48 • why nations fail

48 • WHY NATIONS FAIL

ity emerged since the late eighteenth century, following on the tails ofthe Industrial Revolution. Not only were gaps in prosperity muchsmaller as late as the middle of the eighteenth century, but the rank-ings which have been so stable since then are not the same when wego further back in history. In the Americas, for example, the rankingwe see for the last hundred and fifty years was completely differentfive hundred years ago. Second, many nations have experienced sev-eral decades of rapid growth, such as much of East Asia since theSecond World War and, more recently, China. Many of these subse-quently saw that growth go into reverse. Argentina, for example, grewrapidly for five decades up until 1920, becoming one of the richestcountries in the world, but then started a long slide. The Soviet Unionis an even more noteworthy example, growing rapidly between 1930and 1970, but subsequently experiencing a rapid collapse.

What explains these major differences in poverty and prosperityand the patterns of growth? Why did Western European nations andtheir colonial offshoots filled with European settlers start growingin the nineteenth century, scarcely looking back? What explains thepersistent ranking of inequality within the Americas? Why have sub-Saharan African and Middle Eastern nations failed to achieve thetype of economic growth seen in Western Europe, while much of EastAsia has experienced breakneck rates of economic growth?

One might think that the fact that world inequality is so huge andconsequential and has such sharply drawn patterns would mean thatit would have a well-accepted explanation. Not so. Most hypothesesthat social scientists have proposed for the origins of poverty andprosperity just don't work and fail to convincingly explain the lay ofthe land.

THE GEOGRAPHY HYPOTHESIS

One widely accepted theory of the causes of world inequality is thegeography hypothesis, which claims that the great divide betweenrich and poor countries is created by geographical differences. Manypoor countries, such as those of Africa, Central America, and SouthAsia, are between the tropics of Cancer and Capricorn. Rich nations,

THEORIES THAT DON'T WORK. 49

in contrast, tend to be in temperate latitudes. This geographic concen-tration of poverty and prosperity gives a superficial appeal to the ge-ography hypothesis, which is the starting point of the theories andviews of many social scientists and pundits alike. But this doesn'tmake it any less wrong.

As early as the' late eighteenth century, the great French politicalphilosopher Montesquieu noted the geographic concentration ofprosperity and poverty, and proposed an explanation for it. He ar-gued that people in tropical climates tended to be lazy and to lackinquisitiveness. As a consequence, they didn't work hard and werenot innovative, and this was the reason why they were poor. Montes-quieu also speculated that lazy people tended to be ruled by despots,suggesting that a tropical location could explain not just poverty butalso some of the political phenomena associated with economic fail-ure, such as dictatorship.

The theory that hot countries are intrinsically poor, though contra-dicted by the recent rapid economic advance of countries such asSingapore, Malaysia, and Botswana, is still forcefully advocated bysome, such as the economist Jeffrey Sachs. The modern version ofthis view emphasizes not the direct effects of climate on work effortor thought processes, but two additional arguments: first, that tropicaldiseases, particularly malaria, have very adverse consequences forhealth and therefore labor productivity; and second, that tropical soilsdo not allow for productive agriculture. The conclusion, though, isthe same: temperate climates have a relative advantage over tropicaland semitropical areas.

World inequality, however, cannot be explained by climate or dis-eases, or any version of the geography hypothesis. Just think ofNogales. What separates the two parts is not climate, geography, ordisease environment, but the U.S.-Mexico border.

If the geography hypothesis cannot explain differences betweenthe north and south of Nogales, or North and South Korea, or thosebetween East and West Germany before the fall of the Berlin Wall,could it still be a useful theory for explaining differences between

orth and South America? Between Europe and Africa? Simply, no.History illustrates that there is no simple or enduring connection


between climate or geography and economic success. For instance, itis not true that the tropics have always been poorer than temperatelatitudes. As we saw in the last chapter, at the time of the conquest ofthe Americas by Columbus, the areas south of the Tropic of Cancerand north of the Tropic of Capricorn, which today include Mexico,Central America, Peru, and Bolivia, held the great Aztec and Incacivilizations. These empires were politically centralized and complex,built roads, and provided famine relief. The Aztecs had both moneyand writing, and the Incas, even though they lacked both these twokey technologies, recorded vast amounts of information on knottedropes called quipus. In sharp contrast, at the time of the Aztecs andIncas, the north and south of the area inhabited by the Aztecs andIncas, which today includes the United States, Canada, Argentina,and Chile, were mostly inhabited by Stone Age civilizations lacking

, these technologies. The tropics in the Americas were thus much richerthan the temperate zones, suggesting that the "obvious fact" of tropi-cal poverty is neither obvious nor a fact. Instead, the greater riches inthe United States and Canada represent a stark reversal of fortunerelative to what was there when the Europeans arrived.

This reversal clearly had nothing to do with geography and, as wehave already seen, something to do with the way these areas werecolonized. This reversal was not confined to the Americas. People inSouth Asia, especially the Indian subcontinent, and in China weremore prosperous than those in many other parts of Asia and certainlymore than the peoples inhabiting Australia and New Zealand. This,too, was reversed, with South Korea, Singapore, and Japan emergingas the richest nations in Asia, and Australia and New Zealand surpass-ing almost all of Asia in terms of prosperity. Even within sub-SaharanAfrica there was a similar reversal. More recently, before the start ofintense European contact with Africa, the southern Africa region wasthe most sparsely settled and the farthest from having developedstates with any kind of control over their territories. Yet South Africais now one of the most prosperous nations in sub-Saharan Africa.Further back in history we again see much prosperity in the tropics;some of the great premodern civilizations, such as Angkor in modernCambodia, Vijayanagara in southern India, and Aksum in Ethiopia,


flourished in the tropics, as did the great Indus Valley civilizations ofMohenjo Daro and Harappa in modern Pakistan. History thus leaveslittle doubt that there is no simple connection between a tropicalloca-tion and economic success.

Tropical diseases obviously cause much suffering and high rates ofinfant mortality in Africa, but they are not the reason Africa is poor.Disease is largely a consequence of poverty and of governmentsbeing unable or unwilling to undertake the public health measuresnecessary to eradicate them. England in the nineteenth century wasalso a very unhealthy place, but the government gradually invested inclean water, in the proper treatmen:t of sewage and effluent, and,eventually, in an effective health service. Improved health and lifeexpectancy were not the cause of England's economic success butone of the fruits of its previous political and economic changes. Thesame is true for Nogales, Arizona.

The other part of the geography hypothesis is that the tropics arepoor because tropical agriculture is intrinsically unproductive. Tropi-cal soils are thin and unable to maintain nutrients, the argument goes,and emphasizes how quickly these soils are eroded by torrentialrains. There certainly is some merit in this argument, but as we'llshow, the prime determinant of why agricultural productivity-agricultural output per acre-is so low in many poor countries, par-ticularly in sub-Saharan Africa, has little to do with soil quality. Rather,it is a consequence of the ownership structure of the land and theincentives that are created for farmers by the governments and institu-tions under which they live. We will also show that world inequalitycannot be explained by differences in agricultural productivity. Thegreat inequality of the modern world that emerged in the nineteenthcentury was caused by the uneven dissemination of industrial tech-nologies and manufacturing production. It was not caused by diver-gence in agricultural performance.

Another influential version of the geography hypothesis is ad-vanced by the ecologist and evolutionary biologist Jared Diamond.He argues that the origins of intercontinental inequality at the start ofthe modern period, five hundred years ago, rested in different his-torical endowments of plant and animal species, which subsequently


influenced agricultural productivity. In some places, such as the Fer-tile Crescent in the modern Middle East, there were a large number ofspecies that could be domesticated by humans. Elsewhere, such asthe Americas, there were not. Having many species capable of beingdomesticated made it very attractive for societies to make the transi-tion from a hunter-gatherer to a farming lifestyle. As a consequence,farming developed earlier in the Fertile Crescent than in the Americas.Population density grew, allowing specialization of labor, trade, ur-banization, and political development. Crucially, in places wherefarming dominated, technological innovation took place much morerapidly than in other parts of the world. Thus, according to Diamond,the differential availability of animal and plant species created differ-ential intensities of farming, which led to different paths of techno-logical change and prosperity across different continents.

Though Diamond's thesis is a powerful approach to the puzzle onwhich he focuses, it cannot be extended to explain modern worldinequality. For example, Diamond argues that the Spanish were ableto dominate the civilizations of the Americas because of their longerhistory of farming and consequent superior technology. But we nowneed to explain why the Mexicans and Peruvians inhabiting the for-mer lands of the Aztecs and Incas are poor. While having access towheat, barley, and horses might have made the Spanish richer thanthe Incas, the gap in incomes between the two was not very large.The average income of a Spaniard was probably less than double thatof a citizen of the Inca Empire. Diamond's thesis implies that once theIncas had been exposed to all the species and resulting technologiesthat they had not been able to develop themselves, they ought quicklyto have attained the living standards of the Spanish. Yet nothing of thesort happened. On the contrary, in the nineteenth and twentieth cen-turies, a much larger gap in incomes between Spain and Peru emerged.Today the average Spaniard is more than six times richer than theaverage Peruvian. This gap in incomes is closely connected to theuneven dissemination of modern industrial technologies, but this haslittle to do either with the potential for animal and plant domestica-tion or with intrinsic agricultural productivity differences betweenSpain and Peru.

1\


II ,,

While Spain, albeit with a lag, adopted the technologies of steampower, railroads, electricity, mechanization, and factory production,Peru did not, or at best did so very slowly and imperfectly. This tech-nological gap persists today and reproduces itself on a bigger scale as

.new technologies, in particular those related to information technol-ogy, fuel further growth in many developed and some rapidly devel-oping nations. Diamond's thesis does not tell us why these crucialtechnologies are not diffusing and equalizing incomes across theworld and does not explain why the northern half of Nogales is somuch richer than its twin just to the south of the fence, even thoughboth were part of the same civilization five hundred years ago.

The story of Nogales highlights another major problem in adaptingDiamond's thesis: as we have already seen, whatever the drawbacksof the Inca and Aztec empires were in 1532, Peru and Mexico wereundoubtedly more prosperous than those parts of the Americas thatwent on to become the United States and Canada. North America be-came more prosperous precisely because it enthusiastically adoptedthe technologies and advances of the Industrial Revolution. The pop-ulation became educated and railways spread out across the GreatPlains in stark contrast to what happened in South America. Thiscannot be explained by pointing to differential geographic endow-ments of Iorth and South America, which! if anything, favored SouthAmerica.

Inequality in the modern world largely results from the unevendissemination and adoption of technologies, and Diamond's thesisdoes include important arguments about this. For instance, he argues,following the historian William McNeill, that the east-west orientationof Eurasia enabled crops, animals, and innovations to spread from theFertile Crescent into Western Europe, while the north-south orienta-tion of the Americas accounts for why writing systems, which werecreated in Mexico, did not spread to the Andes or North America. Yetthe orientation of continents cannot provide an explanation for to-day's world inequality. Consider Africa. Though the Sahara Desert didpresent a Significant barrier to the movement of goods and i~eas fromthe north to sub-Saharan Africa, this was not insurmountable. ThePortuguese, and then other Europeans, sailed around the coast and


eliminated differences in knowledge at a time when gaps in incomeswere very small compared with what they are today. Since then, Af-rica has not caught up with Europe; on the contrary, there is now amuch larger income gap between most African and European coun-tries.

