Why are some countries rich and others poor?
It sounds like an easy question but... nothing could be further from the truth.
In fact, the origin of wealth is one of the key issues, if not the most important issue,
in political debates.
Are there poor countries because there are rich countries?
Do the richest countries have any special geographical characteristics that determine
their success?
Are natural resources the source of their wealth?
Are their inhabitants smarter?
Or, most importantly of all...
Is wealth given, that is, is there a certain level of wealth that we simply have to distribute?
("Because that insulting opulence next to the most intolerable misery, is indecent,
it’s unworthy")
If the answer to all these questions was yes, then we could say that our luck is set, we
can’t change it...
If we’re rich, great...
And if we’re poor...
Apparently there are only two paths…
Either we quit or we trust in a messianic leader who promises us some kind of revolution...
Of course, these revolutions almost always end up making things worse.
("We don’t want to be rich, to be rich is bad, it’s inhuman".)
But….
Just a moment!...
Because I think this approach is missing something…
Well, honestly, I think it’s missing loads of things.
Obviously, folks, many factors determine whether a country is rich or poor...
In this video we’ll focus on one of the factors, on one of the most important issues...
And we’ll do so by taking a look at the history of the American continent.
Listen up!
(AMERICA VS AMERICA)
America, one continent with two very different realities: some countries are very rich....
And others very poor.
For example, check out Canada’s per capita income, even taking price difference into
account, it’s 5 times that of El Salvador or Ecuador, while the US per capita income
is almost 4 times that of Colombia.
Yes, it’s true, and there’s also a group of countries that we could describe, in relative
terms, as middle class...
Chile and Panama’s income is 3 times that of Bolivia and almost 2 times that of Peru.
However, broadly speaking,of the 1 billion people living in the Americas, approximately
40%, live in some of the richest countries in the world, mainly the United States and
Canada.
Meanwhile, the other 60% of Americans live in countries that are either very poor or
are still developing.
And, of course, faced with this panorama the question is...
Why on earth is there such a contrast between the two great North American powers and the
rest of the continent?
Or, even, why are the countries located at both ends of the continent generally richer?
Check out, for example, this map, countries painted with a darker color, are richer:
However, it may be easier to notice this enormous difference, right on the border that you’re
seeing: Donald Trump’s "favorite" border, the United States-Mexico border.
On the north side of the border is the United States, one of the wealthiest countries in
the world.
A country where, in general, its inhabitants are much richer and live safer and longer
lives than their neighbors on the southern side of the border, that is, in Mexico.
In fact, one crosses the border... and suddenly everything changes…
But….
Why such a difference?
Because at the end of the day, we’re talking about territories that have a very similar
population and natural resources.
Don’t forget that much of California, Texas and New Mexico – some of the states, which
by the way, are the more prosperous and innovative in the United States – were Mexican at the
beginning of the nineteenth century.
And... the people who manage to cross from south of the border to the north... have quite
high employment and entrepreneurship rates... so of course we’re not talking about racial
or religious motives.
But... then, why on earth does this huge contrast exist between the north and the south side
of the border?
Yes, ok…
You may be thinking, obviously!...
Because they’ve had worse governments and politicians!
But...
Where did that come from?
Did almost all the countries south of the US-Mexico border have bad luck?
Isn’t there another factor?
Well…
Listen up.
( DIFFERENT DESTINIES)
To continue we need to take a small trip...
We need to move to the year 1600.
Imagine 2 brothers, John and Peter… who are about to embark on the "American adventure"
from some old European port.
However, due to fate, they go on different boats:
One of the brothers, John, left in search of fortune to Mexico, while Peter got on a
ship that was heading farther north, to what later became known as New England and today
corresponds to the states of New Hampshire, Connecticut, Massachusetts, Vermont, Maine
and Rhode Island.
Yes, one of the current US’s richest areas.
Now, the question is, if you’d been in these two brothers’ place, what ship would you
have preferred?
The one that was going to Mexico or the one that was going to New England, to Boston?
Well, my friends...
For those of you who answered Boston...
I think you should reconsider your decision
At that time, things couldn’t have been more different.
See, John arrived in Mexico City, a city full of monuments and new buildings, a city that
had nothing to envy from European cities…
At that time, Mexico was part of the Viceroyalty of New Spain... an area of expanse governance
that was full of wonders, cultivated fields, ancient civilization ruins, large cities,
etcetera, etcetera.
