Sparks Commentary: Does communism cause poverty? (The two experiments that prove it does)

Karl Marx, the chief founder of communism

Does communism cause poverty? And how can this be tested?

Karl Marx

What counts as "testing"?

The short answer is "yes": it does cause poverty. But as far as testing goes, it depends on how you define "test." When hearing the word "experiment," most people have the mental image of a laboratory; but I should acknowledge in advance that experiments are hard to do in economics and politics. Even the possible ones usually require major government actions which may be unpopular, and people generally don't like to be guinea pigs. This is true of any experiment about whether communism has negative effects on prosperity.

Karl Marx

The experiments that no one wanted ...

So is there such an experiment? It turns out that there are two on a large scale, but not ones initiated by any government or university. They are natural experiments, or ones in which "the experimental and control conditions are determined by nature, or by other factors outside the control of the investigators." (source citation) While they were set in motion by human beings rather than nature, their purpose was not experimental at all; but the result of complicated political negotiations following a major war. Both sides in these negotiations - who had been allies during this war - would have preferred that their own system of government be established in the territories of their former enemies; but neither had the military power to do so for all those territories. The result was a compromise, which began two of the most epic natural experiments in the history of economics - two experiments neither side wanted, but which both sides got; and which clearly show a causal relationship between communism and poverty.

Yalta Conference, 1945

Potsdam Conference, 1945

Standards of evidence have been met

But before I get into the specifics, let me spend a moment describing the criteria used for proving causality. The standards of evidence are high, because causality is uniquely difficult to prove; but these rigorous standards have been met to the utmost degree, and the hypothesis that communism causes poverty is the only explanation that survives these standards of evidence. Causality has seldom been so clearly demonstrated.

What's needed to prove causality

Causation is a difficult thing to prove for several reasons. For one, just because A happened before B, it doesn't mean that A caused B.

1) The right order of occurrence

Lots of Christmas cards are bought in the months before Christmas. Does that mean that buying Christmas cards caused Christmas to happen? Of course not. The culture - and to a large extent, the religion - is what causes the celebration of Christmas, and the anticipation of that holiday causes people to buy Christmas cards. The right order of occurrence is necessary to establish that A caused B, but it's not all that's needed to establish causation.

2) Correlation

Correlation is also needed. If variable A caused variable B, the change in A should correlate, or move together, with the change in B. But correlation by itself, it should be noted, proves nothing.

Everyone drinks water (or beverages containing it) regularly throughout their life. And eventually, everyone dies. Thus, the correlation between water-drinking and eventual death is 100% - everyone drinks water, and eventually, everyone dies. Does that mean that water-drinking caused everyone to die?

The statistical correlation is there - one can't have a higher correlation than 100%. But obviously, water-drinking doesn't cause death; because water is necessary for human life. If we assumed that correlation means causation, we'd have to reach the conclusion that water-drinking causes death - a conclusion that is obviously false. Correlation, it should be noted, is a part of the evidence needed to prove causation; but it's not all that's needed.

3) Elimination of other possible explanations for the change

The last thing necessary to establish causation is to eliminate other possible explanations for the change. Variable A might have caused Variable B, but then, so might have Variable C or Variable D, or all three of these variables may have contributed. (Few events have only one immediate cause - most have several.) To establish causation, you must hold other variables constant, and that requires an experiment.

How experiments show causation

An experimental group and a control group

Experiments have both an experimental group and a control group, which start out as similar as possible, and are treated identically except for the variable being tested for. Thus, any differences between the two after the experiment can be inferred to come from that variable.

Experiments are used widely in psychology and biology, but not in economics. Why is this?

People don't like to be guinea pigs ...

Quite simply, it's because experiments are difficult to do in economics. As mentioned before, even the possible ones usually require major government actions which may be unpopular, and people generally don't like to be guinea pigs. This is true of any experiment about whether communism has negative effects on prosperity.

Karl Marx and Friedrich Engels, the co-founders of communism

So if we can't do experiments about this, can we establish causation here? To a large degree, we can.

