sense here). Lenin did not advocate a system like in the Soviet Union either, before he, well, set up the actual Soviet Union. Just before he came to power, Lenin wrote a book in which he explained why the future Soviet state would not have to be repressive, and why it would not have to do very much at all. He said you would only need a very rudimentary state, with a few accountants and a few administrators. Otherwise, it would just run itself. The workers and the peasants will take over, and they will run the show.

In power, he learned the hard way that you cannot simply abolish private property and market mechanisms, and hope that these mythological abstractions you call “the working class” and “the peasant class” will somehow spring to live, and magically sort everything out. A couple of decades later, the Socialist Unity Party (SED) of East Germany had to learn the same lessons all over again, as did their comrades elsewhere in Central and Eastern Europe, and all over the world.

And maybe one day, today’s trendy Millennial Socialists will have to learn those lessons too.


Recommended further reading/listening:

Head of Political Economy

Dr Kristian Niemietz is the IEA's 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 “The fall of the Berlin Wall, and Millennial Socialism”

  1. Posted 03/12/2019 at 13:38 | Permalink



    Many “levelers” (economic egalitarians or collectivists) believe that “Socialism is the total opposite of capitalism/imperialism. It is the rejection of empire and white supremacy. Socialism is the violent overthrow of the bourgeoisie, the establishment of a dictatorship of the proletariat, and the eradication of the social system based on profit. Socialism means control of the productive forces for the good of the whole community instead of the few who live on hilltops and in mansions. Socialism means priorities based on human need instead of human greed. Socialism creates the conditions for a decent and creative quality of life for all.” Of course, the number of admitted adherents to this definition diminishes when these collectivists learn that this rendering of socialism comes from the Weather Underground in its 1974 Prairie Fire Manifesto. [Note: Their chagrin only multiplies when they learn the motto of Vladimir Lein’s newspaper, “The Left Voice” was “A single spark can start a prairie fire”.]

    Ayn Rand defined collectivism in 1944 magazine article (“The Only Path To Tomorrow”) as “… the subjugation of the individual to the group … Collectivism holds that man must be chained to collective action and collective thought for the sake of what is called ‘the common good'”.

    Currently, there is an almost endless drumbeat of anti-capitalist and pro-socialist articles in almost all newspapers, magazines and on many websites. One goal of these numerous essays is to mislead the American electorate regarding the history of socialism both in the US and around the world. Perhaps several examples will suffice to demonstrate this point. The New York Times on July 6, 2019, in its Sunday Review section printed Sitaraman & Alsort as follows: “The struggle between capitalism and socialism is back.” And that “Americans don’t need to resign themselves to vicious capitalism …” In the Aug. 12, 2019 edition of the Los Angeles Review of Books Prof. Christian Fuchs cited three left-wing authors to his readers to remind them that “… liberalism and capitalism have inherent fascist potential (and) that fascism is a terroristic version of capitalism.”

    Inexplicably, many (most?) redistributionists apparently choose to ignore the clear-cut results of socialism’s many actual historic experiments which can be handily recounted.

    Socialism (millenarian collectivism) traces its roots to 1789 and the French Revolution which is commonly known as “The Terror”. Of course, this led solely to tyranny and ultimately to the guillotine.[One must recognize that the vast majority of those who were beheaded in France were from the middle and lower classes and not from the aristocracy.] (See: “Tyrants” by Waller Newell) Beginning in the 1820s there was a wave of cooperatives (socialist experiments) formed in the US and Europe led by men like Robert Owen but most had failed by 1840. The average life span of these many “co-ops” was only two years. [See: ].
    The Socialist Party of America was formed in 1901 by Eugene Debs and Mr. Debs (from 1904 till 1920) never got more than 6% of the vote in any presidential election. From 1924 through 1948 Debs was replaced by Norman Thomas whose election results were also always in the low single digits. [Note: Interestingly, Mr. Thomas was always (like George Orwell) rabidly anti-communist and some fear that their combined virulence may not have rubbed off on many of today’s left-wing collectivist authors since it is suspected that some of these socialists may actually hold neo-Marxist views.] Since 1948 the Socialist Party in the US has only steadily faded away. [See: ]. In fact, the Democratic Socialists of America today boasts of less than 60,000 members which are a paltry few although their membership has grown from only 6,000 to 56,000 in just two years. [See: ].

