Those factors, along with intermittent violence, go a long way toward explaining the enormous difference in per capita gross domestic product between Israel and the West Bank (which Romney actually understated by a factor of five): $28,600 vs. $2,900, according to the CIA's 2009 numbers. There are also stark, though less dramatic, disparities between Israel and bordering Arab countries. According to the CIA's 2011 estimates, per capita GDP was $31,400 for Israel, $15,700 for Lebanon, $6,600 for Egypt and $5,100 for Syria.
One interpretation of these data -- the one Erekat clearly had in mind when he called Romney's remarks "racist" -- is that Arabs are lazy, while Jews are good with money. Yet Arabs excel economically in countries with stable governments that respect individual rights and the rule of law. In the United States, for instance, Arab-American households are more affluent than the average.
A similar pattern can be seen among the Chinese, who, Landes observes, "have long been so unproductive at home and yet so enterprising away." The laissez-faire Hong Kong Special Administrative Region -- which has a per capita GDP of nearly $50,000, compared to $8,500 in the rest of China -- shows it's not distance but rules that matter. Likewise, East Germany's per capita GDP was about half West Germany's in the decades before unification, while South Korea's is about 18 times North Korea's.
Culture matters, but these examples demonstrate that institutions are crucial. If you compare per-capita GDP to ratings in Freedom House's annual Freedom in the World report or the Heritage Foundation's Index of Economic Freedom, you will see a clear association between poverty and tyranny. Maybe Romney should have said, "Freedom makes all the difference."
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