Do countries need freedom to achieve prosperity?

Freedom catalyses prosperity as world history shows. India’s growth depends on strengthening the economic, legal and political freedoms of the diverse people within India 

The headline featured prominently in the discourse at the Copenhagen Democracy Summit last week. As part of a multi-country panel on how the message resonated in various parts of the world, I gathered viewpoints on the topic which stems from the Atlantic Council’s recent Freedom and Prosperity Report of 174 countries. The freedom here refers to a combination of three sub-parts – economic freedom (property rights, free trade, free investment), political freedom (civil liberties, political rights) and, legal freedom (judicial and regulatory effectiveness)

As a whole, Asia provides an excellent proof of concept for the message that freedom contributes to prosperity or rather, absence of freedom denudes a country and her people of prosperity. As home to many former colonies, Asian history provides ample evidence. No statistic illustrates this better than the fact that India before colonisation in 1700 was 24.4% of world GDP; her share was down to 4.2% in 1950, at independence.

What matters now, of course, is what the free countries achieved, and here, many models exist. Singapore, a parliamentary democracy, is a prosperous nation today despite having meagre natural resources. It achieved super-normal growth through free markets and stable institutions, which uphold the rule of law. In contrast, Myanmar at independence in 1948, was rich in natural resources and fine intellectual capital in the form of educated elites. Having been mostly under the military junta rule, it has stayed unprosperous. Nearby Bhutan is a success story, transitioning in 2008 from absolute monarchy to constitutional monarchy with an elected legislature. An important difference is in the incentives of democratic and autocratic administrations, as autocracies would typically be extractive. 

The report interestingly demonstrates that there is a delayed impact of freedom translating into prosperity. India, Vietnam, Philippines are examples of those that are fundamentally poised to grow in the next decade, with freedom being an enabling factor in promoting productivity and enterprise. Those with relatively high freedom and lower prosperity at present need to be viewed from a forward-looking perspective.

People living in freedom have become more prosperous over time. North and South Korea were both poor in 1950 and did not have political freedom until 1980. However, on economic freedom, South Korea’s dictators chose capitalism and secure property rights, while North Korea’s leaders selected a communist economy. By 1980, South Korea’s per capita income was more than double that of North Korea. Starting in 1980s, South Korea transformed itself into a democracy, while North Korea stayed a dictatorship. The addition of political freedoms in South Korea resulted in an even larger divergence in the economic destinies of these two nations. United Nations 2021 data shows that today, people living in South Korea are fifty times wealthier than those living in North Korea.

The curious case of unfree China needs mention here, emerging as it has as a global superpower. Deeper look at the Chinese people living under different political and economic systems reveals a nuanced story. The People’s Republic of China (PRC) has never had political freedom, having been governed by the Chinese Communist Party since 1949 (although it started liberalising its economy in the 1980s). Hong Kong enjoyed some democratic freedoms and ranked among the freest world markets, until its takeover by the PRC in 2020. Taiwan is a constitutional republic, and embraced free markets post World War II. The results for these three countries are materially different. The PRC, Taiwan and Hong Kong were all poor in 1961, with GNI per capita of $76, $163 and $437 respectively. However, different levels of freedom resulted in different levels of prosperity by 2020, with per capita income in China at $10,055, Hong Kong at $46,324 and Taiwan at $25,055. The middle-income trap, the World Bank measure that refers to a situation wherein a developing country attains middle-income, but gets stuck below the high-income threshold — currently pegged at $12,695 GNI per capita. Taiwan and Hong Kong were able to break out of the middle-income trap, while China is not likely to, given its lack of broad-based prosperity and prioritisation of political control over economic growth. 

The Freedom and Prosperity report holds inspiration for India in writing the playbook for the next decade. Foremost is the need to pursue economic growth for all, especially those in the informal sectors (Think street vendors, small farmers, fisherfolks, nano-enterprises and forest dwellers subsisting on forest produce). The liberalisation of the economy in 1991 provided flight to prosperity for industries and professionals. This ‘freedom’91 circle’ of prosperity needs to enlarge to include the poorest of the poor too. There is a need to strengthen the muscles of democracy, in the form of strong institutions which implement the rule of law. Archaic laws have been barriers to those living on the margins from thriving to the best of their abilities. The government initiative in the past 6-8 years to repeal outdated laws is progressive, and many other laws await their turn at the sunset. The judicial cholesterol too needs an urgent deep-flush, to rid it of the chronic pendency of cases and to allow for adherence to the due process, in a timely and effective manner.

India’s road to prosperity lies in collaborating freely with progressive countries, competing and cooperating at the same time. Climate change and subsequent impact on health, livelihoods and habitats are gaining prominence in the social agenda and there is much to learn, both from the successes and follies of the global North.  The greatest divide in present-day India is the social polarization on religion and wealth inequalities. These have a detracting influence on the well-being of her people and can be mended only by strengthening the economic, legal and political freedoms of the diverse people within India.

Read more: India could be an upper middle income country within a decade