WHAT MAKES NATIONS WEALTHY?

WHY THE SECRET TO NATIONAL PROSPERITY MAY RUN DEEPER THAN ECONOMICS

January 2024

• 2 1/2 miles. It’s not very long.

Only slightly longer than the National Mall in Washington.ⁱ Not even 2/3 of the length of the Las Vegas Strip.ⁱⁱ

But also … it can be the distance between two different worlds. In fact, 2 1/2 miles is the distance between Australia and Papua New Guinea at their nearest point, in the Torres Strait.ⁱⁱⁱ

In Papua New Guinea, the national wealth averages out to about $3,500 per person per year. In Australia, it averages out to around $65,000 per person per year.^iv Two-and-a-half miles apart … and nearly 20 times wealthier.

How does this kind of thing happen? Actually, we know the answer.

Because it turns out that the secret to how nations get wealthy … isn’t really a secret at all.

The world has never been as wealthy as it is right now.^v That’s the good news.

The bad news? That prosperity is far from universal.

In fact, even though the world’s poverty rate has been steadily declining for some time,  ^vi it’s still the case that 6.7 billion people around the world live on $30 a day or less.^vii

How did this happen? How do some countries become fantastically wealthy while others remain trapped in poverty?

In 2022, scholars at the Atlantic Council divided all the countries in the world into four categories: really prosperous, mostly prosperous, mostly unprosperous, and really unprosperous.^viii

There are two things to note about this analysis. First, some of the categories may not line up with your expectations. A country like China, for example, may have a huge economy overall, but in terms of income per person  it ranks behind countries like Libya or Serbia.^ix

Second, if you’re trying to find a pattern on this map … good luck.

Are certain regions of the world just uniquely blessed — or cursed?

If so, you’d be hard pressed to explain why Japan, Singapore, and South Korea are doing so much better than the rest of Asia.

Or why Venezuela or Guyana are doing so much worse than the rest of South America.

Or why Israel stands out in the Middle East.

Is it all a matter of who has the most natural resources?

Venezuela’s poverty comes despite the fact that it has the world’s largest reserves of oil.  ^x

Africa has 40 percent of the world’s gold, 90 percent of its platinum, and the largest supply of diamonds on the planet.^xi And yet not a single country on the continent is classified as even moderately prosperous. 

Meanwhile, Belgium is one of the 20 richest countries on the planet and, best we can tell, their biggest natural resource is The Smurfs.

But if there’s no answer to be found on this map, there might be one to be found on this one:^xii

Now, we know what you’re thinking: It’s the same map. But here’s what’s interesting: It’s not.

This is a map of the countries of the world ranked not by how wealthy they are, but by how free they are — which turns out to be the key to whether or not they become wealthy.

The Atlantic Council’s analysis found that every single country classified as “free” … was also classified as prosperous — and virtually all of the unfree ones weren’t.^xiii And it’s not just a modest difference, by the way.

Citizens of the “free” countries were six times wealthier than those in the “mostly unfree” countries. In fact, they were even five times wealthier than those in the “mostly free” countries.

And here’s the thing: This isn’t just a matter of a handful of the ultra-wealthy skewing the numbers. Another study on the same subject found that the poorest people in free countries were more than twice as wealthy as the average person in unfree countries.^xiv

It almost seems too simple to be the answer. But the track record here is pretty clear: People have a natural incentive to make money. They want to do well. They want to take care of themselves and their families. And as long as a nation gives them the basic tools to do that  — the right to freely do business with others, the right to control their own property, the right to have their day in court if someone tries to cheat them — the whole country is going to prosper in the process.

For proof of this, we only need to look at how the same groups of people perform when they’re given economic freedom versus when they’re not.

During the Cold War, the Baltic nations of Latvia, Lithuania, and Estonia were controlled by the Soviet Union. This is what their national wealth looked like at the time.^xv After the brief, rocky period when they gained their independence, they started implementing economic freedom … and their national wealth began to look like this:

Another Cold War example comes from Germany. In communist-controlled East Germany, national wealth looked like this. While in free West Germany, it looked like this:^xvi

Communist China versus a free Taiwan looks like this:^xvii

And while a totalitarian North Korea looks like this, a free South Korea looks like this:^xviii

Sorry, fellas, but this line isn’t gonna get you K-pop.

It’s easy to get depressed by global inequality. How can so many people live in such grinding poverty while the rest of us live lives that seem so comfortable by comparison?  But what this research tells us is there’s also cause for optimism here. Because no nation is doomed to be poor.

When people are allowed to prosper … they will. Romania was once a country known almost exclusively for its poverty. But between 1950 and 2016, it became 20 times wealthier.^xix In that same time period, Singapore — a country that’s smaller than New York City and has virtually no natural resources — became nearly 30 times wealthier.^xx And those people did it … simply because they were allowed to.

All of which means that the future of the world’s poorest countries … will be as bright as their governments allow them to be. So, let’s hope they choose wisely.

I mean, c’mon, it’d be embarrassing to be outperformed by The Smurfs people.

SOURCES

1. The National Mall Is America’s Most Visited National Park, Where the Past, Present and Future Come Together — Destination DC
2. The Las Vegas Strip — The Neon Museum
3. Home: Saibai — Torres Strait Island Regional Council
4. GDP per Capita, Current Prices — International Monetary Fund
5. World GDP Over the Last Two Millennia — Our World in Data
6. Share of Population Living in Extreme Poverty, World — Our World in Data
7. “Extreme Poverty: How Far Have We Come, and How Far Do We Still Have To Go?” (Max Roser) — Our World in Data
8. “Do Countries Need Freedom To Achieve Prosperity?” (Dan Negrea and Matthew Kroenig) — Atlantic Council, pg. 10
9. GDP per Capita, Current Prices — International Monetary Fund
10. OPEC Share of World Crude Oil Reserves — Organization of the Petroleum Exporting Countries
11. Our Work in Africa — United Nations Environment Programme
12. “Do Countries Need Freedom To Achieve Prosperity?” (Dan Negrea and Matthew Kroenig) — Atlantic Council
13. Ibid.
14. “Economic Freedom of the World: 2022 Annual Report” (James Gwartney, et al.) — Fraser Institute, pg. 9
15. GDP per Capita, 1973 to 2018 — Our World in Data
16. The Two Germanies: Planning and Capitalism – GDP Per Capita, 1950 to 1989 — Our World in Data
17. GDP per Capita, 1950 to 2018 — Our World in Data
18. GDP per Capita, 1943 to 2018 — Our World in Data
19. “Which Countries Achieved Economic Growth? And Why Does It Matter?” (Max Roser) — Our World in Data
20. Ibid.

SHOWNOTES

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