It should also be clear that Diamond's argument, which is aboutcontinental inequality, is not well equipped to explain variation withincontinents-an essential part of modern world inequality. For exam-ple, while the orientation of the Eurasian landmass might explain howEngland managed to benefit from the innovations of the Middle Eastwithout having to reinvent them. it doe n't explain why the Indu trialRevolution happened in England rather than, ay, Moldova. In addi-tion, as Diamond himself points out. China and India benefited greatlyfrom very rich suites of animal and plants and from the orientationof Eurasia. But most of the poor people of the world today are inthose two countries.

In fact, the best way to see the cope of Diamond's thesis is interms of his own explanatory variables. Map 4 (opposite) shows dataon the distribution of Sus scrofa, the ancestor of the modern pig, andthe aurochs, ancestor of the modern cow. Both species were widelydistributed throughout Eurasia and even orth Africa. Map 5 (page 56)shows the distribution of some of the wild ancestors of modern do--mesticated crops, such as Oryza sativa, the ancestor of Asian culti-vated rice, and the ancestors of modern wheat and barley. Itdemonstrates that the wild ancestor of rice was distributed widelyacross south and southeast Asia, while the ancestors of barley andwheat were distributed along a long arc from the Levant, reachingthrough Iran and into Afghanistan and the cluster of "stans" (Turk-menistan, Tajikistan, and Krgyzistan). These ancestral species arepresent in much of Eurasia. But their wide distribution suggests thatinequality within Eurasia cannot be explained by a theory based onthe incidence of the species.

The geography hypothesis is not only unhelpful for explaining theorigins of prosperity throughout history, and mostly incorrect in itsemphasis, but also unable to account for the lay of the land we startedthis chapter with. One might argue that any persistent pattern, such as


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Map 4: The historical distribution of wild cattle and pigs

the hierarchy of incomes within the Americas or the sharp and long-ranging differences between Europe and the Middle East, can be ex-plained by unchanging geography. But this is not so. We have alreadyseen that the patterns within the Americas are highly unlikely to havebeen driven by geographical factors. Before 1492 it was the civiliza-tions in the central valley of Mexico, Central America, and the Andesthat had superior technology and living standards to North America orplaces such as Argentina and Chile. While the geography stayed thesame, the institutions imposed by European colonists created a "re-versal of fortune." Geography is also unlikely to explain the povertyof the Middle East for similar reasons. After all, the Middle East led theworld in the Neolithic Revolution, and the first towns developed inmodern Iraq. Iron was first smelted in Turkey, and as late as theMiddle Ages the Middle East was technologically dynamic. It was notthe geography of the Middle East that made the eolithic Revolution

S6 • WHY NATIONS FAIL

G Rice:area of origin- Rice:distribution of wild relativesi"2'l Wheat: area of origin• Wheat: distribution of wild relatives

~ Barley: area of origin• Barley: distribution of wild relatives

D Modem boundaries

Map 5: The historical distribution of wild rice, wheat, and barley

flourish in that part of the world, as we will see in chapter 5, and itwas, again, not geography that made the Middle East poor. Instead,.it was the expansion and consolidation of the Ottoman Empire, and

~ it is the institutional legacy of this empire that keeps the Middle Eastpoor today.

Finally, geographic factors are unhelpful for explaining not onlythe differences we see across various parts of the world today but alsowhy many nations such as Japan or China stagnate for long periodsand then start a rapid growth process. We need another, better theory.

THE CULTURE HYPOTHESIS

The second widely accepted theory, the culture hypothesis, relatesprosperity to culture. The culture hypothesis, just like the geographyhypothesis, has a distinguished lineage, going back at least to the

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The World According to Jared Diamond

J.R. McNeill Georgetown University

IN ITS SHORT CAREER, Jared Diamond's Guns, Germs, and Steel' has enjoyed remarkable success for a book not much concerned with diets, cats, or how to get rich quick. It has appeared on best-seller lists and as a selection for several book clubs, won a Pulitzer Prize, and accompanied President Clinton on his 1999 vacation on Martha's Vineyard. Not bad for an amateur historian. But what clinches the standing of the book for me is that for three straight years it has been voted the most popular reading assignment by my freshmen and international relations graduate students alike. Not bad for any 427-page book. Here I will argue that the success is well-deserved for the first nineteen chapters--excepting a few passages-but that the twentieth chapter carries the argument beyond the breaking point, and excepting a few paragraphs, is not an intellectual success.

The argument of the book is that the distribution of wealth and power among societies around the world has been powerfully shaped by biogeographic factors and that environmental endowment has sharply favored some societies, indeed some continents, over others. This has made it highly probable (if never fully certain) that these lucky ones would in time prevail over the unlucky. Those parts of the world fortunate enough to have a large suite of potentially domesticable plants and animals, and located so as to favor the migration and diffusion of domesticated plants and animals, enjoyed great advantages. They developed farming, metal- The History Teacher Volume 34 Number 2 February 2001 @ Society for History Education



166 J.R. McNeill

lurgy, writing, states, and a few other useful things earlier than did other societies. They also had earlier exposure to "crowd diseases," and thereby earned a wider portfolio of immunities to lethal infections earlier. These, the proximate causes of success in history, are in shorthand the "guns, germs, and steel" of the title. But behind them lay the ultimate causes of success: a favorable environmental endowment. Success, I note in passing, seems to be defined in terms of survival and spatial spread, a more- or-less darwinian view of how societies relate to one another

Diamond's book is very distinctive in several respects. First, it takes on the very big picture, treating the human experience as a whole. Professional historians are very averse to doing this themselves, trained as they are to consult documents and tease out their meanings. Even the growing cadre of world historians only rarely produces a bold soul willing to venture onto ground where his or her expertise is inevitably paper thin. It is a striking fact that most of the big picture histories have been written by people not trained as historians. Diamond's background is in physiology and evolutionary biology.

Another distinction is that Diamond's book argues for the possibility of a genuinely scientific history. Historians are divided as to whether their craft ought to be classified as an art or a social science. Diamond thinks history can be a science in roughly the same way that evolutionary biology or astronomy are sciences. Experiments are impossible in all these fields (as opposed to physics or chemistry), but so-called natural experiments are possible. In these one can compare developments in similar historical cases that are made different by the presence or absence of a potentially key variable. Methodologies developed in paleontology, ecology, and epidemiology, he says, can help historians make their inquiries more scientific. Diamond believes he has done this by compar- ing the long-term destinies of the continents.

Diamond's methods apply best to long-term and large-scale inquiry. As he puts it, he can predict with a high degree of accuracy that of the next 1,000 babies born at University of California-Los Angeles Medical Center, between 480 and 520 will be boys. But he could not predict with any confidence that his own two children would be boys. Similarly, he says, one could safely predict the outcome of competition between Europeans and Native Americans in North America, but one could not have confidently predicted the outcome of the 1960 presidential election. Hence, Diamond seems to say, his methods work best on the largest scale, where he has chosen to apply them in this book. By Diamond's logic of scientific history, then, one can see why the most powerful societies in world history all had roots in Eurasia, but it is harder to explain why, for example, the most powerful in 1850 was Great Britain.



The World According to Jared Diamond 167

This argument has more to be said for it than this crude summary might suggest. It is, in my view, persuasive as an answer to why Eurasian societies dominated those of Austronesia and the Americas after the requisite intercontinental contacts were forged. Eurasians had the guns, germs and steel and others did not. The argument works for sub-Saharan Africa, although less well I think. The book is even more persuasive on the systematic edge that food-producers, wherever they are found, enjoyed (and enjoy) over food-collectors. It is very persuasive on the usefulness of looking at the very big picture, at broad comparisons, and ultimate causes. It is very persuasive on the possibilities of history as a science, and on the value of stepping outside the usual disciplinary boundaries and into the realm of the natural sciences. And it is provoca- tive because it melds Austronesia and Polynesia into world history and indeed takes New Guinea as its starting point and in some cases as its frame of reference. This is, I expect, unique among world histories.

Please remember these words of praise, because I will now proceed to criticize the book although I accept much of its major argument and admire the book greatly. Some of the criticisms that follow, I should say, have as their ultimate cause student comments or papers.

Look at the chart that appears on p.87, showing the ultimate causes and proximate causes of the broadest patterns in history, which is Diamond's way of saying the competitive success of some societies at the expense of others. What ultimately counts, it seems, is the availability of potentially domesticable species and a geography conducive to the easy spread of useful species. As it happened, Eurasia enjoyed an edge in both depart- ments. It had far more in the way of domesticable species than any other continent, and its predominantly East-West axis made for easier and faster diffusion of species.2 These are interesting thoughts, new to historians, and they go a long way towards explaining the formidability of some Eurasian societies vis-a-vis those elsewhere.

But the fact that Eurasia spawned the world's most formidable societies does not pose a truly vexing question.3 Eurasia accounted for some eighty percent of humankind over the past 3,000 years, and probably well before that. Even if formidability were randomly distributed (which I do not suggest it was), one would expect to find it more often in Eurasian societies than elsewhere. Indeed because greater population ordinarily means greater inter- action, more intense intersocietal competition, and the faster and more thorough acquisition of a broader array of disease immunities, the probabil- ity would be even higher than eighty percent that Eurasia should at any given moment have produced history's most formidable societies. The deck was stacked even without Diamond's biogeographical factors. So Diamond has proposed some excellent new answers to a less-than-perplexing question.



168 J.R. McNeill

Factors Underlying the Broadest Pattern of History

ULTIMATE east/west axis FACTORS

many suitable ease of species wild species spreading

many domesticated plant and animal species

food surpluses, food storage

large, dense, sedentary, stratified societies

I

I

LI technology

PROXIMATE FACTORS horses guns, ocean- political epidemic

steel going organization, diseases swords ships writing




A more vexing question, and one more familiar to historians, is why Europe? Why, among Eurasian societies, was it those of western Europe that in the past 500 years (or only the past 200 according to some recent scholarship4) emerged to dominate the rest of the planet? Diamond devotes a good chunk of his final chapter to this question, leaving biogeography and domesticability behind, but retaining his focus on geography. He argues that Europe's topography led to political fragmentation, encouraging sharp competition among states, and eliminating the possibility that a single ruler could prevent some innovation or discovery from taking hold. China, on the other hand, was predisposed towards unity by its relatively homogeneous geography, by its lack of difficult mountains, by its "connectedness" to use Diamond's term. He uses the argument that Columbus in 1492 successfully found a backer despite several rejections, whereas Admiral Cheng Ho's oceanic voyaging ceased in 1433 by imperial command; this is to show how Chinese unity stunted Chinese development whereas European fragmentation let a hundred flowers bloom. The Fertile Crescent, Diamond says, committed ecological suicide and therefore had no chance to emerge as the world's domi- nant region. (India does not get to the starting line in this chapter.) That Europe's advantage lay in its geography and environment is not a new idea: E.L. Jones in 1981 made that argument in great detail, and others did it-if less thoughtfully-before him.5

Even if Diamond has his geography right, it is not a sufficient explanation. Indeed it is logically impossible to explain a temporary phenomenon, such as the dominance of Europe in certain centuries (or of China in earlier ones) by reference to more or less permanent conditions, such as the topography of Europe and China. Europe may or may not have a geography that encour- ages greater fragmentation than does China's (and I think this is open to question if one leaves out the Grand Canal, a man-made link). But conceding that for the moment, political fragmentation is not necessarily an advantage, indeed in some circumstances, such as the presence of a powerful and aggressive neighbor, it is a weakness. The West African forest zone has been politically fragmented for as far back as we can tell, yet this has not helped its societies in relation to those of the savanna to the north, or, after 1450, to those of Europe. India has been politically fragmented for most of its long recorded history, and has been repeatedly invaded and conquered by outsid- ers. Its fragmentation did not generate highly efficient states and technologically precocious societies bent on expansion and conquest. (The Mughal Empire, while bent on conquest, was not technologically precocious, and only occasionally highly efficient; it was also Central Asian in origin, not At left: From page 87, Guns, Germs, and Steel: The Fates of Human Societies by Jared Diamond (New York, London: W.W. Norton & Company, 1999).



