By Roger Bate
Contributing Writer

When it comes to prosperity, bigger isn't always better. For proof, look no further than Hong Kong and Singapore, two Asian countries with landmasses that are veritable specks on the globe.

Both countries pack a concentrated economic punch, as illustrated by the recently released 2009 Legatum Prosperity Index. The Legatum Institute is an international development organization, with an advisory panel comprised of scholars from some of the world's leading universities, including Oxford, Stanford, and Harvard.

True prosperity isn't just monetary wealth ― it's also about citizens' life satisfaction. The Index accounts for this fact by measuring non-economic variables such as health, personal freedom, and social capital. It's in these non-economic areas that Hong Kong and Singapore could make some serious improvements.

Out of 104 countries (some were left out due to insufficient data), Hong Kong took first place worldwide on economic fundamentals, which covers capital investment, trade, savings, employment, and inflation. Singapore came in a strong ninth.

Both out-performed bigger countries such as the United States, the United Kingdom, and Germany.

These results are consistent with other major international economic rankings such as the 2009 Index of Economic Freedom, prepared by the Wall Street Journal and the Heritage Foundation. That study handed Hong Kong the gold and Singapore the silver among 183 countries.

What makes these tiny pockets of Southeast Asia turbo-charged beacons of economic success? Unfettered capitalism is thriving in both.

Hong Kong enjoys a stream of tourism and investment from mainland Chinese firms, and serves as a conduit for investors interested in the Chinese market. Singapore has bolstered its financial sector with new biotech and pharmaceutical firms, as well as gambling and medical tourism.

The only two other Asian countries to earn top-tier rankings also operate on free-market principles.

Japan, which came in eighth on economic fundamentals, has spent the last two decades liberalizing its economy. The government has lowered tariffs, privatized major industries like the post office, and instituted strong intellectual property protections, among pro-market reforms.

And South Korea, at 21st on economic fundamentals, took bold steps to open up its economy to foreign investment during the mid-90s Asian financial crisis.

An important lesson from Asia is that history is not destiny. Several countries that have entered the Index's overall top 40 were suffering from poverty, dysfunctional governance, and social oppression not too long ago. Singapore, South Korea, and Taiwan were barely distinguishable from developing countries a generation ago.

Yet for all their economic firepower, Hong Kong and Singapore didn't dominate the overall rankings, coming in at 18th and 23rd, respectively. The reason? Non-economic aspects of prosperity. Both nations suffer from weaknesses in institutions tied directly to quality-of-life.

Singapore, for instance, has a notoriously insular social structure that encourages animosity among families. This fact is reflected in its dismal ranking of 76th in the social capital category, which measures how involved citizens are in their communities and trust among friends.

And Singapore's citizens don't have much of a voice in their government. Legislative power is concentrated in just one party. There are heavy restrictions on the freedom of the press. And the Singapore penal code is notoriously strict, still proscribing caning for a variety of offenses. These facts contributed to Singapore's dismal showing of 86th in the "democratic institutions" category, which measures the accountability and efficacy of public agencies.

The biggest detriment to quality of life in Hong Kong is government curtailment of basic individual rights. Laws limit the freedom to protest, for instance. Consequently, the Index puts Hong Kong at 67th in the "personal freedom" subcategory ― its lowest showing in all subcategories.

The same goes for China and Vietnam, two countries that fared far worse than Hong Kong and Singapore in the rankings, scoring in the bottom half on all but a few categories. Although both countries have taken steps towards economic liberalization, they remain Communist states where freedoms of speech, assembly, press and association are severely curtailed.

Today in Vietnam, the government reserves the right to imprison citizens who hold subversive political views. Women and ethnic minorities are routinely discriminated against.

China, too, extends only narrow personal liberties to its citizens. Thousands of Chinese citizens are current languishing in labor camps or prison for committing "political crimes." The nation even limits the number of children its citizens can bear.

As developing nations design and redesign their economies, they would do well to follow the examples set by Hong Kong and Singapore. These countries can ensure continued growth by improving their political systems and expanding individual freedoms. The Legatum Index shows that the greater a country's freedoms, the more prosperous that country becomes.

Roger Bate is the Legatum Fellow at the American Enterprise Institute in Washington, DC. The 2009 Legatum Prosperity Index is available at www.prosperity.com.