Strong political institutions should not be synonymous with interventionist political institutions. The stronger and more capable political institutions are, the easier it is to implement policies that advance freedom. But does the concentration of political power lead to inefficiency? This is where the fundamental role of cultural institutions comes into play. The capacity and effectiveness of political institutions, in turn, is based on cultural ones.
The rule of law, the separation of powers and strong political institutions are crucial to the existence of legal certainty, which is a good attraction for foreign private investment. However, we are facing a cultural battle. The foundations of political, economic and cultural institutions have been undermined by corruption, which is a natural consequence of State interventionism. Corruption has become normalised in society. Most consider it a morally acceptable practice as an unavoidable feature of life because it appears to be victimless, but is this really true?
Corruption often represents the extraction of public funds by a person invested with some form of authority, who uses them for purposes other than that intended or channels them to personal bank accounts abroad. Centralised planning is the perfect breeding ground for corruption, disguising arbitrary discretion as the use of resources, often in ways that are contrary to the general interest. On the other hand, decentralised political systems tend to have stronger accountability mechanisms and less corruption, since they provide citizens with more tools to audit the management of public funds.
Citizens in developing countries are the most likely to fall into the false belief that corruption is a victimless crime. They don’t have the ideas or institutions strong enough to really fight corruption, and end up accepting it and coexisting with it. The consequence of this is public mistrust in the political institutions: they are there, but in an illusory way. They are unaware of what these acts represent for the country's development and that they themselves, through voting and other mechanisms of citizen participation, are the ones who create the rules of the game and have the capacity to change them.
Corruption and economic performance
Corruption is a determining factor in the permanence of poverty. Countries with high rates of poverty have weakened political and economic institutions and, inversely, the lack of solid institutions brings with it poverty. It is a primary task to break this cycle—how do we do it?
In order to establish solid political and economic institutions that are sustainable over time, it is necessary to invest a large number of resources—both human and economic. We first need to attack the problem of poverty through the generation of opportunities that translate into economic growth and well-being for the population. This is only possible through the implementation of friendly incentives for both domestic and foreign companies. The free market attracts private investment.
We have witnessed how territories (and even entire States) have gone from nothing to the most prosperous in the world in a matter of decades, but at what price? In the beginning, rulers superimposed economic freedom over personal freedom, forgetting that they need each other in order to truly fulfil the foundations of a free society. It can, then, be said that there is no exact and perfect recipe that shows us exactly how to go from poverty to prosperity in less than a generation, but we can take the experience of countries that have already gone through this process and adapt it to the reality we want to change, taking into account the institutional framework, regulatory policies, cultural institutions, the geostrategic position of the territory and other specificities that distinguish nations from each other.
Singapore is an accurate example of how the free market and the economic opening to globalisation came before personal freedom. In the 1960s, Singapore began a process of industrialisation and economic liberalisation, while simultaneously implementing severe restrictions and violations of civil liberties. However, today it is one of the most prosperous States in the world and one of the largest in technological innovation and development. The rates of personal freedom have progressively improved over time thanks to economic growth and strengthening of its institutions, which translates into welfare and opportunities for the population.
The road to prosperity
The first step is to build a citizenry that is aware of its historical role and the power it possesses to gear discussions on polity towards economic growth. There is no poverty worse and more harmful than mental poverty. The weakening of cultural institutions has contributed to the decline of political institutions. Both are in a process of constant feedback and symbiosis: the way one of them acts inevitably affects the other. This makes active and conscious citizenship an indispensable requirement for breaking the chains of cultural and institutional deterioration not only in the present, but also in the future.
The opening up of the economy and the establishment of an attractive incentive mechanism for foreign private investment, such as a friendly tax structure, solid political institutions that generate confidence and legal security, property rights that encourage innovation, and policies that favour offering better conditions than the competition, make the State a service provider in a highly competitive industry.
The ultimate goal pursued by the State, in abstract, is the common good, but if we break it down a little further, the State must serve as an arbitrator—it must be the impartial third party that is responsible for creating the foundation on which private initiative can build a prosperous future that is reflected in a better quality of life for its citizens.
French economist Frédéric Bastiat warned a long time ago, "Everyone wants to live at the expense of the State, but they forget that the State lives at the expense of everyone." The citizens of developing countries often see the implementation of assistance policies positively, without being aware that the problem is not being solved, but rather alleviating the symptoms in an illusory way. That is why, contrary to the generally accepted belief, the State must progressively reduce its scope of action, creating the necessary conditions to attract foreign investment and giving way to private initiative.
The establishment of Special Economic Zones is our best option, historically proven, to revitalising areas that are far from being prosperous. These are projects that decentralise the operation of the State around previously defined areas and are governed by rules different from those of the State itself. There, a special incentive system is created with the objective of attracting investors for the establishment of highly specialised projects, which in addition to promoting development within the factories, also promote the progressive improvement of working conditions, and by extension the quality of life of the population. Thus, companies are motivated to generate communities around the workplaces, which function as small self-sufficient colonies, developing their own educational and health systems.
When writing about the success in Special Economic Zones, the Chinese province of Shenzhen is the most notable case, which less than fifty years ago, was a small fishing village and was established as the country's first Special Economic Zone. Today, it is one of the most prosperous territories in the world thanks to technological innovation and development, solid institutions and attractive incentives for private investment. Special Economic Zones can serve as a breeding ground for economic reforms and innovation even when political capital is scarce or economic resources are insufficient, as we will find no better counterweight to poverty than men's firm belief in freedom, and when the chains of ignorance that bind us to our comfort zone are broken, humanity will understand that only with economic openness and institutions compatible with the foundations of a free society, we can achieve a more prosperous future.