    Economic historians cite three face-to-face “experiments” since WW II in which capitalism and socialism can be directly compared and these are West Germany vs. East Germany after 1945; China vs. Taiwan after 1949 and North Korea vs. South Korea after 1952. Suffice it to say that socialism has never measured up very well anywhere. [Note: Some experts in economic history are today examining Venezuela vs. Chile and many are reaching the very same conclusion.] On the other hand, capitalism has lifted over one billion people out of abject poverty in just the last 12 years. [See: ].

    All of this might lead some to ask — What took capitalism so long to work its magic on much of the developing world? And economic history is also quite clear on this point. In 1947 India after its independence from Great Britain opted for socialism. Indeed, socialism is mandated by the Indian Constitution and for more than 40 years India was the world’s largest social democracy. [See: ]. In 1949 China followed suit but of course, selected only collectivism and not democracy. Obviously, capitalism could not work its wonders in a socialist nation.
    In 1978 after Mao’s death China adopted market-based reforms and one need not recount the upward explosion in human economic well-being that followed. India saw the resulting skyrocketing increase in overall living standards in China and instituted market reforms of their own starting in 1991. Since then these two nations have lifted a combined one billion of their citizens out of subsistence poverty. [See: ].

    In 1945 Clement Atlee defeated Winston Churchill in Great Britain and quickly proceeded to nationalize most of that country’s major industries. By the 1970s the whole world was talking about the “British Disease” and the “Sick Man of Europe”. This led to the election in 1979 of Margaret Thatcher who insisted that “No theory of government was ever given a fairer test or a more prolonged experiment than democratic socialism received in Britain. Yet it was a miserable failure in every respect…” [See: ]. Indeed, Mrs. Thatcher insisted that “To cure the British disease with socialism was like trying to cure leukemia with leeches.” [See: ].

    Israel is another instructive example. This new country’s founding principles (Zionism) took a socialist form of communal organization (kibbutzim). In the early 1980s, Israel suffered from hyperinflation (445% In 1984). In 1985 Israel adopted an Economic Stabilization Plan (wage and price controls) which failed. Then Bibi Netanyahu, during his first term (1996 – 1999) began instituting market-based reforms. In 1999 he lost and upon his later return as Prime Minister, he slashed public sector spending, privatized and deregulated industry. He also drastically cut taxes and reformed Israel’s labor laws. Today Israel has risen from a relatively poor country to a growing wealthy nation. [See: ].

    During the 1960s much of sub-Saharan Africa chose collectivism and all of these nations then entered a period of rising abject poverty. A single set of statistics tells the entire story regarding socialism in sub-Saharan Africa. When the British and the other colonizers left Africa the poverty rate stood at 11%. By 1998 under their new indigenous socialist governments this figure had skyrocketed to 66% and now as some of these nations have begun to re-introduce market-based reforms this percentage has fallen to 20% today. Still way too high but currently moving in the right direction. [See: ]

    Next take Sweden, once one of the most socialistic of the Nordic countries, as another case study. Some years ago the Swedes opted for social democracy and since 1981 Sweden’ annual GDP growth rate has averaged only 0.56%. [See: ]. In other words, the growth in human economic well-being in Sweden was virtually stagnant. Then in 1992, a major financial crisis hit Sweden as interest rates soared to a brief high of 500%. [See: ]. As a result, the Swedes became very disenchanted with the results of their collectivism and began converting their economy back to a more market-based system. The Swedes cut their income tax. They also abolished their wealth tax, their inheritance tax, and their property tax. They reduced the corporate tax from 28% to 22% and the new coalition government has recently promised to make further reductions. This one-time social democracy has lowered its tax to GDP ratio from 52% (one of the world’s highest) to 45% and the new government has announced still more cuts for 2020. The overall result is that in 1975 fifty percent of Swedish companies were government-owned and today this figure has been cut in half and Sweden is now the fourth richest country in the world in trems of per capita wealth. [See: ].
    Turning to Denmark, while Lars Lokke Rasmussen was Prime Minister he stated that “I know that some people in the US associate the Nordic model with some sort of socialism. Therefore, I would like to make one thing clear. Denmark is far from a planned economy. Denmark is a market economy.” [See: ]. Indeed, according to the Economic Freedom Index, all of the countries in Scandinavia are far more capitalist than socialist. [See: ]. All Nordic countries have no minimum wage and each offers full school choice. In addition, Denmark and Sweden have greatly reduced unemployment benefits.

