Building balanced institutions for prosperity
Table of contents
There is no doubt that the global geopolitical context became more unstable in 2024. The wars in Ukraine and the Middle East seem to have brought the world closer to large-scale open conflict. Other ongoing conflicts around the world, including the civil wars in Sudan, Myanmar, and Yemen, rarely make the daily news, at least in Western media.
The “super-election year” has led to important political changes in several nations. Among developed countries, we have seen a notable trend of incumbents struggling or losing elections. In the United States, Donald Trump made a historical political comeback to the presidency. In the United Kingdom, the Labour Party regained power after fourteen years and five different Conservative prime ministers. Among many, incumbents in France, Germany, Japan, South Korea, and Taiwan all lost ground in elections held in 2024. In the developing world, some countries have experienced dramatic transformations, such as Bangladesh (covered in detail in this volume), while in others the electoral results have debilitated the incumbent government’s majority (India and South Africa among many others).
Global instability is combined today with a series of concerning governance trends incubated in the last decade. The most worrying is the global decline of political freedom since 2013. This process has been well documented in the academic literature, and has recently been the prominent focus of research for policy-oriented international organizations and think tanks around the world. The Freedom and Prosperity Indexes produced by the Atlantic Council’s Freedom and Prosperity Center, which serve as the quantitative background of the country cases analyzed in this volume, clearly illustrate the generalized tendency toward autocratization that affects all regions. As portrayed in Figure 1, the global average of the political subindex has suffered constant erosion since 2013, and is today at a twenty-four-year low. All of its constitutive components have decreased in recent times, but most severely political rights and civil liberties.
Figure 1. Erosion of political freedom since 2012 (global average)
Source: Freedom and Prosperity Indexes, Atlantic Council (2024).
In this turbulent context, the fight for freedom and democracy is crucial and must be waged on every front. This battle is always costly and uncertain. Historical cases, but also very recent episodes covered in this volume, such as those in Bangladesh and Venezuela, show us that national populations bear the largest burden, but external factors are also instrumental. In addition to international pressure and support to domestic agents of change, rigorous analysis and research based on objective data, showing the beneficial effects of liberty in the long run, are crucial instruments.
The Atlantic Council’s Freedom and Prosperity Center wants to serve as a catalyst of such endeavors, particularly through its annual Atlas: Freedom and Prosperity Around the World, of which the present volume is the second edition. This 2025 Atlas features sixteen country studies, offering insights from renowned scholars and practitioners on their nations’ journeys toward freedom and prosperity. It includes timely analyses of countries experiencing dramatic events that may become pivotal in their histories, such as Bangladesh, Georgia, and Venezuela.
The chapters clearly support the conclusion reached in cross-country studies of a causal positive relation between freedom and prosperity. At the same time, the chapters also highlight the specificities and particular characteristics of each country’s institutional evolution. The Freedom Index’s comprehensive approach allows for a disaggregated analysis of different dimensions (political, economic, and legal subindexes) and components (political rights, trade openness, corruption, etc.) of the institutional architecture of a country, which has proven extremely useful to understand the interlinkages, mechanisms, and complementarities between them in the context of each country covered in this volume. This introductory chapter tries to situate these country-specific insights in the broader economics and political science academic literature on the relationship between distinct institutional dimensions and economic development.
Countries around the world differ substantially in terms of institutional attributes. Using the conceptual framework of the Freedom Index, which differentiates between three institutional dimensions—political freedom, economic freedom, and the rule of law—we show that there exists a high level of heterogeneity across countries in terms of their progress in each of these. And looking at the historical evolution of these institutional dimensions, we observe that not all countries have followed the same path.
Knowing that these dimensions are not perfectly correlated, we examine the relationships and interactions between them. Do these institutional dimensions substitute for or complement each other? Is any one of them a necessary condition for the others? Is a particular chronology of institutional development more likely to produce fast-growing prosperity?
In this chapter we focus on four hypotheses proposed in the academic literature: (1) the claim that the rule of law may be a necessary condition for economic and political freedom; (2) the debate on the primacy of democratization or stateness; (3) the discussion on whether democracy fosters or hampers economic freedom; and (4) the hypothesis that economic freedom may be a necessary condition for political freedom.
To end this overview, we provide a brief summary of each chapter included in this volume, focusing on how the mechanisms explained here have operated in the politico-economic evolution of each country. The chapters highlight the need for a deeper understanding of the specific channels through which free institutions foster integral and sustained development and, eventually, prosperity. In the words of 2024 winners of the Nobel Prize in Economics, Daron Acemoglu, James Robinson, and Simon Johnson, further research should be carried out on “how democracy alters economic incentives and organizations and to pinpoint what aspects of democratic institutions are more conducive to economic success.”
The many different paths to freedom
Douglass North defined institutions as “humanly devised constraints that structure political, economic and social interactions.” Modern societies rely on a complex mix of these institutions—like democracy, the rule of law, human rights, and property rights—which often overlap and can be difficult to clearly define. They are debated and interpreted in different ways, and there is no universal agreement on their precise definition.1On the conceptualizations of democracy, see for example Jørgen Møller and Svend-Erik Skaaning, Requisites of Democracy: Conceptualization, Measurement, and Explanation (Abingdon and New York: Routledge, 2011). For an overview of rule of law definitions, see Brian Z. Tamanaha, On the Rule of Law: History, Politics, Theory (Cambridge, UK: Cambridge University Press, 2004).
