Have you ever wondered why Mexico is so much poorer than the USA, despite sharing a border? Or why Asia, despite having such a great population, is poorer than the west? You’re not alone. Historians, economists, sociologists, and politicians have been asking the same questions for centuries, and have had many theories about why over the years.
In the past, theories have centered largely on differences in race, with Africa and Asia being doomed due to their supposed racial inferiority. However, as time passes, this theory has been discredited with the failures of societies like Nazi Germany, and the sucesses of Asian societies like Japan. Today, the theories and reasons for differences in the wealth of societies can be boiled down into three different categories; geography, culture, and institutions.
The Geography Hypothesis
The geography hypothesis postulates, in short, that countries’ successes are bound by their geographies more than by the cultures, leaders, or institutions within. The most famous work supporting this hypothesis is likely Jared Diamond’s Pulitzer Prize winning Guns, Germs, and Steel. In this book, Diamond rejects the idea that culture, institutions, and actions by specific leaders are what have determined the course of history, instead believing that where the countries are, and the resources they contain, are the main determinants of a nation’s future success. The most famous example given within the book, and one that is growing increasingly prevalent today, is that cold nations are destined to be more successful than warm ones.
Diamond argues that warmer, equatorial areas have many negative factors, including tropical diseases and worse farmable foods (such as rice, maize, and bananas). Compare this to colder areas further from the equator, which are relatively free from diseases, and have crops that contain more protein and are easier to farm and store (such as barley, wheat, and flax). Additionally, warmer areas tend to cause physical laziness, as anyone who has lived through a Texas Summer can attest to. In colder regions, one could not afford to be lazy during the Summer months, as hard work and collaboration was required to be able survive the harsh Winter months.
When looking at a map of the world today, his first hypothesis, that cold nations fare better than cold ones, seems to ring true. Countries such as Canada, the USA, western Europe, and the Nordic Countries have some of the highest GDPs per capita in the world, especially when compared to some of the warmest and poorest countries in the world. For example, the USA has 86 times the GDP per capita of Burundi. Even within the USA, the northern states have tended to fare better economically than the southern states, with the wealthiest state in terms of GDP per capita being New York, with a GDP per capita of over twice that of the poorest state, Mississippi.
This hypothesis, while tending to be true in the modern day (with some exceptions. Russia has a GDP per capita of $27,044, compared to Qatar’s $85,300), doesn’t hold up as well over history. Throughout history, the wealthiest countries per capita have varied greatly. For example, around the time of Christ, Iraq had an estimated GDP per capita (in 2011 dollars) of $1225, while the Netherlands had a GDP per capita of $600. Nowadays, the Netherlands has a GDP per capita more than 3 times that of Iraq. This isn’t cherry picking data either; warmer nations in the Middle East and Mediterranean consistently had greater GDPs per capita than colder nations in western and northern Europe until at least the middle ages. What caused this to change? Why did these nations lose their economic advantage? One potential explanation can be found in the differences between these nations’ cultures.
The Cultural Hypothesis
Proponents of the cultural hypothesis believe that properties of cultures, most often their religions, social values, and family ties, are the main determinants to whether a nation is financially successful or not. Proponents of this hypothesis argue that some cultures are better at promoting fiscal responsibility, hard work, and the acceptance of technological advancements.
A tenant of the cultural hypothesis is that different cultures are better at adopting technological advancements, thus allowing those cultures to excel in the long-run. An example of this can be found in how different cultures across Eurasia reacted to the Mongol invasions of the 13th century. Within both China and the Muslim world, their societies turned insular, with study of Confucian texts or the Qaran being treated as more important than the study of the real world. This led to both cultures, who had been at the forefront of worldwide scientific development, falling behind. The west, on the other hand, adopted Thomas Aquinas’s idea of Natural Theology; that reason and the study of the Earth, God’s creation, is of the utmost importance. This led to the west eventually surpassing the rest of the world scientifically, and beginning the industrial revolution first.
