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...
I proved earlier that the emergence of fossil fuels was not the sole cause of the rise in living standards of various countries. The success of the Industrial Revolution required capitalism. No nation increased its prosperity until it freed its markets. Resources are important, but capitalism is necessary to turn those resources into prosperity.
Something else emerged around the time of capitalism. Democracy.
How do we know it wasn't just the emergence of democracy that caused the rise of Western Europe in the 1800s, and later, other nations? Every country that opened its markets also embraced democracy to at least some degree. If democracy is all that matters, then perhaps capitalism isn't necessary.
The answer is that capitalism and democracy are two sides of the same coin. When societies become more capitalistic, they also become more democratic. The reverse is also true. Capitalism is the freedom to acquire property, start a business, make deals with other people, and profit from the fruits of one's labor. That's a very democratic idea. Economic freedom and political freedom go hand-in-hand.
The Market Freedom Index measures how capitalistic countries are in relation to each other. There's also an index that assesses how democratic nations are. It's created by the Economist Intelligence Unit and is called the Democracy Index. Here's a partial list of what it measures (skip this paragraph if you don't want the details): [1] How free and fair elections are, diversity of political parties, probability of opposition parties winning elections, how easy it is for everyone to vote, how equally represented political candidates are, degree of transparency of political financing, how free citizens are to form civic organizations, extent of checks and balances, government transparency and accountability, pervasiveness of corruption, public confidence of the government, voter turnout, percentage of women legislators, degree of restrictions on peaceful protesting, how much control the military has over the government, how much control religious institutions have over the government, extent of freedom of speech, how free the media is from scrutiny and oppression, diversity of the media, extent of oppression of minorities, extent of internet restrictions, how free workers are to form unions, extent of the use of torture by the state, degree of religious tolerance, degree that citizens are treated equally under the law, and much more.
In other words, the Democracy Index assesses how much influence the common people have over legislation and the extent of their personal freedoms.
Countries that score well on the Market Freedom Index also score well on the Democracy Index.
Figure 14
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Sources: Market Freedom Index | Economist Intelligence Unit's Democracy Index (2014)
The horizontal axis is how capitalistic countries are according to the Market Freedom Index. The vertical axis is their scores on the Democracy Index. The strength of the correlation is R^2=0.70. That means every 1% increase in market freedom correlates with a 0.70% increase in democracy. In other words, countries that make business creation twice as easy and are two times friendlier to free trade are 70% more democratic.
Do freer markets cause greater democracy? Or does greater democracy cause freer markets?
The answer is both. They are contributing factors to each other. Improving one will improve the other. A nation that becomes more democratic will become more capitalistic and vice versa. Each represents different but related aspects of human freedom. Political freedom on the one hand, and economic freedom on the other. But they hold hands.
Notes
1. Democracy Index 2014. Economist Intelligence Unit. p.37-49. https://www.eiu.com/public/topical_report.aspx?campaignid=Democracy0115.
