Leading theme:"Roadmap to Economic Freedom and Economic Reforms"

Cairo, Marriott Hotel, Zamalek November 1-2, 2010

55thth Economic Freedom of the Arab World Economic Freedom of the Arab World Conference Conference

Andrew Kondratowicz

The Lazarski University and Dept. of Economics, University of

Warsaw , Poland

Cairo, Egypt, November 1, 2010

Reform Maps of Eastern Europe: Reform Maps of Eastern Europe: Have the Roads to Prosperity Passed Have the Roads to Prosperity Passed

through the Land of Economic Freedom?through the Land of Economic Freedom?

The purposeThe purpose

The purpose of the session is to give some international comparative perspective on connection between economic prosperity and economic freedom

because (a) "it is good to know" (how others fare)(b) it may possibly serve as a lesson for others

The purpose of this presentation to examine(a) the level of EFI in EE and compare it with WE and

the Arab World (AW) – "are we all different?"(b) what were the roads to economic prosperity and

the present level of economic freedom in EE(c) to what extent the EE experience is homogenous

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Doubts: WHY talk about EE?Doubts: WHY talk about EE? regardless the fact that today most of the regardless the fact that today most of the EE belong to the EU (1/3 of EU countries EE belong to the EU (1/3 of EU countries

are EE) are EE)

Answer 1: historical past "new past": several decades under communism

(but then "post-communist" would be better) "old past": being a periphery of Europe ("of

Europe" more important than "a periphery"! - institutions do matter – Douglass North)

Answer 2: remaining differences vis-à-vis WE4

Eastern – periphery of – EuropeEastern – periphery of – Europe

Source: Winiecki, Benacek, Laki (2004), The Private Sector after Communism, Routledge, pp.66-67 5

EE, postcommunist or emerging EE, postcommunist or emerging economies?economies?

Nowadays, economists frequently use the term "emerging economies" – and many of the EE are among those. But there are others as well – Turkey is an example.

So, perhaps, we should not exaggerate with those geography-, history-, culture-, or religion-oriented, backward-looking descriptions like EE and start using future-oriented groupings? Poland may have more common features with Turkey than with some fellow post-communist, EE economies. EFI an alternative?

Then what about the AW countries as a group?!

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Emerging economies of EEEmerging economies of EE

In most of EE there has been a dramatic change in economic prosperity: 25 years ago average monthly salary in Poland was below $20 now is above $1000

But "have the roads to prosperity passed through the Land of Economic Freedom"?

We will see that the answer is in the affirmative EE, but not for all the post-communist countries

The key to success was the institutional change – we wlll return to this issue in greater detail after presenting some data on Economic Freedom in the region

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Go to Tables & GraphsGo to Tables & Graphs

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Closing remarks 1Closing remarks 1

Q: Have the roads to prosperity passed through the Land of Economic Freedom?

A: For most core EE14 – yes. - Ukraine is a notable negative exception.- Russia another one, although with some improvement in 2008.- China's EFI is improving >Russia! - non-EU Balkan economies (5) are doing worse than EE14 (except for Montenegro & Macedonia)- ex-Soviet republics from Asia are doing well (6,99) except non-measured Turkmenistan, Tadjikistan, Uzbekistan which are considered transformational fiascos (as is Belarus)

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Closing remarks 2Closing remarks 2

Those considered transformatonal failure have also failed in improving EFI.

Oleh Havrylyshyn in Divergent Paths in Post-Communist Transformations (2006) classified the above as countries of either limited / reversed reforms or as gradual but delayed reforms.

In both groups the likelihood of rent-seeking activities of new olygarchs was very high; in some cases it ended up in what he called "the state capture" by those olygarchs colluding with one another. 1

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Closing remarks 3Closing remarks 3

The positive scenarios present in the EE14 were to a large extent (and may still continue to be) made possible and amplified by beneficial institutional changes caused by accession to the EU.

What counts is not only "goodness" of some EU institutions but also their spread over a sufficiently large economic area. As Douglass North was stressing (1986) not only good, but common institutions decrease transactions costs, thus positively influencing economic growth of a given region.

Those beneficial institutional changes have been reflected by increasing levels of EFI. 11

A final questionA final question

In EE14 we have witnessed quite dramatic economic changes over the past 20+ years. They resulted in enormous increase in the standards of living within just one generation.

The forces at workmay be characterized as a push-pull process: an initial push toward a liberal free market-based economy and a subsequent pull toward the institutions of EU (read: WE) that generally mean higher levels of EFI (except for Area I).

Can the Arab countries find and implement some similar ways to boost their EFI and economic prosperity?

This remains to be seen, but examples of some Arab economies – like Oman, its economic policies and institutional changes – are encouraging.

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The endThe end

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