TCS Daily

Path to Prosperity

By Marian Tupy - September 7, 2006 12:00 AM

On May 1, 2004, eight ex-communist countries joined the European Union. Time will show whether EU membership will improve or harm their economic prospects, but 17 years after the fall of the Berlin Wall, it is clear that economic transition from communism to capitalism in Central Europe, the Baltics and Slovenia was largely successful. The increase in economic freedom has contributed to rising incomes as well as improvements in human development indicators. Much work still remains, but the EU8 are on the right path.

The end of communism in the EU8 brought economic reforms that included the liberalization of foreign and domestic trade, the elimination of thousands of restrictions on business activity, the freeing of prices, and the privatization of many state enterprises. At the end of the communist period, economic freedom in the Soviet bloc was virtually non-existent. By 2004, the Fraser Institute's Economic Freedom of the World: 2006 Annual Report shows, economic freedom in the region substantially increased. Estonia was the freest economy in the former Soviet bloc and ranked 12th out of the 130 countries surveyed. It was followed by Hungary in 20th place, Latvia in 35th, Lithuania in 40th, the Czech and Slovak Republics in 45th, Poland in 53rd and Slovenia in the 74th.

Initially, the EU8 experienced economic contraction as inefficient and heavily subsidized firms were forced to shut down. By the mid-1990s, however, they were growing again. Between 1995 and 2004, Estonia grew at a compounded average annual rate of 6.9 percent and per capita incomes adjusted for inflation and purchasing power parity rose by 95 percent. Latvia grew at 6.6 percent and experienced 86 percent rise in incomes; Lithuania at 6 percent (77 percent); Poland 4.5 percent (46 percent); Slovakia 4.2 percent (44 percent); Hungary 4 percent (48 percent); Slovenia 3.8 percent (41 percent); and the Czech Republic 2.6 percent (28 percent). In contrast, the countries of the Eurozone grew at 1.8 percent and experienced a 17 percent rise in incomes.

Since the end of the communist period, the EU8 received over $182 billion in foreign direct investment (unadjusted for inflation). Poland received $67.3 billion; Hungary $42.7 billion; the Czech Republic $42.5 billion; Slovakia $11.5 billion; Estonia $5.1 billion; Slovenia $4.8 billion; Lithuania $4.5 billion; and Latvia $3.9 billion.

The post-communist era also saw improvements in the EU8's human development indicators. For example, the mortality rate for children under 5 years of age per 1,000 births fell in all EU8 countries. The biggest decline of 63 percent occurred in the Czech Republic, while the smallest decline of 32 percent occurred in Latvia. Similarly, life expectancy at the time of birth increased in all EU8 countries. The biggest gain of over 4 years occurred in the Czech Republic and the smallest gain of half a year occurred in Lithuania.

The region has experienced a number of important material gains as well. The number of passenger cars per 1,000 people rose throughout the region and the total network of roads was substantially expanded. The number of internet users, and fixed line and mobile phone subscribers per 1,000 people rose throughout the EU8. In 2004, a greater percentage of people in Estonia was connected to the internet than in the Eurozone.

Of course, not all that happened after the collapse of communism was positive. Many ex-communist countries suffer from inexcusably high rates of corruption. Corruption has undermined the faith of the public in economic liberalism and democracy. It has also led to massive economic inefficiencies as many of the formerly state-owned enterprises were awarded to government cronies or relatives of politicians.

In fact, the rule of law is the only indicator of economic freedom in the EU8 that has worsened over the past ten years. According to the index of economic freedom, the size of government in the EU8 improved from 3.4 out of 10 in 1995 to 5.3 in 2004. Access to sound money improved from 4.4 to 9.1; freedom to trade internationally increased from 7.5 to 7.9; and regulatory burden improved from 5.1 to 6.6. The integrity of the legal system and protection of private property rights, however, declined from 6.7 in 1995 to 6 in 2004.

To tackle corruption, the EU8 will have to do more to cut the size of government spending and ease the regulatory burden on businesses. Those actions will likely result in further increasing economic growth as well and move the EU8 further along the path to prosperity.

Marian L. Tupy is assistant director of the Project on Global Economic Liberty specializing in the study of Europe and sub-Saharan Africa.


1 Comment

The Creative Human Process
The missing element in every human 'solution' is
an accurate definition of the creature.

The way we define 'human' determines our view
of self, others, relationships, institutions, life, and
future. Important? Only the Creator who made us
in His own image is qualified to define us accurately.

Many problems in human experience are the result of
false and inaccurate definitions of humankind premised
in man-made religions and humanistic philosophies.

Each individual human being possesses a unique, highly
developed, and sensitive perception of diversity. Thus
aware, man is endowed with a natural capability for enact-
ing internal mental and external physical selectivity.
Quantitative and qualitative choice-making thus lends
itself as the superior basis of an active intelligence.

Human is earth's Choicemaker. His title describes
his definitive and typifying characteristic. Recall
that his other features are but vehicles of experi-
ence intent on the development of perceptive
awareness and the following acts of decision and
choice. Note that the products of man cannot define
him for they are the fruit of the discerning choice-
making process and include the cognition of self,
the utility of experience, the development of value-
measuring systems and language, and the accultur-
ation of civilization.

The arts and the sciences of man, as with his habits,
customs, and traditions, are the creative harvest of
his perceptive and selective powers. Creativity, the
creative process, is a choice-making process. His
articles, constructs, and commodities, however
marvelous to behold, deserve neither awe nor idol-
atry, for man, not his contrivance, is earth's own
highest expression of the creative process.

Human is earth's Choicemaker. The sublime and
significant act of choosing is, itself, the Archimedean
fulcrum upon which man levers and redirects the
forces of cause and effect to an elected level of qual-
ity and diversity. Further, it orients him toward a
natural environmental opportunity, freedom, and
bestows earth's title, The Choicemaker, on his
singular and plural brow.

Human is earth's Choicemaker. Psalm 25:12 He is by
nature and nature's God a creature of Choice - and of
Criteria. Psalm 119:30,173 His unique and definitive
characteristic is, and of Right ought to be, the natural
foundation of his environments, institutions, and re-
spectful relations to his fellow-man. Thus, he is orien-
ted to a Freedom whose roots are in the Order of the
universe. Selah

That human institution which is structured on the
principle, "...all men are endowed by their Creator with
...Liberty...," is a system with its roots in the natural
Order of the universe. The opponents of such a system are
necessarily engaged in a losing contest with nature and
nature's God. Biblical principles are still today the
foundation under Western Civilization and the American
way of life. To the advent of a new season we commend the
present generation and the "multitudes in the valley of

Let us proclaim it. Behold!
The Season of Generation-Choicemaker Joel 3:14 KJV


semper fidelis
Jim Baxter

TCS Daily Archives