Thursday, November 12, 2009

Why communism doesn't make people happy


Germany's ranking in the Prosperity Index is a validation of those who risked their lives to tear down the Berlin Wall, writes Ryan Streeter.


Twenty years ago, the Berlin Wall fell. Its collapse marked the beginning of a reunified Germany and the end of the Cold War.
On Monday, Berliners knocked down a wall of Styrofoam “dominoes” - more fanciful than foreboding - to commemorate the moment when East Germans began hammering their way to freedom. Dominoes are quite a fitting symbol indeed.
In 1989, dominoes were toppling all through the Soviet bloc. And in the wake of this unprecedented revolution, new nations were undertaking high-stakes experiments with democracy and free-market capitalism.
Two decades later, the results of those experiments are both striking and exhilarating.
Just look at the Legatum Institute's recently released 2009 Prosperity Index. The study evaluates 104 nations - 90 percent of the world's population - along nine criteria. Our goal was to answer a simple question: What makes people around the world wealthy and happy?
The index demonstrates that countries that most successfully shed the constraints of communism for free markets and political transparency are much more likely to be prosperous today.
Slovenia, once part of the Socialist Federal Republic of Yugoslavia, ranks 20th worldwide in the Index -- outperforming even Italy and Portugal.
Also garnering a place among the top 40 nations are the Czech Republic, Hungary, Poland, Estonia, Slovakia, Croatia, and Latvia - places where freedom was a mere dream just one generation ago.
Countries that have not broken so cleanly from communist ideology, however, are in decay - serving as an indictment of top-down state control. Russia, once the power nucleus of the USSR, has been slower than many of its former satellite countries to embrace capitalism and political reform. Its elections have been widely regarded as rigged. And the 2009 Freedom House Map of Freedom notes that property rights are precarious and the rule of law is too frequently subjugated to politics.
Little wonder that Russia places a lowly 69th on the Prosperity Index. The same goes for Belarus, which ranks a dismal 85th. The country's government maintains excessive control over the economy, reserving the right to control prices, dictate currency exchange rates, and intervene in the operations of private businesses.
The two explicitly communist countries in the index - China and Vietnam - place 75th and 77th respectively.
Our analysts, advised by a panel of academics from leading universities, identified 79 different variables that define prosperity according to measures of economic growth, innovation, quality of life, and the quality of government behavior and policy.
The small, homogenous countries of Scandinavia dominated the top positions in the index due to their sound balance between growth and social stability, while large countries such as Australia and the United States landed in the top 10 because of their combination of free-market capitalism and transparent democracy.
Germany, now a hybrid of its former Western and Eastern halves, came in 14th overall - a validation of those who risked their lives to tear down the Berlin Wall. Today's reunified Germany ranks 8th worldwide for entrepreneurship and 6th for health. Indeed, it's in the top quarter of the world's countries in all nine Prosperity Index categories, from education to personal freedom.
Poland has also flourished since the fall of the Soviet Union - it lands in the top 30. The economic liberalization that swept through the country in 1990 made Poland one of the fastest growing economies in Central Europe. Prior to the current economic downturn, the country's unemployment rate was falling faster than the EU average. And even today, Poland's GDP continues to grow.
Another success story can be found in the Czech Republic, where two decades ago some 300,000 protesters flooded Wenceslas Square, noisily jangling their keys in a symbolic call to throw off communism. Despite memories of the 1968 Prague Spring that had been brutally crushed by Soviet tanks, they refused to be suppressed.
When they prevailed, those jangling keys ultimately unlocked the doors to a free and independent Czech Republic. Today, it's a hub of entrepreneurship and liberty, and lands in the top quarter of countries in the Prosperity Index based on economic fundamentals, democratic institutions, health, and personal freedom.
In only one category did the former Soviet satellites rank lower than average -- social capital, which measures community spirit and how much citizens feel they can trust and rely on their family, friends, and neighbors. Perhaps that result is to be expected in countries where repressive regimes once made use of secret police and urged citizens to inform on one another.
The prosperity challenge of the next generation is to forge stronger community bonds and build interpersonal trust. Succeed at that, and they will have torn down the social walls that are the final lingering remnants of the Cold War.
Ryan Streeter, Ph.D., is a Senior Fellow at the London-based Legatum Institute. The 2009 Legatum Prosperity Index is available at www.prosperity.com.

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