2. THEORIES THAT DON’T WORK

2. THEORIES THAT DON’T WORK

THE LAY OF THE LAND

• The first country to experience sustained economic growth was England—or Great Britain,
• Industrialization in England was soon followed by industrialization in most of Western Europe and the United States. English prosperity also spread rapidly to Britain’s “settler colonies” of Canada, Australia, and New Zealand.
• If you instead make a list of the poorest thirty countries in the world today, you will find almost all of them in sub-Saharan Africa.
• Go back fifty years, and you’ll find an identical ranking. .... One hundred years: same thing. One hundred and fifty years: again the same. So it is not just that the United States and Canada are richer than Latin America; there is also a definite and persistent divide between the rich and poor
• While there is a lot of persistence in the patterns of prosperity we see around us today, these patterns are not unchanging or immutable.
• most of current world inequality emerged since the late eighteenth century, following on the tails of the Industrial Revolution.
• First... Americas, for example, the ranking we see for the last hundred and fifty years was completely different five hundred years ago.
• Second, many nations have experienced several decades of rapid growth, such as much of East Asia since the Second World War and, more recently, China....The Soviet Union is an even more noteworthy example, growing rapidly between 1930 and 1970, but subsequently experiencing a rapid collapse.
• THE GEOGRAPHY HYPOTHESIS
• Montesquieu ...argued that people in tropical climates tended to be lazy and to lack inquisitiveness
• The theory that hot countries are intrinsically poor, though contradicted by the recent rapid economic advance of countries such as Singapore, Malaysia, and Botswana, is still forcefully advocated by some, such as the economist Jeffrey Sachs.
• The modern version...emphasizes not the direct effects of climate on work effort or thought processes, but two additional arguments: first, that tropical diseases, particularly malaria,... and second, that tropical soils do not allow for productive agriculture.
• World inequality, however, cannot be explained by climate or diseases, or any version of the geography hypothesis. Just think of Nogales. ...U.S.-Mexico border....
• If the geography hypothesis cannot explain differences between the north and south of Nogales, or North and South Korea, or those between East and West Germany
• it is not true that the tropics have always been poorer than temperate latitudes. As we saw in the last chapter, at the time of the conquest of the Americas by Columbus, the areas south of the Tropic of Cancer and north of the Tropic of Capricorn, which today include Mexico, Central America, Peru, and Bolivia, held the great Aztec and Inca civilizations.
• People in South Asia, especially the Indian subcontinent, and in China were more prosperous than those in many other parts of Asia and certainly more than the peoples inhabiting Australia and New Zealand.
• some of the great premodern civilizations, such as Angkor in modern Cambodia, Vijayanagara in southern India, and Aksum in Ethiopia, flourished in the tropics,
• Tropical diseases obviously cause much suffering and high rates of infant mortality in Africa, but they are not the reason Africa is poor. Disease is largely a consequence of poverty .... England in the nineteenth century was also a very unhealthy place,
• The other part of the geography hypothesis is that the tropics are poor because tropical agriculture is intrinsically unproductive.
• as we’ll show, the prime determinant of why agricultural productivity—agricultural output per acre—is so low in many poor countries, particularly in sub-Saharan Africa, has little to do with soil quality. Rather, it is a consequence of the ownership structure of the land
• Another influential version of the geography hypothesis is advanced by the ecologist and evolutionary biologist Jared Diamond. He argues that the origins of intercontinental inequality at the start of the modern period, five hundred years ago, rested in different historical endowments of plant and animal species....In some places, such as the Fertile Crescent in the modern Middle East, there were a large number of species that could be domesticated by humans....made it very attractive for societies to make the transition from a hunter-gatherer to a farming lifestyle. ..Population density grew, allowing specialization of labor,
• Though Diamond’s thesis is a powerful approach to the puzzle on which he focuses, it cannot be extended to explain modern world inequality.
• we now need to explain why the Mexicans and Peruvians inhabiting the former lands of the Aztecs and Incas are poor. While having access to wheat, barley, and horses might have made the Spanish richer than the Incas, the gap in incomes between the two was not very large. The average income of a Spaniard was probably less than double that of a citizen of the Inca Empire. ... Today the average Spaniard is more than six times richer than the average Peruvian.
• The story of Nogales highlights another major problem in adapting Diamond’s thesis:...Peru and Mexico were undoubtedly more prosperous than those parts of the Americas that went on to become the United States and Canada.
• Diamond’s thesis...argues, following the historian William McNeill, that the east–west orientation of Eurasia enabled crops, animals, and innovations to spread from the Fertile Crescent into Western Europe,
• It should also be clear that Diamond’s argument, which is about continental inequality, is not well equipped to explain variation within continents—a
• it doesn’t explain why the Industrial Revolution happened in England rather than, say, Moldova.
• Diamond himself points out, China and India benefited greatly from very rich suites of animals and plants, and from the orientation of Eurasia. But most of the poor people of the world today are in those two countries.
• Before 1492 it was the civilizations in the central valley of Mexico, Central America, and the Andes that had superior technology and living standards to North America or places such as Argentina and Chile.
• institutions imposed by European colonists created a “reversal of fortune.”
• THE CULTURE HYPOTHESIS
• The culture hypothesis, just like the geography hypothesis, has a distinguished lineage, going back at least to the great German sociologist Max Weber, who argued that the Protestant Reformation and the Protestant ethic it spurred played a key role in facilitating the rise of modern industrial society
