Wealth, Poverty and Politics

Chapter 1

ISSUES

The wealth of nations depends upon an infinite variety of causes.

Alexander Hamilton

It may be both understandable and commendable that people living in the most prosperous nations today are often shocked by the far lower standards of living in Third World countries, or by how the less fortunate people in their own society live. But, if our purpose is to understand the causes of such things, we cannot proceed as if what we happen to be used to around us is something that can be assumed to happen so naturally or automatically that the issue can be posed as to why other nations “fail” when they do not have the same high standards of living, as suggested by the title of a well-known contemporary study.^aa The subtitle of another well-known contemporary study includes “the origins of inequality,”^bb as if economic equality is so natural, automatic or common that its absence is what needs explaining.

Despite how widespread such implicit assumptions may be in much that is said today, it is questionable whether such assumptions can survive even a modest survey of history. Even in a country long recognized as one of the most prosperous on earth, the United States of America, at the beginning of the twentieth century only ten percent of American homes had flush toilets and only 3 percent had electric lights.¹ There is nothing automatic about prosperity. Standards of living that we take for granted today have been achieved only within a very minute fraction of the history of the human race, and are by no means the norm among most of the people in the world today. Standards of living far below what we would consider to be poverty have been the norm for untold thousands of years. It is not the origins of poverty which need to be explained, since the human species began in poverty. What requires explaining are the things that created and sustained higher standards of living.

Equality of economic outcomes has been even rarer than prosperity. How does one explain the origins of something like inequality, which has been ubiquitous as far back as recorded history goes?

The ancient Greeks had geometry, philosophy, architecture and literature at a time when Britain was a land of illiterate tribal peoples, living at a primitive level. Athens had the Acropolis— whose ruins are still impressive today, thousands of years later— at a time when there was not a single building in all of Britain. The ancient Greeks had Plato, Aristotle, Euclid and other landmark figures who helped lay the intellectual foundations of Western civilization, at a time when there was not a single Briton whose name had entered the pages of history.

Scholars have estimated that there were parts of Europe in ancient times that were living at a level that Greece had transcended thousands of years earlier.² There were other complex civilizations in the ancient world— in Egypt, India and China, for example— at a time when peoples in various parts of Europe and elsewhere were just beginning to learn the rudiments of agriculture.³

Vast disparities in wealth, and in wealth-creating capacity, have been common for millennia. But while large economic inequalities have persisted throughout the recorded history of the human race, the particular pattern of those inequalities has changed drastically over the centuries.

While Greeks were far more advanced than Britons in ancient times, Britons were far more advanced than Greeks in the nineteenth century, when Britain led the world into the industrial age. Britain alone produced more than 40 percent of the major inventions, discoveries and innovations in the world, from the mid-eighteenth century to the first quarter of the nineteenth century.⁴ Its technological preeminence was matched by its preeminence as a conquering nation. A twentieth century Italian scholar asked, “How, in the first place, did a peripheral island rise from primitive squalor to world domination?”⁵ At its peak, the British Empire included one-fourth of the land area of the world and one-fourth of all the people on earth.

Such historic changes in the roles of particular peoples and nations have occurred in other places and other times. The Chinese were for centuries more advanced than any of the Europeans, including among their discoveries and inventions the compass, printing, paper, rudders and the porcelain plates that the West called “chinaware” or simply “china.” Cast iron was produced in China a thousand years before it was produced in Europe.⁶ A Chinese admiral made a voyage of discovery longer than Columbus’ voyage, generations before Columbus’ voyage, and in ships larger and more advanced than Columbus’ ships.⁷ But the relative positions of China and Europe also reversed over the centuries. Various other peoples, living in various other parts of the world, have had their own eras of leadership in particular fields or in advances across many specialties.

Agriculture, the most life-changing advance in the evolution of human societies, came to Europe from the Middle East in ancient times. Agriculture made cities possible, while hunter-gatherers required far too much land to provide themselves with food for them to settle permanently in such compact and densely populated communities. Moreover, for centuries cities around the world have produced a wholly disproportionate share of all the advances in the arts, sciences and technology, compared to the achievements of a similar number of people scattered in the hinterlands.⁸

Because Greeks were located nearer to the Middle East than the peoples of Northern Europe or Western Europe, agriculture spread to the Greeks earlier and they could become urbanized earlier— by centuries— and advanced in many ways far beyond those peoples elsewhere who had not yet received the many benefits made possible by urban living. The accident of geographic location could not create genius, but it made possible a setting in which many people could develop their own mental potential far beyond what was possible among bands of hunter-gatherers roaming over vast territory, preoccupied with the pressing need to search for food. Geography does not predetermine what people will choose to do, but it can limit or expand the number and kind of options available.

