How Nations Escape Poverty: Vietnam, Poland, and the Origins of Prosperity

How Nations Escape Poverty

Read this brilliant, highly readable, inspiring book before the woke cancel culture hears about it! The astonishing tales told here about the miraculous transformation of two seemingly disparate nations—Poland and Vietnam—from socialist sinkholes of misery into vibrant, prosperous, opportunity-rich economies resoundingly reaffirm the truth of the positive, inclusive power of free markets. This book couldn’t be more timely in today’s troubled world.

Steve Forbes, editor-in-chief, Forbes

Many great libertarian thinkers were economists or philosophers. Zitelmann is a historian and sociologist. He does not argue theoretically, but empirically. In his book, he shows that development aid and redistribution do not eliminate poverty, but private property, entrepreneurship, and capitalism do.

John Mackey, co-founder, Whole Foods Markets

Anti-capitalists believe that the economy is a zero-sum game. They want to help the poor by taking money away from the rich. They want to help poor countries through development aid. Based on scientific studies, Zitelmann shows that this concept has never worked. But as soon as people are given more economic freedom, their standard of living improves dramatically, as Zitelmann demonstrates through the examples of Poland and Vietnam. Capitalism is so effective that even a few drops of it can work wonders. What miracles would only be possible with real capitalism?

Jennifer Grossman, CEO, Atlas Society

Public intellectuals in relatively free economies have crippled poor nations struggling to rebuild after years of socialism by lying to the world about how jobs and wealth are created. A powerful and needed antidote to the lies of the self-hating academics is Dr. Rainer Zitelmann’s new book examining and highlighting the success of Poland and Vietnam emerging from imposed economic statism. The model that built the modern West can also rebuild those nations enslaved during the Cold War: property rights, low tax and regulatory regimes, open trade and limited government.

Grover Norquist, president of Americans for Tax Reform

One of the most exciting developments over the last quarter-century has been the revival of social and economic freedom in both Eastern Europe and Asia. Zitelmann’s case studies show how they did it, and what other countries need to do to enjoy a similar revival.

Eamonn Butler, director, the Adam Smith Institute, London

Imparting surprises on every page, even for sophisticated theorists of capitalism, Zitelmann’s book makes a major new contribution to the wealth of nations.

George Gilder, author of Wealth and Poverty

This book reminds us with unimpeachable data that economic freedom is the key to prosperity and socialism is the best path to despair. The paradox is why so many young people are taught and believe exactly the opposite. We might as well be teaching them that the sun rises in the west and sets in the east.

Stephen Moore, senior economist, The Heritage Foundation

Rainer Zitelmann has been one of the most prolific and effective defenders of free enterprise for many years. In his new book, Zitelmann details the political and economic reforms that turned once poor and stagnating communist basket cases of Vietnam and Poland into fast-growing economies whose people enjoy much improved standards of living. It should be read by would-be reformers everywhere.

Marian Tupy, senior fellow, the Cato Institute, and founder of HumanProgress.org

"Capitalism has lacked a unifying public figure since Milton Friedman left the building in 2006. Now, there is, at long last, a worthy candidate for Friedman’s rightful successor. I praise Dr. Rainer Zitelmann as the reigning public intellectual champion of capitalism. With his book How Nations Escape Poverty, he proves once again that as a historian and sociologist he has followed in the footsteps of the greatest freedom thinkers."

Ralph Benko, co-author of The Capitalist Manifesto and co-founder and chairman of the Capitalist League

Billionaires usually get a bad press, but Rainer Zitelmann shows in his outstanding new book that economic growth takes off when free markets permit them to create new products and encourage other people to emulate them. As Adam Smith long ago argued, economic growth is the key to ending poverty. Zitelmann documents his thesis to the hilt through detailed accounts of the economies of Poland and Vietnam. The book is a magnificent achievement.

David Gordon, senior fellow, Ludwig von Mises Institute, and editor of the Journal of Libertarian Studies

How Nations Escape Poverty

Vietnam, Poland, and the Origins of Prosperity

RAINER ZITELMANN

New York • London

© 2024 by Rainer Zitelmann

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of Encounter Books, 900 Broadway, Suite 601, New York, New York 10003.

First American edition published in 2024 by Encounter Books, an activity of Encounter for Culture and Education, Inc., a nonprofit, tax-exempt corporation.

Encounter Books website address: www.encounterbooks.com

Manufactured in the United States and printed on acid-free paper. The paper used in this publication meets the minimum requirements of ANSI/NISO Z39.48–1992 (R 1997) (Permanence of Paper).

FIRST AMERICAN EDITION

LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA IS AVAILABLE

Information for this title can be found at the Library of Congress

website under the following ISBN 978-1-64177-395-9 and LCCN 2024001954.

