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,Dan 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, https://www.atlanticcouncil.org/in-depth-research-reports/report/do-countries-need-freedom-to-achieve-prosperity. 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 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.
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).
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.
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.
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
The answers to the above questions have real-world implications because if more freedom leads to more prosperity, it behooves governments to adopt freedom policies if they care about the welfare of their citizens.
At the end of the twentieth century, the debate appeared to have been settled. Two authoritarian models had been tried during that century in Europe and they had both failed spectacularly: fascism and communism. And the whole world saw it.
Mussolini and then Hitler had introduced state-directed public works and other economic policies to increase economic growth and employment during the Great Depression. But their unchecked absolute power ultimately led to the Second World War, horrendous crimes against humanity, millions of deaths, and the violent end of their regimes. The allure of fascism was gone after that, and no new fascist regimes were formed in Europe following the Second World War.
The Communist Party of the Soviet Union assumed power through the 1917 revolution and later imposed Communism by force in the Eastern European countries it had occupied after the Second World War. Communist parties in several countries on other continents also assumed power after the Second World War, most notably in China, North Korea, North Vietnam, and Cuba.
The Soviet Union achieved many impressive successes: it transformed Russia from an agrarian country to an industrial one; eradicated illiteracy and created a successful higher education system; and established a health system that was an improvement over the tsarist one. The Soviet Union also achieved stunning successes in science: it launched into space the first satellite, the first man, and the first woman; became a leading nuclear power for both civilian and military purposes; and developed a world-class aeronautic and military technology industry.
But these successes came at a grievous price in human suffering. Millions of people were murdered in Stalin’s purges and thousands in the Soviet Union’s military interventions in Hungary in 1956, Czechoslovakia in 1968, and Afghanistan in 1979.
And these successes were also limited: industrialization is not the same as development. The Soviet Union’s industrialization emphasized heavy industries and de-emphasized consumer products, leaving its citizens disappointed in their aspirations of a more comfortable life.
The story was similar in the other European Communist countries: many initial successes in industrialization, education, and health came at the price of great suffering under authoritarian regimes that imprisoned and killed political opponents and allowed no freedom of religion or expression.
After a few decades, economic growth in the Soviet Union and the Communist European countries plateaued. The plans of these authoritarian regimes to have their countries catching up to the level of development of the free Western European countries proved to be unattainable dreams. There were multiple causes for this economic failure, but one stands out: these oppressive regimes and their centrally planned economies in which the state owned all the means of production were not conducive to efficient investment, did not incentivize people to innovate, and did not create wealth or lead to increased productivity.
The Soviet Union failed economically before it also failed politically and militarily. The inability of these Communist regimes to offer increased prosperity to their peoples, especially when compared to the living standards in the United States and Western Europe, was plain for all to see. Even those in the repressive apparatus stopped supporting these regimes and all European Communist regimes collapsed.
The fall of the European Communist regimes started with Poland in 1989 and ended with the dissolution of the Soviet Union in 1991. When people in these countries were subsequently allowed to vote freely, they did not vote a Communist party into power in any of these countries. Most of the former Communist European countries have since made the profound democratic and free-market reforms required to become candidates for membership of the European Union, and many have been accepted.
Not only Communist authoritarianism but authoritarianism in general has been discredited in the former European Soviet bloc countries, except for Russia and Belarus. All the other European post-Communist countries have chosen democracy and free markets, albeit with varying levels of success.
Seen from the vantage point of the end of the twentieth century, even the People’s Republic of China (PRC) seemed to be moving away from its Communist governance model. The Chinese Communist Party (CCP) led by Mao had assumed power in 1949 and Mao maintained absolute power in a cult-of-personality regime until his death in 1976. He practically closed China to most of the rest of the world and led it according to strict Marxist-Leninist principles: there was no private ownership of the means of production, the economy was centrally planned, and there was no political, religious, or personal freedom for citizens. Between 1952 and 1978, China started industrializing and expanding education and healthcare, and real annual GDP growth was about 6 percent. But Mao’s personal dictatorship caused political turmoil, economic mismanagement, and harsh oppression of political dissent, whether real or imagined. During this period tens of millions of people died in prisons and labor camps, through executions, and from starvation directly linked to Mao’s policies.
