PRN: The Roots of Our Prosperity

Physician's Money Digest, December31 2004, Volume 11, Issue 24

The Birth of

Prosperity

Everyday, the Internet and satellitespush the disparity in our faces: TheWest is prosperous and other cultures arenot, and they don't like us for it. The headlinesare abundantly clear on the subject.But why are we Westerners so prosperouswhile they are not? It's in our own obviousbest interest to know and use this knowledge.In keeping with my series ofcolumns on things that we take for grantedin our economic lives, for insight, Iturned to William Bernstein's (McGraw-Hill; 2004).

He makes a straightforward case, riddledwith examples from the evolution ofEurope in the Middle Ages to today's currentsituation in Africa and Asia, thatprosperity's development requires a fewbasic elements that the successful stateshave and the failed ones don't. Theseinclude individual property rights defendedby an independent judiciary and theintellectual freedom to invent and innovatesomething worth having, which, inturn, will help grow the economy.

Strong Judiciaries

In other words, the third world suffersprimarily from the lack of means to createprosperity and even to protect what isgiven to them. Poor nations primarily lackstrong institutions, and institutions reallydo matter. Having these institutions iswhat most reliably separates the havesfrom the have-nots.

For example, the Congo is rich in naturalresources, but has been in governmentalchaos for decades, so the peoplehave not been able to get the benefit ofthese resources and have not advancedbeyond a subsistence existence. Singapore,on the other hand, a small islandwith little natural resources has developedcomparably to the West, partlybecause it has a strong, independent judiciaryto guarantee that if you work hardto create or obtain property, the results ofyour labor will not be confiscated by thegovernment or lost to crime.

Creative Liberty

Bernstein's second essential for individualand collective prosperity is thefreedom to innovate and create. By definition, new ideas challenge the statusquo; it's subversive, if you will. And allorthodox governments and cultures willresist having their golden oxen gored,even if society is held back from prosperityby the resistance to change. Galileochallenged the Catholic Church' traditionalview of the heavens by his direct telescopicobservation, and the Church insistedthat he reject his heliocentric theory.Thankfully, the sword of orthodoxy's successon the matter was temporary. In thethird world, authoritarian governmentsand cultural orthodoxy still prevail, totheir continuing detriment.

Bernstein says that property rightsguaranteed by a strong judiciary, togetherwith the freedom to create somethingworth having, lay the groundwork for theother two elements of prosperity. Theseinclude technological advances in communicationand transport (eg, railroad,telegraph, and their successors) andmoney markets that make investment,buying, and selling possible. Capital marketswill develop to help expand an economyonly if people who invest have themeans to move information and goodsand the knowledge that they are safe indoing so. Also, this safety keeps interestrates down, and thus, even more moneyis available for investment.

We have learned from the collapse ofthe Soviet Union that people won't freelycontribute their sweat and creative energy,and thus, the economy will not growunless the law guarantees individuals thefruits of their labor. No one in the historyof the world ever washed a rental car. Ifit's yours, you take care of it.

How and why we are prosperous isanother example of seeing and livingwith things every day that we don't thinkabout; we take them for granted. This isbig, folks. But if you keep Bernstein's theoriesin mind, you'll never look at internationalnews the same way again.

a practicing

physician who is a partner on

the Stanford University Graduate

School of Business Alumni Consulting

Team, teaches in the Stanford

School of Medicine Family

Practice Program. He welcomes questions or

comments at jeffebrownmd@aol.com.

Jeff Brown, MD, CPE,