Welfare Reform and Repression in an Autocracy:Bismarck and the Socialists

Felix Kersting (HU Berlin)

8 December 2021

International Macro History Online Seminar

Motivation

• 2/3 of world population in autocratic country & more pro-democracy protestsV-Dem Report 2020, 2021

• Central questions in political economy:How do autocratic rulers react to protests?When does protest lead to democratization?Acemoglu/Robinson 2000, 2006; Brueckner/Ciccone 2011; Aidt/Franck 2015

• Open questions:Do reforms lead to less support for the opposition?How does the opposition react to reforms?

1

The case and competing hypotheses

Case: Bismarck’s policies targeted at the socialist party:(1) the social insurance and (2) the anti-socialist law.

Competing hypotheses

1. Historical narrative: social insurance fostered integration of working class(Wehler 2006, Eichengreen 2018)

Social reform → declining support for the socialist party

2. Theory in political economy (Acemoglu/Robinson 2000) Quotes

• Rulers choose between democratization and reform in times of social unrest• Credible commitment mechanism, i.e., strong opposition, crucial for reform option

Social reform → no revolution & constant support for the socialist party (in newsteady state)

2

This paper

• RQ: How do welfare reform reform and repression affect the vote share for thesocialist party? How did the socialist party react to the reforms?

• Empirical Strategy: Diff-in-diff setup

• Anti-socialist law: forbidden socialist organizations• Social insurance: ex-ante existing health insurance

• Finding:• Votes increase for the socialist party

• Mechanisms:• Evasion of anti-socialist law: illegal newspaper• Socialist party dominates the narrative about the social reform• Use of loophole in social insurance

3

Literature and contribution I: Political economy of authoritarian regimes

• Key theoretical approach: Acemoglu/Robinson 2000, 2006

• Drivers of democratization: Brueckner/Ciccone 2011; Aidt/Franck 2015; Dower etal 2017; Finkel/Gehlbach 2020

• Reforms in authoritarian regimes: Voigtlaender/Voth 2020; Mohr 2021

−→ Analysis of carrot and stick policy: Opposition can benefit.

−→ Analysis of opposition: Dominating the narrative as complementarity forsuccess of reforms.

4

Literature and contribution II: (Economic) History on Bismarck’s reforms

• Socio-economic consequences:

• Mortality: Bauernschuster et al 2020; Guinnane/Streb 2015• Savings: Lehmann-Hasemeyer/Streb 2018• Migration: Khoudour-Casteras 2008• Demographics: Scheubel 2013; Guinnane/Streb 2021

• Narratives around Bismarck’s policies

• Fostered social integration of the working class: Wehler 2006; Eichengreen 2018• Paradigm for the organization of welfare state: Ritter 2010• Prime example for carrot and stick: Wehler 2006

−→ First quantitative analysis on political consequences of Bismarck’s socialpolicies

5

Agenda

Historical Background: Bismarck and the Socialists

Empirical Strategy

The Effects of the Social Insurance and Anti-Socialist Law

Organizing the Opposition

Conclusion

6

Historical Background: Bismarckand the Socialists

Bismarck and the socialists

• 1870s: Increasing fears of socialist revolution triggered by

• the foundation of the Sozialistische Arbeiterpartei Deutschlands (SAP),• their support for the Paris commune,• unseen levels of strike activity.

• Bismarck’s reactions

1. Anti-socialist laws: targeted at all socialist organizations2. Social insurance: targeted at all blue-collar workers

• Social effects

1. Decline in mortality Bauernschuster et al. 2020

2. Higher indirect wages Khoudour-Casteras 2008

7

What were Bismarck’s goals?Reduce support for the socialist party

Berliner Wespen 1878.

1. Anti-socialist laws: “War of extermination withlaws” against the “red enemies of the state”Bismarck 5 June 1878

2. Social insurance: “Give the worker the right towork as long as he is healthy, give him care whenhe is sick [...]. When you do that [...], then Ibelieve that the gentlemen of the Wydener program[the SAP] will blow their whistle in vain.”Bismarck 9 March 1884

8

How did the socialist party react?