• Africans are poor because they lack a good work ethic,
• America latina. suffer from some “Iberian” or “mañana” culture. Of course, many once believed that the Chinese culture and Confucian values were inimical to economic growth, though now the importance of the Chinese work ethic as the engine of growth in China, Hong Kong, and Singapore is trumpeted.
• Is the culture hypothesis useful for understanding world inequality? Yes and no.
• Let us go back to Nogales. As we noted earlier, many aspects of culture are the same north and south of the fence.
• it is not a surprise that Mexicans lack trust when their government cannot eliminate drug cartels or provide a functioning unbiased legal system.
• L'eterna promessa. Kongo came into intense contact with the Portuguese after it was first visited by the mariner Diogo Cão in 1483. At the time, Kongo was a highly centralized polity by African standards,l.... Thanks to the Portuguese, the Kongolese learned about the wheel and the plow... They were very quick to adopt one venerable Western innovation: the gun. ...There is no sign here that African values or culture prevented the adoption of new technologies and practices. ... Yet these promising economic experiments were obliterated not by African culture or the inability of ordinary Africans to act in their own self-interest, but first by European colonialism and then by postindependence African governments....The real reason that the Kongolese did not adopt superior technology was because they lacked any incentives to do so. They faced a high risk of all their output being expropriated ....In fact, it wasn’t only their property that was insecure. Their continued existence was held by a thread....Il..exporting slaves was so much more profitable......it might be true today that Africans trust each other less than people in other parts of the world. But this is an outcome of a long history of institutions which have undermined human and property rights in Africa.
• Though it may be true that predominantly Protestant countries, such as the Netherlands and England, were the first economic successes of the modern era, there is little relationship between religion and economic success. France, a predominantly Catholic country, quickly mimicked the economic performance of the Dutch and English in the nineteenth century, and Italy is as prosperous as any of these nations today.
• Maybe the cultural factors that matter are not tied to religion but rather to particular “national cultures.” Perhaps it is the influence of English culture ....Yes, Canada and the United States were English colonies, but so were Sierra Leone and Nigeria.
• perhaps it is not English versus non-English that matters but, rather, European versus non-European.
• A greater proportion of the population of Argentina and Uruguay, compared with the population of Canada and the United States, is of European descent....Japan and Singapore never had more than a sprinkling of inhabitants of European descent.... China, despite many imperfections in its economic and political system, has been the most rapidly growing nation of the past three decades.
• There are of course differences in beliefs, cultural attitudes, and values between the United States and Latin America, but just like those that exist between Nogales, Arizona, and Nogales, Sonora, or those between South and North Korea, these differences are a consequence of the two places’ different institutions and institutional histories.
• THE IGNORANCE HYPOTHESIS
• ignorance hypothesis, which asserts that world inequality exists because we or our rulers do not know how to make poor countries rich. definition proposed by the English economist Lionel Robbins
• the more that market failures go unaddressed, the poorer a country is likely to be.
• African countries are poorer than the rest of the world because their leaders tend to have the same mistaken views
• Un esempio. the sustained economic decline that soon set in in Ghana ...This endless stream of economically irrational developments was not caused by the fact that Nkrumah or his advisers were badly informed or ignorant of the right economic policies. They had people like Killick and had even been advised by Nobel laureate Sir Arthur Lewis, who knew the policies were not good. What drove the form the economic policies took was the fact that Nkrumah needed to use them to buy political support and sustain his undemocratic regime.
• if ignorance were the problem, well-meaning leaders would quickly learn
• Consider the divergent paths of the United States and Mexico. Blaming this disparity on the ignorance of the leaders of the two nations is, at best, highly implausible.
• The experience of Ghana’s prime minister in 1971, Kofi Busia,...As with Nkrumah, his economic policies were adopted not because he was “ignorant” and believed that these policies were good economics or an ideal way to develop the country. The policies were chosen because they were good politics, enabling Busia to transfer resources to politically powerful groups, for example in urban areas,
• ignorance hypothesis....comes readily with a suggestion about how to “solve” the problem of poverty: if ignorance got us here, enlightened and informed rulers and policymakers can get us out and we should be able to “engineer” prosperity
• Yet Busia’s experience underscores the fact that the main obstacle to the adoption of policies that would reduce market failures and encourage economic growth is not the ignorance of politicians but the incentives
• When nations break out of institutional patterns condemning them to poverty and manage to embark on a path to economic growth, this is not because their ignorant leaders suddenly have become better informed or less self-interested or because they’ve received advice from better economists. China, for example, is one of the countries that made the switch
• It was politics that determined the switch from communism and toward market incentives in China, not better advice or a better understanding of how the economy worked.
• Most economists and policymakers have focused on “getting it right,” while what is really needed is an explanation for why poor nations “get it wrong.” Getting it wrong is mostly not about ignorance or culture. As we will show, poor countries are poor because those who have power make choices that create poverty. They get it wrong not by mistake or ignorance but on purpose.
• Traditionally economics has ignored politics, ....We will argue that achieving prosperity depends on solving some basic political problems.

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