Land v policy: determining the geography of wealth

I’ve pointed to the dangers of physical determinism many times. Space and geography are important variables explaining how cities work, but some disciplines have a marked tendency to over-state their importance and, more seriously, under-state the importance of more decisive economic and social variables.

My interest has to date been at the level of cities. So it’s interesting to see the authors of a new book, Why nations fail, point to the dangers of physical determinism at a global scale. However what really surprised me is Daron Acemoglu and James Robinson reckon Jared Diamond, author of the widely-hailed book, Guns, Germs and Steel, didn’t really nail it.

It seems like almost everyone I know has read Guns, Germs and Steel either wholly or in part, or is at least pretty familiar with the key hypothesis. Diamond addresses a question put to him in 1972 by Yali, a New Guinea politician. Yali asks: “Why is it that you white people developed so much cargo and brought it to New Guinea, but we black people had little cargo of our own?”

Diamond’s thesis is that relative differences in the material and technological development of continents can be attributed to different historical endowments of plant and animal species. Some places had more species that could be readily domesticated than others – this led to farming and ultimately to greater technological and material achievement relative to continents that weren’t endowed so fortunately.

Acemoglu and Robinson acknowledge Diamond’s thesis might explain why the Spanish had an advantage over the Aztecs and Incas 500 years ago, but argue it doesn’t explain why modern Mexicans and Peruvians who live in the former lands of the Aztecs and Incas are poor.

Diamond’s thesis implies that once the Incas had been exposed to all the species and resulting technologies that they had not been able to develop themselves, they ought quickly to have attained the living standards of the Spanish. Yet nothing of the sort happened. On the contrary, in the nineteenth and twentieth centuries, a much larger gap in incomes between Spain and Peru emerged.

Diamond emphasises the advantage bestowed by the east-west orientation of the Eurasian land mass in facilitating the spread of technology and innovation. Yet China and India, say Acemoglu and Robinson, both had very rich endowments of animals and plants and benefited from the orientation of Eurasia, but today are home to most of the world’s poor people.

They also argue it is unlikely changes in the economic status of countries within the Americas were driven by geography.

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. While the geography stayed the same, the institutions imposed by European colonists created a “reversal of fortune.”

Acemoglu and Robinson’s contention is that the pattern of world inequality is determined primarily by differences in political systems. Poor nations are commanded by “extractive” elites – Kings, Priests, Dictators, merchants – who appropriate wealth. Whether in Nigeria or North Korea, these elites aren’t about to give up their extractive power.

Rich countries however got wealthy by having inclusive political and economic institutions that facilitate and sustain economic growth and encourage innovation. They have secure property rights, freedom to contract and exchange, and pluralistic political institutions.

This is an important book. No fewer than five Nobel Laureates in economics sing its praises, including Kenneth Arrow, Gary Becker and Robert Solow. While it’s of particular interest to me because of the geography angle, bear in mind the discussion about Jared Diamond’s work is only a very small part of this book.

This is not a review of Why nations fail (I haven’t read it all yet), but there are plenty accessible on the net e.g. here, here, here and here. Surprisingly though, Google shows virtually no reviews from Australia apart from a (pay-walled) one by the AFR. I think that’s more likely to be a negative reflection on the local media than it is on the book.