    Some redistributionalists still cling to Norway as the final redoubt of Nordic democratic socialism but this tiny country adheres to its mix of capitalism and socialism solely because of that nation’s massive offshore oil and natural gas deposits. In May of 1963 Norway claimed the petroleum reserves off of its coast and in 1969 they struck oil which now produces 1,600,000 barrels per day. As a result, Norway’s GDP rose from $12 billion to $65 billion in only ten years. The government wisely formed a sovereign wealth fund which today is worth $1 trillion the largest in the world. [See: ].

    No socialist in France had won the presidency from the inception of the Fifth Republic in 1958 until 1981 when Francois Mitterrand ascended to that high office. As president, Mr. Mitterrand quickly implemented a program of nationalization coupled with an economic stimulus designed to jump-start France’s flagging economy. His election could not have come at a worse time. The world was suffering from a new phenomenon called “stagflation” and in less than two years after his election, President Mitterrand was forced to sharply curtail his collectivist efforts. [See: ].

    Even the well known Slovenian philosopher, Slavoj Zizek, (who is a self described “political radical”) admits that “Social democracy is of another era” and that “A simple return to old (20th century) social democratic welfare states can not work” due to “digitalization through new forms of science (and) new forms of liberal capitalism.” [See: ].

    From 1998 to 2015 fifteen Latin American countries elected socialist presidents in a trend called the “Pink Tide”. [See: ]. Now, Oxfam reports that Latin America has remained the most unequal region in the world. [See: ]. Also, according to the Igarape Institute, Latin America has persisted in being the most violent place on the planet. [See: ]. The UN asserts that Latin America has had no reduction in poverty and that extreme poverty has increased to its highest level since 2008. [See: ]. Corruption has continued unabated and all of this has led to a counter wave that includes new conservative leaders in Brazi, Argentina, Guatemala, El Salvador, Columbia, Chile, Peru, and Paraguay. [See: ]. Some of the people of Latin America who tried collectivism did not like what they got. This is especially true in Venezuela.

    Let’s examine Iran. The 1979 revolution promised three things: independence, social justice, and democracy & freedom. After 40 years there has been a 17-fold increase in the number of Iranians living in slums. Iran’s Gini coefficient has remained high while a growing sense of disillusionment and frustration forcefully erupted in the Green Movement in 2009, as well as, another upheaval in 2017-2018. [See: ].

    Arab socialism (Ba’athism) began in Syria in the 1940s and later spread to Iraq but neither emphasized pure Marxism nor class struggle. In the 1970s neo-Ba’athism evolved and morphed into Assadism and Saddamism with their accompanying fascism and racism. Since then Saddam has been removed while Assad’s son has been fighting a prolonged civil war against rebels who strive for freedom and economic growth. [See: ].
    The book, “Heaven on Earth” (2nd edition 2019) summarizes all of this with “Socialism was man’s most ambitious attempt to supplant religion with a doctrine claiming to ground itself in ‘science’. Each failure to create societies of abundance or give birth to ‘The New Man’ inspired more searching for a path to the promised land: revolution, communes, social democracy, communism, fascism, Arab socialism, African socialism. None worked and some exacted a staggering human toll. Then, after two centuries of wishful thinking and bitter disappointment socialism imploded in a fin de siècle drama of falling walls and collapsing regimes. It was an astonishing denouement but what followed was no less astonishing. After a hiatus of several decades, new voices were raised, as if innocent of all that had come before, proposing to try it all over again.”


    Thus the economic record is clear. Over the last 230 years, socialism has caused only poverty, misery and human suffering. [See” ] While capitalism (in the opinion of many, humankind’s greatest invention since the wheel) has been slashing poverty as the next graph clearly documents.

    In a 2018 article in Foreign Affairs Magazine the esteemed historian, Prof. Walter Russel Mead, offered that over a 35 year period our nation had been plagued by “Ineffective politicians, frequent scandals, racial backsliding, polarized and irresponsible news media, populists spouting quack economic remedies, growing suspicion of elites and experts, frightening outbreaks of violence, major job losses, high profile terrorist attacks, anti-immigrant agitation, rising inequality and the appearance of a new class of super-powered billionaires in finance and technology-heavy industries.” But, Prof. Mead was writing about the period in American history from 1865 till 1901 after the end of the US Civil War. Like the movie “Groundhog Day” history only repeats itself but no one ever seems to notice that human economic improvement and overall well-being only continue to spiral ever upward. Does anyone really want to go back to living in caves eating nuts, berries, and roots, scavenging dead meat and consuming an occasional fresh kill where everyone is mostly equal? Given an informed choice, almost all of us would, one strongly suspects, opt for individualism and capitalism every time.

Leave a Reply

Your email address will not be published. Required fields are marked *