To better understand how institutions influence development, we take a functional approach. Rather than getting stuck in theoretical debates, we use a flexible framework to explore how different sets of institutions function in real-world contexts.
The Freedom Index created by the Atlantic Council’s Freedom and Prosperity Center is a novel attempt in this direction. The Freedom Index is based on the idea that a country’s institutional architecture rests on three pillars: political, legal, and economic. The set of institutions forming each of these can be assessed based on the level of freedom they grant to individuals. We break the Index down into three subindexes—political, economic, and legal—which relate to the ideas of democracy, market economy, and the rule of law.
The political subindex reflects a country’s institutional framework for the selection of those holding executive political power and the limits and controls imposed on the exercise of power. The legal subindex is based on how far citizens and government officials are bound and abide by the law. The economic subindex captures the degree to which scarce resources are allocated by personal choices coordinated by markets rather than centralized planning directed by the political process.
Each subindex is formed by several components. The underlying theoretical conceptualizations and the measures used to quantify them are grounded in the academic literature in political science, law, and economics, as discussed in previous reports. Using this framework, the Freedom Index provides a rigorous quantitative assessment of each dimension and its constituent components for 164 countries, from 1995 to 2023, and allows us to address the question of their interlinkages and relations.
Looking at the scores for the most recent year in the sample (2023), the simple correlations between dimensions for all countries covered by the indexes is relatively high, ranging between 0.68 and 0.8, as shown in the first column of Table 1 below. Nonetheless, this result is heavily influenced by the most institutionally developed countries, which receive very high scores in all threesubindexes.
If we limit our analysis to non-Organisation for Economic Co-operation and Development (OECD) countries, as in column 2, the correlations fall significantly, as low as 0.52 for the correlation between political and economic subindexes. Other subgroups, such as the Sub-Saharan African region (column 3), or the countries with relatively less political freedom (column 4), also present far from perfect correlations between the three subindexes.
These basic results evidence that countries do not necessarily have similar scores in all three sub- indexes, and that these can be fairly uneven. This perception is reinforced when we descend to the component level of the Freedom Index. The correlations between the components of different subindexes are many times below 0.5. Figure 2 shows the scatter plot between political rights versus bureaucracy and corruption for 126 non-OECD countries. As is clearly shown, we can find very different combinations of these two components across countries. The political rights score barely explains 7.6 percent of the variation in the bureaucracy and corruption score. This means that the remaining 92.4 percent of the variation is due to other factors. Some notable cases of great disparities between the scores include United Arab Emirates, Nigeria, and Singapore.
Table 1. Correlations between dimensions of freedom
Notes: Pearson’s correlation. Number of countries included in each column is shown in parentheses.
Low political freedom refers to countries with a score in the political subindex in 2023 below the median.
Figure 2. Political rights vs bureaucracy and corruption (Non-OECD Countries)
Source: Freedom and Prosperity Indexes, Atlantic Council (2024).
We can further theorize about the evolution of the three dimensions of freedom by looking at how these have changed across time within countries. An in-depth analysis of this topic is beyond the scope of this essay, but we can gain insights with the example of two Sub-Saharan African countries.
Rwanda and Nigeria had almost identical scores in the Freedom Index in 1995: thirty-nine and forty respectively. Both have experienced substantial increases, reaching a very similar level by 2023 (53.1 and 53.9). Yet the evolution of the three subindexes shows stark differences between the two countries. Progress in the former has been driven by sustained increases in the economic and legal subindexes, while political freedom barely changed. Meanwhile, Nigeria’s improvement is single-handedly explained by a sharp increase in the political subindex in 1999, capturing the country’s democratic transition, whereas the legal and economic subindexes have fluctuated and do not show significant improvement.
Rwanda and Nigeria exemplify two very different paths of institutional progress that reflect the historical experience of several other countries. Rwanda’s path, based on law and order and economic freedom but limited political freedom, reminds us of South Korea and Spain before their respective democratic transitions. Nigeria’s “democratization first” path is similar to that taken by many Latin American countries in the second half of the last century, which led the third wave of democratization, despite low levels of state capacity and not fully open and developed market economies.
Figure 3. Evolution of freedom dimensions, Rwanda and Nigeria
Source: Freedom and Prosperity Indexes, Atlantic Council (2024).
The interconnections among dimensions of freedom
The evidence shows that the three dimensions of freedom develop unevenly over time and in different parts of the world. This highlights the importance of understanding how these dimensions are connected, whether they support each other or can replace one another, and how they work together to influence overall prosperity.
