In his opinion piece ("A not-so-super Superpower") last week, admirably dedicated to criticizing the ignorant and self-defeating protectionism climate being stirred by the US electoral cycle, Jacob von Bisterfeld also made some far less plausible claims about the basis of US affluence.
This topic is an important one, because a realistic understanding of the principles leading to economic success is essential to the formulation, promotion and political defence of sound policy. The depressingly misinformed debates around the issue of international trade, bedevilled as they are by irrationality and superstition, amply illustrate this relationship.
In his article, von Bisterfeld attributes the "relative prosperity" of the US to its "large arable land mass which is well populated by nearly 300 million souls and, ipso facto, a very large internal market; the absence of internal customs borders and a common currency".
Suspicions might be aroused by the way this "relatively prosperous" country almost perfectly matches the former Soviet Union, prior to its implosion after decades of chronic economic failure. Are demographic scale, resource abundance, and common currencies really the keys to national prosperity?
Although the recent rise of China and of India has done much to undermine the prejudice that large populations actually excuse economic failure, conventional opinion has certainly tended to err in this direction. Many Chinese and Indians still suggest that the "excessive" populations of their nations in some mysterious way explain their relative economic backwardness.
We now know that demographic giants can grow spectacularly, yet many of the most dynamic and prosperous societies in the world have been small ones, with Hong Kong and Singapore as the starkest examples. Population size alone has not held the US back, but neither has it made it rich.
As to "arable land mass", standing in perhaps for a general abundance of natural resources, this is a factor which is clearly correlated with economic under-performance.
Resource-rich countries are far more prone to oppressive and kleptomaniac government, combined with high levels of corruption, mafia-style criminality, indolence and a generalized "hand-out" mentalities. Resource-poor societies, on the other hand, are compelled to develop entrepreneurial attitudes, export-oriented industries and the high-quality skilled, disciplined and motivated work-forces which every economist from Adam Smith to Karl Marx and beyond have identified as the ultimate source of human prosperity. If the US had worse soil and fewer minerals it would probably be richer.
While an absence of internal tariffs is an evident economic good, it is only a step towards an overall free-trade stance. Small internal markets are no problem for open economies, and common currencies are more likely to do harm than good (as argued last week in "Let a hundred currencies bloom").
So if large populations, natural resources and common currencies are irrelevant to economic success, what are the factors that really matter?
There are three densely interlinked factors that stand out prominently in this regard: limited government, the rule of law based on robust private property rights, and market-oriented economic policies. These three ingredients of economic freedom mutually support each other, establishing a framework conducive to the flourishing of commercial enterprise and to the liberation of human ingenuity, upon which all social progress depends.
No society in modern times has ever achieved a condition of comparative international prosperity without these fundamental structures in place, nor has any society which has realized them failed to flourish. Fortunately, this has been almost universally recognized since the world-wide "market revolution" of the late 20th century, producing broad consensus on the appropriate course of productive economic reform.
China has been among the world's most ardent and influential proponents of this pragmatic development path, reaping the rewards at home and emulation among its neighbours.
It should be added that those cosmopolitan cultures which foster respect for education, rational inquiry, women's rights, tolerance, trust and co-operation are especially well placed to take advantage of economic freedom, but culture often follows prosperity.
The most important thing about economic freedom is not just that it leads inexorably to prosperity, but that - unlike giant size or resource abundance - any country, anywhere, can enjoy it.
starcomment@yahoo.com
