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March 26, 2005

Institutions Do Matter.

Short and sweet, one of the points that the Make Poverty History crowd have to address. Why the difference in performance between Africa and Asia in development?

The most tragic number of all is to be seen in Goldman Sachs' report on Africa, which shows that 40 years ago Thailand and Zimbabwe each boasted a GDP per capita of round $400. Since then Thailand has taken off, while Zimbabwe crashed. Now, Thailand is six times richer.

It shows how much the Africa hippopotami could learn from the Asian tigers. In Asia over the past 30 years, more people have been lifted out of poverty than ever before, a process that is still gathering pace in China and India. Africa, ruled by despots like Mugabe, has been the only continent actually to get poorer since the days of colonialism. The liberal handwringers who claim it's all our fault, and that we should forgive debt as a sign of our contrition, prefer not to look at countries such as India, Singapore and Malaysia, all ruled by Europeans until a generation or two ago.

The difference between Africa and Asia is that in the latter, government - though by no means perfect - has been relatively honest, with a greater respect for property rights and the rule of law. The administrations (mostly) try to improve the lot of their citizens. As the economist Hernando de Soto observes in The Mystery of Capitalism, poor countries do not lack entrepreneurs or workers. Rather, where wholesale appropriation is the norm, there can be no mortgages, no trading of land, no economic stability and no investment. The example of Zimbabwe, bleeding both economically and physically, is stark proof of his thesis.

March 26, 2005 in Make Poverty History | Permalink


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