Geography is just one of the influences behind vast economic differences among peoples and places. Moreover, these differences are not simply differences in standards of living, important as such differences are. Different geographic settings also expand or restrict the development of people’s own mental potential into what economists call their human capital by presenting different peoples with access to a wider or narrower cultural universe. These geographic settings differ not only horizontally— as between Europe, Asia and Africa, for example— but also vertically, as between peoples living on the plains versus peoples living up in the mountains. As one geographic study put it:

Mountain regions discourage the budding of genius because they are areas of isolation, confinement, remote from the great currents of men and ideas that move along the river valleys.⁹

Many mountain regions around the world— whether the Appalachian Mountains in the United States, the Rif Mountains of Morocco, the Pindus Mountains of Greece, the Himalayas in Asia or other mountains elsewhere— show very similar patterns of poverty and backwardness. As distinguished French historian Fernand Braudel put it, “Mountain life persistently lagged behind the plain.”¹⁰ This was especially so during the millennia before the transportation and communications revolutions of the past two centuries, which belatedly brought more of the progress of the outside world to isolated mountain villages. What these technological revolutions could not bring to the mountains, however, were the previous centuries of cultural development that other people had in more favorable environments. Peoples living in mountains could try to catch up, but of course the rest of the world would not be standing still while they were doing so.

Mountains are just one geographic feature, and geography is just one influence on human development. But whether considering geography or culture, isolation is a recurring factor in poverty and backwardness around the world, whether that is physical isolation or cultural isolation, for any number of particular reasons that will be explored in the chapters ahead.

Whatever the reasons for economic disparities among peoples and nations, such disparities have been as common in modern times as in ancient times. In the twenty-first century, Switzerland, Denmark and Germany have each had more than three times the per capita Gross Domestic Product (GDP) of Albania, Serbia or Ukraine, and Norway has had more than five times the per capita GDP of these Eastern European countries.¹¹ Such economic disparities are not peculiar to Europe. In Asia as well, Japan has more than three times the per capita GDP of China and more than nine times the per capita GDP of India.¹² Sub-Saharan Africa has less than one-tenth the per capita GDP of the countries of the Euro zone.¹³

Within nations, as well as between nations, income disparities abound, whether between classes, races or other subdivisions of the human species. Reactions to these economic disparities have ranged from resignation to revolution. Because many people regard these disparities in their own country as strange, if not sinister, it is necessary to note that such internal disparities are not peculiar to any particular time or place. Therefore explanations of economic differences cannot be confined to factors peculiar to a particular time or place, such as the era of modern capitalism or the industrial revolution,¹⁴ much less to factors that are politically convenient or emotionally satisfying.

Factors which raise morally momentous issues, such as conquest and enslavement, cannot automatically be assumed to be equally momentous as causal explanations of current economic disparities. They may be or they may not, in particular cases. Peoples or nations may be rich or poor because (1) they produced more or produced less than others or (2) they seized more of what others had produced or had what they produced seized from them. What anyone might prefer to believe at a given place or time has nothing to do with what the hard facts are.

There is no question that the Spaniards’ conquests in the Western Hemisphere, for example, not only brutalized the conquered peoples and destroyed viable civilizations, but also drained vast amounts of existing wealth in gold and silver from the Western Hemisphere to Spain— 200 tons of gold and more than 18,000 tons of silver¹⁵— the result of the looting of existing treasures from the indigenous peoples and the forced labor of that same population in gold and silver mines. Nor was Spain unique in such behavior. But the question here, however, is: To what extent can transfers of wealth explain economic differences between peoples and nations in the world today?

Spain is today one of the poorer countries in Western Europe, surpassed economically by countries like Switzerland and Norway, which have never had such empires. The vast wealth that poured into Spain in its “golden age” could have been invested in its economy or in its people. But it was not. It was spent. Spaniards themselves spoke of gold as pouring down on Spain like rain on a roof, flowing on away immediately.¹⁶ Nor has it been uncommon in history for a vast amount of human suffering— whether by conquered or enslaved people— to produce nothing more than a transient enrichment of a ruling elite.

The monumental moral depredations of Spain in the Western Hemisphere had very little causal effect on the long-run prosperity of the Spanish economy. As late as 1900, more than half the people in Spain were still illiterate,¹⁷ while most blacks in the United States were literate, despite having been free for less than 50 years.¹⁸ A century later, in 2000, the real per capita income in Spain was slightly lower than the real per capita income of black Americans.¹⁹ Descendants of other great conquerors, such as the founders of the Ottoman Empire or the hordes of Genghis Khan, have likewise failed to appear among the most prosperous nations of the world today.