Most quantitative measures of institutions implicitly assume that the different components can simply substitute for each other.2Indexes such as the Freedom House Freedom in the World report, the Fraser Index of Economic Freedom, and the World Justice Project Rule of Law Index, among others, all use the simple addition or arithmetic mean of their different areas/components to arrive at the overall score. This implies perfect substitutability. However, there are several potential complementarities between institutions.3See for example Vanessa A. Boese-Schlosser and Markus Eberhardt, Which Institutions Rule? Unbundling the Democracy-Growth Nexus (Gothenburg: V-Dem Institute, 2022); Sharun W. Mukand and Dani Rodrik, “The Political Economy of Liberal Democracy,” The Economic Journal (2020), 130:627. Understanding how these complementarities function is crucial, especially when assessing the impact of free institutions on economic performance and overall prosperity. Here we raise four questions about these connections. Empirical testing of these questions will follow in future research.
Is the rule of law a necessary condition for political and economic freedom?
The legal subindex measures the rule of law in formal terms, in line with scholars such as L. Fuller or J. Raz. If operating perfectly, the rule of law guarantees that political and economic freedom are effectively upheld, and can thus exert their effects on economic variables. Intuitively, the rule of law is then seen as a container into which substantive freedoms and rights are poured. Severe defects in the establishment of the rule of law, such as widespread corruption, inefficient bureaucracies, or a judiciary that does not ensure that executive power complies with the law, then represent holes and cracks in the receptacle that allow freedom to leak away.
The idea expresses the distinction between de jure and de facto recognition of rights and freedoms. The enshrinement of individual civil or political rights in a written Constitution—such as freedom of expression, voting rights, and equality before the law—has little value if these are not effectively enforced and respected by the general population and, most importantly, by those in public office. Similarly, if the law recognizes property rights and generally allows private economic transactions and free competition, but the state apparatus does not adequately limit theft or demands bribes, the potential for economic freedom is limited. Additionally, if the state routinely expropriates property without proper compensation, it will hinder the development of a competitive market environment and its associated economic efficiency gains.
What comes first, stateness or democratization?
There are different theories on the temporal sequence in which different institutions are built within a country, and whether the order matters for economic outcomes. A prominent one is the “stateness first” argument, which claims that developing state capacity before democratization produces better long-term economic results than democratization processes in weak capacity environments.4A classic reference is Samuel P. Huntington, Political Order in Changing Societies (New Haven, CT: Yale University Press, 1996). A recent example is Michelle D’Arcy and Marina Nistotskaya “State First, then Democracy: Using Cadastral Records to Explain Governmental Performance in Public Goods Provision,” Governance (2017), 30:2 Here, state capacity means a formal notion of the rule of law in which a country is able to establish an efficient state apparatus in the Weberian sense,5Max Weber defined the state as an entity that holds a monopoly on the legitimate use of physical force within a given territory. The state apparatus encompasses the institutions and structures through which the state enforces laws, maintains order, and implements policy, including the bureaucracy, military, and legal system. Max Weber, “Economy and Society” (1922) in Economy and Society, Vol. 1, eds. Guenther Roth and Claus Wittich (Berkeley, CA: University of California Press, 2023) capable of enforcing and implementing policies and regulations within the territory through an impartial and effective bureaucracy.
In this view, premature democratization is likely to produce clientelistic and patronage dynamics, generating inefficient allocations of resources, reduced productivity, lower quality of public services, increased uncertainty, and overall diminished economic activity. In the worst case, it may be a recipe for internal conflict and violence. Only until a state has solved its problem of credible enforcement, in the terminology of D’Arcy and Nistotskaya, can the benefits of democratization be fully realized.
Despite its prevalence, especially in policy circles, the stateness first argument is not free of critique. On theoretical grounds, it is not clear whether autocratic or democratic governments face better incentives to invest in state capacity. Democracies, by providing a higher degree of legitimacy to political power and the legal system it enacts, can facilitate legal enforcement and compliance by the general population. Moreover, democratic accountability can incentivize leaders to invest in an administrative apparatus that ensures the efficient delivery and provision of public goods. Autocratic leaders, to the contrary, may prefer to underinvest in state capacity in order to secure personal control of public resources and limit the contestation capacity of the population.
Recent evidence shows little support for the idea that countries with high state capacity perform better upon democratization than those that democratize under low capacity levels. Additionally, there is evidence of a positive and significant relation between democracy and growth in the context of weak capacity states in Sub-Saharan Africa.
Does democracy hamper or foster economic freedom?
The question of whether democracies or autocracies are more conducive to liberalization and the promotion of economic freedom has received different answers. The arguments pivot around three main ideas. First, some have argued that democratic building blocks such as separation of powers and the system of checks and balances limit the opportunities of political power to expropriate private resources, and thus better secure property. In this sense, the same democratic institutions that protect individual civil and political rights also serve as a safeguard of property and contract enforcement. In contrast, an autocratic ruler, not bound by any constraints on his or her authority, represents a permanent threat to private property.
