This book is about how to reduce poverty and improve global living standards. Topics include economic growth, income inequality, corruption, sustainable development, the future of technology, and much more.
Below is a sample of questions answered th...
Liberalization is good for economic growth. Capitalism increases GDP.
In the following sections, I give examples of countries before and after they liberated their markets.
Russia
From 1922 to 1991, Russia was a communist nation known as the Soviet Union. It didn't have a free market and didn't permit free trade. It was illegal for people to own businesses. Most land and other possessions were the property of the state, and the government produced all goods and services. There was no stock market. When trade did occur with another country, it was under the scrutiny of bureaucrats.
The Soviet Union collapsed in 1991. But Russia's economy continued to shrink for the next decade even though communism ended. According to the Peterson Institute for International Economics, it took several reforms throughout the 1990s and early 2000s until Russia finally had a more or less free market [1]. For example, selling land was illegal until 2001 [2]. Private ownership and sale of agricultural land were illegal until 2002 [3].
After establishing a relatively free market, Russia's economy skyrocketed.
Figure 2
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Source: World Bank
Notice the period throughout the 1990s labeled "oligarchy." At that time, Russia was ruled by oligarchs—billionaires that controlled the government. They were mafia thugs that plundered rather than liberalized the market. That's why the economy continued to decline after communism.
Just because a country isn't socialist doesn't mean it has a free market.
Throughout the 1990s, Russia was like how countries were before capitalism. It was a state ruled by the wealthy elite. The government granted monopoly rights to one or two businesses in each industry. Some officials were themselves billionaires and granted their own corporations monopoly rights.
After the election of Putin in 1999, the government turned on the oligarchs. Taxes on billionaires went up, the tax code was simplified, and several loopholes were closed [4]. Other reforms made it easier for ordinary people to start their own businesses. Regulations were reduced significantly. The effect was that new companies were formed at a rate of over 7% per year [5]. Massive economic growth followed.
Putin had several oligarchs put in prison or exiled on corruption charges or tax evasion [6].
Of course, Putin is an oligarch himself, and the Russian government is still influenced by wealthy individuals. However, the market is much freer than it was before 2000. It still has a long way to go.
The Soviet Union had access to the same technologies and resources that the Western world did, but Russia's economy only began to grow in a stable manner after it adopted capitalism. This is an important observation. It means that access to resources and modern technology does not automatically lead to economic growth and improved living standards. Good policy is also required.
