Economic Crisis and Disillusionment from Socialism: Evidence from a Quasi-Natural Experiment

While many socialist countries suffered from harsh economic crises, studying their impacts on economic and political attitudes is challenging because of the scarcity of reliable data in non-democratic contexts. We study a democratic socialist setting where we have ample information on such attitudes: the Israeli kibbutzim. Exploiting an economic crisis that hit some kibbutzim more than others, we find that the crisis led to reduced support for leftist political parties. This effect persisted for over 20 years after the crisis had ended. We document that the electoral movement was rooted in a rightward shift in economic attitudes, suggesting that economic crises may undermine socialist regimes by silently changing attitudes toward them. In our unique setting, we can also study recovery mechanisms from the crisis. First, we find that while a sharp debt relief arrangement restored trust in the leadership, it did not reverse the impact of the crisis on economic attitudes. Second, as part of their efforts to recover from the crisis, kibbutzim liberalized their labor markets. Analyzing the staggered shift away from equal sharing to market-based wages, we find that this labor market liberalization led kibbutz members to move further rightward in their political voting and economic attitudes.