One of history’s darkest chapters was then followed by one its most astounding success stories. Under Deng Xiaoping, local markets were allowed to emerge, and then reforms were put in place to open China to the world. The role of the CCP in economic planning was reduced, elements of free markets and private ownership were introduced, and term limits and other limitations on politicians’ power were put into place. The result: between 1980 and 2020, real annual GDP growth was almost 10 percent. In the positive environment created by the free-market reforms, the PRC was becoming a major global industrial power and was also achieving successes in science and technology.
As shown in a study by the PRC and the World Bank, between 1980 and 2020, the number of people in China with incomes below US$1.90 per day—the World Bank’s defining line for global extreme poverty—has fallen by almost 800 million.
At the end of the twentieth century the verdict seemed to be very clear: authoritarianism had been definitively discredited in Europe—no country was following its path on that continent. The same seemed to be true even outside Europe: Communist China, the largest authoritarian country in the world, appeared to be moving toward free markets and more political freedom.
The spirit of the times was captured in 1992 by Francis Fukuyama in his highly influential book The End of History and the Last Man: liberal democracy had triumphed in its ideological struggle with Communism and had “emerged as the final form of human government.”Francis Fukuyama, The End of History and the Last Man (New York: Free Press, 1992).
But the debate is not over. The CCP is now offering its current development strategy as a model for developing countries anywhere in the world.
The example of China was followed by several Asian economies, most notably Vietnam. Vietnam’s leaders too have attempted to develop a quasi-market economy, opened to international trade while maintaining a strict one-party system of political governance. Vietnam’s poverty-reduction story is compelling, with progress in social indicators like education and children’s health rivaling those of upper-middle-income countries.
A number of countries in Central Asia, South Asia, and Africa that had followed the Soviet model to some extent—for example Ethiopia, Ghana, Guinea, Kazakhstan, Senegal, Sri Lanka, and Tanzania—looked at parts of the China model as worthy of consideration. China encouraged such potential followers through the One Belt One Road (OBOR) initiative, which finances projects in resource-rich economies. At its peak before the COVID-19 pandemic, OBOR investment proposals totaled US$150 billion—more than the combined official development assistance provided by advanced democracies.
The China development path had a dual appeal: First, financial resources seemed available outside the Washington consensus network of international development institutions and their conditionalities. Second, it promised a faster way to prosperity.
Xi Jinping became the leader of the CCP in 2013 and has since reversed many of the reforms inspired by Deng Xiaoping. In the political sphere, collective leadership at the top of the CCP has been replaced by Xi’s absolute power and a personality cult resembling that of Mao; high-tech government surveillance of citizens is becoming ubiquitous; and the CCP has waged a brutal and widespread oppression of China’s Uighur minority.
In the economic sphere, the Xi era has seen an increase in the control of the CCP in the economy and a preference for state-owned enterprises over private ones. International economic relations have suffered because of sharp practices sanctioned by the Chinese authorities, such as forced transfer of intellectual property and preferential treatment for Chinese companies over foreign ones doing business in the PRC. The country has also attracted international criticism for the extensive damage it is causing to the environment as a price for its economic growth.
Xi Jinping has been clear that he opposes a development model based on political freedom and free markets, and that he favors the PRC’s authoritarian model based on the leadership role of the CCP. In a February 7, 2023 speech, President Xi rejected the idea that “modernization means Westernization.” He touted China’s “new modernization model” that is “different from the West” and that “expands path choices for developing countries.” He made clear that the leadership role of the CCP is key and that the CCP will decide the “ultimate success or failure” of China’s effort to develop.
President Biden is keenly aware of the reopening of the debate and considers this an important matter. In his February 2021 address to the Munich Security Conference he noted:
President Biden sees this as the defining issue of our time: “It is clear, absolutely clear . . . this is a battle between the utility of democracies in the 21st century and autocracies,” Biden said. “That’s what’s at stake here. We’ve got to prove democracy works.”
