Exactly why is it that some nations are rich and some nations are poor and that brings us to a conjecture, that it is nations differ because they have different degrees of freedom, the people in that nation and what is freedom we will come to it. But the more important point here would like to make is, that the rules of the system make a difference. Now I just take for example, East Germany and West Germany. At one time they were one and the same. After the Second World War they were divided into East and West, the people were the same, the language is the same, the history was the same, their education level, culture etc everything was the same. But over time they diverged. The Western Germany became rich, East Germany became poor. The same story you can tell about say South Korea and North Korea, same people, same country, same geography, same history etc so and they divided it, one became communist and the other became capitalist, free-market, voluntary exchange etc, and then that is what created the difference.
So it tells us that there may be something in the conjecture that maybe it is the set of rules that you follow that makes a difference. So some people get economic freedom and that leads to prosperity and some people don’t and there are different kinds of freedom – one is economic freedom, political freedom and civic freedoms; but economic freedom is lexicographically prior to the other two, that is if you don’t have economic freedom, you’re unlikely to make much use of the other two freedoms that you have and this is also very easy to understand. Just think about it this way, how many people vote with their feet, to go to a place where they have economic freedom; but they don’t have any political freedom. You see all the NRI is sitting in the United States, most of them went there with no political freedom, that it couldn’t vote, they didn’t have a voice in the government. But they had economic freedom. So they vote with their feet wherever economic freedom is, there are many people who would go to Singapore today. Why? Because they will get higher income and things like that economic freedom. But they will not have, they do not have the political freedom there and maybe they even have restricted civic freedoms. So freedom is basically a choice variable, people choose how much freedom they want, demand because ultimately collective some in some sense chooses how much freedom they want and that leads to prosperity.