The second idea relates to the time horizon of policies in democracies versus autocracies. Liberalization, especially openness to trade and financial flows, can produce intense labor and production reallocations in the short run, which can entail layoffs and other costs before the benefits of such policies are materialized. Whether democracies are better equipped than autocracies to bear the short-run costs of liberalization is not clear. On the one hand, democratic leaders have the legitimacy provided by popular support to implement their proposed policies. But on the other hand, incentives to ensure their reelection may deter them from inflicting short-run costs on the elector- ate. For non-democratic leaders, the length of time they expect to stay in power determines the level of incentives to promote economic liberalization. In unstable autocracies, the ruler is likely to try to seize resources in the short run, before he or she loses power. Instead, stable autocracies may favor economic liberalization in order to increase aggregate output and thus the base of potential taxation rents in the future.
Finally, it has been argued that the relation between regime type and economic freedom depends on mediating factors, especially the distribution of income or wealth. The proposition seems particularly related to the dimension of economic freedom that deals with the size of government in terms of taxation and spending. In highly unequal countries, democratization is likely to generate increasing levels of redistributive taxation and thus harm measures of economic freedom. Similarly, high levels of inequality in wealth and capital may induce voters to favor stricter labor regulations or restrict capital mobility. Recent empirical evidence seems to suggest that, in democracies, economic freedom tends to decrease when the level of inequality is high.6See Rainer Kotschy and Uwe Sunde, “Democracy, Inequality, and Institutional Quality,” European Economic Review (2017), 91; or Tim Krieger and Daniel Meierrieks, “Political capitalism: The Interaction between Income Inequality, Economic Freedom and Democracy,” European Journal of Political Economy (2016), 45
Is economic freedom necessary for political freedom?
Nobel laureates Friedrich Hayek and Milton Friedman posited that politically free societies must also be economically free, so economic freedom is a necessary condition for political freedom and democracy. Hayek warned that Western democracies faced a potential slippery slope toward authoritarianism after World War II, if the central governmental management of the economy required by the war effort were to be maintained or expanded. Once the state is given power over economic decisions, Hayek said, it is only a matter of time before the centrally decided plan differs from the preferences of at least some individuals. The government will need to use its coercive power to limit individual choices and rights. It may also constrain freedom of speech if used to confront or oppose governmental action. Additionally, the government might force individuals into certain occupations or locations, ultimately leading to a totalitarian state. Therefore, he concludes that only within a capitalist system is democracy possible. Friedman asserted that there was no historical example of a society that has enjoyed a high level of political freedom without something close to a market economy.
Neither Hayek nor Friedman argued that economic freedom always sustains political freedom. They saw the former as a necessary but not sufficient condition for the latter. The hypothesis seems to be supported by empirical evidence. Yet, the claim that heavy government intervention in economic affairs inevitably leads to political servitude is contradicted by the experience of some Western countries. This is particularly evident in the Nordic European countries during the second half of the twentieth century. The combination of high levels of political freedom with large government intervention in the economy has proved not only possible, but has led this group to become some of the most prosperous societies of the world today.
A possible explanation may relate to the discussion about the size of government and economic performance. Government taxation and spending arguably reduce economic freedom, but can nonetheless generate positive aggregate economic effects if social benefits exceed the unavoidable distortionary costs. Political freedom, by favoring free public debate and discussion, may thus help identify those public policies with positive net payoffs, and discard those that generate aggregate inefficiencies, allowing for a stable association of democracy and significant government economic involvement.
Looking for answers around the world
Having reviewed some potential relationships between the three dimensions of freedom, the final section of this overview provides a brief summary of each country chapter, with a focus on whether such mechanisms have operated in each country’s institutional evolution in the last three decades or are likely to do so in the foreseeable future.
Some common ideas emerge. First, there is substantial divergence between written norms and implementation of those norms, especially in the developing and least developed countries. This limits the potential effects of institutional reform on economic growth and overall prosperity. Second, democratic erosion and instability are often the consequence of severe defects in the rule of law, in particular political corruption and inefficient bureaucracies. Third, for most authors, the most urgent area for reform in their countries is the one with the weakest performance—their “weakest link.” This highlights the significant complementarities between institutional dimensions, suggesting that balanced development across all areas is essential for prosperity.
Country Chapters
Bangladesh
Ahmed Mushfiq Mobarak provides a timely anal- ysis of Bangladesh, covering the student-led “Monsoon Revolution” during the summer of 2024 that ended with Sheikh Hasina’s loss of power. Mobarak traces the beginning of the democratic erosion of Bangladesh to increasing corruption by the two major political parties since the early 2000s, which led to political instability. Hasina and the Awami League won a supermajority in the 2008 elections, but squandered the opportunity for improving governance, and instead initiated a clear autocratic path. Elections followed the regular schedule, but it is difficult to see them as mean- ingful. Boycotts by the opposition, the atmosphere of political violence, and deep erosion of individual rights dramatically limited the level of contestation in the electoral process. In addition, the autocratic government devoted major efforts to controlling the judiciary, to safeguard its hold on power and to use it as a weapon to persecute the opposition.
The 2024 revolution was diffuse and decentralized—with organic student protests that quickly spread throughout the country. As a result, the post-revolution political leadership and the way forward remain unclear. Muhammad Yunus, the founder of the Grameen Bank and a Nobel Peace Prize laureate, took charge as “chief adviser to the caretaker government” at the behest of students. His international name recognition and stature make him a credible leader, and temporarily stabilized the political uncertainty, but the country’s political future remains unclear. There is a lot of hope among average citizens that ousting a powerful autocratic government was a major achievement, and that the architects of that uprising can ensure better governance going forward by instituting some fundamental reforms and not repeating the mistakes of the past. Given that fundamental reforms are needed, including a reexamination of several aspects of the country’s Constitution, the path ahead is likely neither linear nor straightforward.