The natural experiments

Sometimes there are situations known as "natural experiments" - where the other things are already held constant, or close enough to constant to earn the name of "natural experiment." Are there any such things relevant to the issue of communism causing poverty?

As it turns out, there are. The first of them is in the Korean Peninsula.

Natural Experiment #1 - Korea

Japanese surrender to U.S. Army in South Korea - Seoul, 1945

Red Army's "Welcome Celebration" in North Korea - Pyongyang, 1945

Division of Korea into capitalist South and communist North

In 1910, the Imperial Japanese had begun to rule Korea. But in 1945, the Korean Peninsula was divided into two parts, with the division being made permanent in 1948. South Korea had a capitalist government following the Constitution of 1948, and North Korea had a communist government. Before the division, they had a nearly identical geography, government, language, and culture. The two Koreas had different population levels and different land areas, but these are virtually irrelevant to measuring per-person standard of living, so we can eliminate these variables as explanations for the two Koreas' differences in their later standards of living.

South Korean general elections, 1948

Similarities between experimental group and control group before the experiment

The only significant economic differences between the two at the time of the division (and new Constitution) can all be grouped into one category: changed political and economic systems. Specifically, South Korea was democratic (following the Constitution of 1948), and North Korea was communist.

Ceremony inaugurating South Korean government, 1948

Differences between experimental group and control group after the experiment

Later on, the two Koreas had widely different standards of living. North Korea was very poor, and South Korea was comparatively wealthy. Ever since then, North Koreans have risked life and limb to try and escape into South Korea, across one of the most heavily guarded borders in the world, with their own government trying to keep them from getting out. The North Korean government has killed many of its own citizens for attempting to escape into South Korea. Such was the terrible economic situation in communist North Korea, as compared to its democratic neighbor.

So did the change in political and economic systems cause the change in standards of living?

All of the criteria needed to prove causality are there

Certainly the one came before the other, so the right order of occurrence is there - change in political and economic systems must come before the change in standard of living if causality is to be proved, and it does. The correlation is also there, because changes in the one are correlated with later changes in the other - more communism, more poverty later. And finally, other possible explanations for the differences in standard of living have been eliminated due to the natural experiment. It can't be geography (it's virtually identical); it can't be pre-separation government, because this was the same for both of them before the division; and it can't be language or culture, because these are both virtually identical. It also can't be population or land areas, because these are practically irrelevant to per-person measures like standard of living. Only one explanation is left - the changed political and economic systems. This explanation survives the most rigorous standards of scientific evidence, because it's the only one that could have caused it.

Conclusion: Communism caused the poverty of the northern portion compared to the south

So we have all the criteria needed to establish causation, and we can thus say with confidence that the changed political and economic systems caused different per-person standards of living. When other things were held constant in this natural experiment, South Korea's capitalist system caused a higher standard of living than North Korea's communist system. This natural experiment of epic proportions allows us to say this with confidence.

If this were not enough to prove a causal relationship between communism and poverty, there is another natural experiment just like this in a different part of the world: Germany.

Natural Experiment #2 - Germany

German surrender, May 1945

Devastated postwar Berlin, June 1945

Division of Germany into capitalist West and communist East

The German states had been unified into a single nation back in 1871. But in 1945, Nazi Germany was soundly defeated in World War II. After the war, Germany was divided into two parts. West Germany was a free-market capitalist country affiliated with the free world, and East Germany was a communist satellite country controlled by the Soviet Union. Before the division, they had a nearly identical geography, government, language, and culture. The two Germanies had different populations and land areas, but again, these are virtually irrelevant to measuring per-person standard of living, so we can likewise eliminate these variables as explanations for the two Germanies' differences in their later standards of living.

Reichstag, Occupied West Berlin (French zone), 1946

Red Army raises Soviet flag in Berlin after taking the city, May 1945

Similarities between experimental group and control group before the experiment

The only significant economic differences between the two at the time of the division can all be grouped into one category: different political and economic systems. Specifically, West Germany was capitalist, and East Germany was communist.