170 J.R. McNeill

Indian.) Indeed Europe itself was politically fragmented in the 7th, 8th and 9th centuries yet showed none of the formidability it acquired a millennium later. So, using Diamond's methods of comparison across time and space, I conclude that geographical fragmentation even if genuinely more character- istic of Europe than elsewhere, is far from sufficient explanation for the question "Why Europe." I will not attempt to answer the question here,6 but will claim that one needs to look for clusters of conditions and circumstances, some of which may be permanent features but others of which necessarily must not be, in order to explain temporary phenomena such as the emergence of Europe. These conditions and circumstances form syner- gistic combinations that, for a time, allow one society or one region to become more formidable than others. This sounds complex, as it must.

In sum, then, I believe Diamond has pushed the argument too far in trying to answer "Why Europe" with an answer so rooted in geographical comparison. What is sufficient for the question, "Why Eurasia" does not suffice for the more demanding question "Why Europe." Eurasia's dominance is essentially a permanent phenomenon, if one allows, as Diamond does, heirs and descendants of Eurasian societies to count, and so it is plausible to explain it by reference to geographical endowment.

In the final chapter Diamond acknowledges that his analysis invites the charge of geographical determinism. He does not refute the charge, but says that the fears associated with it are unfounded, that human creativity and individuality do matter, that our futures are not pro- grammed by biogeography, but, merely, that environmental conditions provided better starting points for some societies than for others. This disclaimer undersells the book's power, because the argument is that some environments were much, much better than others, and it was well- nigh impossible that New Guineans should have become world conquer- ors. Indeed I think Diamond's book is geographical determinism, the best entry in that category I have ever seen.

But I think Diamond's argument is overdone, even considering the disclaimers in the final chapter. I have already argued that Europe's emergence in modem centuries cannot be put down to geography. Con- sider Egypt. It did not commit ecological suicide, but maintained the world's largest-scale sustainable society based on a very durable ecological system. This system lasted from Pharaonic times until the completion of the Aswan High Dam (1971). Great interannual variability existed in the flood waters and silt subsidy brought by the Nile, but over the long haul, Egypt's environment was virtually the same. Yet Egypt's fortunes fluctuated wildly. It experienced long periods of power and regional dominance, and other periods of weakness and domination by others. Perhaps Egypt, as prominent as it is, amounts to too small a canvas in




Diamond's analysis, too small a sample size from which to draw conclu- sions. But if so, this merely points to the limits of Diamond's scientific method as well as the limits of geographical determinism.

Diamond's argument exceeds its limits on another point as well, that of the "tilting axes." Throughout the book Diamond argues that the East- West axis of Eurasia provided an advantage in the dispersal of useful, mainly domesticated, plants and animals. The chart on p. 87 identifies this as the most ultimate of ultimate factors. With respect to the lengths of days and the importance thereof for flowering plants, the argument makes fine sense. Maize's spread northward from Mexico was, Diamond persuasively argues, slowed by the necessity of genetic adaptation to. different day lengths at different latitudes. Maize could spread much more easily East-West than it could North-South. But with respect to animals the argument must be made in more general climatic and ecological terms, and here it gets weaker. Eurasia's East-West axis could not have been much help in the spread of cattle or goats. Its extreme variety of climatic conditions, its high mountains, deserts, and tropical forests posed a considerable challenge for the spread of most animals (and I should think, plants). From the Gulf Stream-induced equability of western Europe, to the continental climate extremes of Kazakhstan, to the monsoon rhythms of Korea, temperature and moisture regimes show tremendous variation. A given line of latitude within Eurasia might

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Figure 10.1: Major axes of the continents. From page 177, Guns, Germs, and Steel: The Fates of Human Societies by Jared Diamond (New York, London: W.W. Norton & Company, 1999).



172 J.R. McNeill

embrace conditions as diverse as those of Shanghai, Lhasa, Delhi, Basra, and Marrakesh, all of which are very close to thirty degrees north (North Africa counts for most of Diamond's purposes as part of Eurasia [p. 161]). Beyond this, since North Africa counts as part of Eurasia, then Africa deserves an East-West axis like Eurasia's, because it is much farther from Dakar to Cape Gardafui than it is from the Cape of Good Hope to the Sahara. And Australia, which does not get an axis on the map, extends further East-West than North-South. In Australia, I should think rainfall isohyets would correspond better to the migration history of plants and animals than do lines of latitude and longitude. All this, I think, casts some doubt on the explanatory power of the axis argument.

Indeed, the successful spread of crops and livestock (not to mention the writing, wheels and other inventions that Diamond mentions in this argument) is surely determined in large part by factors other than geography, and the role of geography is much more complex than the axes suggest. The role of other geographical factors I alluded to in reference to Eurasia. But the spread of useful species was usually a conscious act (weeds were different). They could not, of course, flourish where ecological conditions did not permit, but where they went when was largely a human affair, determined by trade links, migration routes, and happen- stance. Coffee, an Ethiopian native, eventually made its greatest impact in southern Brazil, not at Ethiopian latitudes within Africa. Cattle domestication spread from its point of origin (in southwest Asia) to South Africa and Sweden, flourishing in between in circumstances as diverse as Sudan's and Switzerland's. Along the East-West axis of Eurasia, cattle became important in Europe, fundamental in India, yet inconsequential in China. This is not because Chinese environmental conditions were inhos- pitable to cattle, but because Chinese social and economic conditions were. The diffusion of cattle as of AD 1000 was along a North-South axis more than an East-West one, partly because cattle can cope with both heat and cold, but also because cattle-raising fit in with the ideological, cultural, social, and economic systems of some societies better than others, regardless of geography.

For these reasons I think Diamond has oversold geography as an explanation for history. I find the best part of his geographic determinism to be the biogeographic part. The business about the distribution of potentially domesticable species was new to me, and I think to historians generally, and I accept the importance of these facts. The differential ease of plant and animal diffusion as determined by continental axes strikes me as less persuasive. But that, on Diamond's scale, may be only a quibble. However the spread of useful species was governed, who had them and got them first was indeed important.




There are other quibbles I might pursue but will only list in the interest of brevity. First, Diamond's organization of the world into competing continents seems at times conceptually dubious.' Whatever social units might genuinely compete-kin groups, states, firms in the modem world- continents do not. Diamond uses the continents as units of analysis in broad historical comparison and does not imagine that they were actually consciously competing with one another. Nonetheless, this arrangement needs a more explicit justification and ought not to stand unexamined. Second, Diamond assumes that all societies seek wealth and power, much as evolutionary biologists tell us individuals of enduring species seek to maximize their genetic footprint upon the future. No doubt societies do, but surely to varying degrees, which might matter even on large scales. Some societies sought to maximize their formidability, while others aimed for internal harmony or spiritual grace as well; and of course these commitments might vary within a given society over time. Thirdly, people help shape their environments, a fact Diamond recog- nizes in claiming the Fertile Crescent committed ecological suicide, and in suggesting that potential domesticates might have been killed off in the Americas and Australia if the "overkill hypothesis" of late Pleistocene extinctions is correct. But in general-perhaps my perspective as an environmental historian makes me oversensitive here-it seems to me that Diamond's geography and environment are too fixed whereas I prefer to see society and environment locked in co-evolutionary embrace.

These, I emphasize, are quibbles when viewed on the scale Diamond chooses. And I want to emphasize as well that Diamond is right to insist that this scale is a useful one for historians, an essential antidote, or more charitably, a counterpart, to the detailed, narrowly-bounded work that professional historians are trained to do in graduate school.

Conclusion

Finally, I wish to draw attention to an implication of Diamond's argument. Here I will not carp or criticize, but merely observe. Econo- mists and policy wonks normally believe that prosperity lies ahead if one only gets the policies right. Modernization theorists used to think that with the right programs and policies, one could, over time measured in years or decades, recast a society and put it on the road to prosperity, stability and other good things. The World Bank lends billions in this faith. But Diamond says that "the hand of history's course as of 8,000 B.C. lies heavily on us" (p. 417). He notes that even in this modem age of microchips and telecoms, the most powerful and wealthiest societies are the heirs of Eurasian predecessors who pioneered domestication and



174 J.R. McNeill

reaped the benefits. Japan or the United States might flourish for a while, like Europe or China, but not, to repeat his examples, Paraguay or Zaire (now Congo). Some twenty percent of humanity, although created equal- Diamond is militantly anti-racist throughout-is thus permanently rel- egated to the minor leagues. The die was cast long ago, and most of Austronesia, Africa, and the Americas rolled snake eyes. Fatalistic, perhaps, but probably true for the foreseeable future.

While I have sung its praises only in passing and dwelt on its faults, I want to repeat that overall I admire the book for its scope, for its clarity, for its erudition across several disciplines, for the stimulus it provides, for its improbable success in making students of international relations believe that prehistory is worth their attention, and, not least, for its compel- ling illustration that human history is embedded in the larger web of life on earth.

Notes

1. Jared Diamond, Guns, Germs, and Steel: The Fates of Human Societies (New York: W.W. Norton, 1997). This essay is based on a presentation given at the annual meeting of the American Historical Association in Chicago (January, 2000). I thank my fellow panelists Patricia Galloway and Jared Diamond for the bracing discussion.

2. For expample, of the world's 148 large herbivorous mammals, only 14 have been successfully domesticated. Thirteen of those 14 existed naturally in Eurasia (the llama did not). See pp.157-75.

3. When I made this case at the American Historical Association meeting in January 2000, at a session devoted to Diamond's book, Prof. Diamond argued vigorously that I was wrong on this point, that this is a vexing question.

4. Kenneth Pomeranz, The Great Divergence: Europe, China and the Making of the Modern World Economy (Princeton: Princeton University Press, 2000); Andre Gunder Frank, ReOrient: The Global Economy in the Asian Age (Berkeley: University of Califor- nia Press, 1998).

5. The European Miracle (Cambridge: Cambridge University Press, 1981). 6. I would, if trying, insist on the importance of ideological factors in explaining

China's tradition of unity (since the 3rd century BC) and Europe's disunity. With the gradual adoption of Confucian ideals, Chinese elites regarded unity as normal and desirable, an outlook that Europeans lacked. The efforts of Charlemagne, Napoleon and Hitler ran against the grain, not with it. The example of Rome, never a pan-European empire in the first place, spoke only to some Europeans, and by the fifteenth century many of those came to see the competing Greek city-states rather than the Roman Empire as the legitimate model for international society.

7. See M. Lewis and K. Wigen, The Myth of Continents (Berkeley: University of California Press, 1997).



1

Culture Makes Almost All the Difltrence

courege rather than suppress economic development, the imbalance betweenChinese performance at home and abroad is disappearing, as China sustainsthe phenomenal growth rates that propelled the Clonfucian "dragons" fromthe Third !ilorld to the First.)

An economist fr iend, a master of pol i t ical-economic therapies, solves theearlier, perhaps now obsolete paradox by denving any connection with cul-ture. Culture, he says, does not permit him to predict outcomes. I disagree.One could have foreseen the postwar economic success of Japan and Ger-manv by taking account of culture. The same with South Korea versusTurkey, Indonesia versus Nigeria.

On the other hand, culture does not stand alone. Economic analysis cher-ishes the illusion that one good reason should be enough, but the determi-nants of complex processes are invariably plural and interrelated.Monocausal explanations will not work. The same values thwarted by "badgovernment" at home can f ind opportunity elsewhere, as in the case ofChina. Hence the special success of emigrant enterprise. The ancient Greeks,as usual, had a word for it: These metics, alien residents, were the leaven ofsocieties that sneered at money and crafts (hence the peiorative sense of theGreek-rooted word "banausic"-of an art isan, dul l , pedestr ian). So strangersfound and sold the goods and made the money.

