Yet identifying the impact of democracy on economic reform in the post-communist world is not as straightforward. One problem is that democracy is correlated with other factors that may also promote economic reform. Geography, wealth, peace, the natural resource curse, the pull of the European Union, and the partisanship of the government may be masking the impact of democracy on economic reform.

To parse out the effects of democracy on economic reform, it is necessary to take these other factors into account. Statistical tests that do so indicate that the level of democracy in a country is associated with higher levels of economic reform even when controlling for the level of wealth in a country, geography, elite partisanship, and the extent of civil conflict. It is possible to state with great confidence that there is a strong, positive relationship between democracy and economic reform. This finding is surprising given the weak correlation between democracy and economic reform in Latin America and the widespread view at the start of the post-Soviet transformation that democracy and economic reform were incompatible.

However, a high correlation between democracy and economic reform reveals little about the extent of the impact of democracy on economic reform. What is important is the extent of the increase in economic reform for a given increase in democracy. A statistical analysis suggests that controlling for the level of wealth, geography, the partisanship of the government, and the presence of civil conflict, a one-unit increase in the Freedom House seven-point scale of political rights leads to a slight (about .2) increase in the average economic reform score as calculated by the EBRD. This is not a large increase. Take Russia as an example. This analysis suggests that if Russia had remained as democratic under President Vladimir Putin as it was under President Boris Yeltsin, Russia would score about .4 points higher on the EBRD scale of economic reform. This increase is far from trivial, but as the average reform score for the countries in the former Soviet Union is 2.2, it should be kept in perspective.

A closer look at the reform experiences of particular countries sheds further light on the relationship between democracy and economic reform. Estonia is widely cited as an obvious case of support for the argument that democracy promotes economic reform. But Estonia introduced vast economic reforms in 1992 and 1993 while democracy was fragile, political institutions were in flux, and more than one-third of the population lacked the right to vote due to restrictive citizenship laws that effectively disenfranchised almost all ethnic Russians. A similar argument can be made about Latvia.

Conversely, Moldova has been a democracy since 1998, according to the Freedom House measures, but has struggled to make progress in economic reform. From 1999 to 2002, a relatively unreformed communist party governed a democratic Moldova and made little progress in economic reform. In this case, the partisanship of the government has been a heavy drag on economic reform even though the country is a democracy.

How Does Democracy Affect Economic Reform?

It is comforting to note the strong positive correlation between democracy and economic reform. But it would be more satisfying to know precisely how democracy promotes economic reform. Democracy may support economic reform in several ways. The threat of future elections may compel politicians to pursue economic reforms early in their term in hopes of holding the next election with a growing economy. The presence of an active and free press may allow citizens to identify which politicians are most likely to pursue economic reforms that promote the general interest rather than narrow interests. The policymaking process in democracies may reduce the influence of small groups bent on subverting reform. Each of these features suggests somewhat different implications for policy.

Few studies have examined the mechanism by which democracy promotes economic reform. A previous study I co-authored with University of Pennsylvania political scientist Edward Mansfield found that politicians in the post-communist world are especially likely to pursue trade liberalization immediately following democratic elections. This finding suggests that democratic elections spur economic reform. But this relationship is much weaker for other types of economic reform, like the privatization of industrial enterprises. Before it can be conclusively proven that democracy promotes economic reform, it would be helpful to know why this relationship exists.

This research agenda is important because arguments made by some scholars suggest that the relationship between democracy and economic reform is spurious. That is, both democracy and economic reform are driven by a common third factor. For example, political scientists Jeffrey Kopstein and David Reilly argue that both democracy and economic reform are driven by a prior cause: the pull of market economies and democratic governments in neighboring countries. This view suggests that the lure of joining Western Europe is largely responsible for both higher levels of democracy and more extensive economic reforms in the post-communist world. Similarly, political scientists Herbert Kitschelt and Edmund Malesky argue that the extent of democracy and economic reform in the post-communist period is largely driven by differences in the nature of rule in the communist period. Countries that experienced what they describe as “patrimonial communism” characterized by periods of intense repression, a demobilized working class, and weak bureaucratic development prior to 1989 are both less democratic and less market-oriented than other countries in the region. Both of these arguments suggest further study to delve deeper into the causal chain that links democracy to economic reform.

Democracy and Economic Growth

Economic reform is a central component of the post-communist transformation, but ultimately economic growth is what directly affects the lives of people. Looking across the post-communist world over the past 15 years, rates of economic growth are hardly impressive. The average growth rate for a country in the former Soviet Union between 1990 and 2002 was a negative 1.88 percent. However, averaging growth rates across such a long period can be misleading. Much of the economic decline occurred during the disastrous period from 1992 to 1994. During this three-year period, which saw the collapse of economic ties within the Soviet Union, the end of trading links to countries in Eastern Europe, and civil wars involving Armenia, Azerbaijan, Moldova, Russia, and Tajikistan, the average growth rate in the former republics of the Soviet Union was an astounding negative 9.25 percent.