What a difference a decade makes. In 10 years, an economy growing at an annual rate of 7 percent doubles in size. Nowhere is the importance of economic freedom clearer than in the disparity of growth between sub-Saharan Africa and post-communist Europe over the last 10 years.
The 2006 Economic Freedom of the World annual report, published by the Fraser Institute in Canada, evaluates economic freedom in 130 countries on a 0 to 10 scale, with 10 being the most free. The EFW notes that economic freedom in the eight former communist countries that joined the European Union in 2004 increased from 5.41 in 1995 to 6.99 in 2004. In contrast, in the 27 sub-Saharan African countries rated by the Fraser Institute, economic freedom rose from an average of 5.08 in 1995 to a mere 5.57 in 2004.
Concomitantly, African economic performance over the last decade was mediocre. Eleven out of 27 countries experienced economic contraction, and the 16 countries that grew did so at an average rate of only 2.2 percent. When one subtracts oil producers such as Cameroon, Chad and Nigeriaall of which experienced some economic expansion over the last decadethe number of growing economies shrinks to 13 out of 27.
Moreover, 11 out of 27 countries saw their per-capita incomes fall over the past 10 years. The biggest falls were experienced by the Democratic Republic of Congo (32 percent), Guinea-Bissau (27 percent) and Zimbabwe (27 percent). Some African countries saw their incomes rise quite substantially. Per capita incomes in oil-rich Chad, for example, rose by 122 percent. But again, when one takes oil producers out of the equation, the number of African countries that have seen their incomes rise shrinks to 14.
The stellar pupil among the growing non-oil producing countries is Botswana, which grew at a compounded average annual rate of 4.57 percent and saw its income rise by 57 percent. With a ranking of 7.1, Botswana was as free as South Korea. It was also Africas freest economy.
In contrast, the EU8 grew at an average annual rate of 4.8 percent between 1995 and 2004 a full 3 percentage points higher than the Eurozone.
Estonia saw its per capita income adjusted for inflation and purchasing power parity rise by 95 percent during that time. Incomes in other EU8 countries rose by between 41 and 86 percent. Only in the Czech Republic did incomes grow by less, rising by 28 percent. Yet, even the Czech Republic performed better than the countries of the Eurozone, where incomes rose by a mere 17 percent over the last decade. On these trends, standards of living in the EU8 are converging with the rest of Europe.
The path from communism to capitalism has not been an easy one, and much remains to be done, but the EU8 have seized the opportunity offered by the fall of the Berlin Wall. They have eliminated thousands of restrictions, liberalized prices and foreign trade, and privatized most state enterprises. They made it substantially easier to do business, and their standards of living undeniably increased as a result.
Critics of globalization and capitalism often describe the international economic order as a remorseless struggle between the West and the rest. Some have gone as far as to suggest that there exists a form of economic apartheid that separates the rich North from the poor South. But the membership of the rich countries club is not closed to anyone. Ex-communist countries seized the opportunity afforded them by the fall of the Soviet Union. They have embraced economic freedom and are on their way to becoming rich.
Unfortunately, many African countries avoided reform and wasted the last decade as a consequence. If these countries suffer from economic apartheid, it has been imposed on them by African politicians who refuse to acknowledge the importance of economic freedom as a necessary precondition to economic development.
Marian L. Tupy is assistant director of the Cato Institutes Project on Global Economic Liberty, specializing in the study of Europe and sub-Saharan Africa.
From the Oct. 11-17, 2006, issue