Because culture and economic performance are linked, changes in one willwork back on the other. In Thailand, al l good young men used to spendyears undergoing a religious apprenticeship in Buddhist monasteries. Thisperiod of r ipening was good for the spir i t and soul; i t also suited the somno-lent pace of traditional economic activity and employment. That was then.Todav, Thailand moves faster; commerce thrives; business cal ls. As a result,younB men spiritualize for a few weeks-time enough to learn some prayersand rituals and get back to the real, material world. Time, which everyoneknows is money, has changed in relative value. One could not have imposedthis change, short of revolution. The Thais have voluntarily adjusted theirpriori t ies. (I t should be noted in passing that the Chinese minority led thecharge. )

The Thai story illustrates culture's response to economic growth and op-portuniry. The reverse is also possible-culture may shift against enterprise.We have the Russian case, where seventy-f ive years of anti-market, anti-profit schooling and insider privilege have planted and frozen anti-entrepre-neurial att i tudes. Even after the regime has fal len, people fear theuncertainties of the market and yearn for the safe tedium of state employ-ment. Or they yearn for equality in povertv, a common feature of peasantcultures around the world. As the Russian joke has it, peasant Ivan is iealousof neighbor Boris because Boris has a goat. A fairy comes along and offers

Culture Makes AlmostAll the Difference

D A V I D L A N D E S

Max $7eber was r ight . I f we learn anvthing f rom the historv of economic de-

velopment, i t is that cul ture makes almost a l l the c l i f ference. Witness the en-

terpr ise of expatr iate minor i t ies- the Chinese in East and Southeasr Asia.

Indians in East Afr ica, Lebanese in Viest Afr ica. Jews and ( la lv in ists through-

out much of Europe. and on and on. \et cul ture, in the sense of the rnncr val-

ues and at t i tudes that guide a populat ion, f r ightens scholars. I t has a su. l fur ic

odor of race and inher i tance, an ai r of immutabi l i tv . ln thoughtfu l moments,

economists lnd other socia l sc ient is ts recognizc that thrs is not t rue, and in-

deed they salute examples of cul t r r ra l change for the bet ter whi le deplor ing

changes ior the u 'orse. But applauding or deplor ing imphes the passivrn 'of

the v iewer-an inabi l i ty ro use knor,r ' ledge to shape people and th ings. The

technic ian would rather change interest and exchange rates, f ree up t rade, a l -

ter pol i t ical inst i tut ions, manage. Besides, cr i t ic isms oi cul ture cur c lose to

the ego and in jure ident i ty and sel f -esteern. Coming f rom orr ts idcrs, such ani-

madvcrs ions, however tact fu l and indirect , s t ink of condescension. Berrevo-

lent improvers have learned to steer c lear.

But i f cul ture does so much, why does i t not q.ork consistent lv l F- .cono-

mists are not a lone in asking whv some people- the Chinesc. sav-hlvc long

heen so unproduct ive at home yet so enterpr is ing au'av. I f cul ture nl . l t ters,

why didn' t i t change C--hina? (V/e should note that ' , r , i th pol ic ies thr t non'en

c t i L l - u R l , \ 1 , \ T ' I t , R s

Ivan a s ingle u ' ish. What does he u ' ish for? That Bons s goat should drop

dead.

F,rr tunately. not a l l Russians th ink that wirv. The col lapse of . i t larx ist pro-

hib i t ions ancl inhib i r ions has led to a nrsh of husiness act iv i tv , the hest ot i r

l inked to ins ide deals, some of i t cr inr inal , much of i t the work of non-Rus-

sian mrnor i t ies (Armenians. Georgians. etc.) . The leaven is there, i rnd ohen

thar suf f ices: the inr t iat ive of an enterpr is ing, . d i f ferent feu ' . In the meant in)c.

o ld habi ts remain, corrr . lpt ion and cr ime are rampant, cul turc sar r rges-

elect ions hang on thcse issues, and the outconle is not certa in.

D E P E N D E N C Y T H E O R Y , A R G E N T I N A , A N D

F E R N A N D O H E N R I Q U E C A R D O S O ' S M E T A M O R P H O S I S

Dependencv tbcorv w:ts a comfort ing al ternat ive to cul tural explanat ions of

underdevelopment. Lat in American scholars and outs ide svmpathizers cx-

pla ined the fa i lure of Lat in American development, a l l the worse bv contrast

u, i th North America. as the consequence of the misdeeds of st ronger. r icher

nat ions. Note that the dependen<y vulnerabi l i tv impl ies a state of infer ior i tv

in u.h ich one does not contro l one's tate; one does as others d ictate. Needless

to sav, these others explo i t their super ior i ty to t ransfer product f rom the de-

pendent economies, much as the ear i ier colonia l ru lers d id. The pump of em-

pire becomes rhe pump ol capi ta l is t imper ia l isnr .

Yet to co-opt indepenclent sovereiqn nat ions requires lending and invest-

ment l s imple pi l lage is not an opt ion. So wi th Argent ina. u 'h ich srrved l r t t ie

and drew increasingl l ' on foreign c;rp i ta l . {The chief archi tect of dependencr '

theory was Ra[ l l ' ] rebisch, an Argent ine economist . ) Some economists contend

that foreign capital hurts gro\l'th; others, that it helps, but less than domestic

investment. NIuch ohviousl l c iepends on the uses. In the meant ime, no one is

prepared to refuse outs ide monev ()n grotrnds of ef f rc iencl ' . The pol i t ic ians

want it and are willing to let the dependenc.y theorists wring their l-rands.

Argent ina had some very r ich people. vet " for reasons that have never

been c leer. . . has alq 'avs [ .een capi ta l -dependent ancl therebv heholding Is ic]to loaner f iencler ] nat ions, in wavs that serrousl .v compromise the countrv 's

abi l i tv to run i ts own af fa i rs." 'The Br i t ish bui l t Argent ina's ra i l roads- less

than 1.000 k i lometers in 1871. over 12.000 k i lorneters two decades later-

but bui l t them to Br i t ish purposes. But how does one bui ld such a nerwork

without foster ing internal markets? And i f not , rvht ise faul t is i t? V'hat does

that sav about the spir i t cr f nat ive enterpr ise? Most Argent ines \ r 'ere not ask-

ins such quesr ions. I t is a l r , r 'ays easv to b lame the Other. The resui t : a xeno-

phobic ant i - imper ia l ism and sel f -defeat ing sense of u ' rong.

In the ntnctcenth e t ' t r turr ' , a . l is t ineuishccl ; \ rge nt t t le ' J t :en l laut is ta Aibtrd i ,

u 'orr ied about thc spint ( ) f nat i \ .c enterpr ise. In I l l 52. he u ' rote. in worcls that

ant ic ipated what lv lar \ { Ieher n 'ould r l ' r i tc f i f t l vexrs l i l tcr ,

Rrspect thr . r l tar of evcr. [ .e l ref . \ f ,err ish Amcrtea, i i rn i t r -c1 to ( .ethol ic isnr to thc

trc i r rsrol r o i arr ! othcr re l ig iorr , rc.cmblc-s r s , l l i tan 'ancj st lcnt c() l lvcnt r l f nt tns

. . . Tt ' erc lu. lc d i i l 'erent re l iq ions in South Americ i r ts to cxelude the [ ingl ish, the

( iernrans^ the Srv;ss. thc \ r , r th . \nrrr icr tns, s 'h ich is to r . t r ' the yerv pcople th is

cont incnt tn()st necd\ . To br ine thenr rv i th,rut thci r r t l igron is 1o br inq thent

q ' i thout the aqcnt that makcs them u'hat they arc. l

Some have at t r ibutcd Argcnr ina's kxv rr te of savings to rapid popuirr t ion

gro\ l ' th end high rates of immigrat ion-to rvhich I would add bad habi ts , r f

conspicuous consumpt i ( )n. In anr cvent , foreign capi ta l f lorvs depcndcd as

much on supply cont l i t rons : rbroad as on Argent ine opportr tn i t ies. Dur ing

\ \br ld \Var I , the Brr t ish neer led mone,v and had to l i t lu idete foreign assets.

. \ l though rernain ing Argent ina's b iggest creci i to l , thev no longcr p laycd the

gr() \ \ ' th-pronr() t ing ro le , r f ear l ier decades. ' l

hc l , ln i tcd States picked up s()me

ol the s laek. but here too pol t t tcs and the husiness cycle cal lec l thc tunc. s()

that , \ rgent ina found i tsel f in intermit tent but rcpeatet l d i f f icul t l both for thc

anr()u l l t and the terms,, f foreign investment and credi t . Al l of th is promotet l

c()nt l ic t r r ' i th credrtors. w' l r ich led in turn to react i \ /e isolat jonism-resfr ic t ive

l neasu res t ha t on l v agg rava ted t hc econom ic s t r r ngcnc l ' and dependenc l ' .

Vthen Argent ine econornists and pol i t ic ians denounced thesc c i rcumstances

.rn. l the mrsr leeds, real and imaerned, of outs idc intL ' rcsts, thev only com-

pouni led the prohlem. - f t r

ne sure, coco()n econonr ics- the logical prescr ip-

t ron of the dependenr is la-s-helped shel ter Argent in;r i lnd othcr Lat in

. ' \ r 'ner ican economics f ronr the rvorst ef fects,r f the ( i rc . r t L)cprcssion. Such is

the n. i t i i re cr f cocoons. l lu t i t a lso cut them of t i rom c()mpe r i t i ( )n. st i rnrr l i . arr t l

opportuni t ies for : grot ' th.

I )ependencista argumenfs f lour ished in Lat in America. They t ravcled rvel l .

resonat inq ef ier \ { /or ld \X1ar I I u ' i th the economic pl ight and pol i t ical au'arc-

ne.s of neul t l ibereted colonres. ( .vnics rn ight say that dependency c loctr ines

havc hccn l .at in r \mer ica 's most successful exp()r t . But thcy have been I 'ad

for ef for t lnr l rn()ra le. Bv foster ing a morbid propcnsi tv to f ind faul t wi th

cver\ ' (Jnc hut onesel f . they promote ccortonr ia impotence. l : . rcn i l thcy ue' rc '

t rue. i t u, tnr lJ lsn,e l recn bet ter to sto l t , tht 'nt .

. \nd indeed, thet is whir t Lat in Arner: ica erppe:rrs to hrve c lonc. ' lbc lay. a l l

countr ies in the $Testern Hemisphere, inc luding Clube, u 'e lcotnc foreign in-

vc\ tment. . \ rqcntrnr har been e le,rdcr in thc t ransforrn.r t ion. - fhc:r i r t ism

that

( _ U t f t r R E \ t A f T F R S

clependencv theor l counseled has l reen dismant led tn a wel ter of pr i lat iza-

t ions. iVlerrco, once the horne of somc of the most st r ident t lependettc istas,

has r leveloped e hroad nat ional consensust svnrbol ized bv NAFTA, that i ts

interests are best served b1'cconomic int imacv wi th thc Uni tcd States and

Canada . I ' he l amh has l eap t r n to t he m( )u th o f t he l i on and eppea rs t ( ) ha \ c

benef i ted f rom thc enc()unter .

