Free Markets Create Wealth

Tom Friedman, in his important work The World is Flat, discusses how free markets best create wealth in developing countries (p. 323). Friedman quotes from a study by the World Bank's International Finance Corporation, which studied developing world wealth creation, to make these five points:

One, simplify and deregulate wherever possible in competitive markets, because competition for consumers and workers can be the best source of pressure for best practices, and overregulation just opens the door for corrupt bureaucrats to demand bribes. "There is no reason for Angola to have one of the most rigid employment laws if Portugal, whose laws Angola adapted, has already revised them twice to make the labor market more flexible," says the IFC study.

Two, focus on enhancing property rights. Under de Soto's initiative, the Peruvian government in the last decade has issued property titles to 1.2 million urban squatter households. "Secure property rights have enabled parents to leave their homes and find jobs instead of staying in to protect the property," says the IFC study. The main beneficiaries are their children, who can now go to school."

Three, expand the use of the Internet for regulation fulfillment. It makes it faster, more transparent, and far less open to bribery.

Four, reduce court involvement in business matters.

And last but certainly not least, advises the IFC study, "Make reform a continuous process ... Countries that consistently perform well across the Doing Business indicators do so because of continuous reform."

Competition. Continuous reform. Creation of wealth.