Cameroon
Political power is mostly centralized in Cameroon, and as a result there is no effective system of separation of legal powers, with both legislative and judicial branches being dependent on the executive power, as Vera Songwe explains. There are spillovers from political liberty to other aspects of the institutional framework, as evidenced by the country’s poor performance in terms of economic and legal subindexes. The drag imposed by limited political freedom is most notably evident in the very low level of gender equality in the economic sphere, reflecting how lack of representation of significant shares of the population in the political process undeniably harms their interests.
Going forward, the government of Cameroon should focus on two main areas: education and environment. Education remains the fastest way to economic empowerment of populations, and women in particular. In the long run, it can help reduce costs of healthcare as educated women tend to adopt more preventive approaches for themselves and their children. To this end, a policy of free primary education must be complemented by strong indicators of teacher performance to ensure that children are actively learning. Regarding the environment, Cameroon’s environmental resources, if well managed, could be an important source of revenue. Reforestation in particular should be a primary policy focus.
Canada
Randall Morck notes that Canada has kept its place among the freest countries in the world for sev- eral decades. However, he also identifies some worrying recent trends that are affecting several building blocks of the liberal democratic system. Civil liberties show a decreasing trend that has continued well after all measures imposed to fight the COVID-19 pandemic were lifted, driven by a somewhat freedom-restrictive understanding of diversity, equity, and inclusion (DEI) policies. Recent corruption scandals have involved the current government’s party. Judicial independence is also under stress, and particular Supreme Court rulings have generated some degree of legal uncertainty, specifically in relation to the requirement to consult First Nations about major infrastructure projects, which has produced visible negative effects on the construction sector.
The institutional challenges Canada faces will likely be exacerbated if the country is not able to recover strong economic growth in the medium term. In order to do so, enhancing productivity growth must be a priority, through increasing corporate research and development investment. Canada’s traditional openness to trade and capital will be challenged by the announced intention of the new Trump administration to renegotiate the North American Free Trade Agreement (NAFTA), as well as the rising concerns about national security that will likely produce new trade legislation affecting Canada’s relations with China and other trade powers. In addition to economic risks, several social issues will require especial attention in the coming decade, including immigration policy, the evolution of the territorial tensions between Québec and the rest of the regions, and the successful integration of First Nations.
Ethiopia
The recent situation in Ethiopia is a paradigmatic example of a case where a government’s incapacity to provide basic civil stability and peace can put an abrupt halt on development. Abbi Kedir argues that the remarkable economic growth of the 2000–20 period, driven by public investment in infrastructure and industrial expansion, was interrupted by the proliferation of internal conflicts and fighting between the federal government and various groups in regions such as Tigray, Amhara, and Oromia, which disrupted production and trade.
The armed conflicts around the country are the biggest impediment to movement of labor and traded goods, and the carrying out of productive activities. If peace and security are not restored in all regions of the country, the socioeconomic situation will deteriorate further. Agricultural and industrial production, and other employment-generating economic activities such as trade and investment, will continue to suffer. Besides the most pressing issue of security, another big challenge that Ethiopia faces is the alarming demographic trend. Each year, two to three million young Ethiopians enter the labor force, and it is clear that the labor market cannot absorb such a huge number of workers. Any hope of transforming the economy—or even of gaining a meaningful grip on it—is an elusive dream in a country where there are high levels of unemployment, poverty, inequality, destitution, internal conflicts, food insecurity, and an ever-growing and underskilled youth population.
Georgia
The waves of reform Georgia went through between 1995 and 2018 led to a parallel improvement in all three dimensions of freedom, although the establishment of the rule of law persistently lagged behind economic and political liberalization, as noted by Tinatin Khidasheli. Most notably, the country failed to undertake a profound reform of the judicial system, which showed major deficiencies due to a non-transparent and entirely arbitrary selection process, which allowed this crucial pillar of the state to be administered by a small elite of judges for almost two decades. Since 2018, the country has been experiencing a dramatic institutional regression, clearly accentuated in the last months. The data do not yet reflect the passing of recent laws on foreign agents and LGBTQ+ rights, nor the several amendments passed to electoral legislation, reducing the opposition’s and civil society’s capacity to monitor and contest the government. The 2024 parliamentary elections in Georgia produced an even more hostile and polarized environment, with all major opposition parties, civil society monitoring organizations, and international observers claiming major fraud.
Georgia stands today at a critical crossroads. One of the most significant risks the country faces is the ongoing influence of Russia, which exerts considerable power through economic, political, and military channels. The major counterbalanceing force needs to come from civil society, and its wish to look west toward the European Union (EU). A majority of the population are predominantly asking for practical steps to bring Georgia closer to the EU and eventual membership, which serves as a primary catalyst for change. Important milestones, like visa-free travel within the EU for Georgians and free trade agreements, represent advancement and inspire citizens’ hopes for EU membership. Georgia’s future freedom and prosperity depend on leveraging European integration. By fostering resilience, diversifying its economy, and ensuring political stability, Georgia can achieve stability, growth, and greater freedom.
