Most of the world’s poor countries have large populations. This leads people to think that a large population inhibits economic growth. I wish to challenge this conventional thinking. I argue that those countries that are poor have long failed to invest in their own populations. They have failed in developing their own human capital.
A look at the world’s rich countries can easily identify some with large populations such as: USA, Japan, Germany, and the nouveau rich such as China, South Korea, and Taiwan. Pretty soon we may have to add India, Brazil and Russia, too. The rich countries are not necessarily rich in natural resources, but they are invariably rich in human capital in the form of better education, health, technical skills, progressive thinking, and maybe most important of all, opportunities to engage in private business.
The rise of the nouveau rich in East Asia since the early 1980’s has demonstrated how a country can succeed in freeing its people from the bonds of poverty that have plagued them for centuries. It should be noted that the momentum originates from within, not from without. With regard to China, South Korea, and Taiwan, a common factor propels these countries along the path of economic progress. It is political reform combined with economic liberalization. This effectively gives more freedom to their people, especially the opportunity to engage in private business. However, few poor countries want to do that, because their authoritarian leaders fear that they will lose power once they start on this journey of no return by granting their people more opportunities and power.
Let’s rewind to the 1970’s when both South Korea and Taiwan were locked in perpetual conflict with their communist brothers next door. A wartime emergency was in effect despite no actual war. Both countries were ruled by military strongmen who wasted no time in suppressing political dissent. Continued student revolt in South Korea eventually led to direct presidential election by the people for the first time in 1987. Taiwan followed a similar route without the pressure of student revolt. Liberalization started in the mid 1980’s, and by 1996, direct presidential election was instituted.
China offers a very unique route to economic development by switching over to open-door capitalism after almost 50 years of communist rule that resulted in everybody being poor. Now the Chinese people can pursue any business they want, except rebelling or criticizing their government. Since the country liberated itself from the communist economic regime in the early 1980’s, a middle class has emerged estimated at 500 millions strong. The dramatic transformation of China shows that a large population presents no hindrance to economic progress, only if its human capital and talents are let loose.
So what do I mean by investing in human capital? The above examples show that it does not require the government to pour money into any special project. All it takes is to set the people free from the strict and stifling regime now maintained by the government. Freeing the people does not mean direct presidential election although they may want it eventually. It means giving them the opportunities and minimum restrictions to engage in private business enterprise. Let the people employ their own talents freely and they will create wonders for their country. This requires the leaders of the country to take a leap of faith out of the ditch of tight controls that result in poverty.
Letting the people loose is the starting point that will create ripples in all areas. The pace of economic progress depends on other secondary factors such as culture, religion, organization, and the level of corruption. They all come from within rather than without.
When you survey all the poor countries of the world, you will find that the people there are subject to all kinds of strict and stifling rules imposed by the government. What are their common excuses for being poor? They blame other countries. They should look at the few nouveau rich countries that have gone through the same fate but have succeeded in digging themselves out of the ditch of poverty.