In December 2021, President Biden hosted a Summit for Democracy, attended by over 100 countries. Notably, the PRC was not invited. In his opening remarks he noted that the world’s complex challenges are exacerbated by autocrats that “seek to advance their own power, export and advance their influence around the world, and justify their repressive policies and practices as a more efficient way to address today’s challenges.” But, he added, “History and common sense tell us that liberty, opportunity, and justice thrive in a democracy, not in an autocracy.”
How can we evaluate the performance of the PRC in increasing the freedom and prosperity of their people relative to other countries?
One way is to use the Atlantic Council’s Freedom and Prosperity Indexes of 164 countries. The Freedom Index takes a broad view of freedom, measured through sub-indexes of economic, political, and legal freedom. This approach allows a separate exploration of the effect of each of these freedoms on prosperity. The Legal Freedom sub-index measures the strength of key institutions on which the other two freedoms depend; it ascertains, for example, if the government and judiciary are effective and free of corruption.
The Prosperity Index also takes a comprehensive view. It measures not just the GDP per capita of a country, but also its performance on several other criteria such as health, education, the environment, inequality, and the treatment of minorities.
We thought it edifying to compare the performance of the PRC against that of Taiwan and South Korea, two other highly successful Asian countries that were at a development level comparable to that of the PRC at the end of the Second World War, and against that of the developed countries belonging to the Organ-isation for Economic Co-operation and Development (OECD). The OECD average only includes data for the 1995 member countries: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Mexico, Portugal, Spain, Turkey, Sweden, Switzerland, USA, UK.
At the end of the Second World War, China, South Korea, and Taiwan were all poor. In 1962, the gross national income (GNI) per capita for the PRC, South Korea, and Taiwan was $70, $120, and $163 respectively. But their political and economic paths were different. From the end of the Second World War to the early 1990s they were all autocracies: the PRC was a dictatorship of the CCP, while Taiwan and South Korea were military dictatorships. But in the early 1990s, both Taiwan and South Korea became democracies, while the PRC did not change.
Figure 1 has a narrow focus and explores just the relative performance of the GNI per capita for these three countries. It shows that the PRC, South Korea, and Taiwan had a similarly low starting point in 1962. The two countries that had free markets at the beginning of this period and maintained it, and also chose democracy in the early 1990s, grew much faster than the PRC. By the early 1990s, South Korea and Taiwan had escaped the “middle-income trap”: they had crossed the World Bank’s threshold between middle-income and high-income countries. The PRC remained below this threshold in 2020.
Figure 2 explores the PRC’s relative performance over time in the Atlantic Council’s Freedom Index—which measures economic, political, and legal freedom—from 1995 to 2022. In 1995, the PRC’s freedom score was less than half that of the OECD average. Over this period, the OECD freedom score remained stable and the PRC score decreased by more than 2 percent. The ratio between the two remained just as large at the end of the period. But South Korea increased its freedom score by 9 percent over this period and improved its relative ratio from 1.16 to 1.07. Taiwan’s freedom score increased by 28 percent and its relative ratio improved from 1.33 to 1.03.
Figure 3 explores the PRC’s relative performance in the Prosperity Index. The PRC started behind the OECD in 1995, increased its score by 16 percent, and closed the ratio-gap somewhat, from 1.71 to 1.58. South Korea started very close to the OECD score and exceeded it by the end of the period, increasing its score by 10 percent. Taiwan already outperformed the OECD on prosperity in 1995 and increased its score by another 1 percent over the period. The OECD countries improved by 8 percent.
The discussion above is not meant to minimize the successes of the Chinese Communist Party in leading the development of the People’s Republic of China. Just like the Soviet Union decades earlier, the PRC has been transformed from a poor and backward country to one of the most consequential countries of the world due to its industrialization and progress in many other aspects of its society. Its rapid economic development and accomplishments in education, science, and healthcare are undeniable.
But it is very important to note that this has been achieved in the context of an authoritarian regime that denies basic freedoms to its citizens and deals harshly with dissent. One of the questions this raises is whether the repression and suffering were a price worth paying for the rapid economic growth and if this was the only way to achieve development.
