Halfway through Phil Collins's new film, a statue of Karl Marx is winched out of a Berlin square. It recalls Fellini's La Dolce Vita, in which a statue of Jesus is airlifted over the roofs of Rome before the shenanigans begin. Both sequences invite similar questions. What happens when the key symbol of a culture is run out of town? Does life become sweet? Does it leave an icon-shaped hole?

The Runcorn-born, Berlin-residing, 2006 Turner prize-shortlisted artist wanted to address these questions in his film, called Marxism Today. But most of all, he wanted to find out what happens to a discredited creed's followers, as they move into an alien new world. "I was in Berlin on the 20th anniversary of the Wall coming down. All the focus was on reunification and the subcultures of dissent that existed in East Germany – be it the Protestant church or punks. The one voice that wasn't heard was that of teachers of Marxism-Leninism in East Germany. Where did they go? There must have been a lot of them: it was a compulsory subject."

So he put ads in papers and magazines inviting old Marxist teachers to get in touch. "Some were suspicious," says Collins, "but we got 40 replies and 10 people were filmed. In the end, I only put three in because they told their stories in an effective way – and helped establish a vivid sympathy."

In the heart-rending opening interview, unemployed Petra Mgoza-Zeckay remembers 1989. For her, it wasn't a year when the walls of tyranny came down, but a time when her life fell apart. She had been a teacher in Marxism-Leninism for medical students, married to an African socialist. "My parents didn't like me marrying a black man," she says. The couple wanted to go to South Africa, where they planned to join the ANC and fight apartheid. But her husband became depressed and took his life in May 1989. Soon after, Mgoza-Zeckay lost what she calls "her fatherland" and then her job. She couldn't share in the euphoria of the times, and remembers West German Chancellor Helmut Kohl going walkabout in Karl Marx Platz. "Kohl handed out bananas and Coca-Cola. I don't eat bananas any more – and of course I don't drink Coca-Cola."

When I meet Collins, he is installing two screens in the British Film Institute's Gallery by the Thames. One will show Marxism Today, another a film entitled Use! Value! Exchange! featuring former Marxism-Leninism teacher Andrea Ferber lecturing present-day students in Marx's Das Kapital. The 20-minute short is more fun than that sounds, not least because Ferber is a dead ringer for President Laura Roslin from Battlestar Galactica.

Collins is awaiting the arrival of some authentic East German school desks and chairs. He plans to put them in the middle of the gallery. "The idea is that, after one film, you'll get up and move to the next 'classroom' – as if you'd just had double maths and now it's double historical materialism."

Is Collins romanticising eastern bloc glumness? He denies the charge, saying his work isn't at all steeped in the Ostalgie that gripped some Germans after reunification. Indeed, he casts a sceptical eye over what education meant in a society where you were notionally free – so long as you didn't inquire too loudly in class when tyrant Erich Honecker was going to sling his presidential hook. Collins uses footage from a GDR TV programme made by and for teachers, in which one expert witters so intractably about socialist education that Collins fades him out. And then fades him back in.

Marxism Today is, though, nicely poised between scepticism and near admiration. In the marvellous ending, Collins uses archive footage of a vast gymnastic extravaganza, in which legions of lithe youths perform intricate patterns in a huge stadium. It made me think not so much of the servile tyrannised masses, but of how beautiful they all look together, and what a rush it must have been to take part. This sort of thing could never happen here, I thought, not because we are freer, but because we aren't sufficiently disciplined.

Collins heightens such contradictory feelings with a wistful soundtrack provided by Laetitia Sadier and Nick Powell. As the display ends, the word Sozialismus (socialism) appears on the terraces in huge letters, leaving us in no doubt about the event's ideological purpose. "Socialism always had to announce itself," says Collins. "Capitalism is more furtive. We don't say we're bringing capitalism to countries we invade – we say we're bringing democracy, freedom. But really we're bringing capitalism."

Marxism Today fits well with the rest of Collins's work. "I've always been interested in the othered," he says. Note the construction: not the other, but the othered: peoples reduced to something they are not, by our presumptions – presumptions that Collins challenges. His work is far from funless, though. He once went to Ramallah and auditioned Palestinians for a disco-dance marathon. This was for the 2004 work They Shoot Horses and consisted of two videos, each lasting seven hours, showing dancers throwing shapes or slumping on the floor. So what was that about? "We don't think of Palestinians as people who can disco dance, which seems a little unfair. Know what I mean?"

Collins also took a karaoke machine to Indonesia and Colombia, asking fans of the Smiths to sing along to their depressive oeuvre. The result, 2005's The World Won't Listen, demonstrated an important truth: kids in Bogotá and Jakarta can be as loveless and whiney as kids in Hulme and Salford. "It was also about the legacies of British subcultures and how they find their places in cultures you would never expect."

Marxism Today – arriving at a time of fees protests, debates about free schools and ideologically inspired tweaks to the national curriculum – couldn't feel more topical. It features old footage of an East German teacher instructing schoolchildren to set aside their prejudices about how rich and happy everyone is in West Germany. Instead, he tells them, they must use rational thought to realise that, over the border, they are as exploited as Marx hypothesised.

Isn't this state-sponsored brainwashing? Collins turns the argument around. "Ask yourself how the British education system structures itself. Marxism is always connected with brainwashing or taboo or infection, but here the hegemony is invisible: we're never explicitly told about the ideology we're being taught, while in eastern Europe it was at least overt." He starts listing British kings and queens, a catechism doubtless learned in Runcorn. "I was taught history in a way that scarred me for life."

Talking of lifelong scars, it's time to ask the Big Question. What's it like to share a name with a 1980s pop superstar? "Oh God. Growing up with that name, people think you're joking. If you get stopped by the police, you're always the one who's going to get arrested because they think you're taking the piss when you give that name." You must love his music, though? "His music was always a middle-aged Thatcherite moan. Even in its most joyous moments it was a self-inflicted wound."

Perhaps this new work will deepen the renewed interest in Marxism prompted by our global recession and scepticism about capitalism. Maybe it's all part of a movement championed by philosopher Slavoj Žižek in his new book The Idea of Communism. Žižek suggests that, now we've all had some nice anti-communist fun, it's time to get serious again, time to get with the socialist programme. "Do not be afraid," he writes, "join us, come back!"

• This article was amended on 9 February 2011. The original referred to a wistful soundtrack provided by Stereolab. This has been corrected.