However, Peter arrived in a cold, desolate, unpopulated territory... a place without infrastructure
and where mere survival was a... difficult challenge.
A place where hunger and cold were raging.
Actually, the Spanish conquerors didn’t move any further north because there was no
wealth to extract there.
(“The English chose North America not because it was attractive, but because it was all
that was available.
The desirable parts of the Americas, where the indigenous population to exploit was plentiful
and where the gold and silver mines were located, had already been occupied.
The English got the leftovers” - Daron Acemoglu and James Robinson, “Why Nations Fail?”)
In New England, one had to work very hard just to survive,.
In the south, however, things were very different: there were many natural riches, the climate
was much better for agriculture and there was a large local population used by the Spanish
conquistadors to do endless hours of work in exchange for practically nothing…
The fact is that all these resources meant that many of those who arrived didn't have
to work to survive... and not only that, many of the institutions that existed in old Europe
could be easily replicated.
institutions such as the aristocracy, bureaucracy – that is, the officials – or the "royal
favors", which were the privileges granted by the State, and which benefitted very few:
commercial monopolies, land distribution, mining exploitation, etcetera, etcetera.
That way, little by little, on the one hand, a culture was born in which work and entrepreneurship
were not perceived as the best way to prosper.
instead, they needed to make good connections with those in power.
Why risk investing when you can just put out your hand...?
On the other hand, an elite class was formed by people who lived based on the resources
others extracted:
through privileges, forced exploitation of the natives, land distribution, concessions,
public revenues, taxes, etcetera, etcetera.
An elite class, which by the way, based on the standards of the time lived at full speed...
which meant having to extract more and more resources from others.
This means that this elite group that controlled the economic resources, not only didn’t
have to worry about investing, innovating, or taking risks... they actually placed obstacles
for others.
And, dear viewers, this culture didn’t disappear with independence, it remained... consolidating
some of the most remarkable characteristics of Latin America:
An elite class with a lot of wealth that is based on obtaining rent, overlords, a lot
of bureaucracy and a shattered social elevator.
Meanwhile in the north things were going down a completely different path.
(THE SURVIVAL)
Unlike what happened in the south, the north had no resources and no indigenous population
to exploit.
So there was no other option but to work hard, invest and innovate to improve their standard
of living.
Thus, the social culture and the institutions that developed were very different.
Physical work, hard work was well regarded.
And not only that...
Since these territories were very poor and practically depopulated... they had a lot
of political and economic autonomy…
Actually, at first, the British Crown didn’t care much about these colonies... they were
more concerned about what was happening in other parts of the empire, where things were
more lucrative.
In fact, it was when these colonies began to prosper, that the crown paid attention
to them... which means that the crown began to establish political and economic controls
and more taxes.
And, as we all know, the settlers wouldn’t take that sitting down.
See, it’s often said that the US war of independence was a fight to obtain freedom,
however, many of the incentives that led them to fight had more to do with maintaining the
freedom they were used to and which they were no longer willing to give up.
Hence, once they obtained their independence... they worried a lot about making sure that
neither their liberties nor their entrepreneurial capacities were at risk.
But... some of you may be thinking…
Simon... hold on, you’re forgetting about slavery… well, no, I’m not, because the
slave states weren’t at all the richest.
Slavery enriched a few at the expense of the others.
Of course... if instead of two brothers we’d talked about two companies... in the longterm
it would’ve been much better to invest in the one in Boston.
The keys to development don’t lie in the natural resources, nor in exploiting anyone...
but in ingenuity, an entrepreneurial spirit and work.
That's why... when politicians make this process difficult, for example, with taxes, a strong
State, a lot of bureaucracy or privileges for their friends… the results are always...
very bad.
In a way, it’s similar to what happens with natural resources.
They can help... but they aren’t enough to generate wealth.
There are very rich countries that hardly have any natural resources, like Japan or
Singapore, and others with many resources but which are very poor... like Venezuela.
Ingenuity, work and capital are more important than any natural resource.
The good news is that poverty isn’t determined, you can escape it.
Trajectories such as those seen in countries like Chile or Panama in recent decades show
that things can change.
But now, it’s your turn, do you think we’ll soon see Latin America takeoff?
Leave your answer in the comments as well as in the survey.
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Also, don’t forget to check out our friends at the Reconsider Media Podcast - they provided
the vocals in this episode that were not mine!
And as always, thanks for watching!