Both Costa Rica and Botswana stand above their regional neighbors in the 2012 Prosperity Index. One reason for this lies in the strength of their institutions, which have undoubtedly benefited from advantageous historical moments where political leaders have made difficult choices to commit to developing democratic institutions.

As their neighboring countries seek their own paths to prosperity, the institutional and government practices adopted by Costa Rica and Botswana, while not guaranteeing success in all other dimensions of development, strongly indicate a way forward.

First, both Costa Rica and Botswana have chosen to promote social welfare, provide for systems of public education, and secure political stability, which ultimately has led to protected property rights and rule of law enforcement. Moreover, they have pursued these policies within the political constraints of inclusive, constitutionally democratic institutions.

Second, thanks to their economic and political success, both countries have emerged as leaders in their regions, doing surprisingly well despite the unstable nature of the surrounding neighbors. Indeed, both receive high scores in the Personal Freedom and Governance sub-indices—scores which rival some high-income, developed countries.

Finally, while neighboring countries would benefit from emulating the political choices of these ‘high achievers’, this will require both the opportunities that history has afforded Costa Rica and Botswana, and a commitment to the creation of democratic and participatory institutions.

COSTA RICA

Relative to its scores on other sub-indices, Costa Rica has for the last four years scored very high in the Governance and Personal Freedom sub-indices. In particular, it does well in objective governance indicators, such as political rights, democratic quality of institutions, constraints on the executive, and rule of law.

The strength of Costa Rica’s institutions dates back to 1948, when a brief civil war ended, not with dictatorship or chronic civil conflict as in other Central American nations, but with the drafting of a new constitution. Not only did that constitution establish a stable democratic government, it also abolished the army and extended civic rights to different ethnic groups and women, thereby ensuring that the needs of rural and lower-middle-class citizens would be taken into account.

The fortunate outcome was a state-led social-democratic welfare strategy that guaranteed civil rights and invested heavily in education, infrastructure, and health. The enduring benefits of this strategy are reflected in the 2012 Prosperity Index, which shows a secondary school enrollment rate as high as 100%, and a life expectancy of 79 years. Both of these indicators are among the highest for all of Latin America.

Yet much like other democratic governments in the twentieth century, Costa Rica has struggled to balance an expanding welfare state with the need for private enterprise. Under President Arias and his successors, Costa Rica introduced trade liberalization reforms including establishing free trade zones that eventually led to an increase in foreign direct investment, with companies such as Intel, Microsoft, and Motorola opening manufacturing plants in the country. Today high-tech goods account for 40% of Costa Rica’s manufactured exports, compared with a regional average of 6.8%.

The decline we see in the survey data on satisfaction with government could be attributed to the recent government strategy which has sought to increase reliance on the market economy and downsize the social-welfare safety net. These efforts may be the reason why, between 2009 and 2011, Costa Ricans’ confidence in their government declined from 54% to 35%, and the percentage of respondents who believe their government is doing a good job addressing poverty also declined, from 53% to 37%. This social instability most likely reflects the political fall-out of a government making the tough decision to reduce the availability of social welfare policies.

BOTSWANA

This land-locked, sparsely populated nation in southern Africa has experienced remarkable economic progress, averaging a 10% GDP growth rate since independence in 1966. In addition, Botswana is the highest ranking sub-Saharan African country in the Index. Like Costa Rica, Botswana also achieved high scores in Governance and Personal Freedom.

These scores mostly reflect the commitment Botswana has made to democratic institutions and rule of law. Prior to Botswana’s independence, the British instilled strict property rights and rule of law, while at the same time refraining from dismantling pre-existing tribal institutions. This combination of new and old institutional strength then carried over to the post-independence government, and it has contributed to one of Botswana’s most impressive historical achievements: avoiding the ‘resource curse’.

When diamonds were discovered in 1967, President Seretse Khama (the Oxford-educated chief of one of Botswana’s eight principal tribes) sought to avoid the ‘resource curse’ that had fostered corruption, and political instability in so many countries. Under his leadership, Botswana adopted far-sighted development-oriented policies, particularly focusing on issues of tribal land ownership. Revenues from the mining industry were invested in infrastructure, education, and health projects.

The wisdom of those policies is today reflected in a secondary school enrollment rate of 80%, as well as in a high proportion of people reporting adequate access to sanitation facilities (62%, as opposed to the regional average of 31%). In the Prosperity Index, it also translates into high scores in such crucial variables as rule of law and government effectiveness.

Yet, just as Costa Rica faces the challenge of carrying its fortunate historical legacy forward into an uncertain future, so too must Botswana find ways to achieve levels of prosperity that are not built exclusively on natural endowments. In recent years, the global economic crisis has dampened the demand for Botswana’s diamonds, causing revenues to fall. Moreover, for the first time since independence, the government is running a deficit. These setbacks help to explain why citizen confidence in the government has dropped to 75% in the 2012 Index, from a high of 89% in 2009. Perhaps the biggest test ahead for this regional leader will be whether its political system can continue to produce leaders of the same high calibre as have been seen in the past.

Source: Prosperity.com