Why some nations are wealthier than others

Great Debates
1

237 years ago Adam Smith published a book called An Inquiry into the Nature and Causes of the Wealth of Nations. Today there’s a great deal of debate about how to produce economic growth, jobs, income gains, and so forth. If we want to know the right answers, we should start with the title of Smith’s book. It contains two insights: that some nations are wealthy and other aren’t, and that we ought to ask why this is.

For almost all of human history, almost everybody lived in what we’d now call extreme poverty. Many lived in tribes which didn’t really have anything we’d call an economic system. However, there were also large civilizations that existed for thousands of years without becoming prosperous, such as China and the Middle East. Few people really understand why this is.

In those civilizations, before modern times, there was no legal framework for allowing people to build up their wealth. Rulers understood that people had to earn their survival, and usually allowed that much. (But sometimes not even that much.) If someone started earning more than survival level, nothing stopped the Emperor/King/Sultan/Duke/etc… from stealing the excess wealth, and that’s generally what happened. Since ordinary people wouldn’t benefit from earning wealth, they generally didn’t even try to do so.

One day a new nation was founded, coincidentally in the same year that Adam Smith published his book. It was called the United State of America. It put most of Smith’s economic ideas into practice. Though it started out around the same level of prosperity as everyone else, the USA became the wealthiest nation in the history of the world by 1900. Then it got richer still, and at its peak had more wealth than the rest of the world combined. So understanding why the USA did so well compared to everyone else would seem to be a good idea.

One explanation that gets offered–in this thread, for instance–suggested that the USA succeeded because we had so much land and natural resources. Those help, to be sure, but many other nations with land and natural resources have been economic failures. (Russia, for instance.) By the late 19th and 20th centuries the USA not only grew more food than anyone else, but grew a lot more food per acre than anyone else. Why is that?

A farmer in 19th century Russia or most European countries had little financial motivation to improve his farm. Even if his income couldn’t be outright stolen, regulation and restrictions and taxes made it hard for him to make much profit.

By contrast, a farmer in the USA could grow as much as he was able and sell it when and where he chose, losing little or nothing to taxes. Consequently he had a strong financial motivation to grow more and improve his farm. This included using new technologies, and soon the USA produced new machinery to plow, sow, irrigate, reap, store and transport food more efficiently. Because farmers wanted to produce more, companies arose to help them do so.

Obviously this logic applied not only to farmers, but to everyone. In the early 19th century, progress in science and technology came mostly from Europe. Soon the USA overtook Europe and has stayed on top ever since. The majority of inventions that support the modern lifestyle, from the tractor to the electric grid to the airplane to the moving assembly line to the microchip, were made by Americans seeking profit. The fact that Americans were, until recently, allowed to make whatever goods they wanted, move those goods to wherever they wanted, and buy and sell goods at whatever prices they wanted gave them a financial motivation to work as hard as possible, invent new technologies and methods, and rapidly adopt what other people invented.

There must be a reason why the USA achieved so much prosperity so quickly, while no other nation did so. Economic freedom looks like a good candidate to be the main reason.

2

Probably a distant third to 1) the abovementioned abundance of land and resources, and 2) the comparatively rapid arrival of industrialization (which was not specifically a US phenomenon) while much of the land and resources were still abundantly available.

And don’t forget the comparatively minor impact of twentieth-century wars on the US compared to other nations.

3

Unless you lived in a company town, were buying from a monopoly, crippled or dying from unsafe work conditions or environmental poisoning, or otherwise being screwed over by corporations taking advantage of that ability to do what they wanted without restrictions.

“Prosperous” by what standard? Quality of life is lower for Americans on average than in much of the West.

America’s more “prosperous” mainly because it consumes a disproportionate amount of the world’s resources. The rest of the world can’t do that - there’s not enough left after America is done guzzling down the wealth of the world.

4

GDP per capita, I suppose. Of course, that measure says nothing at all about distribution of wealth – the Gini coefficient yields an interestingly different picture.

5

I would like to know your definition of prosperity. China as a nation had periods of great prosperity that lasted longer than the U.S. existed. The average standard of living was much lower, but that was a function of the low level of technology at the time. Food production and industry required huge amounts of hard labor. There really is no mystery there.

I am seriously calling your history into question here. Do you think no one but governments ever got rich except rulers in pre-modern times? Do you think China, Rome, the various Caliphates, the Greeks, and the Persians were all societies in which you were either the ruler or a serf? Even Europe in the Medieval period had merchants and traders carry on business.

Can you back up the bolded portion with a cite? And is that on average, or controlled for climate/land quality/water resources/etc.? Is it comparing virgin cropland in areas with abundant ground water to land farmed for centuries or requiring massive irrigation works?