• After the anti-socialist law, debates on the right strategy

• Result: mix of legal and illegal activities

• Strong opposition to both parts of Bismarck’s reforms:“We despise the carrot (Zuckerbrot), we break the stick (Peitsche).” Mehring 1913

9

Empirical Strategy

Empirical strategy: Idea

1. Exploit local and industry-specific insurance schemes that existed prior toBismarck’s public scheme (following the ‘bite’ idea, see, e.g, Finkelstein 2007)→ calculate share of newly insured workers Details Map

2. Collect data on forbidden socialist organizations→ Construct dummy for constituencies with at least one forbidden socialistorganization Details Map

10

Empirical strategy: Specification

SAPit = αi + θt +t=1890∑t=1871

γt(Treatmenti · Yeart)

+t=1890∑t=1871

δt(Blue-collari · Yeart) + Xitβ + ϵit

• Unit of analysis: constituency (228 in Prussia)

• SAPit : votes for the SAP in the Reichstagswahlen in constituency i in election t

• Blue-collari : share blue-collar workers in constituency i as of 1882

11

The Effects of the Social Insuranceand Anti-Socialist Law

Main finding I: Social insurance

-10

12

3Po

int e

stim

ate

/ C.I.

1871 1874 18771878 1881 1884 1887 1890

Social Insurance

• Magnitude of effect: 2 pp increase for SAP (1881 to 1884), electoral constituencywith 1 sd higher share newly insured (2.15%) → 1.75 pp increase for SAP

Table 12

Main finding II: Anti-socialist laws

-10

-50

510

Poin

t est

imat

e / C

.I.

1871 1874 18771878 1881 1884 1887 1890

Anti-Socialist Laws

Table

13

Main finding III: Interaction

Dep. var.: Votes SAP (in %) Stick Carrot Both Interaction(1) (2) (3) (4)

Forbidden Organization × Post1878 2.174*** 1.756*** -0.545(0.674) (0.663) (0.935)

% Newly Insured × Post1884 1.294*** 1.263*** 1.136***(0.154) (0.154) (0.158)

% Newly Insured × Post1884 × Forbidden Organization 0.506***(0.146)

Mean Dep. Var. 5.18 5.18 5.18 5.18Further Controls ✓ ✓ ✓ ✓Constituenciy FE ✓ ✓ ✓ ✓Time FE ✓ ✓ ✓ ✓Observations 1824 1824 1824 1824Constituencies 228 228 228 228Elections 8 8 8 8R-squared within 0.37 0.39 0.39 0.40R-squared overall 0.27 0.29 0.30 0.30

Notes: The dependent variable measures the share of votes for the social democratic party. Treatment variables: “carrot”share of additional insured population in 1884; “stick” dummy variable for at least one forbidden organization in thewake of the anti-socialist law. Controls: Population (log). Standard errors, clustered at the district level, in parentheses.*** p<0.01, ** p<0.05, * p<0.1.

14

Validation: Pre-trends by sector

-.5-.2

50

.25

.5Po

int e

stim

ate

/ C.I.

1871 1874 1877 1878 1881 1884 1887 1890

Mining (1.00)

-.5-.2

50

.25

.5Po

int e

stim

ate

/ C.I.

1871 1874 1877 1878 1881 1884 1887 1890

Textiles (0.61)

-.5-.2

50

.25

.5Po

int e

stim

ate

/ C.I.

1871 1874 1877 1878 1881 1884 1887 1890

Chemistry (0.55)

-.5-.2

50

.25

.5Po

int e

stim

ate

/ C.I.

1871 1874 1877 1878 1881 1884 1887 1890

Metal and Machinery (0.53)

-.5-.2

50

.25

.5Po

int e

stim

ate

/ C.I.

1871 1874 1877 1878 1881 1884 1887 1890

Paper and Leather (0.41)

-.5-.2

50

.25

.5Po

int e

stim

ate

/ C.I.

1871 1874 1877 1878 1881 1884 1887 1890

Food (0.30)

-.5-.2

50

.25

.5Po

int e

stim

ate

/ C.I.

1871 1874 1877 1878 1881 1884 1887 1890

Print and Art (0.30)

-.5-.2

50

.25

.5Po

int e

stim

ate

/ C.I.

1871 1874 1877 1878 1881 1884 1887 1890

Stones (0.24)

-.5-.2

50

.25

.5Po

int e

stim

ate

/ C.I.

1871 1874 1877 1878 1881 1884 1887 1890

Clothes (0.19)

-.5-.2

50

.25

.5Po

int e

stim

ate

/ C.I.

