What conclusions might you draw from the following statistics?
This compares to density in the United States of 87 people per square mile and a per capita GDP that is a whopping 60 times bigger than Haiti’s, at $63,600. The U.S. economy is the 25th freest in the world.
Now, consider two of Europe’s so-called micro-states, tiny but sovereign countries that are considerably smaller in area than New York City.
Monaco and Liechtenstein are two of the world’s freest and richest economies.
Meanwhile, on the subcontinent of Asia, Bangladesh packs in almost 3,000 people per square mile while producing an annual per capita GDP of just $6,700. Only 40 countries rank below Bangladesh in economic freedom.
At the least, the above jumble of numbers suggests little correlation between population density and GDP. You can pack an awful lot of people into a very small space and produce either high income or low income. Where a nation ranks in wealth depends far more on its degree of economic freedom and capital investment than on numbers of people or how many of them reside per square mile.
In other words, whether a people are rich or poor depends not so much on how much land they’ve got, or how many of them there are, but what they actually do with the human and natural resources they have.
Liechtenstein may be the only nation in the world whose entire population (presently 39,000) is invited annually to the same party.“Micro-states are fascinating and among the freest enclaves in the world. That’s especially true of San Marino today and Ragusa centuries ago. The small size of these places works in favor of their freedom. A government composed of neighbors you know may be naturally more accountable than distant bureaucrats and politicians you don’t know.”
That smallness helps explain why Liechtenstein, the fourth-smallest country in Europe and nestled between Switzerland and Austria, produces wealth estimated at $180,000 per person in a year—164 times more than the average Haitian and 682 times more than the average Burundian. Certainly, many less important factors are involved too—from weather to culture to proximity to wealthy neighbors.
Liechtenstein’s relative economic freedom looms large in its success. Transplant a Haitian or Burundian to Liechtenstein and you’ll likely find that person a decade later producing and earning far more than if he had stayed home. As we’ve seen time and time again, free people are far more productive and prosperous than unfree people. Private property, small government, low taxes, and entrepreneurship comprise a remarkably reliable formula for prosperity. Liechtenstein possesses all those factors in abundance; Haiti and Burundi do not.
Alaska, incidentally, is about 11,000 times larger than Liechtenstein and 4,600 miles away. The principality had the money but decided to pass on the deal; otherwise, Alaskans might be speaking German today and sending their income taxes to Vaduz instead of Washington.
- Flexibility and openness to global commerce
- Minimal barriers to trade and investment
- Straightforward, transparent, and streamlined regulatory system
- High levels of political and social stability
- Sound and transparent judicial system
- Secure property and contract rights
- A maximum personal income tax rate of just 8 percent (add in the retirement tax and local income taxes yields a maximum of less than 30 percent)
- A flat corporate income tax rate of only 12.5 percent
- Minimal non-tariff barriers (except in agriculture)
- A welcoming environment for foreign investment
- No restrictions on repatriation of profits or currency transfers
Liechtenstein’s economy is, by all accounts, among the freest in Europe and the world, while in the Heritage Foundation’s Index, Haiti’s ranks 145th and Burundi’s lies close to the bottom at No. 172.
Liechtenstein’s prosperity can’t be attributed to an abundance of natural resources because it simply doesn’t possess much in that regard. But human capital is abundant in Liechtenstein because there is freedom to accumulate and develop it, invest in it, and put it to work however and wherever you want, with minimal political barriers (unlike Haiti and Burundi).
A very wise observation of the 18th-century French political philosopher Montesquieu sums all this up in a single sentence, “Countries are well cultivated, not as they are fertile, but as they are free.” That ought to be the first lesson taught to economics students everywhere.
Let’s go party in Liechtenstein!
For Additional Information:
“The Gorgeous European Microstate That Boasts One of the Best Tax Climates in the World“ by Lawrence W. ReedThis article was originally published on FEE.org.
