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Economic Freedom: Good for Third World
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11138 |
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CURRENT ISSUES
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3 / 1986 |
3,093 Words |
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Dan Mitchell
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The economic expansion currently underway in the United States has not been a worldwide phenomenon. Most of the Western nations have experienced varying degrees of prosperity, but the communist countries and developing nations continue to be plagued by poor economic performance.
The economic stagnation of the Eastern bloc is not that surprising. The socialist economic policies have resulted in the substantial weakening of incentives for innovation and production.
The situation in the Third World, though primarily discouraging, does have some bright spots. Some nations have made dramatic strides, especially in comparison to those with similar demographic characteristic and resources, but with little or no progress.
Western aid has not been the savior that proponents hoped it would be. (To the contrary, its use often results in misdirected investment and corruption.) Countries receiving billions of dollars of aid have often done much worse than ones not so favored.
What, then, accounts for these differences? Why do some nations, like Singapore, South Korea. Hong Kong, Costa Rica, Guatemala, and South Africa, have higher standards of living or rates of growth than their neighbors? The best way to answer this a question is to examine the characteristics that seem to be common to the economies of countries experiencing growth and compare them to the characteristics of nations with little or no growth.
Effect Of Freedom
The key factor seems to involve the degree of economic freedom a nation possesses. The more a country's government follows a policy of nonintervention, relying on free-market forces to guide the allocation of resources, the higher the level of prosperity.
This observation seems to be borne out in an examination of all types of countries. Countries with market-oriented economies seem to experience the most economic growth. While it is difficult to derive exact measures correlating economic growth and the degree of capitalism, a definite relationship exists.
The economic success of the United States is often dismissed because of the abundant natural resource base, but countries like Russia, India, and Zaire, which also have large bases of natural resources, do not exhibit the high productivity of countries with relatively free-market economic policies.
Indeed, natural resources are not necessary to economic prosperity. The "miracles" of the Pacific Basin--Japan, South Korea, Singapore, and Hong Kong--are all nations traditionally viewed as poor in natural resources. In spite of their limited supplies of natural resources, pro-market economic policies have fostered a climate conducive to growth. The apparent decision on the part of the People's Republic of China to adopt many free-market principles is a significant reversal of decades of socialist economic planning. Such reforms indicate a widespread shift in the accepted opinion.
Do economic data confirm the hypothesis that growth is a function of laissez
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