Spoiler: Corruption is cancer. It incurs welfare losses by distorting households’ and firms’ consumption and investment decisions. It increases inequality and environmental damages. It reduces trust between people and between people and public authorities.
It is lower in democracies with a free press and an independent judiciary. It is and was higher in autocratic countries. It is lower in market economies. Socialist countries are and were also autocratic, and corruption is and was pervasive in these countries. Corruption is weaker in former socialist countries that have become more democratic.
EU makes a difference. Corruption is higher in non-EU former Soviet republics and East-European countries. But once inside EU, Member States can again turn autocratic and become more corrupt.
Spoiler: Communist leaders promised people in their countries to build socialist paradises. But life in the Soviet Union and its satellite states were miserable. People were poorer and did not live as long as people in the west. People in communist countries died earlier not only because of the mass executions, slave labour in- and outside of prison camps and regime-made famines but also because of environmental disasters causing diseases among the populations.
Spoilers. In Poland, reforms of the economy were made even during Communist rule. Following the end of Communist rule, ambitions to join the EU and support from the EU and IMF gave further impetus to reform. As one of the earlier reformers, Poland has turned into a growth engine. Not being part of the Soviet Union was a bliss for Poland but being a Soviet republic turned out to be a curse for Ukraine. No reforms were made by its post-Soviet leadership during its first three years of independence.
Opaque liberalisations and privatisations that followed enriched former “Red directors”. During this time the oligarchs emerged. They have since not only dominated large sectors of the Ukrainian economy but also the political arenas. From then on, Ukraine’s people have been robbed and deprived of reasonable standards of living. While the influence from external factors, especially the EU, was beneficial for Poland, Russian influence and armed interventions have prevented Ukraine from growing.
Updated post about institutions and prosperity.
In a previous post I showed how a future EU membership gave the Baltic countries, and East European countries incentives to reform their economic and political institutions which shape the behaviour of households, firms and politicians.
This post takes the relationship between institutions and growth beyond the EU.