You have presented a lot of assertions without any citations. A lot of this has been covered many times. But a few points which I think are well documented:

Comparing the U.S. to Europe:
[ul]
[li]No local rivals (Canada didn’t have the population and Mexico was too poor). No major foreign wars prior to WWI (and no, the Spanish American and Mexican American wars were not major.) The Civil War was a major war, but it was a one time event and left the more prosperous and developed portion of the country untouched.[/li][li]Plentiful untapped resources and massive amounts of land that had not seen long term agricultural use.[/li][li]An untouched economic machine following both world wars. The U.S. was able to supply the wars and the recovery and required no rebuilding.[/li][/ul]

Comparing to Latin America:
[ul]
[li]Settled by free holders, not feudalists.[/li][li]Pushed the native population out instead of turning them into serfs.[/li][li]Treated more like extensions of the mother country then a resource to be stripped clean.[/li][/ul]

That is just off the top of my head. There are many more factors. Economic freedom helped, but was not really as free as you seem to think. Taxes and regulations have always been an issue. George Washington but down a rebellion about high whiskey taxes.

Bottom line, the U.S. has been extremely fortunate in many ways and sometimes at tremendous direct cost (Native American genocide) or indirect cost (WWI and WWII) to others.

6

I read your thread title and thought: “That’s a good damn question.”
I clicked the link, and saw a huge wall of text ( nicely spaced, mind you ) and thought:
“I’m not really that interested.”

7

And what percent of Americans lived in such conditions?

Cite? And “quality of life” buy what standard?

You have cause and effect reversed in your first sentence.

8

Well, both China and nations in the Middle East were quite prosperous at various times in history. In fact, China was arguably THE richest and most prosperous nation on earth at periods in history…as were several of the Islamic empires that straddled the ME at various times.

Well, part of it was simply luck. We came into being at the right time and in the right place and with the right leaders at key points in history TOO become the powerful nation we are today. Had we stayed in the British Empire, we never would have become what we became, since the Brits weren’t really interested in large scale westward expansion. Also, other European powers would have been more successful in carving out their own pockets in what became the US had the Brits remained in charge, so instead of one vast continental sized nation you’d have had many smaller, less prosperous nations. We also got an ideal form of government for both expansion and for prosperity, one that was rare at the time but has become more numerous over time as we have become more successful. Because of those factors, we inherited a continent that was relatively unexploited AND was unified under one nations rule, with people who came from all over the world to a nation where they could prosper as much as they could at a time when things like trade were just breaking loose on a global scale, which positioned us nicely to take advantage of all of that.

Part of it was making our own luck, but part was just a confluence of incredible breaks in our system of government, the leaders that came to power and what they did, and the fact that we drew from, IMHO, the best of the rest of the world. A lot of the folks who were adventurous came here, and they brought their ideas and energy to this country and made it great.

9

The great majority; it was the norm.

By every standard I can think of, from life span to better nutrition to greater social mobility to better medical care to more vacation days.

10

[QUOTE=Der Trihs]
By every standard I can think of, from life span to better nutrition to greater social mobility to better medical care to more vacation days.
[/QUOTE]

How about better standard of living wrt access to wealth and goods and services? You seem to be cherry picking things that SOME European nations have (of course, few of them are bigger than our states, so it’s an apples to oranges comparison in any case) while ignoring that over a wide range of possible standards and when we realistically look at the size of our nations and compare it to EUROPE AS A WHOLE, we stack up quite nicely.

But then that runs counter to your world view of the US being evil AND destitute.

11

As with others you lost me right here. Unless you are using a really idiosyncratic definition of prosperity, your argument pretty much falls apart on this claim. I’d suggest some remedial reading, starting here. One needn’t agree with many or any of Frank’s theses about the future of the world economic system ( I’m pretty dubious ) or its origin well before the BofC ( contentious ). Also honestly it is rather jumbled in its presentation. But one thing it is very useful for is that Frank aggregates a great deal of other people’s research about the economic situation in the pre-modern world. Then move on to here and here.

China was not only on a par or more prosperous than the west on a per capita basis right up until the early 1800’s, but due to its huge population in absolute terms it was massively wealthier and considerably more self-sufficient in terms of export/import balances ( opium would change this radically in a very short span of time ). India and the Middle East at various points didn’t lag far behind.

12

No, Western Europe is better there too.

I assume that the vague phrase “access to wealth” means the ability to get richer? No, America is behind Europe on that, tied with class-ridden Britain. Canada too; you’re more liking to succeed in climbing the economic ladder in “socialist” Canada than in “business friendly” America.

13

[QUOTE=Der Trihs]
No, Western Europe is better there too.
[/QUOTE]

Your cite doesn’t demonstrate that.

No actually. I was riffing off of what you said earlier, ironically. You admit that much of the wealth of the world comes into the US. Of course, you were putting your own dark spin on it, but even you seem to realize it’s a fact. Basically, Americans have access to more wealth and cheaper goods and services than any other nation in the world. That’s why when looking at our per capita income, which is among the top in the world especially if you consider the sheer size of this country, you have to factor in the purchasing power that Americans also enjoy. I’ve been to Europe…I seriously doubt you have. I lived in Canada…I’m guessing you’ve never even been there. If you had, you’d realize that goods and services simply cost more in both (Japan as well btw, which I’ve also been to).

