LONDON – “It’s the economy, stupid” has been a political mantra for more than two decades. Nowadays, the phrase is repeated ad nauseam in development discussions. But making countries flourish is not so simple.
There is a wealth of literature describing the various factors that determine prosperity. In their widely discussed 2012 book Why Nations Fail, the economist Daron Acemoglu and the political scientist James A. Robinson emphasize the importance of inclusive political and economic institutions. According to the economist Angus Deaton’s new book The Great Escape, health is a key.
The just-released Legatum Prosperity Index points to another fundamental condition for success: good governance and the rule of law. As Program Director Nathan Gamester puts it, “It pays to be a democracy.” Indeed, as it stands, 27 of the world’s top 30 most prosperous countries are democracies. This is not true of the bottom 30.
Consider the development disparities in Africa. Countries like Botswana that have accountable governments, respect for the rule of law, established property rights, and independent judiciaries fare far better than their counterparts. But most countries on the continent fall into the “counterpart” category, with 24 of the bottom 30 countries in the Prosperity Index located in sub-Saharan Africa.
Most of these countries suffer a significant “democratic deficit.” In Equatorial Guinea, for example, Teodoro Obiang Nguema Mbasogo has been in power since 1979, making him Africa’s longest-serving ruler. In just over three decades, his regime has managed to turn a tiny, oil-rich country into a development disaster. The vast majority of Equatorial Guineans have severely limited access to clean water, education, and health care. And the country has one of the world’s highest child-mortality rates, with one out of every five children dying before their fifth birthday.
Despite such examples – of which there are plenty – there is a school of thought that argues that the clumsy inclusiveness of the democratic process impedes economic development. Of course, it is true that democracy is not always efficient – just ask Americans, whose government was recently shut down for 16 days and nearly defaulted on its debt as a result of partisan policy disagreements. But democratic systems based on good governance and the rule of law are more conducive to prosperity than any of the alternatives.
China’s unprecedented economic rise, which has lifted hundreds of millions of people out of poverty over the last three decades, was a result of economic decentralization and freer, more competitive markets – not clever government planning, as some like to claim. China’s future will almost certainly be characterized by more democracy and a strengthening of the rule of law – the country’s emerging middle class will see to that. This shift will prove vital to consolidating and building upon economic gains.
Similarly, in Latin America, the consolidation of democratic government over the last three decades has progressed in lock-step with economic development. Chile, Costa Rica, and Uruguay all have positive stories to tell in this year’s Prosperity Index.
The fact is that when governance is effective and the rule of law is strong, good things start to happen in other areas, including the economy. Botswanans, for example, report high levels of confidence in their country’s elections (83%, compared to the Sub-Saharan regional average of just 47%) and judicial system (83%, compared to 53%).
And, lo and behold, progress is being made in several crucial areas. Mobile-phone ownership in Botswana has nearly doubled in the last couple of years. (Can you imagine a thriving economy without modern communications?) And Botswana’s success in reducing business start-up costs since 2010 has given entrepreneurs the confidence to borrow money, hire more employees, and take calculated risks on their way to success.
While there is no one-size-fits-all recipe for prosperity, it is apparent that establishing well-managed systems guided by democratic principles is a particularly effective route to progress in crucial areas like education, health care, security, and regulation. By highlighting the factors that correlate with success, the Legatum Prosperity Index should spur policymakers and citizens to reconsider their priorities.
If they glean only one insight from this year’s index, it should be this: “It’s governance and the rule of law, stupid.”