Greece
Elias Papaioannou explains how, at the onset of the financial crisis of 2008, Greece was significantly more prosperous than its institutional quality would have suggested. Given the strength of the institutions-development nexus, this paradox was unlikely to last indefinitely. Sadly, it was income and prosperity that fell away, and dramatically so, as Greece lost a quarter of its output, unemployment tripled, hundreds of thousands of talented Greeks emigrated, the welfare state collapsed, and poverty became increasingly evident. The economic adjustment programs led by “the troika” forced a series of much-needed reforms in areas like pensions, labor, and product and capital markets. Unfortunately, neither the Syriza/Anel coalition (2015–19) nor the New Democracy administration (2019–present) implemented genuine institutional reform, including making markets more competitive, strengthening investor protection, speeding the judicial process, and safeguarding the independence of public agencies.
In the next decade, Greece needs to significantly reinforce all aspects of its institutional framework. Strengthening the judiciary, enhancing checks and balances on the executive, and investing seriously in the rule of law are essential, not only to restore confidence in democracy but also to promote much-needed economic growth. The priorities should be to enhance institutions, tackle corruption, promote economic freedom (by bringing down cartels and freeing product markets), and seriously invest in public administration and independent agencies (e.g., a competition authority). This is easier said than done, and at the time of writing this list does not seem to be the priority.
Japan
Political freedom and the rule of law in Japan have been significantly above the OECD average and experienced only minor fluctuations for the last three decades. Economic freedom, however, is slightly lower, especially in terms of women’s economic opportunities. Kotaro Shiojiri points out that the democratic political debate has directed political agents to focus on those policies demanded by citizens, although the process is sometimes slow. One good example of Japan’s poor performance on women’s economic freedom is the so-called “M-curve,” whereby women in their thirties have much lower labor force participation rates than younger and older age groups. The most recent data show a substantial improve- ment on this issue, but it is still not fully solved even though “womenomics” was a major theme of former Prime Minister Abe’s premiership from 2012–20 and has remained a priority in subsequent administrations.
Japan faces a series of challenges for the next decade. The demographic situation is certainly worrying, as Japan is one of the most rapidly aging societies in the world, and neither policies directed to increase fertility nor immigration is an easy solution to this challenge. A second imperative for the country’s future is to regain solid economic growth. Japan’s labor market lacks flexibility and maintains significant structural rigidities when compared with most developed Western economies. There are pros and cons to this situation that any future reform should weigh up. As Japanese companies look to build job-type employment structures, they have an opportunity to square this circle, maintaining the low levels of inequality for which Japan is rightly praised while also providing more opportunities for flexible and dynamic career paths that will promote economy-wide productivity gains.
Kazakhstan
Kazakhstan is a good case study for the argument that autocratic regimes are better focused on long-run economic policies. Nargis Kassenova explains that the country has maintained a positive trend of liberalization in the last three decades, reflect- ing the goal to integrate into the global economic community. Yet significant fluctuations and inconsistencies have plagued the process, especially since oil revenues started to increase in the early 2000s and the government was clearly tempted to use the windfall to pursue interventionist and protectionist economic policies.
The unexpected resignation of Nazarbayev in 2019, and the “Bloody January” events in 2022, produced a critical juncture for the country. At present, President Tokayev’s reform agenda points to further liberalization of the system, but progress is by no means guaranteed. Besides very significant geopolitical risks that may heavily influence Kazakhstan’s future, in particular a potential Russian military threat, a crucial milestone will take place when Tokayev’s term ends in 2029. If at that point a peaceful transfer of power takes place, it will be a sign of a successful culmination of the democratic transition. Nonetheless, civil society needs to continue exerting pressure to avoid a halt in the reform process in favor of professional state and socioeconomic goals, which could turn the government’s aspiration into becoming simply a functional authoritarian state.
Kuwait
Kuwait’s political regime presents noticeable specificities that make it difficult to compare to the liberal democracies of the Western world, states Rabah Arezki. Relatively fair and free elections coexist with a ban on political parties, and the inviolability of the Emir is combined with strong control of his government by parliament. While Kuwait’s democratic experience has been positive and serves as an example for other countries in the region, the system does not yet represent the interests of all segments of society equally, producing large differences in the situation of women and low-skilled expatriates.
Kuwait’s evolution in the near future is highly uncertain. The new Emir of Kuwait, Mishal Al-Ahmad Al-Jaber Al-Sabah, who came to power at the end of 2023, decided to dissolve parliament and take over some of its prerogative after a parliamentary election won by the opposition, and it is not clear when new elections will be held. The Emir and parliament have to resolve their differences if Kuwait is to remain an important beacon of democracy in the region, continue to build on its track record on civil liberties, and fully embark on a process of economic transformation that can deal with the approaching end of the oil era.
