So why are poor countries poor? On the surface, it seems like poor countries are poor for many reasons, but at its core, poverty is always caused by the same thing: a lack of free markets and secure and clear property rights that mean that entrepreneurs are unable to flourish.
This is a satellite image of the Korean peninsula. The part at the bottom, completely covered with bright lights is South Korea. The part at the top, cloaked in darkness, is North Korea.
Up until about 60 years ago, South Korea and North Korea was one country. The people in the North are very similar to the people in the South. North Korea and South Korea share the same culture, climate and have similar types of natural resources. Yet South Korea is one of the richest countries in the world and North Korea is one of the poorest.
Why is this? How can two countries that are so similar, have such different levels of wealth, education, healthcare and leisure? It is because the South Korean government allows free markets and property rights, enabling entrepreneurs to flourish. The CIA World Factbook estimates that the GDP per capita for South Koreans is $US 35,400.
On the other hand the North Korean government is a communist government that has abolished markets and property rights and doesn’t allow citizens to engage in any form of entrepreneurship. The CIA World Factbook estimates that the GDP per capita for North Koreans is $US 1,800.
The contrast is so great it can be seen from space! South Korea is thriving and its citizens have a bright future. North Koreans live in darkness.
This trend can be detected globally. The 2015 Index of Economic Freedom compiled by the Heritage Foundation in the US collects data on how economically free countries are. This graph shows that the less free a country is, the lower its GDP per capita, clearly demonstrating the relationship between economic freedom and prosperity. For more information on the 2015 Index of Economic Freedom, click here.
Fortunately though, the wheel can turn quickly. The Heritage Foundation also measures the improvement in economic freedom made by each nation. This graph below shows that countries that have improved their economic freedom rating, have also experienced the highest GDP per capita growth levels.
This shows that there is no reason why poor countries must remain poor forever. Countries such as Japan, South Korea, China, India, Vietnam, Botswana and others have shown that it is possible for poor nations to improve considerably in a relatively small space of time.