Lithuania’s Recovery from Communism…and More

By Dan Mitchell.

"From an economic perspective, the world is a laboratory and nations are experiments.

Some countries show the wrong approach, while others serve as role models.

Today, let’s look at the relative success of Lithuania, a small nation on the Baltic Sea in Northeastern Europe. It was forcibly annexed into the Soviet Union after World War II and suffered from decades of communist oppression.

But after the Evil Empire collapsed, it became independent and quickly shifted to market-oriented policies.

The results have been impressive. Here’s’ a chart, based on Maddison data, comparing per-capita GDP in Lithuania with per-capita GDP in the major nations of Southern Europe.

An impressive case of convergence in a relatively short period of time.

I’m motivated to write about Lithuania because of a Bloomberg column by Adrian Wooldridge.

Here’s some of what he wrote about the Baltic nation.

Forty years ago, Lithuania was an impoverished province of the Soviet Empire. Today its GDP (adjusted for purchasing power parity) is 90% of the European average — on a par with Southern European countries. …the country is no longer playing catch-up with the West but instead producing world-class companies of its own. …The transition from being part of a command economy to being a part of a market economy is never easy. The Lithuanian transition involved a succession of shocks: the collapse of the Soviet Union; the 2008 financial crisis… Since Lithuania joined the EU in 2004, its real GDP per capita has grown faster than any EU country other than the Czech Republic. In terms of purchasing power parity GDP per capita grew by 229% between 2004 and 2020. …Lithuania is…a great success story…for liberal ideas such as democracy and the free market that have taken root in Russia’s shadow.

By the way, the author’s use of “liberal” refers to classical liberalism rather than modern-day, U.S.-style leftism.

But let’s not digress.

Although it was not a major focus of the article, the article’s headline suggested that Ukraine should follow Lithuania’s example.

That would be an excellent idea. Lithuania is ranked #12 by Economic Freedom of the World, while Ukraine is a lowly #112.

Does this matter?

Very much so. Here’s a chart comparing per-capita GDP in the two countries. As you can see, Ukraine’s statist approach has produced stagnation.

I wrote about Ukraine’s problem with statism 10 years ago.

But Russia’s brutal invasion has made the issue even more important.

Establishment types will want to shower Ukraine with foreign aid when the only thing that will work is economic liberalization."