December 15, 1996
By Kim R. Holmes, Ph.D. and Bryan T. Johnson
In Hong Kong, for example, the per-capita gross domestic product
(GDP) has increased from $2,279 in 1965 to $22,527 in 1995 -- a
tenfold jump. In the Republic of China on Taiwan the increase was
equally dramatic: from $1,133 to $13,235. This is extraordinary
Unfortunately, such economic success is by no means universal.
During the same 30-year period many other less-developed countries
have stagnated or declined economically. In our own backyard,
Haiti's per-capita GDP was $360 in 1965; by 1994 it was down to
$225. Peru's per-capita GDP fell from $1,137 to $1,103. And Niger's
was down from $617 to $272, a staggering 60 percent decline. (All
numbers are expressed in constant 1987 dollars.)
This raises an obvious question: Why do some economies blossom
and flower, while others whither on the economic vine?
The answer, while obvious in one sense, is not what typically
comes to mind. Contrary to pupular belief, a country's economic
success does not depend on its possession of, or access to,
inexpensive natural resources, such as oil, on how productive its
farmland is, or on the rate at which new technology is introduced
into its economy.
While these can be important, they are not the key. Hong Kong,
for example, must import all the raw materials and energy it uses,
has no arable land to speak of, and was no more advanced
technologically than any other developing country 30 years ago. Yet
its economy has boomed.
By contrast, 10 percent of the land in the West African nation
of Gabon is arable and the country is a major source of diamonds.
But its economy is a basket case. Indeed, at $2,770, Gabon's
per-capita GDP was larger than Hong Kong's in 1965. Today, however,
it is about one-sixth the size of Hong Kong's. What accounts for
The answer is economic freedom. All of the countries that have
graduated from the under-developed world to the developed world in
the past 20 years -- Chile, Hong Kong, Singapore, South Korea,
Taiwan -- have free economies. Gabon, Haiti, Niger and Peru have
unfree economies, as do most other countries around the world.
The correlation between economic freedom and prosperity is
clearly demonstrated by the "The Heritage
Foundation/Wall Street Journal Index of Economic Freedom."
To conduct this study, we rated each of 150 countries on 10
economic factors that -- depending on the policies the countries
pursue -- can either encourage or serve as an impediment to
economic growth and wealth creation. Specifically, we looked at
their banking, foreign investment, monetary, tax, trade, and wage
and price policies; the size of their government sectors; property
rights; regulatory restrictions; and black market activity, a
"negative indicator" showing that something is amiss elsewhere in
Each country was given a rating of one to five in each category,
one being the best, five the worst. The individual scores were then
added up and averaged. Each country's average score on the "Index
of Economic Freedom" was then overlayed on a grid showing the
country's per-capita GDP.
What we found was more than a coincidence. In short: Virtually
all of the countries with the highest per-capita income levels, or
the most rapidly growing economies, were those with the best (i.e.
lowest) scores on the "Index." Conversely, the poorest countries --
places like Angola, Cuba, Iran, Iraq, Laos, Mozambique, North Korea
and Sudan -- have the worst scores on the "Index."
What does this mean in terms of global poverty? We asked
economist William W.
Beach, the former chief economist of Sprint Corp., to answer
Beach chose as his example the People's Republic of Bangladesh,
a South Asian country of 128 million residents whose per-capita GDP
last year was just $1,290 -- less than half of what Gabon's was 30
If the Bangladesh economy -- which ranks in the bottom quarter
on the "Index" -- continues to "grow" at its current rate, Beach
found, Bengali living standards won't reach the level currently
enjoyed by the western nations for another 102 years. If, on the
other hand, Bangladesh frees its economy and it can achieve a rate
of growth equal to the "Four Tigers" of Asia, the Bengali people
could be living as well as Americans do today in just 40 years.
Poverty is not a natural state for any country. It is largely a
condition imposed on people by ill-conceived and repressive
economic policies. Free up the latent economic energies of poor
nations, and prosperity will follow.
Holmes, Ph.D. is Vice President of Foreign and Defense
Policy Studies and Director of the Kathryn and Shelby Cullom Davis
Institute for International Studies at The Heritage Foundation,
Washington, D.C., where Bryan T. Johnson is a former policy
analyst. They are co-editors, with Wall Street Journal Asst.
Editorial Page Editor Melanie Kirkpatrick, of the 1997 "Heritage Foundation/Wall Street Journal Index of
Economic Freedom." (Washington, D.C./New York, 520 pages,
$24.95, plus shipping & handling). Copies can be ordered by
calling (in the U.S. only) 1-800-975-8625.
ED121596b: An Antidote to Global Poverty
Kim R. Holmes, Ph.D.
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