Perhaps the most famous example of the cultural hypothesis in action is the so-called “Protestant Work Ethic”. Coined by German sociologist Max Weber, the concept asserts that Protestant ethics and Calvinist doctrine helped lead to the prosperity of western civilization. In Protestant doctrine, hard work, education, and frugality were thought to be among the most important applications of being a steward of God, something Weber argued was not present within the pre-Reformation culture of Catholic Europe. This, in turn, helped to launch the spread of capitalism among the countries of western Europe, leading to the prosperity in those nations in the modern day.
When looking at a map of Catholic and Protestant nations, this tends to hold true in broad strokes (the USA and Canada are wealthier than Latin America and northern Europe is wealthier than Mediterranean Europe). However, Weber’s concept is not without its critics; some Catholic nations are wealthier than nearby Protestant counterparts, and some academics argue capitalism first emerged before the Reformation in northern Italy. Additionally, one can argue that it is not the culture that led to capitalism that is important and leads to wealth, but the laws and institutions of a capitalistic society.
The third of the main three hypotheses, the institutions hypothesis, postulates that the differences in ways societies organize and set laws are the main influences on the differences in prosperity between nations. Proponents of this hypothesis point to the fact that countries who are very similar geographically and culturally can have vastly different economic institutions and outcomes.
An example of this can be found in the differences between North and South Korea. North Korea, with its centralized economic planning, lack of markets, and lack of property rights, has become very impoverished, especially in relationship to its main neighbors, South Korea and China. South Korea, on the other hand, has excelled economically since adopting its laws protecting property and other free market policies. Before the two countries were split, both halves of the Korean peninsula had similar cultures, and both still are similar geographically, with both nations being dominated by mountainous terrain.
Another example of different institutions impacting the economic success of nations is the economic outcomes of former British colonies compared to former Spanish colonies. British colonies, namely the USA, Canada, and Australia, are all world powers and economic juggernauts. This can be argued to be due to English Common Law being the foundation of these countries’ legal systems. This system of laws helps to protect the civil rights and property of those living under the law, helping citizens living within these nations, as well as increasing investment by increasing stability. Many other former British colonies, such as Egypt and British India (including Bangladesh and Pakistan), while being poorer compared to the previously mentioned British colonies, are still wealthier in terms of GDP per capita when compared to many of their neighbors. This difference from their former colonial peers can be argued to be due to both countries having eliminated some facets of English Common Law, such as strong property rights, for at least a time after their independence.
Former Spanish colonies, on the other hand, are much poorer compared to their English counterparts. These colonies were designed not as economic engines, but as extractive economies, much to the detriment of the modern-day economies of these now nations. In addition, governing power came largely from the foreign Spanish crown compared to the more concentration in the local residents of the colonies under the English system. This caused Spanish colonies’ decision making abilities to be hamstrung, and limited economic growth. Furthermore, without English Common Law to set a baseline for individual and property rights, former Spanish colonies have not been able to set up stable market economies without threats of military dictatorships or socialist regimes.
Which Theory is Right?
This list of theories is by no means a comprehensive list. There are many more examples to support the hypotheses of each of these theories, as well as additional theories (such as the Great Leader Hypotheses, in which great figures in history determine which nations are prosperous. Think Alexander the Great, Confucius, or George Washington). I personally believe that each of these theories has its merits, and none are the sole contributing factor to why some nations are more prosperous than others.
In some cases, such as the natives of the New World, the lack of good geography and fauna made a prosperous civilization extremely difficult to come by. Very few domesticated animals and poor accessible mineral resources made an urbanized civilization hard to create, meaning that very few natives would have been exposed, and thus gained immunity, to the diseases which wiped out much of their population. In other cases, the culture of a nation can hold it back, such as the historically passive Hindu culture and caste system of India, which allowed for very little social mobility. And in even other cases, the institutions of a nation can hold back a great geographic position or culturally strong people, such as how communism held back Eastern Europe from prospering. When analyzing why a country is successful, try to look at the whole picture, not just a few of the factors, to understand what could have gone right, or what could have gone wrong.