What conclusions might you draw from the following statistics?
At about 1,000 people per square mile, the population densities of Haiti in the Caribbean and Burundi in Africa are virtually identical. Yet, Haiti’s gross domestic product per capita is four times that of Burundi ($1,100 vs. $264). Still, both are among the very poorest nations in the world and, not coincidentally, they are among the least economically free.
This compares to density in the US of 87 people per square mile and a per capita GDP that is a whopping 60 times bigger than Haiti’s, at $63,600. The US economy is the 25th freest in the world.
Now consider two of Europe’s so-called micro-states, tiny but sovereign countries that are considerably smaller in area than New York City.
Monaco, for example, is less than a square mile in size but both its population density (approximately 20,000 per square mile) and per capita GDP ($174,000) are sky-high. Liechtenstein’s population density (614 per square mile) is a fraction of Monaco’s and even less than that of Burundi and Haiti but its per capita GDP beats Monaco’s, at an astounding $180,000, according to United Nations figures for 2020. Monaco and Liechtenstein are two of the world’s freest and richest economies.
Meanwhile, on the subcontinent of Asia, Bangladesh packs in almost 3,000 people per square mile while producing an annual per capita GDP of just $6,700. Only 40 countries rank below Bangladesh in economic freedom.
At the least, the above jumble of numbers suggests little correlation between population density and GDP. You can pack an awful lot of people into a very small space and produce either high income or low income. Where a nation ranks in wealth depends far more on its degree of economic freedom and capital investment than on numbers of people or how many of them reside per square mile.
In other words, whether a people are rich or poor depends not so much on how much land they’ve got, or how many of them there are, but what they actually do with the human and natural resources they have.
This is a roundabout but hopefully interesting way to arrive at the intended focus of this essay, which is the tiny, fascinating principality of Liechtenstein. In recent weeks, I’ve written about other European microstates (such as San Marino and Andorra). I noted in the latter essay,
Micro-states are fascinating and among the freest enclaves in the world. That’s especially true of San Marino today and Ragusa centuries ago. The small size of these places works in favor of their freedom. A government composed of neighbors you know may be naturally more accountable than distant bureaucrats and politicians you don’t know.
Liechtenstein may be the only nation in the world whose entire population (presently 39,000) is invited annually to the same party. “On Liechtenstein’s national holiday,” writes Meg Van Huygen, “His Serene Highness Prince Hans-Adam II, the head of state, and his son, His Serene Highness Hereditary Prince Alois, invite the residents of their tiny principality to have a beer in the garden of Vaduz Castle, the princely ancestral residence.”
That smallness helps explain why Liechtenstein, fourth smallest country in Europe and nestled between Switzerland and Austria, produces wealth estimated at $180,000 per person in a year—164 times more than the average Haitian and 682 times more than the average Burundian. Certainly, many less important factors are involved too—from weather to culture to proximity to wealthy neighbors.
Liechtenstein’s relative economic freedom looms large in its success. Transplant a Haitian or Burundian to Liechtenstein and you’ll likely find that person a decade later producing and earning far more than if he had stayed home. As we’ve seen time and time again, free people are far more productive and prosperous than unfree people. Private property, small government, low taxes, and entrepreneurship comprise a remarkably reliable formula for prosperity. Liechtenstein possesses all those factors in abundance; Haiti and Burundi do not.
Liechtenstein is the only country in Europe named after the family of its monarchy. The Liechtenstein family has “ruled” the country since it literally purchased it more than 300 years ago. It has an elected parliament and a written constitution.
Watch this fascinating video (above) and you’ll learn, among other things, that this last surviving remnant of the old Holy Roman Empire is the world’s largest producer of dentures and that Russia offered Alaska to Liechtenstein before the Czar sold it to America in 1867 (no kidding).
Alaska, incidentally, is about 11,000 times larger than Liechtenstein and 4,600 miles away. The principality had the money but decided to pass on the deal; otherwise, Alaskans might be speaking German today and sending their income taxes to Vaduz instead of Washington.
This video from the Reason Foundation, though now six years old, explores the Liechtenstein’s free market model and features an interview with His Serene Highness Prince Hans-Adam II.
Watch this video and you’ll learn of some things to do if you ever visit the country.
Here are some important things Liechtenstein has in its favor (drawn verbatim from the Heritage Foundation’s Index of Economic Freedom):
- Flexibility and openness to global commerce
- Minimal barriers to trade and investment
- Straightforward, transparent, and streamlined regulatory system
- High levels of political and social stability
- Sound and transparent judicial system
- Secure property and contract rights
- A maximum personal income tax rate of just 8 percent (add in the retirement tax and local income taxes yields a maximum of less than 30 percent)
- A flat corporate income tax rate of only 12.5 percent
- Minimal non-tariff barriers (except in agriculture)
- A welcoming environment for foreign investment
- No restrictions on repatriation of profits or currency transfers
Additionally, gift and estate taxes in Liechtenstein are under one percent for spouses and children and no higher than 27 percent for non-relatives (compared to rates as high as 40 percent in America).
Liechtenstein’s economy is, by all accounts, among the freest in Europe and the world, while in the Heritage Foundation’s Index, Haiti’s ranks 145th and Burundi’s lies close to the bottom at #172.
Liechtenstein’s prosperity cannot be attributed to an abundance of natural resources because it simply does not possess much in that regard. But human capital is abundant in Liechtenstein because there is freedom to accumulate and develop it, invest in it, and put it to work however and wherever you want, with minimal political barriers (unlike Haiti and Burundi).
A very wise observation of the 18th Century French political philosopher Montesquieu sums all this up in a single sentence: “Countries are well cultivated, not as they are fertile, but as they are free.” That ought to be the first lesson taught to economics students everywhere.
Let’s go party in Liechtenstein!
For additional information, see:
The World’s Oldest Republic Reveals the Secret to Peace and Prosperity by Lawrence W. Reed
What We Can Learn from Liechtenstein by Titus Gebel
Freedom and Prosperity in Liechtenstein: A Hoppean Analysis by Andrew Young
Secrets of the Seven Smallest States of Europe by Thomas Eccardt
8 Things To Do In Liechtenstein (video)
How One of the Smallest Countries in the World Nearly Bought Alaska by Calin Aneculaesei
13 Fascinating Little Facts About Liechtenstein by Meg Van Huygen
The post Russia Almost Sold Alaska to This Tiny European Country Instead of the United States was first published by the Foundation for Economic Education, and is republished here with permission. Please support their efforts.