It’s hard to overstate the importance of economic growth. Once, everyone was poor. Today, GDP per capita is more than 50 times higher in the richest countries than in the poorest. Economic growth has raised billions of people out of near-starvation poverty, but billions more remain in dire poverty with shocking consequences for their quality of life.

Fortunately, poor countries can catch up to rich countries and in a surprisingly short period. Growth “miracles” have brought Japan and South Korea up to European levels of wealth within the lifespan of a single generation. Since the agricultural reforms beginning in 1978, poverty in China has been reduced to an unprecedented degree and China continues to grow rapidly.

What makes a country rich? The most proximate cause is that countries with a high GDP per capita have lots of physical and human capital per worker and that capital is organized using the best technological knowledge to be highly productive.

How do countries get a lot of physical and human capital and how do they organize it using the best technological knowledge? Countries with a high GDP per capita have institutions that encourage investment in physical capital, human capital, technological innovation, and the efficient organization of resources. Among the most powerful institutions for increasing economic growth are property rights, honest government, political stability, a dependable legal system, and competitive and open markets.