How to help Afghanistan after the war. 

How the dismal science applies to your life.
Nov. 6 2001 6:03 PM

Afghanistan After the War

Don't give them democracy. Give them capitalism.

 

Suppose we win this war. What then?

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Do we try to nudge Afghanistan in the direction of democracy and civil liberties? To what end? India is a democracy with civil liberties, and it is mired in poverty. But Hong Kong, with no history of democratic institutions, is one of the wealthiest places on earth. If we want to bring Afghans into the modern world—the world of prosperity and technological advancement and economic growth, where one learns to appreciate cultural differences as opportunities for mutually beneficial trade—we should nudge them (insofar as we are capable of nudging) not toward democracy but toward capitalism. If you want to lift people out of starvation, political freedom is a luxury. Economic freedom is a necessity.

India and Hong Kong illustrate a general principle: There is not much relationship between political freedom and per capita income. That's not just a guess; it's based on numbers from Freedom House, a nonpartisan think tank and advocacy group that ranks political freedom in various countries on a scale from 1 to 7, based on criteria like free elections, significant opposition parties, and representation for cultural and ethnic minorities. Countries with the most political freedom (those rated 1) do have higher per capita incomes on average, but there are many exceptions. And below the top end, the connection becomes even more tenuous: There's very little difference in per capita income between countries rated 2 and countries rated 7.

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Each black dot represents a country 

By contrast, economic freedom—that is, limited government, functioning markets, well-enforced property rights, and an absence of barriers to international trade—really matters. Canada's Fraser Institute, in cooperation with 50 other economic think tanks around the world, ranks countries in terms of economic freedom, with Hong Kong at the head of the list, followed by Singapore, New Zealand, the United Kingdom and the United States. (The United States loses points for its widely varying tariff rates and restrictions on capital transactions with foreigners.) Algeria and Myanmar bring up the rear; Afghanistan, Iraq, and Saudi Arabia are unrated due to the unavailability of data, but presumably would have given Myanmar stiff competition. These rankings correlate quite strongly with per capita income; in the following graph, each black dot represents a country, and the general upward trend is quite obvious to the naked eye.

Economic freedom breeds not just prosperity; it breeds also a sense of belonging to a global community surrounded by trading partners, as opposed to an insular community surrounded by enemies. Singapore, for example, is politically repressed but economically free, and it is a good and prosperous citizen of the world.

Last week, I gave a public lecture where a member of the audience (whom I wish I could credit by name) summed it all up in a sentence: We need to think less about nation-building and more about economy-building. Or even more succinctly: It's the economy, stupid. If Afghanistan is ever to recover, it will be not through legislatures and political parties, but through free markets, enforceable property rights, and international trade.

Right now, the freest countries in the Middle East are Jordan and Egypt, both of which rank ahead of Israel on the Fraser Institute's economic freedom scale. They're now tied for 52nd place (out of 116), after having ranked 67th and 88th just 10 years ago. Egypt's spectacular improvement is due to lower government spending, the repeal of price controls, lower marginal tax rates, a more stable monetary policy, improvements in the legal system designed to protect property rights, lower tariffs, and new freedoms to transact with foreigners and hold foreign currency. We should be thinking about ways to encourage and replicate these tentative moves toward free market economies, not only in Afghanistan but in economically repressive countries like Saudi Arabia, which are proving to be breeding grounds for terrorism.

So how do we encourage economic freedom? Well, how do you encourage anything? The first thing that comes to mind is bribery—economic assistance that's contingent on the maintenance of free institutions. What I'm proposing is that when we're setting our conditions, we should focus more on economic institutions than on political ones.

We can also reward foreign economic development by opening our own borders to trade. This is an experiment we've never really tried in America, where the book-length NAFTA treaty passes for a "free trade" agreement. A true free trade policy would fit on the back of an envelope, and it would say that the United States will levy no tariffs, impose no import quotas, and take no action (except as justified by national security) to interfere with the free flow of goods across our borders. Though it would be a tough sell politically, we know from economic theory that such a policy would enrich both Americans and non-Americans. Even more important, it would give every citizen of the Third World a stake in America's survival and America's prosperity. And of course it would make the world a freer place, which is exactly what this fight is all about.