@PeterHerreman Tomorrow 😉. Have a zoom birthday party at 7 pm
@PeterHerreman As promised, I will now try to answer your question, Peter. I hope that @thimodenijs will also find the answers to his question in what follows. I must admit I don't find these obvious questions, as they are extremely broad. /
@PeterHerreman @thimodenijs The answers could easily fill a complete bookshelf and we would probably still not reach a final conclusion. I have therefore decided to spread my attempt over several days, in which I will cover different aspects. So what I propose for today /
@PeterHerreman @thimodenijs is simply to consider a series of possible simple explanations for growth and (under)development, and to show why they are wrong. Once you have understood those, you will understand the scope of the challenge. /
@PeterHerreman @thimodenijs Let us consider a first possible explanation: it's geography. Most rich countries are situated in temperate climate zones, and have a long coastline and a lot of navigable waters compared to their total surface. /
@PeterHerreman @thimodenijs It's a very plausible explanation, and it actually does explain a lot. Most Americans would agree that Texas could never have become the economic powerhouse it is now without air conditioning, it is pretty obvious that tropical maladies do cripple countries and that landlocked /
@PeterHerreman @thimodenijs countries tend to be poorer, all other things being equal. But it does raise a lot of questions as well. There are examples of countries that are (or were) geographically far away from the economic epicentre of the world (Australia) or that suffer from tropical conditions /
@PeterHerreman @thimodenijs (Singapore) that actually do pretty well. And; of course, some countries in the Gulf have become incredibly rich while the outside temperatures are unbearable. Now; you may say, that's because of the oil. So do natural resources explain growth? /
@PeterHerreman @thimodenijs Actually, they don't. The best possible counterexample you can take is Nigeria versus South Korea. After the Korean war, South Korea was devastated (decades of colonial occupation by the Japanese didn't help), and it had almost no natural resources. After it's independence;
@PeterHerreman @thimodenijs Nigeria has a head start, and an abundance of oil. You can easily find publicly available data that will confirm that South Korea has leapfrogged Nigeria. Actually, there are so many examples of resource rich countries that are dirt poor that economists even have a term for it: /
@PeterHerreman @thimodenijs "the natural resource curse". Any theory of economic development needs to include an explanation for this paradox. OK, so you may say, (that's actually one of the possible explanations for the resource curse), Nigeria was rich in oil; and this has /
@PeterHerreman @thimodenijs encouraged corruption, and the result is that maybe the elites have enriched themselves at the expense of the poor people. Well, in the case of Nigeria, few people would dispute this is true, but if corruption in itself explains /
@PeterHerreman @thimodenijs underdevelopment, what do you with Indonesia? It has well been documented how the Suharto family has enriched itself through systematic corruption, but those decades of corruption have gone hand in hand with impressive economic growth. So apparently; some types of /
@PeterHerreman @thimodenijs corruption are incompatible with economic growth. Oh, and now that I think of it: if the resource curve is a fatality, how do you explain Botswana, which has been a success story in economic development, in large part thanks /
@PeterHerreman @thimodenijs (or should I say despite) its rich endowment in diamonds (and if geography is destiny, how do you explain the difference with neighboring Zimbabwe). Other candidates: culture and religion. It's an explanation that people have worked on since Max Weber thought that the /
@PeterHerreman @thimodenijs culture of Protestantism had promoted the accumulation of capital. This hypothesis has already been rejected (Catholic regions in Europe has just as well contributed to the origins of capitalism), but cultural explanations remain popular /
@PeterHerreman @thimodenijs (Consider for instance "The Wealth and Poverty of Nations" by David Landes or several works by Joel Mokyr, works that all are worthwhile being read) and always seem very plausible when you do read them. But; if culture and religion are so important, how do you explain /
@PeterHerreman @thimodenijs the wide differences in growth rates in predominantly Muslim countries? How do you explain the differences between North and South Korea? You may say that, in the case of the Koreas; you need to add communism as explanatory factor for underdevelopment /
@PeterHerreman @thimodenijs but how do you explain that three decades after reunification, there is still this huge discrepancy between western and eastern Germany? Does this mean that geography does matter after all? Or is something else? And if communism would really be the explanation for all /
@PeterHerreman @thimodenijs economic woes, how do you explain that, in the first decades of the Soviet Union, growth was so high that even Paul Samuelson, the founder of modern economic thinking, thought the USSR would surpass the US (OK, that didn't age well). Maybe it is the case that history is destiny?
@PeterHerreman @thimodenijs After all, most countries that are relatively poor today were relatively poor a century ago. But that doesn't explain what happened in the far East, neither (in the opposite direction) what happened to Argentina, which was one the /
@PeterHerreman @thimodenijs richest and most promising countries in the world once, and has now become almost synonym for stagnation and recurrent crises. OK, I will leave it here. I just hope that this very short overview has made clear that there is no simple explanation./
@PeterHerreman @thimodenijs Some candidate explanations are better than others, that it is clear, but they need more refinement (both geography and history do actually matter a lot, but the mechanisms are rather more complex than what scholars first envisaged). As Nobel Prize winner Robert Lucas once /
@PeterHerreman @thimodenijs pointed out; once you start thinking about how the answers to those questions affect human welfare, it is difficult to think about anything else (OK; maybe that's the reason he got divorced). /
@PeterHerreman @thimodenijs Tomorrow, I intend to have a look at how classical economists (Smith, Ricardo, Malthus, Marx) thought about those issues. While we would all agree now that they got the answers wrong, it is important to understand the questions they asked and to learn from their mistakes.
@PeterHerreman @thimodenijs Maybe one last point. The "plunder" hypothesis. What if rich countries got rich by plundering other countries? While there is no doubt that some people in the plundering countries got very rich thanks to colonization, and that /
@PeterHerreman @thimodenijs colonization did huge and long lasting damage to the countries that were colonized, it does not explain economic development. History is filled with empires that invaded and plundered other countries without long lasting benefits to the invaders. The key factor that caused the /
@PeterHerreman @thimodenijs industrial revolution lies in processes that started before the age of European imperialism