Taiwan and South Korea show that neighboring countries—from a comparable level of development sixty years ago—were able to achieve more economic growth than the PRC over that period. Both Taiwan and South Korea ensured relative economic freedom throughout those years, combining this with political freedom for the latter thirty.
A related key question is whether the PRC’s economic success is durable. This question is certainly relevant in light of the recent reversal of the freedom reforms of the 1980s that caused the PRC’s 10 percent growth. The PRC’s growth is currently at 5 percent and trending downward.
Can the innovation and entrepreneurship needed for economic growth blossom in an authoritarian regime? There are very few examples of countries with both advanced economies and authoritarian regimes for extended periods of time. Singapore, with a population of just 5.5 million, is perhaps the most prominent outlier. It blossomed under the leadership of Lee Kuan Yew for thirty-one years as prime minister and for another twenty-one in which he served as a cabinet minister. The two prime ministers that followed him were also effective.
But there is no guarantee that a system without effective checks and balances will continue to produce good leaders. Democracy, despite all its imperfections, has proven itself the form of government that is best at producing good leaders and removing bad leaders, and thereby leading to durable prosperity.
The question of whether people should live in freedom or not deserves careful study given the enormous consequences it has for history and human well-being. The aim of this book is to offer essays on various aspects of the relationship between freedom and prosperity and how they can be achieved.
In his foreword, Juan José Daboub reflects on his experience as a former minister of finance and chief of staff to the president of El Salvador, and as former managing director of the World Bank Group. He recalls El Salvador’s impressive economic gains after it adopted free-market reforms in the late 1990s. The author argues that an imperfect market will always be better than a perfect bureaucrat telling people what to do. To achieve freedom, the role of government should be that of a referee that maximizes competition and minimizes regulation.
Some of the essays examine theoretical questions.
In chapter 1, Ignacio P. Campomanes points out that democracy can (and should) be defended on ethical and moral grounds, as the system that best upholds the dignity of every citizen, but that the case for democracy can be strengthened significantly if we can rigorously show that free societies are also superior to autocracies in producing higher overall prosperity. He posits that, in order to make progress in the empirical assessment of the freedom-prosperity relationship, we need to dig deeper into the constitutive attributes of free societies. In his essay, he assesses the theoretical soundness of the analytical framework proposed by the Atlantic Council’s Freedom and Prosperity Indexes that measure separately economic, political, and legal freedom, and provides preliminary evidence of the empirical relevance of this division.
In chapter 2, Markus Jaeger argues that historically oriented, qualitative studies can help shed light on the often complex and complicated interactions among structural factors (e.g., geography, demographics), institutions (e.g., political freedom, free markets), and policies and their contribution to successful economic development. He points out that free societies and market-based economic systems are important factors underpinning productivity and prosperity, particularly once countries reach middle- and high-income levels.
In chapter 3, Michael Klein explores the various mechanisms that drive development. He discusses how societies need freedom to prosper, while firms and markets need cooperation to reach their full potential. Finding the right balance between freedom and cooperation is not always easy, and the author talks about finding a “good mix” of rules, discretionary power, and freedom.
In chapter 4, Vladimir Fernandes Maciel, Ulisses Monteiro Ruiz de Gamboa, Paulo Rogério Scarano, and Julian Alexienco Portillo examine the relationship between freedom and prosperity around the world by using the Freedom and Prosperity Indexes and a neo-institutionalist analysis approach. They find a symbiosis between freedom and prosperity: a virtuous cycle (higher levels of freedom and prosperity lead to more freedom and prosperity) and a vicious cycle (lower levels of freedom and prosperity lead to less freedom and prosperity), with these cycles tending to reinforce each other.
In chapter 5, Jamie Bologna Pavlik, Benjamin Powell, and Andrew Young provide evidence that economic freedom not only correlates with prosperity, but that it is also an important predictor of prosperity. The authors apply the Mahalanobis Distance Matching method to the Atlantic Council’s Economic Freedom sub-index to analyze the causal statistical relationships between improvements in economic freedom and subsequent prosperity. The researchers find that meaningful increases in economic freedom led to large increases in GDP per capita over a five-year time horizon, supporting Adam Smith’s assertion that increased economic freedom is an essential precondition for greater prosperity.
