Passage of the Day: Donald Boudreaux on Where Prosperity Comes From

The George Mason University prof busts the myth that it’s all about technology:

….. only the most doctrinaire ascetic would deny that almost everyone today in the Western world is vastly better off than were the overwhelming bulk of the human population before the Industrial Revolution.

But what caused this great wealth explosion?

The most common answer is technology. This answer is wrong.

Technology clearly has advanced over the years; happily it continues to do so. And these advances indeed are indispensable to our modern way of life. But the deeper cause of our widespread wealth isn’t technology; rather, it’s the force that unleashes and directs the human energy necessary to produce technological advances and its fruits: free markets.

The clearest evidence that markets are more fundamental than technology to prosperity is the fact that billions of people today remain desperately poor.

People in Niger and North Korea are starving to death now, even though the technical knowledge for growing and distributing basic foodstuffs is readily available across the globe.

Many Latin Americans and east Europeans still carry their goods to and from market on wooden carts, despite the easy availability of automotive technology.

Countless other people still dwell in earthen huts, have no indoor plumbing, die of malaria, and suffer all manner of other indignities and dangers that are easily avoided with commonplace technologies.

It is grossly mistaken to suggest that technology is the reason for our prosperity. Clearly something else must be present — something else that both promotes technological advance and, even more importantly, encourages the use of technological knowledge to produce and make widely available the goods and services that we Americans today take for granted.

Again, that something else is economic freedom.

As described by the Cato Institute, “The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to compete and security of privately owned property.” And as shown again and again by researchers who study the relationship between prosperity and economic freedom, the greater is economic freedom, the greater and more widespread is prosperity.

Among the best of these studies is one produced annually by economists James Gwartney and Robert Lawson, and published jointly by the Cato Institute and Canada’s Fraser Institute. The 10th such study was just released — “Economic Freedom of the World: 2005 Annual Report.” Among its most important findings:

- Nations in the top fifth in economic freedom have an average per-capita GDP of $25,062, compared with $2,409 for those nations in the bottom fifth

- The top fifth also has an average per-capita economic growth rate of 2.5 percent, compared to 0.6 percent for the bottom fifth

- Unemployment in the top fifth averages 5.2 percent, compared with 13.0 percent in the bottom fifth

- Life expectancy is 77.7 years in the top fifth but a mere 52.5 years in the bottom fifth

- In the top fifth, the average income of the poorest 10 percent of the population is $6,451 compared with $1,185 for those in the bottom fifth.

There is no denying that more freedom means more prosperity for more people — and that lack of freedom ensures poverty for the masses, regardless of the degree of technological sophistication.