October 4, 2025 by Dan Mitchell @ International Liberty
More than 10 years ago, I warned that Ukraine was suffering from statism.
In that column, I compared Ukraine’s economic anemia to Poland’s economic rebound and explained the gap was due to Poland’s pro-market reforms.
That same year, I explained that Ukraine was suffering from Putinomics.
Based on the latest data from Economic Freedom of the World, that’s still the case.
Both nations get terrible scores. Both are in the “least free” category. Both are economic laggards compared to almost all other nations in Eastern Europe.
Ukraine’s immediate crisis is ongoing war with Russian invaders, of course, but let’s think ahead to what should happen with hostilities finally cease.
In 2022 and 2023, I argued that Ukraine needs a dramatic shift to free markets.
That’s still true today, so I was very interested to see a column by Michael Tory in the Wall Street Journal that also addresses Ukraine’s economic future.
The good news is that he correctly identifies Russia’s economic backwardness and believes Ukraine could expose Putin’s bad economic policy be becoming more prosperous.
The most serious threat to Putin’s regime is the vast disparity in prosperity between Russia and the nations on its periphery that have escaped Moscow’s rule. Since 1990, the former Russian satellites that have joined the European Union have generated an almost 10-fold average increase in national GDP. By contrast, the national GDP of Russia itself and the non-EU countries on its western border have grown by just a factor of four over that same period. …
As experience shows, such disparate economic performance among nations intimately linked by history and geography almost invariably leads to resentment. …Ukraine is, in effect, the tipping-point state. Once it joins the EU and generates economic growth comparable to the other former Soviet satellites already in the economic bloc, the gravitational pull of Ukraine’s prosperity will be irresistible for its three smaller neighbors. …
The Russian public is so conditioned to view Ukraine as ethnically and linguistically similar to Russia that its prosperity would raise difficult questions inside Russia. If the countries are so much the same, the only plausible explanation for a radical divergence in their economic success would be the political and economic fundamentals of Russia itself.
The bad news is that Mr. Tory thinks that European Union membership is what produces economic prosperity.
His main evidence is this table which shows post-1990 growth in former communist nations.
At first glance, it does seem that EU membership is a driving force. And, having written that East European nations probably do benefit from joining the EU, I think this could be a partial explanation.
But notice that I’ve added red numbers to the left of every country’s name. And there seems to be a fairly strong relationship between those numbers and economic outcomes.
Well, those numbers are the rankings for economic freedom according to EFW.
In other words, what Ukraine needs is more economic liberty, regardless of whether it ever becomes a member of the European Union (and, if Ukraine does become a member, it should be very aware of the potential pluses and minuses).
Indeed, there is research showing that countries can enjoy faster growth by staying out of the EU.
P.S. In a cruel bit of history, a single death may have blocked Ukraine from becoming free and prosperous.
As noted in a 2014 New Yorker article, the man who oversaw dramatic pro-market reforms in Georgia was about to be in charge of economic liberalization in Ukraine.
Bendukidze left Georgia for Ukraine, where President Petro Poroshenko asked him to become his economic adviser. Even though he was unsure whether Ukrainians would accept the changes that he wanted to carry out, he agreed to work with Poroshenko, friends say, because he saw Ukraine as the frontline of the battle for liberal reforms in the former Soviet states. …He advocated cutting government spending, reducing retirement benefits for public servants, and radically deregulating the economy. Ukraine, he said, in one of his last interviews, had too many ministries and agencies. ”Who needs them when the government’s sole function these days is to take money from the International Monetary Fund…” Bendukidze’s death, in London, came only days before he was expected officially to join Poroshenko’s cabinet.
Maybe Ukraine’s next step should be to invite Javier Milei to be in charge of reforms. Especially if Argentine voters opt for decline by voting for Peronists later this month. After all, if the left wins the mid-term elections, there will be very little chance of enacting the additional reforms that Argentina needs. So Milei may as go someplace that wants to be prosperous.
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