It doesn’t matter which country you discuss, whether small or great, the key to economic prosperity is the same and it is just common sense: have a friendly business environment. All the politicians of course claim that they also believe that, but when you break it down to what it actually means in practice, you find that very few of them are willing to do it.

A friendly business environment means you should have as low or as little of these as possible: taxes, regulations, red tape (in setting up business and in operations) and all other forms of government intrusion into the business environment. Instead, government must focus on protecting the same businesses so that they have no fears of having their property stolen from them, especially from government itself. That’s called property rights. 

This is the simple key to prosperity. Whichever country breaks these rules begins to lose its wealth; whichever country follows these rules begins to gain more wealth among its people. This is not just ideological, it is common sense. A businessman wants to invest in a place where he can keep his gains and ensure that he loses none of his property. High taxes make this impossible. Even though a government may have other things in place, ie, a good legal system to protect his property from being stolen or even nationalized, it may still chase him away with its high taxes.

This story from the Times in the UK demonstrates precisely what I mean. Businessmen run away from property theft, even if that is done “legally” by government through high taxation. If they can run away from the UK, how much more from Africa?

And yet African leaders are confused about why they have little investment coming in. They think it’s a mystery. Others say it is because of “global racism” or “Western imperialist neocolonialism” or whatever else their imagination comes up with. 

But it’s just common sense. African governments simply have the worst environments for business. Not only do  they have poor legal systems for protecting property rights, they also have very high taxes on top of that. When you try to understand how they can do something that stupid (since they need investment the most), you will just get depressed because it’s confusing.

Here is the link to the UK story about a businessman running away from taxes – even in an otherwise good business environment. Even there!