Character will always matter. Individual morality will always matter. Courage and talent will always matter. The best you will ever be able to do will be to foster character, and morality, and courage and talent. Given a critical mass of people with those qualities, any system can be made to work after a fashion, and in the absense of those qualities no system can work.
I think the answer cannot be just: individual initiative and hard work. Both of those are necessary, but they are not sufficient. Case in point: people in the third world work as hard or harder than many of us do in the indistrial world, but have much less to show for it. The difference is the social system in which they do their work.
Good example. What makes the third world "third world" is precisely a lack of legal clarity. See Hernando De Soto's work. The key to prosperity is a system that permits individual initiative, and protects individuals from one another. That means clear and predictable laws, clear and predictable property law, and most importantly transparent and honest courts.
The source of poverty is the inverse of the above, lawlessness even when disguised as lawful. Again, we are back to character. Any system can be suborned and undermined by dishonesty. We can argue between socialism and capitalism and various gradations in between but in the end the solution isn't in calibrating the precise mix of freedom and government intervention as much as it is a critical mass of moral people.
When did the Iron Curtain fall? It fell the day the East German leadership ordered the troops to open fire on the people, and the individual soldiers didn't fire. When did the Soviet Union fall? It fell when the troops were sent into Moscow and they didn't fire on the people. It fell in Romania when the troops wouldn't fire on the people. Dictatorships rely on people who will commit murder on command and fall when people refuse to do it. Again, character is everything.