1871 1874 1877 1878 1881 1884 1887 1890

Construction and Timber (0.18)

15

Robustness checks

• Shift-share approach Idea Results

• Collapse pre-and post period (Bertrand et al 2004) Results

• Other parties Results

• Other social cleavages and region×year fixed effects Results

• Different sample restrictions Results

• Role of outmigration Results

16

Organizing the Opposition

Evading the stick: The newspaper “Der Sozialdemokrat”

• Distribution of the newspaper:

• To Germany via Zurich (and later London)• Within Germany: local structure and “old” forbidden infrastructure• Chief of police in 1885: “effectively countering this smuggling has proved impossible”

• Subscription lists available in the Julius Motteler archive Map

17

Dominating the narrative

Archiv der sozialen Demokratie.

1. Criticizing the shortcomings and demanding more

• Exclusion of workers in agriculture• Too little distributional effects• Demand: safer work conditions

2. Building on lack of trust in government

• “red enemies of the state” Bismarck 1878

• Police concerned about the lack of trust• SAP: social insurance as “social demagogy”

3. Claiming the credits

• “If there were no social democracy, and if a lot of peoplewere not afraid of it, the modest progress we have made sofar in social reform would not exist.” Bismarck 1884

• Similar conclusion drawn in internal police reports

18

Dominating the narrative

• Idea: Der Sozialdemokrat as indicator for dominance of socialist party

Dep. var.: Votes SAP (in %) (1) (2)

% Newly Insured × Post1884 1.294*** 1.190***(0.154) (0.156)

% Newly Insured × Post1884 × Socialist Newspaper 0.532***(0.165)

Socialist Newspaper × Post1884 -0.374(1.151)

Mean Dep. Var. 5.18 5.18Further Controls ✓ ✓Time FE ✓ ✓Constituency FE ✓ ✓Observations 1824 1824Constituencies 228 228Elections 8 8R-squared within 0.39 0.40R-squared overall 0.29 0.29

19

Exploiting the carrot: Mutual health funds

• Different forms of health insurance, key: mutual health funds (Hilfskassen)• Advantage: independent of employers• Disadvantage: only financed by employees

• Socialist party promotes mutual health funds• More votes for socialist party in districts with higher share of members in mutualhealth funds Results

20

Conclusion

Conclusion

• Socialist party benefitted from Bismarck’s Zuckerbrot und Peitsche policy

1. Speaks against historical narrative on Bismarck’s reform2. Partially in line with the implications of Acemoglu/Robinson (2000):

No revolution and no decline in votes, however, no stable vote share

• Key ingredients of the response by the socialist party

1. Reallocation of activity2. Dominating the narrative about the reform

• Long-term: Social insurance as one of the first example how reforms matter

−→ Key question for Revisionism debate that later divides Social Democrats

21

Ex-ante existing health insurance

Ministerium fur Handel 1876. Die Einrichtungen fur die Wohlfahrt der Arbeiter der grosseren gewerblichen Anlagen.

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Forbidden socialist organizations

Teich 1879. Alphabetisches Verzeichnis aller auf Grund des Reichs-Gesetzes vom 21. Oktokber 1878 erlassenen Verfugungen gegen die

Socialdemokratie bis 30. Juni 1879.

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Newly insured population

% newly insured workers< 2%

< 4%

< 6%

< 8%

< 10%

> 12%

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Forbidden Socialist Organizations

Measure Anti-Socialist LawNo activity

Only party membership 1875

Party membership and forbidden socialist organization

Ony forbidden socialist organization

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Effect of health insurance

Dep. var.: Votes SAP (in %) Baseline Controls Blue-Collar(1) (2) (3)

% Newly Insured × 1871 -0.345 -0.100 -0.630**(0.323) (0.314) (0.283)

% Newly Insured × 1874 0.129 0.270 0.008(0.256) (0.262) (0.303)

% Newly Insured × 1877 0.602** 0.676** 0.089(0.275) (0.280) (0.356)

% Newly Insured × 1878 0.144 0.202* -0.136(0.099) (0.105) (0.155)

% Newly Insured × 1884 0.978*** 0.898*** 0.827***(0.170) (0.165) (0.193)

% Newly Insured × 1887 1.171*** 0.996*** 0.916***(0.230) (0.221) (0.265)

% Newly Insured × 1890 2.631*** 2.366*** 1.694***(0.366) (0.350) (0.500)

Mean Dep. Var. 5.18 5.18 5.18Further Controls ✓ ✓Constituency FE ✓ ✓ ✓Time FE ✓ ✓ ✓Observations 1824 1824 1824R-squared overall 0.26 0.34 0.33