Morocco
Rabah Arezki argues that Morocco has substantially improved in all institutional dimensions during the last three decades, but there are many areas in which the country needs to continue its reform effort toward fully free and open institutions. On the economic front, the most positive progress is found in women’s economic freedom, with the implementation of a new Family Code, known as Moudawana, in 2004. This piece of legislation is seen as one of the most progressive of the region, expanding women’s rights and protections in relation to civil liberties as well as labor and economic aspects. The political environment in Morocco is freer than in most other countries in the region, but again it is still far from the most advanced countries of the world.
The danger for Morocco is to remain stuck in a so-called middle-income trap with low growth and high poverty, which could further ignite social tensions. To reignite growth and transform its economy, Morocco must level the playing field. To do so, issues of market structure and competition must take on greater importance. Additionally, further efforts are needed to balance its economic development, as poverty remains pervasive, especially in rural areas. An important limitation is the relatively high level of debt, which constrains government spending to reduce spatial disparities and support poorer households.
Nigeria
The case of Nigeria illustrates how the challenges of democratization in weak capacity states are exacerbated in resource-rich countries. Zainab Usman explains how the democratic transition of 1999 has been followed by volatile institutional progress, by no means free of inconsistencies. On the economic side, the relevance of the oil industry in generating government revenue and foreign reserves motivates important movements in the legal environment and overall economic policy decisions, and has many times led the government and central bank to heavily intervene in the exchange rate market.
Regarding the rule of law, Nigeria desperately needs a total overhaul of its civil service to tackle corruption and bureaucratic inefficiency. The security situation is also delicate, with ongoing violent conflicts (with Islamists Boko Haram in the north- east, and the separatist movement Indigenous People of Biafra in the southeast) and rising levels of violent crime, including kidnapping for ransom, in various parts of the country. The next few years will tell if the democratic mechanisms that are strong in Nigeria, like legislative control of the executive and freedom of the press, can help push forward efficiency-enhancing reforms that can lead to more balanced institutional development, ensuring increased prosperity for all Nigerians.
Peru
Liliana Rojas-Suarez argues that Peru is probably one of the clearest examples of the potential gap between written laws and their actual implementation and enforcement. In terms of the former, the country is comparable to the most advanced democracies of the world, but the degree of implementation and enforcement is far from such standards. As a result, deficiencies in the state’s capacity to deliver public goods and services, including ensuring security and the enforcement of law, significantly constrain the country’s potential for regaining economic growth and overall prosperity. The weakness of institutions and governance, reflected in excessive bureaucracy, corruption, and a weak and inefficient judiciary, hampers domestic and foreign private sector investment. While maintaining a stable macroeconomic framework is key, it is not sufficient to provide the certainty and security that investors need for long-term and productive investments.
Increasing institutional quality is thus a precondition for the economic reforms required to ensure long-run improvements in prosperity for all Peruvians. The country has an exceptional opportunity for growth in the green transition, given its abundance of crucial raw materials. Nonetheless, if Peru wants to position itself as a world leader in this area, some major reforms must be addressed first. Most importantly, the public sector needs to be able to execute large infrastructure investments and develop value chains related to green manufacturing, renewable energy, and eco-tourism; the country must address the issues of informality and low human capital of the workforce.
Poland
Poland stands as one of history’s most remarkable examples of how embracing democratic institutions and a free-market economy can radically transform a nation and propel it onto a trajectory of rapid development. Nonetheless, Leszek Balcerowicz outlines how the country has undergone a very serious challenge to its institutions in the last decade, with the “bad transition” represented by the accession of the Law and Justice Party (PiS) to power in 2015. On obtaining an ample majority in a free and fair election, the party led by Jarosław Kaczyński quickly revealed its authoritarian ten- dencies, beginning a period of institutional erosion. The most dangerous attack came against the judiciary. Legislative changes in 2016 merged the roles of prosecutor-general and minister of justice, granting a political appointee sweeping powers over the judicial system. Judicial independence similarly eroded under politicized appointment processes. Poland’s judicial system survived this assault primarily due to the vigorous defense mounted by civil society and advocacy groups, together with international pressure, especially by the European institutions.
The positive side of the turbulent tenure of the PiS government is that support for democracy and the rule of law has strengthened in Poland, so there is little concern about the institutional stability of the country after the executive change of 2023. Instead, the more pressing issue lies in sustaining economic growth. One main priority should be a carefully planned privatization schedule that can complete the process initiated in the 1990s, enhancing competition in sectors like energy and oil processing. Another major challenge is excessive fiscal spending, largely driven by social welfare programs. Finally, Poland shares demographic challenges with other developed nations, particularly the rapid aging of its population. Without substantial reforms, economic growth is likely to slow further, and fiscal pressures will intensify.
Spain
Toni Roldán Monés explains how Spain experienced an enormous transformation since the democratic transition of 1975–78, not only in political terms but also on the economic front, completing a successful integration into the European single market and the European Economic and Monetary Union. Nonetheless, the last three decades have not been free of challenges. The two biggest have been the dramatic economic effects of the bursting of the real estate bubble in 2008, with the subsequent sovereign debt crisis, and the Catalan independence attempt in 2017. The former led to an extremely difficult social situation, with unemployment reaching 27 percent, and the imposition of severe austerity measures. However, the crisis also generated significant impetus for reform, which seems to have halted in the last decade. The secessionist challenge showed the strength of the democratic institutions in Spain, especially the judiciary, which was able to resolve the crisis with a firm and strong response according to the legal provisions and constitutional powers granted to the different branches of power.
