Why is Andorra rich?

I recently wrote about the fact that Andorra has one of the longest life expectancies in the world (somewhere in the top 4, depending on which source you believe). It’s also the 23rd richest country in the world, measured by per capita income – ahead of countries like Germany, France and the UK. So what can this tiny country teach us about wealth?

Firstly, we should note that Andorra is one of the smallest countries in the world with almost no usable land and no natural resources of any kind. It’s just mountains. It doesn’t have enough agricultural land to feed its tiny population of just 86,000. It doesn’t even have an airport.

You might have thought that a lack of resources would be a problem, but no. By contrast with the Central African Republic with its diamonds, Niger with its reserves of oil, gold and uranium, and Afghanistan, which grows almost the entire world’s heroin crop, and which are three of the world’s poorest countries, Andorra has nothing that it can dig up, chop down or otherwise exploit. So lesson number one is that wealth isn’t something that nature provides. It’s something that people create for themselves, literally out of thin air.

Andorra knows that it can’t grow its own food, generate its own electricity or defend its own borders from attack. So it doesn’t try to do any of those things. Instead it focuses on creating the wealth it needs to pay for everything it lacks.

Andorra imposes few restrictions on immigration. That’s why the vast majority of the population are not Andorran citizens. Do these immigrants cause unemployment? No. Andorra has virtually no unemployment (0% until the global financial crisis hit in 2008). Yes – zero percent.

Because the country needs to import so many goods, it imposes no import/export duties. It also imposes little or no taxes on its population and businesses, so people can just get on with working and creating employment. The population grew from 10,000 in the 1960s to 80,000 today – not through a high birth rate, but by creating jobs and allowing people to come and work in the country.

There’s also no problem with tax evasion in Andorra, because there’s little or no tax to evade.

But what, you may be asking, do people in Andorra actually do? I hope that you’ll realize by now that what they do isn’t really very important. What matters is that they have an economic framework that removes barriers to wealth creation and that allows individuals to do whatever they believe their skills and time are best spent on. People in Andorra do all kinds of interesting things, and not only are they some of the richest people in the world but they are also some of the happiest and healthiest.

Advertisements

4 responses to “Why is Andorra rich?

  1. Now I want to move there…

  2. Perhaps I should move there. Life in Washington DC is fairly expensive, and hectic. This sounds like a great place to live!

  3. Thanks for your idilic description of our tiny country! although you forgot to answer the question most people ask: Where is Andorra? here’s the answer 😉 http://www.andorrarural.com/where-is-andorra/

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s