For vear: . Fernando Henr ique Cardoso u 'as a leading f igure of the l , : r t in

Amer i can depcndencv schoo l . I n t he 1960s and 1970s , t he soc io l og i s t ( . a r

c loso r .vrote or cdi ted s()rne t$ ient \ ' l rooks on the sLrbject . Some of them be-

camr- the standlrd texts that shaped a generat l ( )n of students. Perhaps the

best kncrwn was Dependeno, and Det 'e lopment in Lat in Anter tca. ln r ts Eng-

l ish versron, i t ended vn' i th a turgid, less- than-st i r r ing credo:

The ef fect iye bamle . . . is benveen technocrat ic e l i t ism and a v is ion ot the torma

t ive process of a rnass industr ia l societv which can of fer * 'hat is popul i r r ; rs

specrf rcal l r ,nat ional and uhich succecds in t ransformrng the demand for a more

developed economv and lor a democrat ic socretv into a state that expresses the

vi ta l r ry of t ru lv popular forces. capable of seeking socia l is t forms for the socia l

o re .an rza r i , ' n o f t he f u tu r c .

Tl- ren. in I99.1, Cardoso became Rrazi l 's minister of f inance. He found a

countr l wal l<xving in an annual in i lat ion rate of i ,000 percent . The govern-

ment hed become so addicted to th is rnonetarv narcot ic and Brazi l i . rns so in-

genior . rs rn their personir l eounterm(asures ( tar is used meters that coulc l be

acl iusted to the pr ice indcr, and pcrh:rps t ( ) thc c l icnt) that ser ious ec()norr is ts

rvert ready to nrakc l ighr of th is volatr l i t r ( )n thc prete\ t that cert t int \ ' ( ) t ln

ililtrol.r \\'as a forrn of stal..ilitl '.

T l - r i . ' mav h.rve beerr t rue of t l r , tsc I i razi l inns eblc to take f r l :c i lut ion\ : laut

r n f l a t i on p l aved havo . r v i t h B raz i l ' . i n t e rna t r ( ) nJ l c red r t . anc l t he coun t r r

nect led t ( ) b()r row. l t a lso needecl to t r : lde ent l u,ork n ' t th other countr ies. cs-

pec ia l l l ' t hose r i ch , cap r t a l i s t na t i ons t ha t we re rna rked as t he enemr ' . So

C:rr . loso hegan to see thrngs di f ferent lv . to rhe point u 'here o[ .ser lers praised

him as a pragmat ist . Gone nou' \ \ .ere the ant i -colonral is t passi( )ns: gone the

hos r i l i t v t o f o re i gn l i n ks . r v i r h t hc i r imp l i c i t dcpendenc l ' . B raz r l has no

choice. savs C.rrdoso. I f r t is not prepared to be part of the global econ()m\ '1

i t h r s " no u ,a t ' o f c ( )mpe t i ng . . . . I t i s no t an i r npos i t i on f r o r r ou t s i t l c . I t ' s a

l lccr iss l t ! f or us. " -

J i r each t ime i ts v i r tucs. lu 'o vears later . ( ,ardoso rvas elected presrdent. rn

l a rg r pa r t because hc had g i ven l l r az i l i t s f i r s t s t r ong cu r ren ( \ ' r n n r Jn \ ' ! eA r \ .

( u l t r r t \ ' f , r A c s . \ / n r , , s t \ l l t l , , ' D r l l t , o r , t

J A P A N ' S M E I J I R E S T O R A T I O N -

C O U N T E R P O I S E T O D E P E N D E N C Y T H E O R Y

I lernarc l [ -eu' is once ol .servecl thar " rvhen pcople real izc thet thrngs are going

s ' r ong . t he r t ' l r e t \ \ ' o ques t i ons t he r can ask . L )ne i s , ' \ i ha t d i d r ve dc r

u rong? 'and t he ( ) t he r i s 'V ' ho d i d t h i s t o us? 'The l : r t t e r l eads t o consp i r i r c v

theor ies and paranoia. Thc f i rs t ( luest ion leacis to enother l ine of th inking:'How do \ re put i t r ight?"" In the seconcl hal f of thc twent leth centur \ ' . Lat i i l

Anrerrca chose conspiracv theor ies and paranoi : r . In the second hal f of the

nineteenth centur)- . Japan asked i tsel i . "How'do we put i t nght?"

Japan had a r evo lu t i on i n 1867 - . 1 86 t i . Thc f euda l shoguna te was ove r -

thrown-real lv i t col lapsed-and contro l o i the state returned t ( ) the emperor

in Kyoto. So ended a quarter mi l lennium of Tokugawa rule. But the Japanesecal l th is overturn a restorat ion rather than a revolut ion because they prefer to

see it as a return to normalcv. Also, revolutions are for China. The Chinese

have dvnasties-.fapan has t-'ne royal familv, going back to the heginning.

The s l 'mbols of nat ional uni tv rvere al readl ' present; the idcals of nat ional

pnde , a l r eadv de f i ned . Th i s saved a l o t o f t u r r l o i l . Rcvo lu t i ons , l i ke c i v i l

wars, can be devastat ing to order and nat ional ef f icac-v. The NIei i i Restora-

t ion had i ts d issensions and drssents, of ten v io lent . Thc f inal years of the old.

the f i rs t of the neu, , were sta ined wi th the blood of assassinat ions, of peasant

upnsings. of react ionar-v rebel l ion. Even so, the t ransi t ion in Japan was far

smoo th t r t han t he F rench : rnd Russ ian va r i e t i es o f po l i t i ce l ( ) ve r t u rn . f o r two

reJS() l rs: the nelr - regrme held thc nor l l h igh gnrunJ. lnd evcn thc disai fected

and ai fnrnted fe:r red to g i re.r rms anr l ( )Frp()r tunl t t ' to the enernv outs ic ie. For-

t ' ign i rnpenel is ts were lurk ing t ( ) p()uncel and intcrnal d iv is ions w., r r r ld h lyc

rn r - i t ed i n t e r r - en t i on . Co r r s i de r t he s to r y o f impc r i e l i sm e l seu ' he re : I - oca l

.1Lr; r r re is end intr reuc hed fa i r lv rnvr ted thc European po\Lers into India and

s'ould soon suborcl inate (-h ina.

In . r societv th;r t had never adrrrr t tc .d the stranger, the ver l .presencc of west ,

crncrs inv i ted tnruble. \ ' Iore th i rn once, - fapanese bul lvho.u. 's chal lengccl and

rssaul tct l thcse impudent ioreigners, thc bet ter to show them who was boss.

\ \ 'ho t 'as hossi In the face of Western demands for retr ibut ion and indcmni-

t ies. the Japanese ruthor i t les could onlv tempor ize and. br- waff l ing. d iscredi t

themseh.es in the e1'es of foreigner and patr iot a l ikc.

The pretensions of the outs iders were the heart of the nrat ter . "Honor the

cmpero r l expe l t he ha rba r i ans ! " wen t t he p i t hv s l ogan . ' l he l eade rs o f t he

mole f r r r change. lords oi the great f iefs of the Far South ant l \X 'est , ( )nce ene-

mies. nou' uni ted : rgainst the shogunate. Thev rr ' , rn; and ther, lost . That was

( ] T ] L T L i R L \ { A T T ' F - R \

i r n r ) r he r pa rac l ( ) x . f r h r s r evo lu t i on - res to r r t t i < - r r t . ' l - he l eade rs t houqh r t hc rq 'cre g, , r ing back to thc davs , r f r ' , r r . . lnsteacl , ther found thenrselvt . crrught

Lrp in fonrorrow. in e 'nv i lvr 'of rnodernizat ion. hecause th i t t $es the onlv r . r ' l r '

to defr-at the barh:rr ians. \ou westerners h:rve the gr-rns. Al l r ight . one dar

u ,e ' l l ha l e t hem too .- fhe

. [apanese q 'ent a l rout nrodernizat ion wl th character is t ic intensrt l : rnd

svs ten r . - I - hc1 ' q .e re r eadv f o r i t - h t ' v i r t ue o i a t r ad i t i on ( r eco l l ec t i on l o f e t -

fect ivc government. by their h igh levels of l i teracr ' . bv their t rght tami l l s t ruc-

t r r r e . i r v t he r r r vo r k e th i c an t l se l f - d i sc i p l i ne . by t he i r s cnse o f na t t ona l

i den r r r l and i nhe ren t supe r ro r i n .

That rvas the heart of i t : - fht ' . f : rprrnese knen thev wcre supt ' r ior . and hc-

( : r ruse the) 'kner, r ' i t . thcy were ablc to recognize the supcr iorr t res 0f others.

I tu i ld i r rg on ear l ier nroves under Tokugawa, thev hi red iorr ' tgn experts and

technicrans r ' , ,h i le sencl in! : . |apanese agents abr()acl to br ing back elew' i tness

accoLt l ts o i F iurope:rn and Anrer ican u 'avs. This bodv of inte i l igence la id the

basis tor choices, ref lect ing careful and supple considerat ion of comparat ive

meri t . Thus the f i rs t mi l i tarr-nrodel rvas the French armv; bur af ter the i lefcat

o f F rance b l 'P russ ia i n l i l 70 - l l l ?1 , t he f apancse t . l e c i ded t h r t ( i e rn ranv had

In()re to of fer . A s imi lar shi i t took placc f rom French to ( iermiru legal codes

and pract ice.

No opportunin- for learning r" 'as lost . ln Octoher l 8- l . a h ieh- level Japan-ese delcgat ion that inc ludcd ()kubo Toshimichi t revelecl ro thc Lln i ted States

and F.urope, r ' is i t ing factor ies and forges. shipvards and armor ies, ra i lu 'avs

and c:rnals. Thcv returncd in September 181.3, a lmost t \ r ' ( ) vears later . laden

u, i rh the spoi ls of learnrng and "on f i re rv i th enthusrasm" for reform."

l -h is d i rect exper ience bl the . [apanese leaclership made rr l l the c l i f fcrcnct- .

Rrding on an Engl ish t ra in, ( - )kubo conf idecl rueful lv that . before leaving

. fapan. he had thought h is r , r ,ork c lone: the imper ia l auth()r i tv restored, ieudal-

isrn rcplacccl hv centra l govcrnrncnt . Nou'he understood that rhe hig tasks

lav ahcad. - fapan dic i not comprrre wrth ' ' the nr() re f rogressrvc porvers of thc

u ,o r l d . " F -ne lanc l c spcc ia l l v o f f e red a i esson i n se l f - deve lopmcn t . C lnce r r

sma l l . r nsu la r na t i o r r - l i ke . l apan -F .ng land had svs tema t i ' j a l i \ pu r sued r . r

pol icv of sel f -aggrant l iz .ement. The Navigat ion Acts u 'err cruci r l rn ra is ing

the nat ional merchant mar ine to a pr is i t ron of internat ioni : l domrnauce. Not

unt i l l l r i t r in had achreved industrra l leaclership d id i t abandon protcet i ( rn for

larsscz-farre. (Not a I rad enah's is. Adarn Smith rvould have agreet l . )

l o he su re . . f r pan r vou ld n r t ha l e t he t a r i i f anc l commerc ia l au tonomr '

t ha r seven teen th - ccn tu r v I r ng land had en joved . He re . hos ' e l c r . t hc Gc rman

c ran tp l e made sense . C i c rman r ' . l i k c Japan . had on l v r ecen t l v co l nc t h r ( ) ugh

a d i t f i c t r [ r un i f i ca t i on . A l ' o . ( , c r r n i r nv . l i ke . l . r pa r r . had s t r r r t ec l f r om a pos i -

Cul ture Makes ALmost Al l the Di f {erence

t i t >n o f econom ic i n f e r i o r i t y , and l r >ok how fa r i t had come . C )kubo was

much imp ressed bv t he Ge rman peop le he me t . [ { e f ound t hen r t h r i f t v ,

ha rdwo rk i ng , " unp re ten t l ous " - l i ke Japanese commone rs , one imag rnes .

