Bailey on Wealth of Nations:

This article makes an important observation. It effectively answers why some nations are more affluent than others. It's really quite simple: "Establish the rule of law and educate people." Easier said than done, right?

It's also important to have a pro-market philosophy (economic freedom). If you have all three, rule of law, an educated citizenry, and economic liberty, it's almost as though you can't go wrong.

Indigenous natural resources mean little if anything for a nation's economic advancement prospects. As Fareed Zakaria has pointed out, there is almost an inverse relationship between indigenous natural resources in a nation and how affluent and advanced the nation is. You'd be better off if your nation just existed on one big rock like Hong Kong or Great Britain.

Another irony, and it's something we libertarians have to recognize, is that even though it would be better for the big governments to downsize and if all industrialized nations had governments closer to laissez faire, the system of managed-regulated capitalism, with its big bureaucratized governments, is workable, so long as government doesn't get so out of control that it does too much damage to the private sector. (Clinton and Blair's "Third Way").

[And please don't read this as an endorsement of big bureaucratized government. Like Milton Friedman, I'm disgusted at how Bush and the Republican Congress haven't been able to control their spending in Congress.]

Indeed, big government realizes that it needs a dynamic private market to support it. Economic growth leads to more tax revenues which in turn leads to bigger government. This is why economic liberalization and even tax cuts that took place not only under Reagan in the 80s but also in Western Europe (in short, pro-business capitialism) enabled bigger bureaucratized governments in the West.