The Legacy of Surveillance : An Explanation for Social Capital Erosion and the Persistent Economic Disparity between East and West Germany

This paper presents an exemplary case of social capital destruction through state action. We investigate the patterns of economic backwardness in East Germany and put forward a formal model and empirical evidence in favor of an intuitive yet novel conjecture: the differences in the scale and depth of state security penetration of people's private lives as well as of the institutions of state and society across the regions in the former GDR have significant bearing on the social capital patterns observed in East Germany today. Our empirical evidence suggests that a one standard deviation increase in Stasi informer density is associated with a 0.6 percentage point decrease in electoral turnout, a 10% decrease in organizational involvement, and a 50% reduction in the number of organs donated across the districts in East Germany. We furthermore find robust evidence that surveillance intensity has a strong negative effect via social capital on current economic performance, and may explain approximately 7% of the East-West differential in income per capita and 26% of the unemployment gap. Our results are rare empirical evidence towards a better understanding of the mechanisms through which social capital accumulates and depreciates, and thus informative for policy-makers