And he found their leaders to be real is ts and pragmat isrs: Focus. thcy said,

on bui ld ing nat ional por, , 'er . The,v were the mercant i l is ts of the nineteenth

centurv. Okubo came back and gave a German or ientat ion to the Japanesebureaucracv.

First came those tasks ordinary to government: a postal serv ice, a new t ime

standard, publ ic educat ion ( for boys and then for g i r ls as wel l ) , universal mi l -i t : r rv sen' ice. Cieneral school ing di f fused kno* ' ledge: that is what schools l l retor . But i t a lso inst i l led disc ip l ine, obediencc, punctual i t l ' , and a worshipfu l

respect for the emperor. This was the kev to the development of a we/theynat ional ident i tv r ranscending the parochral loyal t ies nurturecl by the ieudalshogunate. The arm."- and navv conrpleted the job. Beneath the sameness ofthe uni form and the disc ip l ine, universal mi l i tarv serv ice wiped our d ist inc-t rons of c lass and place. I t nurtured nat ional is t pr ide and democrat ized thevio lent v i r tues of manhood-an end to the samurai monopol ,v of arms.

N{carnrvhi le, srate and societ . i ' went about rhe husiness of business: how t<rrnake th ings bv machine, how to do more wi thout machines, how to movegoods, horv to competc r . r ' i th foreien producers. Not easv. Eurclpean indus-t r ia l producers had taken a centur \ ' . . fapan r , r .as in a hurrv.

To begin u ' i th, the countrv bui l t on those hranches of industry a l readv fa-nr i l iar-s i lk and cot ton manufacture in part icular but a lso the processing offotrd staples imrnune to foreign imi tat ion: sake, miso. sov sauce. Fr<tm 1877to l900-the f i rs t generat ion of industr ia l iz-at ion-food accounred for 40percent of gro* ' th, text i les 3-5 percent . In short , the. fapanese pursued com-parat ive advantage rather than the rv i l l -o ' - the-wisp of heavy indusrrv. lV{uchof th is was snral l -scale: cot ton mi l ls of 2.000 spindles (as against 10,000 andup in V'estern turope)1 w'ooden rvaterwheels that .* 'ere generat i ( )ns bchindEuropean technologr ' ; coal mines u 'hose tor tuous seanls and hand-cl rawnbaskets made the infamous Br i t ish pi ts of an ear l ier t ime look l ike a prctme-

nade .

The economists ' usual explanat ion for th is invers ion oi the late- fo l lowermodel ( late is great and up-to-date) is want of capi ta l : meager personal re-sources. no investment banks. In fact , some Japanese merchants had accumu-lated large for tunes. and the state was ready to hui ld and subsic l ize plants. Asi t d id. But the lons haul to par i ry needed not so much money as people-people of imaginat ion and in i t iat ive, people who undcrstood economics ofscale, who kneu' not onlv product ion methods , rnd machinery but a lso orga-nizat ion and what we no\4i cal l sof tware. The capi ta l would fo l low and grow.

C U L T L T R F - M A T T E R S

The .fapanese determined to go beyond consumer goods. I f thev rvere to

have a modern economy, thev had to masrer the heavy work: to bui ld ma-

chines and engines, ships and locomotives, rarlroads and ports and ship-

yards. The government played a cri t ical role here, f inancing reconnaissance

abroad, bringing in foreign experts, bui lding instal lat ions, and subsidizing

commercial ventures. But more important were the talent and determination

of Japanese patr iots. ready to change careers rn the national cause, and the

quali tv of Japanese workers, especial l-v art isans, with ski l ls honed and attr-

tudes shaped by close teamwork and supen'ision in craft shops.

Japan moved into the second industr ial revolut ion with an alacri ty that be'

l ied i ts inexperience. The tradit ional account of Japan's successful and rapid

industr ial izat ion r ings with praise, somewhat mit igated b1' distaste for the

somher and intense nationalist accompaniment-the ruthless drive that gave

the development process meaning and urgency. This was the first non-$0est-

ern country to industrialize, and it remains today an example to other late

bloomers. Other countries sent young people abroad to learn the new ways

and lost them; Japanese expatr iates came back home. C)ther countr ies im-

ported foreign technicians to teach their own people; the Japanese largely

taught themselves. Other countries imported foreign equipment and did their

best to use it; the Japanese modified it, made it better, made it themselves.

Other countries may, for their own historical reasons, dislike the Japanese(ho'* 'many Latin Americans l ike gringos?), but thev do envv and admire

them.The explanation lay part ly in an intense sense of group responsibi l i ty: an

indolent, self- indulgent worker would be hurt ing not only himself but the

rest of the family. And the nation-don't forget the nation. Most Japanesepeasants and workers did not feel this way to begin with-under Tokugawa,

they scarcely had a notion of nation. That was a primary task of the new

imperial state: to imbue its subiects with a sense of higher dury to the em-peror and country and to l ink this patr iot isrn to work. A large share of

schooltime was devoted to the study of ethics; in a country without regularrel igious instruct ion and cerernony, school was the temple of virtue andmoral i t-v. As a 1930 textbook put i t : "The easiest way to practice one's pa-

tr iot ism [ is to] discipl ine oneself in dai ly l i fe, help keep good order in one'sfamilv, and ful ly discharge one's responsibi l i ty on the job."- Also to save and

not waste.Here was a Japanese version of Weber's Protestant ethic. Along with gov-

ernment initiatives and a collective commitment to modernization, this work

ethic made possible the so-called Japanese economic miracle. Any serious un-

derstanding of Japanese performance must build on this phenomenon of cul-

tural lv determined human capital.

r r r 1 . , r r r , \ 1 . r ( ' r . \ i ' , : , . r \ / / t l t , l ) t l l , r t ' r . i

O N W E B E R

\ ler Vtber. q 'ho l 'cgan as a l r is tor ian of the ancient wor ld but grew into a

r vonde r r . l t d i ve r s i f r cd \ ( ) c i a l \ c i ence . pub l i shed i n 1904 - t 90 -5 one o f t he mos t

int luentra i ;1nd pr() \ 'o .at i le cssavs er ,er wr i t ten: "Thc Protest : rnt Ethic and

the Sprr i t ot Cepi t . r l ism." Fl is thesis: that Proresranr ism-more speci f ical ly i ts( , ; r l i in is t br : rnches-promotccl the r ise of modern capira l ism; that is , the in-

. lustr ia l capi ta l isnr he knew- f rorn his nat ive ( ierrnany. Protesranr isrn d id th is,

he said. nrrr f r l g.q i , r* or ah<r l ishing those espects of the Rornan fa i th that

had dete rred or h indered f ree economic act iv i tv ( the prohih i t i tx of usury, for

exanrplet nor hv encouraging. let a lone invent ing, the pr l rsui t of weal th, butl .v defrn ing anr l sanct ioning an ethic , r f everyday hehavior that conduced toeconomle success-

Calv inrst ic Protestant ism. said \ \ reher, d ic l th is in i t ia l lv by af f i rming thecloctr ine of predest inat ion: ( )ne could not qain salvat ion bv fa i th or c leeds;thet quest ion had been decidecl for er .ervone f rom the beginning of t ime, andr ro th rnq cou id a l t e r one ' . f a t e .

Such a bel ief could easi lv have encourased a fata l is t ic amitude. I f behaviorand far th make no di f ference, rvhy not l ive i t up? Vlhv be good? Because, ac-corc l ing ro Calv in ism. goodness u 'as a plausih le s ign oi e lect ion. Anyoneeould be chosen, but i t was onlv reasonahle to suppose that most of the cho-sen rvould show bv their character ancl rvays thc qual i tv of their souls andthc nature of their dest inv. This impl ic i t reassurance was a powerfu l incen-t ive to proper thoughts and behavior . And rvhi le hard bel ief in predest ina-

t ion did not last more than a generat ion or rwo ( i t is not the k ind of dogmather hes last ing appeal) . i t lvas eventual lv converted into a secular code ofbch.rvror : hard q 'ork. honest ,v. ser iousness, the thr i f rv use of money andi l l I c .

; \ l l o f r hese va lues he lp hus iness and cap i t a l accumu la r i on , bu t Webe rstrcssed that the good Calv in ist d id not a im at r iches. { l le might easi lv be-I reve. however, that honest r rches are a s ign of d iv inc iavor. ) F-urope did nothave to wai t for the Protestant Refcrrmat ion to f ind people who q,anted to ber ich. V'cher 's point is that Protcstant isnr produced a uew kind of business-rnan. one who aimed to I ive and work a certa in wav. I t lvas the a,ay that mat-tcrcd. and r iches r . r ,ere at best a bv-product . I t rv : rs only much later that thePr() testant eth ic degenerated into a ser of maxims for- mater ia l success andsmug! smarmy sermons on the \ - i r tues of weal th.

The Veber thesrs gave r ise ro a l . l manner of rebut ta l . The same kind of con-t roversv has swir led around the der ivat ive thesis of the socio logist Robert K.N1erton, who ar6lued that there was a direct link between Protestantism andrhe r ise of modern science. lndeed, r t is fa i r to sal ' that most h istor ians today

C T ] L - I L ] R E M A T T E R S

would look upon the Weber thesis as implausib le and unacceptable: I t had i ts

moment and i t is gone.

I do not agree. Not on the empir ical level , u 'here records show, that Protes-

tant merchants and manufacturers p layed a leading ro le in t rade, banking,

and industrv. Nor on the theoretical. The heart of the marter lav indeed in

the making of a new man-rat ional , ordered, d i l igent , product ive. These

virtues, while not newi were hardly commonplace. Protestantism generalized

them among i ts adherents, who judged one another br . conformitv to these

standards.

Two special characteristics of the Protestants reflect and confirm this link.

The first was stress on instruction and literacy-, for girls as well as bovs. This

was a by-product of Bible reading. Goocl Protestants were erpected to read

the Holv Scr iptures for themselves. (B,v way of contrast , Cathol ics were cate-

chized but did not have to read, and they were explicitlv discouraged from

reading the Bible.) The resul t : greater l i teracy f rom generat ion to generat ion.

Literate mot h er s tnatte r.

The second was the importance accorded to time. Here we have what the

socio logist would cal l "unobtrusive evidence": the making and buving of

c locks and watches. Even in Cathol ic areas such as France and Bavar ia. most

c lock makers were Protestant l and the use of these instruments of t ime mea-

surement and their d i f fus ion to rural areas was far more advanced in Brrra in

and Hol land than in Cathol ic countr ies. Nothing test i f ies so much as r ime

sensibi l i t l ' to the "urbanizat ion" o i rural societr ' , wi th a l l that impl ies for d i f -

fus ion of values and tastes.

This is not to say that Weber 's " ideal type" of capi ta l is t could be found

only among Calv in ists and their later sectar ian avatars. People of a l l fa i ths

and no faith can gro\\, up to be ratronal, diligent, orderl,r', productive, clean.

and humorless. Nor do they have to be businessmen. One can shou' and

prof i t hv these qual i t ies in a l l walks of l i fe. Weber 's argumenr, as I see i t , is

that in sixteenth- to eighteenth-centur,v northern Europe, religion encouraged

the appearance in numbers of a personal i tv type that had been except ional

and advent i t ious before and that th is type created a new econom)' (a new

mode oi product ion) that we kncxv as ( industr ia l ) capi ta l ism.

