Friday, 22 June 2012

A Summary of "What Makes Countries Rich or Poor?", by Jared Diamond

Jared Diamond, a Professor of Geography at UCLA and one of the world's foremost public intellectuals, is the author of the acclaimed Guns, Germs and Steel and Collapse.  Diamond is a leading expert on the fascinating and flourishing field of economic geography.  In a recent piece in the New York Reviewof Books, he reviews Why Nations Fail: The Origins of Power, Prosperity,and Poverty, by Daron Acemoglu and James Robinson.  The title of his review, "What MakesCountries Rich or Poor?", is in fact one of the basic questions in economics.

The authors conclude that the striking differences between rich and poor economies is explained to a large degree by the differences in institutions between economies, which provide incentives for people to work hard, become more productive and grow wealthier.  For example, the right to private property, reliable enforcement of legal contracts, stable economies, financial markets and currencies etc.
The authors make this case in part by observing "border" case studies, where geography and the ethnic background of the local population are largely the same, but the economies are very different, such as between North and South Korea.  There's a strong correlation between which countries are rich today and which have had a strong, centralized government for the longest period of time in the past, though patterns of colonization and the presence of natural resources are also important factors.
Diamond concedes that institutions matter - accounting for, he estimates, about 50% of the answer - but he believes that the authors don't adequately emphasize the importance of geography.  For example, some countries with poor institutions are nonetheless richer than more honest nearby nations, and a number of countries with solid institutions remain poorer than more corrupt counterparts.
Tropical locales, regardless of the quality of institutions, tend to be poor, because of the prevalence of disease and unproductive agriculture.  Parasitic diseases, and the flies and mosquitos that spread them, aren't killed regularly by a cold winter, causing devastating sickness that saps the power of local economies.  In addition, agriculture is less productive, again thanks to diseases and pests, and also because of differences in plant characteristics, historical patterns of glacial freezing, and the effect of temperature on organic matter.
Physical proximity to oceans and major rivers also help to explain differences in economic circumstances.  It's no coincidence that the poorest nations in South America and Africa are all fully or partly landlocked.  Finally, many countries that have suffered devastating environmental problems - especially damage to soil, water, forests and fisheries - also find themselves poor in consequence.
Though Diamond agrees with the authors that the history of a country's institutions matters, he argues that they underestimate the effect that geography had on making some nations amenable to stable institutions in the first place.  For example, Europe's many rich cities and countries arose out of the Fertile Crescent, a highly productive area of agricultural land.  Productive farmland allowed not just for sustenance but surplus supplies of food, which enabled some people to work outside of agriculture, allowing for the formation of central governments.
Diamond's long review will give readers interested in economics, geography or human development a broad but detailed understanding of why some countries flourish, while others fall behind.

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