Border between West and East Germany - Iron Curtain, 1949

Marshall Plan - West Berlin, 1949

Marshall Plan aid can be eliminated as an explanation here

Even the American foreign aid arriving to West Germany under the Marshall Plan can be explained in terms of political and economic systems, since it came to capitalist West Germany from capitalist allies like the United States, and no such aid came to communist East Germany from its communist allies in the Soviet Union. (In fact, the Soviets actually succeeded in blocking all implementation of the Marshall Plan in the Eastern Bloc, making the point that the Marshall Plan cannot be considered separate from the difference in political and economic systems.) The Marshall Plan, too, can be explained in terms of the factor being tested for.

Construction of Berlin Wall by Soviets, 1961

Soviet and American tanks at Checkpoint Charlie - Berlin Wall, 1961

Differences between experimental group and control group after the experiment

Later on, the two Germanies had widely different standards of living. East Germany was very poor, and West Germany was one of the richest economies in the world. During the Cold War, East Germans risked life and limb to try and escape into West Germany, across the heavily-guarded Iron Curtain or the infamous Berlin Wall, with their own government trying to keep them from getting out. During the Cold War, the East German government killed many of its own citizens for attempting to escape into West Germany. Such was the superior economic situation in capitalist West Germany.

Body of Peter Fechter, an East German who tried to escape to the West, only to be shot by the Soviets at the Berlin Wall (1962)

A soldier who successfully escaped to the West by leaping over barbed wire - Berlin Wall, 1961

So did the change in political and economic systems cause the change in standards of living?

Czech hedgehogs at the Berlin Wall, 1961

All of the criteria needed to prove causality are there

Certainly the one came before the other, so the right order of occurrence is there - change in political and economic systems must come before the change in standard of living if causality is to be proved, and it does. The correlation is also there, because changes in the one are correlated with later changes in the other - more communism, more poverty later. And finally, other possible explanations for the differences in standards of living have been eliminated due to the natural experiment. It can't be geography (it's virtually identical); it can't be pre-separation government, because this was the same for both of them before the division; and it can't be language or culture, because these are both virtually identical. It also can't be population or land areas, because these are practically irrelevant to per-person measures like standards of living. Only one explanation is left - the changed political and economic systems. This explanation survives the most rigorous standards of scientific evidence, because it's the only one that could have caused it.

East Berlin death strip, 1984 (as seen from West Berlin)

Conclusion: Communism caused the poverty of the eastern portion compared to the west

So we have all the criteria needed to establish causation, and we can thus say with confidence that the different political and economic systems caused different per-person standards of living. When other things were held constant in this natural experiment, West Germany's capitalist system caused a higher standard of living than East Germany's communist system. This natural experiment of epic proportions allows us to say this with confidence.

Berlin Wall from East German side, 1967

Berlin Wall, 1975

Conclusions

Preserved portion of Iron Curtain - Czech Republic (photographed 2007)

Communism causes poverty

So two great natural experiments - one in the Korean Peninsula, one in Cold-War-era Germany - allow us to say that a democratic-capitalist system causes a higher standard of living than a communist system. If one wants a good standard of living, communism seems the best way to guarantee that you won't have it.

Long line for cooking oil - Bucharest, Romania 1986 (then controlled by Soviet Union)

Solutions to the problem

So if you want to be poor (and I mean grindingly poor), vote communist. But if you want to be prosperous, vote something else. The democratic-capitalist system has a proven track record of performing better than communism, and it's much recommended to those who want prosperity.

Footnote to this blog post:

West Germany and East Germany were eventually reunified in 1990. On 12 September 1990, there was a "Treaty on the Final Settlement with Respect to Germany" between the major powers. The most important part of this treaty is as follows:

"The Federal Republic of Germany, the German Democratic Republic, the French Republic, the Union of Soviet Socialist Republics, the United Kingdom of Great Britain and Northern Ireland and the United States of America" have agreed as follows: "The united Germany shall comprise the territory of the Federal Republic of Germany, the German Democratic Republic and the whole of Berlin. Its external borders shall be the borders of the Federal Republic of Germany and the German Democratic Republic and shall be definitive from the date on which the present Treaty comes into force." (Source: Introduction to the Treaty, and Article 1 of the Treaty)

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Construction of the Berlin Wall, and the attempted escapes to the West

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