History te l ls us that the most successful cures for povertv come from

with in. Foreign aid can help but , l ike r , r ' indfal l weal th, can also hurt . I t can

discourage ef for t and plant a cr ippl ing sense of incapacirv. As the Air ican

saying has i t , The hand that receives is a lwavs under the hand that g ives. No,

u'hat counts rs work. thrift, honesry patience. renaciry. To people haunted bv

misery and hungeq that may add up ro sel f ish indi f ference. But i r t bot tom, no

empowerment is so effective as self-empowerment.

Cul ture Makes Almost Al l t l :e Di f f t rence

Some of th is ma_v sound l ike a col lect ion of c l ich6s-the sort of lessons oneused to learn at home and in school when parents and teachers thought theyhad a mrssion to rear and elevate their chi ldren. Todav, we condescend tosuch ver i t ies. d ismiss them as plat i tudes. But why should w, isdom be obso-lete? To be sure, we are living in a dessert age. We want things to be sweet;too many of us work to l ive and l ive to be happy. Nothing wronq wi th that ;i t just does not promore high product iv i ty . You want h igh product iv i ty? Thenvou should l ive to rvork and get happiness as a b.v-product .

Not easv. The people who l ive to work are a smal l and fof tunate el i te. Buti t is an el i te open to newcomers, sel f -selected, the k ind of people who accen-tuate the posi t ive. In th is wor ld, the opt imists have i t , not because they arealways r ight but because they are posi t ive. Even when wrong, they are posi-tive, and that is the rvay of achievement, correction, improvement, and suc-cess. Educated, eves-open opr imism pays; pessimism can only of fer the emptyconso la t i on o f be ing r i gh t .

XPLAINING the huge difference in averageincomes between the world’s richest and poorestnations is one of the most fundamental issues indevelopment economics. How did this vast gulf

emerge, and can anything be done to reduce it? To answer these questions, we can seek guidance from

three strands of thought. First, there is a long and distin-guished line of theorizing that assigns a preeminent role togeography. Geography is the key determinant of climate andof natural resource endowments, and it can also play a fun-damental role in the disease burden, transport costs, andextent of diffusion of technology from more advanced areasthat societies experience. It therefore exerts a strong influ-ence on agricultural productivity and the quality of humanresources. Recent writings by Jared Diamond and JeffreySachs (see page 38 in this issue) are among the more notableworks in this tradition.

A second view emphasizes the role of international tradeas a driver of productivity change and income growth. Wecall this the integration view because it gives participation inthe larger global economy—and impediments to participa-tion—a starring role in fostering economic convergencebetween rich and poor regions of the world. The globaliza-tion debate, of course, is to a large extent about the merits ofthis integration view.

Finally, a third view centers on institutions—in particular,the role of property rights and the rule of law. In this view,what matters are the rules of the game in a society, as definedby prevailing explicit and implicit behavioral norms andtheir ability to create appropriate incentives for desirableeconomic behavior. This view, associated perhaps moststrongly with Nobel Prize winner Douglass North, hasrecently been the subject of a number of econometric stud-ies, in particular by Daron Acemoglu (see page 27 in thisissue), Simon Johnson, and James Robinson.

The idea that one, or even all, of the above deep determi-nants can adequately explain the large variations in incomelevels between countries may seem, on the face of it, prepos-terous. But economists like parsimony, and we were keen to

see how these theories would fare when tested simultane-ously against each other. Using regression analysis, we cameup with some sharp and striking results that have broadimplications for development conditionality, discussedbelow. Our results indicate that the quality of institutionsoverrides everything else. Controlling for institutions, geog-raphy has, at best, weak direct effects on incomes, although ithas a strong indirect effect through institutions by influenc-ing their quality. Similarly, trade has a significant effect oninstitutional quality, but it has no direct positive effect onincome. How did we arrive at these findings?

Complex causalityDevising a reasonable empirical strategy for ascertaining howmuch of the variation in income levels between countriesthese three deep determinants can explain and whether theyare all equally important is not straightforward. The difficultylies in disentangling the complex web of causality involvingthese factors and income levels, as Chart 1 illustrates.

Geography is the only one of these deep determinants thatcan be treated as exogenous or not influenced by income. AsChart 1 shows, geography can affect income directly (bydetermining, say, agricultural productivity) as well as indi-rectly, through its impact on the extent of market integrationor on the quality of institutions. With trade integration andinstitutions, however, causality can run both ways. Integrationcan raise incomes, but it is equally possible for trade to be theresult of increased productivity in an economy. And, whilebetter institutions and better protection of property rightsincrease investment and foster technological progress, therebyraising income levels, better institutions can also be the out-come of economic development, not least because thedemand for better institutions rises as countries and their citi-zens become wealthier.

In our research, we adopted a simple yet general researchstrategy that allowed us to estimate the elements shown inChart 1 simultaneously while taking account of the complexstructure of causality. In econometric terms, using aninstrumental variables approach, we estimated a series of

The Primacy of Institutions(and what this does and does not mean)

D a n i R o d r i k a n d A r v i n d S u b r a m a n i a n

Finance & Development June 2003 31

E

regressions relating income levels to measures of geography,integration, and institutions. In particular, we employedinstruments for the two endogenous determinants—institu-tions and integration—drawing upon the 2001 work ofAcemoglu, Johnson, and Robinson and the 1999 study byJeffrey Frankel and David Romer, respectively. These instru-ments allow us to capture the variation in the determinantthat is exogenous.

Our results, illustrated in Chart 2, show that the quality ofinstitutions (as measured by a composite indicator of a num-ber of elements that capture the protection afforded to prop-erty rights as well as the strength of the rule of law) is theonly positive and significant determinant of income levels.Once institutions are controlled for, integration has no directeffect on incomes, while geography has at best weak directeffects. These results are very robust. They remainunchanged within a large range of reasonable alterations inour core econometric specification (different samples, alter-native measures of geography and integration, differentinstruments, and additional covariates, among other things).

On the relationship between the determinants, we foundthat institutional quality always has a positive and significanteffect on integration, while integration also has a (positive)impact on institutional quality—suggesting that trade canhave an indirect effect on incomes by improving institutionalquality. Our results also tend to confirm the 2002 findings ofWilliam Easterly and Ross Levine, who found geography tobe an important determinant of the quality of institutions.

By how much can good institutions boost incomes? Ourestimates indicate that an increase in institutional quality canproduce large increases in income per capita. For example, in

statistical terms, the difference between the qual-ity of institutions measured in Bolivia and Koreais equivalent to one standard deviation, or a 6.4-fold difference. In other words, if Bolivia weresomehow to acquire institutions of the quality ofKorea’s, its GDP would be close to $18,000 ratherthan its current level of $2,700. Not coinciden-tally, this is roughly the income differencebetween the two countries.

Functions of institutionsMost of the recent work on institutions and eco-nomic growth has focused on the importance ofa particular set of institutions, namely, those thatprotect property rights and ensure that contractsare enforced. We might call them market-creatinginstitutions since, in their absence, marketseither do not exist or perform very poorly. Butlong-run economic development requires morethan just a boost to investment and entrepre-neurship. It also requires effort to build threeother types of institutions to sustain the growthmomentum, build resilience to shocks, and facil-itate socially acceptable burden sharing in

response to such shocks. These institutions might be called• market regulating—namely, those that deal with exter-

nalities, economies of scale, and imperfect information.Examples include regulatory agencies in telecommunica-tions, transport, and financial services.

• market stabilizing—namely, those that ensure low infla-tion, minimize macroeconomic volatility, and avert financialcrises. Examples include central banks, exchange rateregimes, and budgetary and fiscal rules.

• market legitimizing—namely, those that provide socialprotection and insurance, involve redistribution, and man-age conflict. Examples include pension systems, unemploy-ment insurance schemes, and other social funds.

Evidence of some of the stabilizing and legitimizing func-tions of institutions comes from a study, published by Rodrikin 1999, of the experiences of a number of sub-SaharanAfrican countries. No fewer than 15 such countries grew atrates exceeding 2.5 percent a year before 1973. But, becauseof weak domestic institutions, few of them, if any, were ableto withstand the effects of the oil price increases and othermacroeconomic shocks in the 1970s, so growth declinedsharply in the subsequent period. Macroeconomic responsesto such shocks entail serious distributional implications. Forexample, in response to a balance of payments crisis, coun-tries need to reduce aggregate demand by tightening fiscalpolicies. But which ones, and how? Should fiscal tighteningtake the form of tax increases or expenditure reductions? Ifthe latter, should spending cuts fall on defense, capital,health, or education? Robust domestic institutions, especiallythose that provide for wide participation, allow these con-flicts to be handled at the least possible cost and prevent

Finance & Development June 200332

Geography

InstitutionsIntegration

Income level

Chart 1

The “deep determinants” of income

Development and its determinants are related in multiple and complex ways,making the task of determining and quantifying causality difficult.

Heal

thof

popu

latio

nan

dag

ricul

tura

l pro

duct

ivity

Distance

from markets

Natural resources and institutions

Openness andtransparency

Capacity to trade

Property rights and rule of law

Demand for good institutionsDemand for foreigngoods and services

Efficiency and dissemination of technology

domestic social and political conflicts from magnifying theinitial economic shock.

But form doesn’t follow functionInstitutions are thus critical to the development process. Butfor each of the functions performed by institutions, there isan array of choices about their specific form. What type oflegal regime should a country adopt—common law, civil law,or some hybrid? What is the right balance between competi-tion and regulation in overcoming some of the standardmarket failures? What is the appropriate size of the publicsector? How much discretion and how much flexibilityshould there be in arrangements for the conduct of fiscal,monetary, and exchange rate policies?

Unfortunately, economic analysis provides surprisingly lit-tle guidance in answering these questions. Indeed, there isgrowing evidence that desirable institutional arrangementshave a large element of context specificity arising from dif-ferences in historical trajectories, geography, political econ-omy, and other initial conditions. This could help explainwhy successful developing countries have almost alwayscombined unorthodox elements with orthodox policies. EastAsia combined outward orientation with industrial interven-tion. China grafted a market system on a planned economyrather than eliminate central planning altogether. Mauritiuscarved out export-processing zones rather than liberalizeacross the board. Even Chile combined capital controls withotherwise quite orthodox economic arrangements. Suchvariations could also account for why major institutional dif-ferences—in the role of the public sector, the nature of thelegal systems, corporate governance, financial markets, labormarkets, and social insurance mechanisms, among others—persist among the advanced countries of North America,Western Europe, and Japan. Moreover, institutional solutionsthat perform well in one setting may be inappropriate in asetting without the supporting norms and complementaryinstitutions. In other words, institutional innovations do notnecessarily travel well.

How then should institutional choices be made? Whileeconomic analysis can help by identifying the incentiveeffects of alternative arrangements and the relevant trade-offs, there is a very large role for public deliberation and col-lective choice within societies. In fact, political democracycan be thought of as a metainstitution that helps societiesmake choices about the institutions they want. Indeed, whilemeasures of democracy do not always explain which coun-tries grow faster or slower over selected periods of time, theydo explain long-term income levels. That is, while it is possi-ble that growth spurts can be achieved with different politi-cal institutional arrangements, as the experience after WorldWar II confirms, it appears that sustaining such spurts andtransforming them into consistently higher standards of liv-ing are facilitated by democracy.

Are development outcomes predetermined?Does the strong role of history and geography in shapinginstitutions mean that current policies have little impact andthe trajectory of human development is predetermined?Some researchers say yes. Easterly and Levine, for example,insist that policies have no impact on income levels onceinstitutions are controlled for. But nothing in our work lendssupport to such a predestinarian view. Indeed, we wouldargue that the framework employed in recent publishedresearch is not really appropriate for testing whether or notpolicies have an impact. What is explained—levels ofincome—is a very long term phenomenon, the result ofcumulative actions for centuries or longer. To expect thatpolicies, measured over shorter periods, could explain such along-term phenomenon is unreasonable.

