Freedom and prosperity in Eastern Europe

An earlier version of this paper was published in November 2022 by Aspen Romania in a collection of essays entitled A World in Flux: Towards a New European Architecture, ed. Alina Inayeh (Aspen Institute, 2023).

It is one of the most important development questions of all time: Do countries need freedom to achieve prosperity? Our paper explores this question by analyzing the evolution since the early 1990s of a select group of Eastern European countries. 

The countries we studied shared many similarities in the early 1990s. Politically, they had all been under Communist rule until the late 1980s, and some had never even been independent countries before the dissolution of the Soviet Union and Yugoslavia. Economically, they were at a comparable development level at the time of the democratic revolutions that swept Eastern Europe in the late ’80s and early ’90s. 

But by 2021 the group was no longer homogenous: they had different levels of freedom and some experienced robust prosperity while others stagnated. Using the scoring and ranking analysis of the Atlantic Council’s Freedom and Prosperity Indexes,1Dan Negrea and Matthew Kroenig, “Do Countries Need Freedom to Achieve Prosperity? Introducing the Atlantic Council Freedom and Prosperity Indexes,” Atlantic Council, accessed February 9, 2023, and other measurements, we show that the countries that experienced more political, economic, and legal freedoms enjoyed greater prosperity. Conversely, those that made less progress on the path of freedom are also less prosperous. 

The context 

The question of the correlation between freedom and prosperity is always worth studying. But the war in Ukraine gives the debate over development models new timeliness. 

Russia’s invasion of Crimea in 2014 was preceded by an internal crisis in Ukraine. When President Viktor Yanukovych rejected a deal for greater integration with the European Union (EU), Russia backed Yanukovych’s violent attempt to put down protests by Ukrainian citizens who disagreed with his decision. Russia did not want Ukraine to become prosperous and democratic. This would have contrasted with the economically moribund and politically oppressive authoritarian regimes in Russia and Belarus, and might have inspired the peoples in these countries to ask for change. The 2022 Russian invasion was an attempt to finish the job started in 2014. Putin is trying to keep Ukraine in the Russian sphere of influence, and have it resemble Russia, politically and economically. 

In its essence, the Ukraine war is about two visions for Eastern Europe: Will Russia succeed in using political subversion and military force to impose its authoritarian model? A model in which democratic opponents are imprisoned and killed, and economic activity is rife with corruption and arbitrary interventions by the dictatorial elite. Or will the peoples of Eastern Europe be able to choose their own political and economic system without interference and adopt the democratic and free market model represented by the EU? 

This is a pivotal moment of change for Eastern Europe, similar in significance to that of the collapse of the Soviet Union. Examining the progress made by several former Communist countries over the past thirty years can provide useful lessons for the countries of the region and elsewhere. 

The analysis 

We started by selecting, from among Europe’s formerly Communist countries, a group with a comparable level of economic development in 1996, the first year for which World Bank data are available for all post-Communist countries. We selected only countries that were categorized as lower-middle income, according to the World Bank’s classification for that year: Albania, Belarus, Bulgaria, Estonia, Latvia, Lithuania, Montenegro, North Macedonia, Romania, Russia, Serbia, and Ukraine. 

We excluded from our analysis higher-middle income formerly Communist countries: Poland, Croatia, Czech Republic, Hungary, Slovak Republic, and Slovenia. These countries were more developed at that time and were on a different trajectory than the selected countries. 

For best comparability, we also excluded low-income formerly Communist countries: Moldova, and Bosnia and Herzegovina. Because of the catch-up effect, low-income countries tend to grow faster, which would have distorted the results of our analysis. 

We then ranked the selected countries using their 2021 scores in the Atlantic Council’s Freedom Index. This Index assigns scores to 174 countries on their economic, political, and legal freedoms, the latter reflecting the strength of the rule of law in a country. Depending on their score, countries are then categorized as Free, Mostly Free, Mostly Unfree, and Unfree. 

We then created two groups of countries. Group 1 includes all countries in the selected group that are in the “Free” category of the Freedom Index. Group 2 includes all other countries in our selected group. 

Next, for countries in both groups, we compared their GDP per capita levels in 1996 and 2021, and calculated GDP growth multiples for each country and for both groups. 

We also checked which countries had escaped the “middle-income trap” by 2021. This term refers to the fact that, over the years, many developing countries succeeded in advancing from the World Bank’s low-income to the middle-income category but did not cross the threshold of the high-income category. 

The final element of our analysis was to look at 2021 measures of development, in addition to GDP per capita. We used the Atlantic Council’s Prosperity Index, which measures health, the environment, happiness, and government treatment of minorities in addition to GDP per capita (Table 1). 

