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formance. Following its financial crash of 1998,

the freer economies attracted the lion's share

Russia adopted a flat tax of 13 percent and

of foreign direct investment (FDI). In the

reduced its corporate tax rates. Those reforms,

Czech Republic, cumulative FDI per capita

combined with the high price of oil, contributed

for the period between 1989 and 2000 came

to the 40 percent increase in tax revenue in 2001

to $2,102. In Hungary that figure was $1,964

and again in 2002. The country's economy expe-

and in Estonia $1,400. Russia, on the other

hand, received only $69 and Ukraine $68.28

rienced an average growth of 6 percent between

2000 and 2002. In 2003 Russia is expected to

Countries that have reformed the most

grow by 4 percent. Meanwhile, the CEECs grew

have also experienced a longer period of sus-

by 2.3 percent in 2002 and are expected to grow

tained economic growth. Aslund compared

at 3.7 percent in 2003.32

the growth rates in the former Soviet bloc

and found that between 1995 and 1997, the

According to Aslund: "The more radical

CEECs grew on average by about 5 percent

and comprehensive the initial reform has

per year. The economies of the CIS, on the

been,  the  greater  economic  success.

other hand, experienced an annual contrac-

Multicountry regression analyses invariably

tion of 4 percent during the same period.29

show that all major reforms have had positive

impact. . . . Today, the empirical evidence of

By 1999 only seven countries of the former

The EU insists on

the benefits of a radical and comprehensive

Soviet bloc had experienced economic

standards wholly

reform is overwhelming."33 Indeed, but the

growth over 4 percent for three or more years.

Most of those countries, Poland, Hungary,

CEECs still have much work to do. Despite a

inappropriate to

Slovakia, Estonia, and Lithuania, undertook

decade of liberalization, overall economic

the current stage

significant reforms. The Republic of Armenia

freedom in CEE lags behind that of prosper-

of CEE economic

did well mostly because of a high initial con-

ous industrial nations. It is for that reason

traction occasioned by war and embargo, and

that the constraining nature of the EU regu-

development.

Azerbaijan's growth reflected the huge

lations is so troubling.

increase in oil production and oil-related

investment.30

Regulation and Its Costs

A look at the entire decade between 1990

and 2000 yields a somewhat different pic-

ture. The growth rates for the entire Soviet

In 1957 the Treaty of Rome promised to

bloc are not as impressive, because they take

abolish obstacles to free trade across the

into account the economic contractions that

European continent. As a result, European

followed the collapse of communism

consumers today enjoy the benefits of free

between 1989 and 1991. Still, according to

movement of goods across national frontiers.

the World Bank, the four Central European

But the regulated nature of production,

countries (Poland, Hungary, Czech Republic,

delivery, and sale that characterizes the

Slovakia) lead with a growth of 2.3 percent.

European common market falls far short of

Over the entire 10-year period, the Baltic

the orthodox understanding of free trade.

countries experienced an average contraction

The logic of the regulatory sentiment in

of 2.3 percent. Not surprisingly, the countries

Brussels was expressed well by Richard

of the CIS, which undertook the fewest

Corbett, a British member of the European

reforms, suffered from the highest contrac-

Parliament for the Labour Party. As Corbett

tion of 5.9 percent on average.31

stated: "In the European Union, we now have

an integrated market. Such a common mar-

Of course, the length of communist rule, dis-

ket needs common rules in a number of

tance from the west, and past economic achieve-

areas: not just technical standards but con-

ment affected economic performance as well.

sumer protection, environmental standards,

Still, some recent developments in the former

competition policy, and fairness in the work-

Communist bloc further strengthen the link

place."34

between economic freedom and economic per-

6