Conversely, some groups expelled from the land of their birth, and forced to leave behind the bulk of the material assets they had accumulated over a lifetime, or over generations— surely a great injustice— nevertheless rose to prosperity again after arriving destitute in their new lands. These groups range from the Jews expelled from Spain in 1492 to the Gujaratis expelled from Uganda in the 1970s, while the Cubans who voluntarily fled their homeland after Communists took over in 1958, and the Vietnamese who fled their homeland after the Communists took over there in the 1970s, had a very similar rebound from poverty to prosperity in new countries. Morally important issues are not necessarily decisive as causal factors.

Moral questions and causal questions are both important. But confusing one with the other, or imagining that they can simply be combined into one politically or ideologically attractive package, is not a very promising approach to an explanation of economic differences.

Economic disparities among nations are just part of the story of economic inequalities. Large economic disparities within nations also need to be addressed. When considering economic differences among the people of a given country, there is a tendency to see these differences as issues about what is called “income distribution.”²⁰ But real income— that is, money income adjusted for inflation— consists of the goods and services produced in the nation. To look at this output solely from the viewpoint of those receiving money for having produced those goods and services risks needless misconceptions, and serious social problems growing out of misconceptions.

The standard of living of a nation depends more on its output per capita than on the money received as income for producing that output. Otherwise, the government could make us all rich, simply by printing more money. By focusing on what is called “income distribution,” many people proceed as if the government can rearrange these flows of money, so as to have incomes become more “fair”— however defined— disregarding what the repercussions of such a policy might be on the more fundamental process of producing goods and services, on which a country’s standard of living depends. But in the vision presented in the media, and often even in academia, it is as if output or wealth just exist somehow, and the really interesting question is how it is distributed.

Sometimes this preoccupation with the receipt of incomes, to the neglect of attention to the production of the output behind that receipt of incomes, can lead to attempts to explain the receipt of very large incomes by “greed”— as if an insatiable desire for vast amounts of money will somehow cause others to pay those vast amounts to buy one’s goods or services.

Among the many possible causes of differences in income and wealth, whether among peoples, regions or nations, one of the most obvious is often ignored. As economist Henry Hazlitt put it:

The real problem of poverty is not a problem of “distribution” but of production. The poor are poor not because something is being withheld from them but because, for whatever reason, they are not producing enough.²¹

What seemed obvious to Henry Hazlitt was not obvious to many others, who have had alternative visions, with alternative agendas based on those visions. The difference between seeing economic disparities as due to differences in the production of wealth and seeing those disparities as due to the transfer of wealth from some people to other people is fundamental. History shows that either cause of economic disparities can prevail at particular times and places.

When exploring the influences of geographic, cultural and other factors affecting the production of wealth, a sharp distinction must be made between influence and determinism. Geographic determinism would have particular favorable natural settings more or less directly create economic prosperity and social advancement, whether by providing richer natural resources or by having a climate more conducive to working, for example.

It was easy enough for critics to show that this was by no means always the case, nor necessarily true in most cases, since there are poverty-stricken countries like Venezuela and Nigeria with rich natural resources and prosperous countries like Japan and Switzerland with meager natural resources. While certain kinds of climates may have been highly correlated with more advanced societies, as an early twentieth century geographer sought to show²² a very different ranking of nations, by the same criteria, would have existed a thousand, or two thousand years earlier, when China was much more advanced than Japan, while Japan eventually became more economically and technologically advanced than China, thousands of years later— without any evidence that the climate had changed much in either country.

The explanatory over-reach of geographic explanations led not only to a dismissal of geographic determinism, but also to a downgrading of geography as a major influence in other senses. Yet not all early twentieth century geographers were guilty of reckless over-reach. Distinguished geographer Ellen Churchill Semple wrote in 1911: “The whole science of anthropo-geography is as yet too young for hard-and-fast rules, and its subject matter too complex for formulas.”²³ Despite the failure of geographic determinism, geography can influence economic outcomes in other, very different ways, as we shall see. Moreover, this influence is not necessarily due to particular geographic features— such as climate or natural resources— considered in isolation, but is often due to interactions among particular geographic features with other geographic features, as well as interactions with other, non-geographic factors such as cultural, demographic, political or other influences.

