Fighting Poverty Through Economic Freedom

October 14, 2011 By Keatley Adams

The importance of economic freedom in African development was the topic of discussion this week at a presentation at the Heritage Foundation by Obiageli Ezekwesili, Vice President for the Africa Region at the World Bank.  Her remarks centered around the World Bank paper “On the Relevance of Freedom and Entitlement in Development,” which collects new empirical findings on how economic liberty effects development.  Economic freedom, Ezekwesili argued, is the key to the end of poverty and a “fundamental pillar” of the World Bank.  “The freedom from regulation or other dictates from government or other authorities in economic matters makes the capitalist system of economic freedom a means for efficient allocation of resources,” she said.  This is crucial for countries trying to develop in a time of economic austerity.  Countries that emphasize economic freedom tend to grow faster and to have richer, healthier, and better educated citizens who are less likely to engage in armed conflicts, according to the World Bank study.

Since corruption and poor governance also pose a threat to developing countries trying to increase economic freedom, combating these scourges is a crucial part of the World Bank’s Africa strategy.  Ezekwesili also suggested that unconditional aid exacerbates these problems, allowing for easier misuse of funds.  She was quick to point out, however, the Western development model is not the only one. “It is not our role at the World Bank to tell sovereign governments what development models they should follow,” but “there are certain key fundamentals that we know” about the best allocation of resources for effective growth.  Some of China’s methods have worked well, others have not.  There is no one perfect model everyone should be following, she said.

Ezekwesili also spoke about the African Growth and Opportunity Act (AGOA), saying that it “has been a really important trade tool” that “the United States does not want to lose.”  In fact, she went as far as to say it has been more valuable as a means of development than many of the programs meant to develop Africa.  She also highlighted other gains African countries have made in moving in up indexes like the Heritage Foundation/Wall Street Journal Index of Economic Freedom, that signify growth.  She ended on a note of caution, however.  Speaking of current uncertainty in the global economy, she warned “there is a cost for every freedom that is exercised… that freedom, when misused, has huge costs that become a tax on the behalf of the region against the poor.”  Thus, despite the gains that have been made in recent years, “progress that has been achieved will likely unravel if the consequences of poor exercise of freedom have not been very well taken into consideration as we deal with this next cycle of the crisis facing the world.”