Certainly you can cherry pick small European nations and look at very vertical measurements and say that that US is ‘worse’ in those things, but it’s a silly comparison. When you compare the US to, say, the entire EU however (which IS a fair comparison, since they are roughly the same size) then a different picture emerges and the US is very competitive. Hell, even when you compare us in an apples to orangutans way to a select few European nations we come out pretty well, by and large…again, especially when you consider we have states and in some cases large cities that are larger than some of those nations.

Yes, I’ve seen this article trotted out before, and I’m not saying that the US is superior in all things, or that our upward mobility is what it once was in comparison to select other nations cherry picked to contrast with us. Definitely Canada is superior to the US these days in business friendly, er, ness…ironically it’s because in some ways they are less ‘socialist’ than we are, at least wrt business. But it’s expensive to live in Canada, and a persons income there is stretched more and buys less than the average American enjoys. There are some very good aspects in Canada that I wish we emulated, including their health care system, but I think across the board (and again, realizing that while Canada is huge it has a relatively small and more homogeneous population than the US does) the US stacks up nicely against Canada as well.

And all of this is moot, since the OP is asking why some nations are wealthier than others, not whether the US is or isn’t the wealthiest nation (which clearly we are), or whether our citizens are or aren’t the best off by whatever measurements one wants to use to slant the results one way or the other.

14

Paul Kennedy addressed this in the first section of his book The Rise and Fall of the Great Powers. I recommend reading it, but a very terse summary would be that around 1500 western Europe was at least slightly less centrally controlled and less invested in the status quo than other major centers of civilization. Kennedy’s argument is that western Europe had fewer obstacles to developing modern systems of trade and production.

15

I question the assertion that Russia is blessed with resources comparable to the US. The quality of the soil and the climate in the US is far superior to Russia, as is the abundance of warm water ports.

The US was like a seed that landed in perfect soil at the perfect time. The availability of land to expand in the early years was a natural growth engine, the expansion reached the west coast as railroads were developed, there happened to be oil available to drive the Industrial Revolution, there were no other major powers to compete with. Taxation had jack shit to do with it. There was no need to tax since there was very little infrastructure to maintain, no highway system, no electrical grid, no massive army, etc. The government had wealth and lots of it in the form of land. Why tax the population when you can steal from the Native Americans? There was nothing magical about the American government or economic system, it was all a matter of good fortune combined with the willingness to practice genocide on the original inhabitants.

16

Cite?

No. Elaborate. Give us facts and figures, not hand waving.

17

Are you trying to convince yourself of your OP? I don’t know for sure what role economic freedom played in our economic growth. The fact that we are a large country (our population is almost the same as all of western europe combined) means we will be wealthier. But western europe has an economy almost as large as ours when taken as a whole. Not quite as large, but per capita the US is at about 50k while western european nations are around 40-50. Nations like Canada, Australia, Sweden, Denmark, etc have higher per capita GDPs than the US. The US being the wealthiest nation by 1900 isn’t surprising, we have a population about 4x bigger than Germany, about 5x bigger than France.

Also I’d assume because we are land locked and are not constantly at war, that likely helped. There were no napoleonic wars, and WW1 and WW2 were far away. We didn’t see our infrastructure destroyed the way Europe has.

I don’t see the US as being exceptional. Pretty much all western nations and east asians nations have seen their economies grow rapidly since the industrial revolution (or since they started taking industrialization seriously). Japan, South Korea, Taiwan, Singapore, etc. are now wealthy. China is trying to get wealthy.

What separates the US from the dozens of other nations which become wealthy when they obtain access to science, technology and education? I don’t think we are different.

As far as capitalism leading to innovation, there is a public sector aspect to it. Those capitalists had to hire workers who got educated in public schools. They need functioning infrastructure to transport and build products. The point is that there is an alliance between the public and private sector when it comes to economic growth. The public sector tends to handle education, retirement pensions (which is necessary to free enough disposable income to purchase goods), infrastructure and security while the private sector handles business.

What evidence is there that US farmers were more productive? I wouldn’t know the cause even if they were, but I’d be interested in ideas if they actually were more productive.

18

Compare the latitudes of USA and Russia. That’s your explanation there.

Also take into account that the USA has been, in general, on the “colonizing” side of the “colonized vs colonizing” equation ever since its founding. That’s a big factor - the US didn’t just grow rich on its own original resources, but also on those it took from others, both material (land, goods) and personal (slaves, immigrants and native Americans). This is just a continuation of the way it was founded (the Eastern seaboard was hardly unoccupied, even if it was suffering a demographic disaster at the time, and slavery, of course, way pre-dates 1776) but it was ramped up to 11 after independence.

19

Because, to some extent, wealth breeds wealth. Wealthy nations, like wealthy individuals, have the luxury of maximizing the profits of their endavours and picking and choosing what to important and export. Poor nations are at the mercy of the market and have to export their, often cheap, goods no matter the price. Add to that how the wealthy in poor nations are often better off in the short term by exploiting the poor instead of increasing the overall wealth of their nation.

The US is currently wealthy because it’s wealthy. It’s the world’s too-big-to-fail debitor.

20

In 1860, just over 12.5% of the population were slaves, so, at the time, at least an 8th of the population didn’t have the opportunity to go where they wanted, buy and sell what they wanted.