January 5, 2001 | Commentary on Foreign Aid and Development

ED010501b: A World Free of Wealth

The World Bank boasts an ambitious motto: "Our Dream is a World Free of Poverty." But looking at the bank's recent loan policies, maybe it should be: "Our Dream is a World Free of Wealth."

Why? Because the Bank is now "investing" in programs-government health services and immunization programs, women's rights and so forth-that treat the symptoms of poverty while doing little to eliminate the problem itself.

The Bank's chief economist says it's focusing more on health and education because "global capitalism is failing the world's poor." He offered as proof a Bank report that claims the world's poor are getting poorer.

Well, perhaps he should focus more on health care, because he obviously doesn't know much about economics. The fact is, worldwide per capita income has climbed substantially since 1960, and capitalism deserves a lot of the credit. The World Bank's own data show that the average income found in the world's freest economies-$21,206-is seven times the amount earned by those in the most repressed economies.

This fact is lost on World Bank President James D. Wolfensohn. "Our challenge is to make globalization an instrument of opportunity and inclusion, not fear and insecurity," he said during a recent Bank meeting.

Actually, if they want to help the poor, Bank officials should focus less on "inclusion" and more on freedom-because that's the real antidote to poverty. This is confirmed by the "Index of Economic Freedom," published annually by The Wall Street Journal and The Heritage Foundation. This guidebook ranks nations by how economically free they are. It consistently shows that people who live in countries with the fewest economic restraints are wealthier than those in economically repressed countries.

Take Haiti and the Dominican Republic, two developing countries with a common border. The 2001 Index shows that of the 155 countries graded, Haiti ranks 137th, while the Dominican Republic is 59th. So what? Well, the answer to that question is this: Thanks to a more market-oriented economy that features low tax rates, Dominicans earn nearly five times as much as Haitians: an average of $1,799, compared to Haiti's $370.

Examples like these abound. So why the Bank's misdiagnosis? Partly because of what it sees in the former Soviet Union. We've poured billions into many of these countries, and they're worse off today than under Soviet rule, Bank officials say. So capitalism obviously doesn't work.

But as the United States and other democracies have shown, capitalism isn't just the absence of socialist-style economics. It means insisting on a firm rule of law, protecting property rights and rooting out corruption-tasks that Russia and most of its former satellites have failed to perform. I say most because at least one ex-Soviet state lately has been proving my point: Estonia, which is 14th on the Index. It has one of the freest economies in Eastern Europe and an average per capita income of $3,951. Russia, meanwhile, is 127th and has a per capita income of $2,138. Somehow, I don't think capitalism's at fault.

I was part of a congressional commission that earlier this year outlined certain reforms for the World Bank. One proposal that won unanimous approval from our members was ending "the current practice of extending long-term loans for poverty relief and other purposes."

The reason should be clear: All the loans in the world are no substitute for economic reform-for freedom. Countries that want to be rich don't need charity; they need to unshackle their people's economic potential. Perhaps then the Bank can adopt a new slogan: "Our Dream is a World That's Really Rich."

Edwin Feulner is president of The Heritage Foundation, a Washington-based public policy research institute, and served on the International Financial Institution Advisory Commission (IAFIC).

About the Author

Edwin J. Feulner, Ph.D. Founder, Chairman of the Asian Studies Center, and Chung Ju-yung Fellow
Founder's Office

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