10. Making Poor Nations Rich

Making Poor Nations Rich
Entrepreneurship and the Process of Economic Development
Edited by Benjamin Powell
Foreword by Deepak Lal

Economists have often grappled with the question of how to help impoverished countries prosper, but they frequently overlook the central driver of economic growth: the entrepreneur. A close examination of entrepreneurship is especially timely, since the effectiveness of traditional development aid is increasingly being debated. Government-instituted economic reforms intended to stimulate economic growth often succeed or fail due to the extent that they help or hinder entrepreneurship. An international and historical comparison of policies and institutions that affect the productivity of entrepreneurs is invaluable for understanding how to make poor nations rich. (Introduction, ch. 1-4)

• After more than a decade of research, the empirical evidence is clear: economic freedom fosters economic growth. Countries that have climbed the Economic Freedom Index (e.g., China, India, Ireland, and Botswana) have brought more prosperity to their people, whereas countries that have reduced economic freedom (e.g., Venezuela, Zimbabwe) are poorer than they were a generation ago. (ch. 5)

• Western aid policies toward Africa have failed to reverse the continent’s economic decline. Most aid programs were crafted in Western capitals with little input from the people they were intended to benefit. Aid was used to support grandiose projects with little economic value and sometimes aid funds were looted. Rather than clean up their own houses, African leaders prefer to badger the West for more money. And the West, burdened by guilt over the iniquities of the slave trade and colonialism, obliges. (ch. 6)

• Latin America drew the wrong conclusions from the poor results of the process of reform in the 1990s. Despite some early successes (e.g., in reducing inflation, attracting foreign investment, and spurring the economy by lowering some barriers to trade), a great opportunity was missed. What really took place in those years was crony capitalism, not the decentralization of power through the desocialization of the economy, the spread of property, or the elimination of barriers to entry in all markets. (ch. 7)

• While Sweden and Romania differ in many ways, both underperform economically due to policies that impede entrepreneurship. In 1970, Sweden was the fourth richest country in the OCED; three decades later it had fallen to fourteenth. Since 1991, Romania’s economy has grown about 0.15% per year—roughly half the rate of slow-moving Kazakhstan (0.29%), and only a tiny fraction as fast as Albania (2.7%). Whereas Sweden needs to implement several reforms, such as opening access to markets, cutting taxes, and relaxing labor-market restrictions, Romania has reformed too often. The frequent changes Romania has made to its legal and regulatory environment have caused confusion and uncertainty among its would-be entrepreneurs. (ch. 8, 9)

• Although further improvements in economic freedom could be made, strides toward liberalization in China and India have probably lifted more people out of poverty than all other government anti-poverty programs combined. On a smaller scale, Ireland, New Zealand, and Botswana have also improved economic growth by making their countries more hospitable to entrepreneurship. Unfortunately, without a stronger commitment to private-property rights and economic freedom, continued improvements are precarious. (ch. 10-14)

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http://www.independent.org/publications/books/book_summary.asp?bookID=70