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Effect of anti-socialist laws

Dep. var.: Votes SAP (in %) Baseline Controls Blue-Collar(1) (2) (3)

Forbidden Organization × 1871 -5.402** -4.192** -4.827**(2.019) (1.932) (2.186)

Forbidden Organization × 1874 0.680 1.203 1.123(1.121) (1.113) (1.309)

Forbidden Organization × 1877 2.180** 2.281** 1.380(0.962) (0.963) (1.050)

Forbidden Organization × 1881 -1.232 -1.533 -0.817(0.914) (0.975) (0.822)

Forbidden Organization × 1884 2.859** 2.248* 1.885(1.228) (1.261) (1.221)

Forbidden Organization × 1887 3.581*** 2.350* 2.056(1.190) (1.210) (1.285)

Forbidden Organization × 1890 10.018*** 8.127*** 5.672**(1.739) (1.711) (2.107)

Mean Dep. Var. 5.18 5.18 5.18Further Controls ✓ ✓Constituency FE ✓ ✓ ✓Time FE ✓ ✓ ✓Observations 1824 1824 1824R-squared overall 0.13 0.24 0.32

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Validation: Shift-share analysis

• Variation “behind” treatment variable Goldsmith-Pinkham et al. 2020

Treatmenti = BlueCollari − ExAnteInsuredi =∑j

BlueCollarij − ExAnteInsuredij

• Shift-share instrument ∑j

αj(BlueCollarPrussia,j − InsuredPrussia,j)

• αj : share of blue-collar workers in sector j and county i relative to total blue-collaremployment in sector j .

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Results shift-share analysis

Votes SAP (in %) Second Stage OLS(1) (2)

% Newly Insured × 1871 -0.557 -0.630**(0.373) (0.283)

% Newly Insured × 1874 0.155 0.008(0.372) (0.303)

% Newly Insured × 1877 0.708* 0.089(0.372) (0.356)

% Newly Insured × 1878 0.265 -0.136(0.372) (0.155)

% Newly Insured × 1884 1.429*** 0.827***(0.372) (0.193)

% Newly Insured × 1887 1.715*** 0.916***(0.372) (0.265)

% Newly Insured × 1890 3.397*** 1.694***(0.373) (0.500)

F-Stat excluded instrument 355.17Further Controls ✓ ✓Constituency FE ✓ ✓Time FE ✓ ✓Observations 1824 1824R-squared overall 0.33

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Pre-and post period

Dep. var.: Votes SAP (in %) Carrot Stick Interaction(1) (2) (3)

% Newly Insured × Post1884 1.275*** 1.120***(0.227) (0.208)

Forbidden Organization × Post1878 2.816**(1.318)

% Newly Insured × Post1884 × Forbidden Organization 0.460**(0.189)

Mean Dep. Var. 5.65 5.18 5.65Further Controls ✓ ✓ ✓Constituency FE ✓ ✓ ✓Time FE ✓ ✓ ✓Observations 456 456 456Constituencies 228 228 228Periods 2 2 2R-squared within 0.60 0.38 0.62R-squared overall 0.35 0.26 0.37

Notes: Controls: Population (log). Standard errors, clustered at the district level, in parentheses. *** p<0.01, **p<0.05, * p<0.1.

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Other parties

Conservatives Liberals Catholic Turnout(1) (2) (3) (4)

% Newly Insured × Post1884 -0.731 0.075 -0.626* 0.247(0.483) (0.552) (0.319) (0.282)

Forbidden Organization × Post1878 1.340 1.390 -6.811*** 0.646(2.075) (2.371) (1.372) (1.210)

Mean Dep. Var. 19.60 42.76 22.44 62.18Further Controls ✓ ✓ ✓ ✓Constituency FE ✓ ✓ ✓ ✓Time FE ✓ ✓ ✓ ✓Observations 1824 1824 1824 1824Constituencies 228 228 228 228Elections 8 8 8 8R-squared within 0.07 0.07 0.09 0.52R-squared overall 0.04 0.00 0.01 0.30

Notes: Controls: Population (log). Standard errors, clustered at the district level, in parentheses. *** p<0.01, **p<0.05, * p<0.1.