CONTENTS

Foreword, by George Gilder

Preface

1.Adam Smith Was Right: Only Economic Freedom Can Defeat Poverty

2.What Helps Against Poverty—And What Doesn’t

3.Vietnam: Doi Moi—Rise of the Dragon

4.Poland: Rise of the White Eagle

Conclusion: The Wealth and Poverty of Nations

Bibliography

Notes

Index of Persons

FOREWORD

The Dazzling Dozen: Rainer’s Rules of Wealth and Poverty

Rainer Zitelmann is a supreme entrepreneurial historian and philosopher, ingenious pollster, and practitioner of the arts and enigmas of the wealth and poverty of nations. A remorseless seeker of facts rather than self-serving myths, he scrupulously documents his shocking revelations with detailed and authoritative data.

His iconoclastic views can be summed up in twelve key epiphanies.

Key to economic growth and enterprise is admiration and emulation of the rich. Key to poverty and sloth is demoralization of the poor by telling them they are victims of the rich.

Poverty stems from envy and resentment toward wealth as a zero-sum game. Wealth stems from the desire and freedom to become rich in ever-expanding circles of gain. Vietnamese and Polish citizens now harbor more favorable attitudes toward the rich than do Americans or Germans. Thus, the Vietnamese and Polish economies have grown far faster than apparently privileged Western rivals. An explanation: Zitelmann’s polls show that staunch Marxist views are far more common in so-called capitalist US or Europe than in so-called communist parts of Asia, such as Vietnam.

Fifty years and trillions of dollars of development aid and 100 years of socialist giveaways prove that the prime cause of poverty among nations is government redistribution of wealth. The chief source of new wealth and growth is entrepreneurial disruption of incumbent wealth.

Around the globe, the more aid the less growth. Scrutiny of hundreds of studies shows that economic growth and escape from poverty are inversely proportional to the amount of development aid received. Foreign aid goes to governments and trickles down only to bureaucrats and crony capitalists, not to the people.

Inequality always rises as people escape poverty. Suppress inequality and growth stalls.

Enterprise, unlike socialism, cannot be decreed from the top down; it must be freed from the bottom up.

Rapid reformers experience shorter recessions and quicker recoveries and attract far more foreign investment than do gradualist reformers.

Support for capitalism in polls rises in proportion to the avoidance of using the term. Westerners should stress dynamism and freedom rather than capitalist wealth.

The fatal flaw of current democracies is giving incumbent governments and their central banks the power to print money to finance their friends and frivols, buy off voters with redistribution schemes, and disguise failure with flamboyant demagoguery and giveaways. In a portentous lesson for the West, Argentina and Venezuela were both among the richest countries in the world, but they gave it all up pursuing demagogic class warfare and socialism under Juan Perón and Hugo Chávez.

Zitelmann’s bikini law of accounting transparency and truth eclipsing concealment and complexity: less is more. Example: Nguyen Thi Phuong-Thao (the one woman among seven Vietnamese billionaires) went from selling fax machines as a student in Moscow in 1981 to launching a low-cost airline, VietJet Air. Saving money on uniforms and delighting customers, she encouraged her stewardesses to wear bikinis, which, she points out boldly, shows beautiful characteristics and makes people happy. The same applies to accounting.

Zitelmann’s Law of Corruption: more is more. The more influence a government has over a country, the more pervasive is corruption; the more interventions by bureaucrats, the more chances to bribe them.

Zitelmann’s final Polish joke: Poland beating out the rest of Europe and America in economic growth since the 1989 emancipation of Polish enterprise, with more than one million new private firms launched in four years and per capita GDP up 2.5 times by 2017.

The information theory behind the huge growth of the global information economy (and my Life After Capitalism) identifies wealth as knowledge, growth as learning, money as tokenized time, and new knowledge as surprisal. In information theory, information is unexpected bits. Imparting surprises on every page, even for sophisticated theorists of capitalism, Zitelmann’s book makes a major new contribution to the wealth of nations.

George Gilder, author of Wealth & Poverty (1980)

and Life After Capitalism (2023)

PREFACE

I have written several books on wealth, so why am I now writing a book on poverty? Because, as a result of my research, I have come to the apparently paradoxical conclusion that only a society that allows people to become rich and have a positive attitude toward wealth can overcome poverty.

Representative opinion polls that I have commissioned in numerous countries have revealed that there are two countries in particular in which people have a positive attitude toward wealth and the rich: Poland and Vietnam. At the same time, these are also two countries in which people (despite the different political systems) have a more positive view of the term ‘capitalism’ than their peers in most other countries.

And these are two countries that have made extraordinary gains in economic freedom over the past few decades. The Heritage Foundation has been publishing its Index of Economic Freedom (you could also call it a capitalism index) every year since 1995, and in no countries of comparable size has economic freedom increased as much during that time as in Poland and Vietnam.

There is more that unites these two countries than economic success: Both experienced terrible wars in which many millions of people lost their lives—the Second World War in Poland, and the Indochina War in Vietnam. After the wars ended, socialist planned economies were established in both countries, destroying what the war had not already devastated. As a result, Vietnam became one of the poorest countries in the world and Poland one of the poorest countries in Europe. In this book, I describe life in these countries under a planned economy and reveal how bitterly poor the majority of people in these two countries were.

The Vietnamese initiated a program of market-economy reforms in 1986, called Doi Moi (innovation or renovation in English). A few years later, Poland also decided to implement market-economy reforms. In both countries, these reforms led to remarkable economic growth and dramatic improvements in living standards. I will illustrate this by using figures and statistics, as well as by drawing on the accounts of Polish and Vietnamese individuals.