In chapter 6, Luis Ravina Bohórquez discusses the role of elites in a country’s prosperity and development. He defines elites to include politicians, government officials, and other people with influence in civil and economic circles. He argues that the elites have a responsibility to foster strong institutions and government policies, including those that prevent nepotism and corruption. Bohórquez highlights the role elites played in Kenya in promoting investment in good education and how education helped the country’s development.
In chapter 7, Elakiya Ananthakrishnan looks at the impact of the informal economy on countries’ overall prosperity. She also reviews the main reasons leading citizens to conduct business outside of regulated markets, especially the avoidance of taxes and social security contributions. Other reasons include escaping government bureaucracy or regulatory burdens, and bypassing corruption, all of which relate to inefficient public institutions and weak rule of law.
In chapter 8, Julio Amador Díaz López looks at innovation and misinformation as they relate to economic development. He argues that the Western system—characterized by risk taking, a diverse population, and less restrictive policies—is better suited for promoting innovation than the authoritarian model, which is more restrictive and risk averse. Protecting rule of law, free markets, and diversity of people and ideas remain essential to harnessing new technologies—the key to prosperity in our time. Other essays offer reflections focused on certain countries and regions.
In chapter 9, Khémaies Jhinaoui examines the ongoing struggle for freedom and prosperity in the Middle East and North Africa region. The author argues that the lack of realism and the inexperience of the region’s regimes hindered social progress following the Arab Spring. The author suggests three lessons: that the quest for freedom does not have to be radical; that gradual reform is more effective; and that foreign influence shapes the pace and intensity of the struggle for freedom and prosperity in the region.
In chapter 10, Mohamed M. Farid examines Egypt’s development over the last fifteen years and the effects of extensive government intervention in the economy. Farid argues that to increase prosperity, Egypt must reduce the role of the state in the economy, implement free-market reforms, and focus public investments in human capital.
In chapter 11, Sergio M. Alcocer and Jeziret S. González examine the decrease in press freedom in Mexico and how this might result in less prosperity. The authors review current Mexican policies to protect journalists and they recommend improvements. They argue that prosperity cannot be achieved without freedom of the press.
In chapter 12, Vanessa Rubio-Márquez investigates the use of the Freedom and Prosperity Indexes in real-life policy debates and policy making. The author finds the Indexes useful in identifying the factors which make a country free and prosperous, and in providing benchmarks for comparisons with other countries. But she also calls for alertness to signs of freedom retrenchment and institutional deterioration not yet captured by the Indexes.
In chapter 13, Prashant Narang and Parth J. Shah examine India’s current economic situation and its rankings on the Freedom and Prosperity Indexes. To identify areas where India can improve, the authors compare its performance to the global averages, to that of countries in the same income category, and to the South Asia regional averages. They also identify improvement opportunities for India.
In chapter 14, Clara Volintiru, Camelia Crişan, and George Ștefan assert that achieving long-term prosperity and stability in Eastern and Central Europe requires strategic engagement by Western allies. The authors argue that economic resilience is crucial to Eastern Europe’s security strategy and propose three overlapping lines of effort: increasing European integration; transitioning to a new economic model; and engaging all societal actors in the pursuit of sustainable and shared prosperity.
In chapter 15, Danladi Verheijen explores the government’s role in assuring economic and legal freedoms in Nigeria. The author suggests that the Nigerian government should be less involved in the economy and more involved in providing security.
In chapter 16, Dan Negrea, Joseph Lemoine, and Yomna Gaafar investigate freedom and prosperity trends in a group of Eastern European countries since the early 1990s. Using the scoring and rankings of the Freedom and Prosperity Indexes, the authors find that countries that instituted more political, economic, and legal freedoms since the 1990s enjoy greater prosperity today.
We hope that the essays in this book will be a useful tool for those promoting improvements in freedom and prosperity around the world.
Dan Negrea is the senior director of the Freedom and Prosperity Center at the Atlantic Council.
Brad Lips is the CEO of Atlas Network.
Kris Mauren is the co-founder and president of Acton Institute.
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