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More controls and province×year fixed effects

Dep. var.: Votes SAP (in %) (1) (2) (3) (4)

% Newly Insured × 1871 -0.630** -0.568* -0.657** -0.642**(0.283) (0.294) (0.297) (0.311)

% Newly Insured × 1874 0.008 -0.011 0.031 -0.082(0.303) (0.280) (0.273) (0.315)

% Newly Insured × 1877 0.089 0.081 0.090 -0.060(0.356) (0.339) (0.320) (0.346)

% Newly Insured × 1878 -0.136 -0.127 -0.135 -0.191(0.155) (0.135) (0.135) (0.133)

% Newly Insured × 1884 0.827*** 0.844*** 0.875*** 0.847***(0.193) (0.216) (0.202) (0.221)

% Newly Insured × 1887 0.916*** 1.011*** 0.961*** 0.952***(0.265) (0.315) (0.268) (0.316)

% Newly Insured × 1890 1.694*** 1.847*** 1.606*** 1.624***(0.500) (0.594) (0.453) (0.542)

Mean Dep. Var. 5.18 5.18 5.18 5.18Other social cleavages ✓ ✓Time FE ✓ ✓Province × YearFE ✓ ✓Constituency FE ✓ ✓ ✓ ✓Observations 1824 1824 1824 1824R-squared overall 0.33 0.44 0.19 0.35

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Sample restrictions

Dep. var.: Baseline w/o Silesia w/o Rhine Province w/o Westfalia w/o Brandenburg bottom 75% top 75%Votes SAP (in %) (1) (2) (3) (4) (5) (6) (7)

% Newly Insured × 1.294*** 1.169*** 1.478*** 1.354*** 1.243*** 1.160*** 1.376***Post1884 (0.154) (0.179) (0.187) (0.171) (0.156) (0.225) (0.188)

Mean Dep. Var. 5.18 5.45 5.16 5.34 4.87 2.55 6.67Further Controls ✓ ✓ ✓ ✓ ✓ ✓ ✓Constituency FE ✓ ✓ ✓ ✓ ✓ ✓ ✓Time FE ✓ ✓ ✓ ✓ ✓ ✓ ✓Observations 1824 1552 1536 1688 1656 1368 1368Constituencies 228 194 192 211 207 171 171Elections 8 8 8 8 8 8 8R-squared within 0.39 0.41 0.41 0.39 0.36 0.29 0.42R-squared overall 0.29 0.30 0.30 0.30 0.27 0.13 0.31

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Newspaper: Der Sozialdemokrat

Circulation "Der Sozialdemokrat"0

< 100

< 250

< 500

< 1500

> 1500

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Voluntary funds and votes for the socialist party

Dep. var.: Votes SAP (in %) (1) (2)

Mutual Health Funds × Post1884 0.858** 1.112***(0.385) (0.377)

Newly Insured (excluding voluntary) × Post1884 -0.188(0.183)

Blue Collar (excluding voluntary) × Post1884 0.099(0.139)

Mean Dep. Var. 6.01 6.01Further Controls ✓ ✓District FE ✓ ✓Time FE ✓ ✓Observations 288 288Districts 36 36Elections 8 8R-squared within 0.66 0.66R-squared overall 0.14 0.17

Notes: Controls: Population (log). Standard errors, clustered at the district level, in parentheses. *** p<0.01, **p<0.05, * p<0.1.

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Acemoglu/Robinson 2000 and Bismarck’s reform

• “Perhaps paradoxically, a high q makes franchise extension less likely. A high qcorresponds to an economy in which the poor are well organized, so theyfrequently pose a revolutionary threat. A naive intuition may have been that inthis case franchise extension would be more likely. This is not the case, however,because with a frequent revolutionary threat, future redistribution becomescredible.” AR 2000, p. 1176

• “While there were no strong socialist parties in Britain and France and tradeunions were of little importance, the Social Democratic Party in Germany wasby far the largest left-wing party in Europe at that time, and labor movementwas strong. At first sight, one might expect franchise extension in Germany ratherthan in Britain and France. Our model, in contrast, predicts that the Germanelite should have had more flexibility in dealing with social unrest bypromising future redistribution, which was the pattern in practice.” AR 2000,p. 1185

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Migration

0

5000

10000

15000

Out

mig

ratin

g In

dust

ry W

orke

rs

.15

.2

.25

.3

Shar

e In

dust

ry in

Out

mig

ratio

n

1870 1875 1880 1885 1890 1895Year

Share Industry in OutmigrationOutmigrating Industry Workers

Notes: The figure shows the relative and absolute number of industry workers emigrating from the harbour of Hamburg.Sources: Own calculation based on Statistik des Hamburger Staats.

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