Even such a simple and undisputed geographic fact as places located nearer the poles having lower temperatures, on average, than places located nearer the equator, does not always hold up when interactions with other geographic factors are taken into account. Thus London, which is hundreds of miles farther north than Boston, has average winter temperatures warmer than those in Boston, and very similar to winter temperatures in some American cities hundreds of miles south of Boston.²⁴ The average December daily high temperature in London is the same as the average December daily high temperature in Washington, D.C., which is more than 850 miles farther south than London.²⁵ Latitude matters, but so too does the varying warmth of different ocean currents,^cc and the interaction of the two can create very different outcomes from what either would produce by itself.

When particular geographic factors interact with other, non-geographic factors as well, the outcomes can likewise be very different from what they would be if considering particular geographic, cultural, demographic or political factors in isolation. That is why influence is not the same as determinism. Since many, if not most, economic outcomes depend on more than one factor, the likelihood of all the factors coming together in such a way as to produce equal levels of prosperity and progress among peoples and nations around the world seems very remote. Radically different geographic settings are just one of the factors making equal economic outcomes unlikely.

Cultures are among the other factors that differ greatly among peoples and nations, as well as among individuals and groups within a given nation. Like critics of geographic influences, critics of cultural influences have likewise sometimes resorted to an oversimplified picture of those influences to criticize. For example, an attempt to discredit the influence of cultural factors in economic outcomes by a well-known study— Why Nations Fail— rejected the idea that the culture inherited from England explained why former colonies of England like the United States, Canada and Australia were prosperous:

Canada and the United States were English colonies, but so were Sierra Leone and Nigeria. The variation in prosperity within former English colonies is as great as that in the entire world. The English legacy is not the reason for the success of North America.²⁶

While it is true that all these countries are former colonies of England, and thus might be described as having been influenced by the culture of England, it is also true that the people who founded Canada and the United States were Englishmen, descendants of people steeped in the culture of England as it unfolded over the centuries— while people in Sierra Leone and Nigeria were descendants of people steeped in the very different cultures of a region of sub-Saharan Africa for many centuries, and exposed superficially to the culture of England for less than one century, during which their own indigenous cultures were by no means extinguished in the historically brief period when they were part of the British Empire. French historian Fernand Braudel referred to “the late and ephemeral colonization of Black Africa by the European powers in the nineteenth century.”²⁷ This was hardly enough to culturally turn Africans into Europeans.

Many former English colonies populated by non-English peoples continued to observe some aspect of the culture of England after becoming independent— lawyers wearing wigs in court, for example— but these outward observances of English traditions did not prevent these former colonies from having a fundamentally very different cultural legacy from that of England, and correspondingly very different economic and political experiences going forward after independence. The attempt to discredit the influence of culture, by lumping together former colonies of Englishmen and former colonies of Africans ruled by Englishmen, only shows that virtually any belief, about almost anything, can be shown to be wrong if stated in a sufficiently simple-minded way.

Believers in genetic determinism likewise seek to discredit cultural factors, which compete with their own view that it is innate, genetic differences in intelligence which explain differences in economic disparities among races, nations and civilizations. But genetic determinism, based on undeniable contemporary differences in per capita incomes among nations and corresponding differences in mental test scores,²⁸ cannot explain equally undeniable radical changes in which particular races, nations or civilizations have been far ahead and which have been far behind in different periods of history— the Chinese and the Europeans being just one example of historic role reversals out of many.

Nations which went from being poor and backward to reaching the front ranks of human achievement in a century— Scotland, for example, beginning in the eighteenth century and Japan, beginning in the nineteenth century— have changed faster than genetic makeup seems likely to change, and in fact with no indication of any genetic changes at all, though there are many indications of cultural changes in both these cases. Researchers may be frustrated by the fact that the origins of particular cultures are often lost in the mists of time, though their contemporary manifestations are visible. Culture also does not lend itself to quantification, as a genetic determinist has complained,²⁹ and therefore cannot produce statistical analyses, such as that showing a high correlation between nations’ IQ scores and their per capita incomes.³⁰ Such correlations may lend an air of scientific precision, but so did earlier correlations between climate and prosperity by a geographic determinist.³¹

Both sets of correlations are from data taken in an extremely thin slice of time, compared to the many millennia of human history, during which various peoples’ and nations’ relative achievements have changed greatly. Moreover, as statisticians have often pointed out, correlation is not causation— and, as was said years ago: “It is better to be roughly right than precisely wrong.”³²

Whether considering cultural, geographic, political or other factors, interactions of these various factors are part of the reason why understanding influences is very different from claiming determinism.

PART I:

GEOGRAPHIC FACTORS