This book begins with a chapter in which I explain the continued relevance of Adam Smith’s ideas, which showed that only economic freedom can defeat poverty. I then describe what does not help overcome poverty, namely development aid. From there, I analyze how capitalism has helped people in Vietnam and Poland to improve their standards of living and escape the clutches of poverty. I think many other countries stand to learn a great deal from the experiences of these two countries.

I thank all of my friends in Vietnam and Poland who helped me with this book. Le Chi Mai from Hanoi handled translations and conducted interviews for me, and I thank Nguyen Quoc Minh-Quang, Vu Dinh Loc, Nguyen Trong Hoa, Lam Duc Hung, and Nguyen Thi Quat for the interviews they gave. I would also like to thank the attorney Dr. Oliver Massmann, who has been working in Hanoi for twenty-five years and was instrumental in the formulation of the US-Vietnam Free Trade Agreement, for the details he provided. And Dinh Tuan Minh, a representative of a market-economy think-tank, who explained some important things to me during a conversation in Hanoi. I am particularly grateful to Professor Andreas Stoffers, the head of the Friedrich Naumann Foundation in Vietnam, who provided me with numerous contacts.

In Poland, my publisher Krzysztof Zuber (Wydawnictwo Freedom Publishing) and my advisor Marcin Chmielowski helped me immensely—thank you for that! I would also like to thank the former Minister of Finance of Poland, Professor Leszek Balcerowicz, whose reforms were a major reason behind Poland’s economic recovery and rise. In addition, I want to thank Marcin Zieliński (Forum Obywatelskiego Rozwoju), Marek Tatała (Fundacja Wolności Gospodarczej), Mateusz Machaj (Instytut Edukacji Ekonomicznej im. Ludwiga von Misesa), Alicja Wancerz-Gluza (co-founder of the Karta Center) and Tomasz Agencki, with whom I produced the film Poland: From Socialism to Prosperity.

I would also like to thank Ansgar Graw, who did an excellent job editing the book, and Sebastian Taylor, who translated it into English.

I admire the people in Poland and Vietnam, and I also have something very personal in common with them: because the two longest and most important relationships in my life were with Monika, whose parents came from Poland, and Trang, whose parents are from Vietnam.

Dr. Rainer Zitelmann, December 2023

CHAPTER ONE

ADAM SMITH WAS RIGHT: ONLY ECONOMIC FREEDOM CAN DEFEAT POVERTY

We know very little about the man Adam Smith. We do not even know the famous Scotsman’s birthday. All we know is the date of his baptism, June 5, 1723 (Julian calendar), which means that, according to our Gregorian calendar, he was baptized on June 16. He never knew his father, a customs official, who died at the age of forty-four just a few months before Adam Smith was born.

The most important person in his life was his mother, who not only raised him, but with whom he lived until her death in 1784. Smith never married. We only know that he fell in love twice, but his feelings were not reciprocated, which may have been due to the fact that he was considered rather unattractive. At the age of seventeen, he began six years of study at Oxford, but wasn’t impressed by the university. He later spoke disparagingly of his professors, whom he considered lazy. Before the age of thirty, he was appointed professor of moral philosophy at Glasgow University and published his first major work, The Theory of Moral Sentiments. He published only two major works in his entire life, with The Wealth of Nations, published in 1776, being by far the better known. He wrote more books, but he had the manuscripts burned before his death, so we are left with only these two books and a number of his essays and transcripts of his lectures.

Among those who have never read Smith’s books, he is sometimes seen as a proponent of extreme selfishness, even, perhaps, as the spiritual father of the Gordon Gekko–style rapacious capitalist who exclaims Greed is good! in the movie Wall Street. However, this is a distorted image that stems from the fact that Smith strongly emphasized the self-interest of economic subjects in his book The Wealth of Nations. But this picture is most definitely a misrepresentation.

The first chapter of his book The Theory of Moral Sentiments begins with a section Of Sympathy, in which he defined sympathy as fellow-feeling with any passion whatsoever.¹ Today we would probably use the word empathy: How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it. Of this kind is pity or compassion, the emotion we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner.²

Adam Smith’s sympathy was especially for the poor. He drew income from various sources that added up to 900 pounds a year, which was three to four times the salary of a university professor.³ But when Smith’s last will and testament was read, it left his nephew David Douglas feeling distinctly disappointed. He received far less than he had hoped for. The will confirmed what Smith’s friends had long suspected: Smith had donated almost his entire fortune to the poor, mostly in secret. His generosity had, in fact, even resulted in Smith getting into money trouble himself at one point.⁴

If you read his two main works, The Wealth of Nations and The Theory of Moral Sentiments, you will be hard pressed to find a single passage where he speaks positively about the rich and powerful. Merchants and landlords are almost exclusively painted in a negative light, primarily as people who want to assert their selfish interests and who strive to create monopolies. "Our merchants and master-manufacturers complain of the bad effects of high wages in raising the price, and thereby lessening the sale of their goods both at home and abroad. They say nothing concerning the