The results 

  • In 2021, the countries in Group 1 had a freedom score 40 percent higher than that of the countries in Group 2. The average freedom score for Group 1 was 82, which compares favorably with the average of OECD countries in this Index at 85. The freedom score average for Group 2 was only 57.
  • By 2021, the countries in Group 1 were more prosperous than those in Group 2. Looking at GDP per capita, Group 1 countries grew 32 percent faster (GDP per capita increased threefold, on average) than those in Group 2 between 1996 and 2021 (Table 1 and Figure 1). In Group 2, only Albania and Montenegro reached growth levels similar to those of Group 1 countries. Although belonging to the lower-middle income group, their respective GDP levels were the lowest of the two groups in 1996. This confirms that, other things being equal, economic growth is faster when a country starts from a lower level.
a For Montenegro, the 1996 GDP value is for 1997, the earliest available.
Sources: Scores and categories are from the Atlantic Council’s Freedom Index and Prosperity Indexes (Dan Negrea and Matthew Kroenig, “Do Countries Need Freedom to Achieve Prosperity? Introducing the Atlantic Council Freedom and Prosperity Indexes,” Atlantic Council, do-countries-need-freedom-to-achieve-prosperity.) GDP per capita data are measured by purchasing power parity (PPP), constant 2017 international dollars: data from the World Bank, The high-income threshold (middle-income trap limit) for 2021 was set by the World Bank at $13,205 GNI per capita, Atlas method, current US dollars (different scale from the GDP per capita values in Table 1).
  • The gap between the two groups consistently increased over time (Figure 1). Freedom takes time to materialize, but the benefits compound.
  • All countries in Group 1 escaped the middle-income trap. None of the countries of Group 2 did so.
  • All countries in Group 1 also tend to rank better in the broader Prosperity Index than those in Group 2. Serbia is the only Group 2 country to achieve a prosperity score within three points of the Group 1 average. Although Serbia’s GDP growth multiple is consistent with those of the other countries in Group 2, it outperforms them on the environment and happiness indicators in the Prosperity Index, thus raising its total prosperity score.
Source: Data from World Bank.

Another way to explore the performance of the two groups of countries is to use the scores in the Freedom Index and the Prosperity Index for the past fifteen years (Figure 2). Over that period (2006–21), the Group 2 countries improved their average score in both the Freedom Index and the Prosperity Index by 2 percent. But the Group 1 countries improved their scores on each index by 5 percent and 11 percent, respectively. 

Source: Atlantic Council’s Freedom and Prosperity Indexes.

Higher and improving freedom scores are associated with countries that also achieved increased prosperity. Such situations create virtuous cycles of mutual reinforcement in which more freedoms build a prosperous middle-class citizenry that demands yet more freedoms that in turn perpetuate more human flourishing. 

Policy implications 

Our data suggest that countries that want to increase their prosperity should increase their economic, political, and legal freedoms, with legal freedom being defined as an impartial rule of law; transparent, corruption-free, and effective political institutions; and good governance. 

Our analysis also points to a positive role for the EU. All the countries in Group 1 are members of the EU, as is Bulgaria, the Group 2 country with the highest freedom score and second highest prosperity score in that group. All the other countries in Group 2 are candidates to EU membership, with two exceptions: Russia and Belarus. These two countries have the worst freedom scores and the second and third worst prosperity scores in our sample. 

The source of the appeal of EU membership is clear. In 2021, the average freedom score of EU member countries was 82, which compared with 62 for our group of EU candidate countries, or 32 percent higher. The respective prosperity scores were 75 and 55, or 37 percent higher. Using a narrower measure of prosperity, the respective 2021 GDP per capita numbers were $44,024 and $16,851, or 161 percent higher. 

Former Soviet Bloc countries that joined the EU left behind the Communist world of political repression, inefficient centrally planned economies, and corrupt judicial processes. Instead, they entered a world of political and economic freedom, respect for the rule of law, and prosperity. The EU offers these countries a free trade area for their companies pursuing business growth, and freedom of movement for their citizens seeking educational and work opportunities. 

During the long years of preparation for EU accession, candidate countries have had to implement many profound reforms and show perseverance in their progress away from their Communist past. Corruption, in particular, was a pervasive problem. The current EU membership candidates will need leaders with strong political will, who are prepared to push meaningful reforms—especially in their national judicial and law-enforcement systems. 

Some analysts and public commentators in Western democracies complain that the EU’s leadership is unelected and unaccountable to voters, that the EU is overly bureaucratic and growing more so, and that it is often insensitive to the cultural traditions of member countries. To a majority of the Brexit referendum voters in the UK, a developed country with a long democratic tradition, these and other perceived disadvantages of EU membership outweighed its benefits. 

But for Eastern Europe’s former Communist countries, the EU’s many rules and standards catalyzed a national consensus for the profound reforms needed in order to leave behind the malevolent and malfunctioning Communist political and economic system. Today, EU support and guidance for reform in candidate member states, towards their EU membership, contributes to more freedom and prosperity in these countries. 

Which leads us to Ukraine, whose strong desire to join the EU, and the free world in general, was one of the main reasons for the Russian aggression against it, both in 2014 and in 2022. The Ukrainian people have heroically proven their firm determination to be forever free from domination by the Russian state, which is still beset by many of the Soviet Union’s pathologies in its political and economic structure. 

In 2022, Ukraine asked for accelerated consideration of its EU membership, and the EU granted it candidate status. But Ukraine has a long way to go to meet EU standards. Its standing in the Atlantic Council’s Indexes makes this very clear: in 2021, before the full-scale Russian invasion, Ukraine had the third lowest freedom score among Group 2 countries and the lowest prosperity score. 

In time the war will end, and Ukraine will rebuild. Ukraine will need profound societal reforms as part of its rebuilding process, especially regarding corruption. Its people will have to show in this task the same courage and determination as they are showing in the war. But they are very clear about their choice. They believe that greater economic, political, and legal freedoms are the surest path toward prosperity. And that the EU has an important role to play in helping them along the way. 

Dan Negrea is the senior director of the Freedom and Prosperity Center at the Atlantic Council.  

Joseph Lemoine is the deputy director of the Freedom and Prosperity Center at the Atlantic Council.  

Yomna Gaafar was an assistant director of the Freedom and Prosperity Center at the Atlantic Council. 

Image: Ukrainian Foreign Minister Dmytro Kuleba and German Foreign Minister Annalena Baerbock walk on the day of a joint press conference in Kyiv, Ukraine September 11, 2023. Efrem Lukatsky/Pool via REUTERS