Looking ahead, a main source of concern is whether the windfall represented by the NextGenerationEU funds—of which Spain, together with Italy, is the largest beneficiary—may translate into insufficient structural reform. The relaxation of political constraints thanks to the apparently easy availability of resources, both external and internal, could lead to a complacency trap, hampering the impetus for reform.
The most pressing challenges Spain faces include: ensuring fiscal sustainability, especially regarding the pension system; a profound over- haul of the education system with the clear aim of improving its quality at all levels; and reform of the federal system, setting up clearer rules regarding the relative powers of the regions and the central government, and the establishment of the necessary coordination mechanisms to ensure the efficient collaboration of all levels of government.
Unfortunately, the political climate of polarization and fragmentation, together with incipient signs of institutional erosion, is not the best environment to carry out such an ambitious set of structural reforms. Regaining the capacity to reach agreements among those with different political views, which Spain exemplified during the demo- cratic transition, will be a necessary condition.
Taiwan
Taiwan’s story in the last three decades is a good example of how democracy can serve as a catalyst for improvements in the other two institutional dimensions. Shelley Rigger argues that the completion of the long, incremental process of democratization led, by the end of the 1990s, to a substantial increase in the accountability of political leaders and public officials at large, improving the overall capacity and efficiency of the public sector to enforce and abide by the law. Similarly, Taiwan’s strong performance in terms of investment and trade freedom was complemented by an extraordinary improvement in gender equality in economic matters, likely explained by the increasing political representation of women.
Unfortunately, the future of freedom on the island does not depend on the Taiwanese people alone. The relationship with the People’s Republic of China (PRC) is by far the largest risk, and will likely determine the evolution of political and economic freedom, as well as Taiwan’s prosperity in the next decade. The PRC opposes both Taiwan’s continued self-government and its democratic system. It is impossible to predict how the geo- political situation may evolve, but the PRC seems determined to bring Taiwan to heel, peacefully if possible, but by force if necessary. So far, the two sides have managed to avoid conflict, in part because the costs and risks of forcible unification are high, and in part because Beijing believes it can prevail without force eventually. It is likely that this stalemate will continue in the near future. If it does continue for the next five to ten years, the situation may evolve to a point where a mutually acceptable arrangement is possible. Or it may not, in which case Taiwan’s democracy will continue to exist under constant threat.
Venezuela
Venezuela seems to exemplify the Hayek-Friedman hypothesis that democracy is incompatible with a socialist economic system. As Sary Levy- Carciente argues, Venezuela’s poor performance in the twenty-first century can be attributed to the political and ideological project known as “socialism of the twenty-first century,” an economic model marked by excessive populism and state intervention, where economic activity and entrepreneurship are severely hampered by wide- spread government interference, inconsistent regulatory enforcement, and a heavy bureaucratic burden. Plummeting economic freedom has been accompanied by a dramatic erosion of political and legal freedoms in Venezuela, driven by the consolidation of executive supremacy, the increasing role of the military in controlling and implementing government policies, and the rise in corruption and lack of transparency, bypassing legal accountability standards.
The sustained deterioration of Venezuela’s political system was epitomized by the crisis following the presidential elections of July 2024, leaving no doubt regarding the autocratic nature of President Nicolás Maduro’s current political regime. As a result, Venezuela finds itself at a crossroads. Two future scenarios can be envisioned: one in which the current regime eliminates any sign of a liberal democracy, resulting in further increases in oppression and poverty; or a diametrically opposed one in which the reestablishment of Venezuela as a liberal democratic republic, anchored in Western values of freedom, individual dignity, and prosperity, leads the country to reclaim its stabilizing role in the Western Hemisphere.
Ignacio P. Campomanes is a nonresident fellow at the Navarra Center for International Development (University of Navarra, Spain) and a senior adviser at the Atlantic Council’s Freedom and Prosperity Center. Campomanes holds a BA in economics and a BA in law from Carlos III University in Spain, MA degrees in economics from Complutense University of Madrid and the University of Minnesota, and a PhD in economics from the University of Minnesota.
Annie (Yu-Lin) Lee is the program assistant at the Atlantic Council’s Freedom and Prosperity Center. Previously, Lee served as a research assistant at Academia Sinica, Taiwan’s national research institute, where she focused on US policy toward Taiwan and China. Her work has been featured by the American Political Science Association, the US-China Perception Monitor, the Carter Center, and the Atlantic Council. She holds a BA in diplomacy from National Chengchi University in Taiwan.
Joseph Lemoine is the senior director of the Atlantic Council’s Freedom and Prosperity Center. Previously, he was a private sector specialist at the World Bank. Lemoine has advised governments on policy reforms that help boost entrepreneurship and shared prosperity, primarily in Africa and the Middle East.
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