Why do some countries feast, while others live with famine?

There's a good article in the Economist explaining exactly why,

Economic freedom, argues the report, does much to foster the investment poor countries urgently need if they are to grow. James Gwartney and Robert Lawson, its authors, have found that the freest 20% of countries invest around $11,000 per worker, more than 12 times the figure for the least free 20%.

The effects of economic freedom on coveted foreign direct investment (FDI) are even stronger. The freest fifth of countries attracted over $3,000 of FDI per worker, against $68 for the least free fifth. Moreover, freer countries make better use of what they have: the authors estimate that investment is 70% more productive in the most free countries than in the least free.

This translates into faster GDP growth (see chart). After adjustment for differences in initial income, climate, the proportion of people near coastlines and human capital, countries with a freedom score below five saw growth of less than 0.4% a year, on average, between 1980 and 2000. Those scoring more than seven clocked up 3.4%. Economic freedom, it seems, can take you a long way.

For those who don't have access to the Economist website, there is another article dealing with the same report on Fox News. The Fox News article goes into deeper detail, it writes,

The report—published by the Fraser Institute, the Cato Institute, and other think tanks—also shows that since the 1980s there has been a close link between economic freedom and economic growth. What is more, however, is that there is evidence that the link between freedom and prosperity has become stronger over the last quarter century.

To see why, compare the U.S. to the Big Three among continental European countries. In the new report, Germany is ranked 22; Italy, 36; and France, 44. This placing reflects the fact that these countries have not kissed big government goodbye. There has been no German Ronald Reagan and no French Margaret Thatcher.

However, the post-war economic systems of France, Germany and Italy have always been more restricted by regulations and high tax burdens than America’s. Still, in the first decades after World War II, this did not stymie economic growth in continental Europe. The prosperity gap (search) between America and Europe’s Big Three shrank. Then, starting in the early 1980s, the gap slowly but relatively steadily widened again. The result is that in recent years the prosperity gap between France and Western Germany on the one hand and the U.S. on the other was as big as it has been since the late 1960s.

In other words, the more capitalistic a country, and by that I mean less government regulations, less taxes, and a free community to trade, the greater are that countries citizens. It's practically a one to one correlation.

PS: For those who would like more information on this topic, read the articles posted on the right, titled, Europe Vs. America, and Self Inflicted Poverty.