Why history matters

The Nazi occupation of the Soviet Union left a legacy that’s still with us today, according to this new paper (pdf) by Daron Acemoglu and colleagues:

We find that cities [in the former USSR] where the Holocaust was more intense have relatively lower population today and have voted in greater numbers for communist candidates since the collapse of the Soviet Union. Similar results also hold for oblasts that were impacted relatively more by the Holocaust. Such oblasts have lower levels of per capita income, and lower average wages today. Moreover, they tended to exhibit greater vote shares for communist candidates during the 1990s and higher support for preserving the Soviet Union in the referendum of 1991.

The lower population in cities touched by the Holocaust is not a mere mathematical artefact of the massacre of Jews. Populations are even lower than can be explained by the numbers of Jews killed. Instead, it seems to be the case that they grew more slowly after the war.
Of course, this could be just a curious coincidence. But maybe it isn’t. Acemoglu and colleagues point out that, because Russian Jews were disproportionately middle class, the Holocaust, in effect, changed cities’ social structure. And cities with a smaller middle class  grew more slowly thereafter and were poorer even 60 years after the Holocaust.
The story here is not just about the USSR’s history. It’s wider than that. We should read this alongside Nathan Nunn’s work on the way in which the African slave trade still depresses African economies today; Eric Chaney’s work on the malevolent legacy of the expulsion of Muslims from Spain in 1609; and Engermann and Sokoloff’s account (pdf) of how slavery in south America led to slower growth for decades afterwards. The message is the same. Regions’ prosperity or poverty today depends on events decades or centuries earlier because these have shaped institutions now.
All this corroborates a point made by Herbert Simon. Differences in wealth between rich and poor nations, he said:

are not simply a matter of acres of land or tons of coal or iron ore, but, more important, differences in social capital that takes primarily the form of stored knowledge (e.g., technology, and especially organizational and governmental skills)…
When we compare the poorest with the richest nations, it is hard to conclude that social capital can produce less than about 90 percent of income in wealthy societies like those of the United States or Northwestern Europe.

This, he said, has implications for redistribution:

On moral grounds, then, we could argue for a flat income tax of 90 percent to return that wealth to its real owners.

Though, you might think, this conclusion requires some extra arguments.

Comments

[Luis Enrique]

Here's some more supporting data:
http://www.tradediversion.net/archives/2010/06/more-evidence-from-labor-mobility-lotteries.html

[Bialik]

The ethnic cleansing of Jews from Arab countries in the 20th century (like my grandparents) may well have had an affect on Arab economic growth; the only technologically progressive country in the Middle East is Israel and the non-availability of oil is not the only factor. There are, though, separate theories about the impact of relying on oil for developing countries which I imagine would cover some of the former soviet republics.

[Dan]

"Though, you might think, this conclusion requires some extra arguments."

Since it seems it would then follow that your dog owns your house (http://www.econlib.org/library/Columns/Jasaydog.html), I'd certainly hope so!

[Dan]

Oops, that url should be http://www.econlib.org/library/Columns/Jasaydog.html

[Peter Risdon]

It also depends where you think social capital resides. If it is resident in individuals, rather than countries, then it's understandable how it follows voluntary or involuntary migration.

That would also mean, though, that the capital remains where it belongs - with the individuals who possess it. This would mean there isn't an imbalance or problem to correct, wouldn't it?

[Historyscoper]

Talking about history, try scoping it with the Historyscoper at
http://historyscoper.com

[Daniel Waweru]

Chris, you might also like to look at this paper, which examines the effects of colonialism on capital markets in non-white colonies: http://journals.cambridge.org/action/displayAbstract?aid=7271612

[Daniel Waweru]

Social capital is more plausibly possessed by groups than by individuals. Regardless, I don't see how it follows from the supposed fact that it resides with people, that there's no imbalance or injustice. Social capital is a bunch of aptitudes and abilities for doing well in a particular society: beautiful Russian, and a deep knowledge of Russian culture are useful in Russia, not so much elsewhere. Being expelled from the society violently deprives its victims of the opportunity to exercise those abilities; even if they carry those abilities with them, they've still been done an injustice.

[Paul0Evans1]

This...

"When we compare the poorest with the richest nations, it is hard to conclude that social capital can produce less than about 90 percent of income in wealthy societies like those of the United States or Northwestern Europe."

... is a stunning conclusion if it stands up.

Surely is also applies in some measure to places where a sudden economic jolt has led to large-scale emigration as well?

[gordon]

I suppose the Acemoglu paper on the terrible long-term effects of the Holocaust is a good explanation for Germany's failure to flourish economically after WWII. We all remember that Germany was an economic basket case all through the 1950s, 1960s and 1970s and is still well behind the rest of Europe!

And as far as Eastern Europe is concerned, let's not forget that there were large numbers of German-speaking people (who weren't Jews) in those lands right through to Ukraine, White Russia and the Baltic for generations before WWII. They played a significant role in the economies of those parts. Towards the end of the War, these German-speakers tactfully departed westwards, often with precipitous rapidity. The impact of their departure is likely to be at least as great as the departure (to a better place) of the Jews, but as reported the Acemoglu paper takes no account of them.

I've got a colander in my cupboard with fewer holes in it than the Acemoglu paper, at least as summarised here.

[stephen]

Actually, the case against Acemoglu is even worse than Gordon says.

Russia: loss of both Jews and Germans gives depressed economy
Germany: loss of Jews but not Germans gives flourishing economy
Britain: increase of Jews but not Germans gives depressed economy

Conclusion, using Acemoglu standard of logic ....

[Bialik]

The last few posters have veered from the original research which looked at cities, not countries. Ethnic minorities aren't equally concentrated, and where they reside they aren't all engaged in the same kind of work. Berlin had doctors, teachers, civil servants as befits a cultural and administrative centre; other places had agriculturalists,industrialists... poets.

Social (don't we mean economic?) capital resides in people but, of course, the group they're in sociologically (not racially) affects their ambitions and prospects.

As for the Jews departing to a better place...The survivors went to poverty and estrangement in many countries and continents. We only remember the successes - the film makers, publishers, architects.
See 'Hitler's Loss' by Tom Ambrose http://www.amazon.co.uk/gp/product/0720611075/ref=pd_lpo_k2_dp_sr_1?pf_rd_p=103612307&pf_rd_s=lpo-top-stripe&pf_rd_t=201&pf_rd_i=030740515X&pf_rd_m=A3P5ROKL5A1OLE&pf_rd_r=0112R512MCR97QE87XEP.

[Dain (Mupetblast)]

I'd think an important question to ask is just how well a country or region was doing BEFORE the occurrence of a negative historical event.

Africans were sold into slavery with the participation of other Africans, suggesting a serious institutional handicap in that area of the world.