The real key to development

Evidence is piling up that neither government nor multilateral spending on education and infrastructure are key to Third World development. To move out of poverty, countries instead need fast growth; and to get that they need to unleash the animal spirits of entrepreneurs, says Mary Anastasia O'Grady, a member of the Wall Street Journal's editorial board.

According to the "Index of Economic Freedom: 2008 Edition," co-published by the Heritage Foundation and Wall Street Journal:

Egypt was the most improved economy in the world, implementing major changes to its tax policies and business regulation environment and jumping to number 85 from 127th place last year.

Trade liberalisation and improved fiscal policies, including a flat tax, made Mongolia the third-best performer, and put it in the category of "moderately free" economies.

Overall, the freest 20 per cent of the world's economies have twice the per capita income of those in the second quintile and five times that of the least-free 20 per cent.

Stephen Parente, associate professor of economics at the University of Illinois at Urbana-Champaign, cites the microeconomic research of McKinsey Global Institute, which estimates that modern industry in India could take a huge bite out of its productivity gap with U.S. competitors by simply upgrading production techniques.

India doesn't need another multilateral education project. It needs to tap into knowledge already available in successful economies – the information and technology is out there, says Parente. The trouble is that it is unavailable in many countries like India, because government barriers and constraints to limit competition make access difficult or impossible.

Source: Mary Anastasia O'Grady, The Real Key to Development, Wall Street Journal, January 15, 2008; and Index of Economic Freedom: 2008 Edition, Heritage Foundation/Wall Street Journal, January 2008.

For text: http://online.wsj.com/article/SB120036519907490279.html

For Index of Economic Freedom: http://www.heritage.org/index/

For more on International Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=26

FMF Policy Bulletin/ 22 January 2008