Moreover, although institutions change slowly, they dochange. For example, between the 1970s and the 1990s, therewere some notable changes in the quality of institutions. Oneindicator of institutional quality is the index measuring theconstraint on the executive branch of government. Twentycountries improved their institutional quality ratings bymore than 40 percent. Of course, how institutional change

Finance & Development June 2003 33

As institutional quality rises, so does income ...

Log

GDP

per c

apita

1

Log

GDP

per c

apita

1

Log

GDP

per c

apita

1

Chart 2

Institutional quality scores highInstitutional quality can boost income significantly, while global integration and geography, on their own, do not.

but increases in integration may not help ... nor does a more benign geographic location.

Institutional quality Integration Geography2.98 5.14 0 45

1.65

–2.69

2.65

–3.47

Source: AuthorsNote: The graphs capture the causal impact of each of the determinants on income, after controlling for the impact of the others. The indicators of integration and

geography used are the ratio of trade to GDP and distance from the equator, respectively. For further details, see Rodrik, Subramanian, and Trebbi (2002).1Expressed in terms of purchasing power parity, 1995.

–1.38 1.26

–0.57

–4.08

can be effected is a difficult question—perhaps at the core ofmany current debates about growth and development—butthat institutions can change and that they have a lastingimpact on development should not be in doubt.

Implications for development lendingOur findings should raise serious questions about how the IMFand the World Bank set conditions for loans, so-called condi-tionality. If institutional change is slow, the time horizons forstructural adjustment programs need to reflect this.Adjustment that would sustainablyimprove development prospects simplycannot happen over three or five years—the typical duration of these programs. Tobelieve and plan otherwise risks the nearcertainty of expectations being unrealized.

Less obviously, if institutions are indeedthe deep determinants of development,then we cannot evaluate traditional poli-cies—fiscal, monetary, exchange rates,structural reforms—simply by looking attheir intended effects. When the underlying institutions arenot being changed in the appropriate way, conditionality onpolicies is often ineffective. Therefore, the exclusive focus inconditionality on getting policies right needs to be rethought.Take Nigeria, where the policy exhortation to prudently saveoil revenues has been systematically ignored. Was it ever realis-tic to expect Nigeria to meet fiscal policy targets involving thesmoothing of expenditure of oil revenues?

The norm in conditionality over the years has been to setwhat might be called micro targets relating to policies andoutcomes. But in countries where the institutional precondi-tions were missing, conditionality was less likely to succeed.And where the institutional underpinnings existed, micro-conditionality was, in principle, superfluous. It is this recog-nition of the need to find the right institutional preconditionsrather than to micromanage outcomes that is reflected in the

recent move—exemplified by the United States’ MillenniumChallenge account and, to some extent, by the IMF’s povertyreduction strategy paper (PRSP) process—of exploring newways of achieving aid effectiveness.

A shift from current conditionality would have otheradvantages. Micro, outcome-based conditionality can beinconsistent with the spirit of ownership, which, properlydefined, necessarily involves allowing countries a certainmeasure of freedom to find their own institutional and pol-icy solutions to development problems.

Of course, identifying the appropriateinstitutional preconditions to ensure theeffectiveness of development assistance ischallenging. One possibility is to create alist of countries that would be certified aseligible for development assistance basedon their fulfilling the requirements for abasic institutional framework: rule of law,independent judiciary, free press, and par-ticipatory politics. But such a list wouldraise a number of difficult questions. How

should these requirements be measured? Can they be reason-ably objective? What about countries that fail some of theserequirements—as Chile, China, Korea, and Uganda wouldsurely have done in the early stages of their growth? Thenthere is the converse problem. Would today’s Nigeria andIndonesia, which would formally meet the requirements of abasic institutional framework, really provide assurances thatdevelopment assistance would be well spent? Recent cross-country studies on the determinants of development are just abeginning that point us in the right direction, and a wide openand exciting area of research lies ahead.

Dani Rodrik is Professor of International Political Economy atHarvard University, and Arvind Subramanian is an Advisor inthe IMF’s Research Department.

Finance & Development June 200334

The need is to findthe right institutionalpreconditions ratherthan to micromanage

outcomes.

This article draws upon “Institutions Rule: The Primacy of Institutions

over Geography and Integration in Economic Development,” by Dani

Rodrik, Arvind Subramanian, and Francesco Trebbi, NBER Working

Paper 9305, October 2002 (Cambridge, Massachusetts: National Bureau

of Economic Research).

References:

Acemoglu, Daron, Simon Johnson, and James A. Robinson, 2001,

“The Colonial Origins of Comparative Development: An Empirical

Investigation,” American Economic Review, Vol. 91 (December),

pp. 1369–1401.

Diamond, Jared, 1997, Guns, Germs, and Steel (New York: W.W.

Norton & Co).

Easterly, William, and Ross Levine, 2002, “Tropics, Germs, and

Crops: How Endowments Influence Economic Development” (unpub-

lished; Washington: Center for Global Development and Institute for

International Economics).

Frankel, Jeffrey, and David Romer, 1999, “Does Trade Cause

Growth?” American Economic Review, Vol. 89 (June), pp. 379–99.

North, Douglass C., 1990, Institutions, Institutional Change and

Economic Performance (New York: Cambridge University Press).

Rodrik, Dani, 1999, “Where Did All the Growth Go? External Shocks,

Social Conflict, and Growth Collapses,” Journal of Economic Growth,

Vol. 4, No. 4, pp. 385–412.

———, 2003, “Institutions, Integration, and Geography: In Search of

the Deep Determinants of Economic Growth,” in In Search of Prosperity:

Analytic Country Studies on Growth, ed. by Dani Rodrik, forthcoming

(Princeton, New Jersey: Princeton University Press).

Sachs, Jeffrey D., 2001, “Tropical Underdevelopment,” NBER

Working Paper 8119 (Cambridge, Massachusetts: National Bureau of

Economic Research).

'l- .t0 r:J ,t -.4,a J'\^ f"^"-tr-*d: ?ccr

F*"t-irslrt't 'l-

[ , n . [T w o

THE SPREAD OF

ECONOMIC PROSPE,RITY

he move frorn universal povertt' to varying degrees of prosperin'

has happened rapidlv in the span of httman historr'. T\vo htrnclred

years ago the idea that rve could potentiallv achieve the eucl of extt 'eme

povert)'rvould have been trnimaginable. Just about el'e{bodv rvas pooq

rvith the exceptiort of a vetl small nrinorit l ' of lr. i lers and large laud-

owners. Life u'as as difficult in much of E,urope as it rvas in India or

China. Our great-great-grandparellts n'ere. u'ith ven' fel ' exceptions,

n-lost l ikell 'poor-and lir,. ing on a farnr. Orte leadirls econotrl ic histolian,

Angus Maddison, puts the average inconre per person in \A'esterr-r Etr-

rope in 1820 at around 90 percent of the avc'rase income of Afric:. l to-

da,v. Life expectanc,v in \festern Europe anclJapar-r as of 1800 tvas about

fortv years.

A fen' centuries ap;o, r 'ast dirides in rvealth irncl pot'ern arouud the

world did not exist. China, India, Europe, and.|apan all had similar in-

come levels at the time of Errropean discove ries of the sea rotttcs to Asia,

Ali ica, and the Arnericas. Marco Polo marlelecl at t l 're sttt)lptLlotls 1\'ol1-

ders of China, not at its povertv. Cort6s irncl his conquistadores ex-

prcssed astonishment at ttre riches of Tenochtit l i .n, the c:rpital <.rf the

Aztecs. The earll ' Portugrtese explorers wcre impressed rvith the l 'ell-

ordered torvns of\{est Africa.

' f H E S P R E A D O F E I ; O N 0 } 1 I C P R O S P E R T T \

T H E N O \ T E I , T Y O F M O D E R N

E C O N O M I C G R O W T H

l f u'e are to undelstand whv a vast gap between rich and poor exists to-

da\', n'e must return to the ven recent period of human history when

this diride emerged. The past nto centtrries, since around 1800, consti-

tute a unique era in economic histon', a period the great economic his-

torian Simon Kuznets {amousll ' termed the period of modern economic

F-ro\\'th. Before then. indeecl fot thousands of vears, there had been vir-

ttrallv no sustained economic gror'vth in the world, and only gradual in-

creases in the human population. The worlcl population hacl risen

gracluallv frorr around 230 mill ion people at the start of the first mil len-

nium in -r.o. l, to perhaps 270 mill ion by r.l. 1000, and 900 mill ion

people bl'r.o. 1800. Real l ir. ing standards were even slou,er to change.

According to Nladdison, there \vas no discernible rise in l iving standards

on a global scale during the first mil lennium, and perhaps a 50 percent

F i g u r e l : W o r l d P o p u l a t i o n

E looo

=> 3(X)0

2000

I {_X)|)

l )

Yeu

\ou i r : D t ta ln tn . \ Ia ld^ t ) i l | 2 t101 ) .

increase in per-capita income in the eight-hundred-year periocl from

r.o. 1000 to.q. .n. 1800.

In tl-re period of rnodem economic growth, however, both popula-

tion and per capita incr>me came unstuck, soaring at rates never before

seen or even im:rgined. As shown on liglrre l, the global population rose

more than sixfcrld in jrrst rrvo centuries, reaching an astounding 6.1 bil-

\

7(X)0

6000

5{.}0{)

I

./

I I I ! ] l l \ l ) ( ) t l ' ( ) \ t : R f \

l i o r r p c o p l t ' a t t l ) ( ' s t a l ' t o 1 ' t h c t h i l r l I t t i l l t ' r r r r i t r t r t . r r ' i t h 1 ; l c r r t l o { r n o r n c n -

Irrrrr for r-apir l poirrr lat i() l t gr()\ \ ' th st i l l ahcncl. The r lorlci 's i lver ' : l {rc per

6npita irrcotrte r()sc clen f irstct ' , sl torvtr i t t f ictr l-e 2, ipclei isi l ra'by a16lpcl

r r i r rc l in rcs b ( ' t \ \ ' cen 1820 anc l 2000. In toc la r ' ' s l i ch co t rn t l ies . the cco-

norrr ic gr()\rth \ \ '2rs even lrorc astorrncl ine. fhe L'.S. percapita ir .rconre

irrcrcascd ir lnrost t \vcl l tr l ivc-fol<1 durirrc this periocl, al lcl \ \ 'cstel 'n Eu-

l ' () l)c 's ir tcrcasecl f i f tecrr-fcr lcl . ' Ibt:r l

rvorlciwicle f t iocl procluct ion rnorcrthun kept up rvith thc Lloorning rvol ld pol.nrlat ior-r (thotrsh larse trtrur-bers ol chronicnlh hru-rgr-r ' pcople r-cn-r:r in unti l t()cla\ ') . \ ast lv ir-npror.eclfalrn vickls \ \ ,crc achievecl on the basis oi tcchnoiogical aclr.ances. I fr l-e conrbinc the increases irr rr 'or icl poptr lat ion ancl rr 'or. lcl outpur per

Pel-sol1, t tc f incl an astolncl i lg fbr-n.tr i lef ir lcl ipcr-easc ip t()tal ec9lo1ricactivi tv in the n,ol ld (the sross rr.orlcl procltrct, or-G\\ 'p) over rhe pasrI 80 r 'ears.

F i g r r r e 2 r \ \ ' o r l d A v e r a g e p e r C a p i t a I n c o m e

{i01){)

00 l i r l i ) ; r ) ( l so i l 1 r ( ) ( ) l0 f ) { ) l l i )0 l l0 l r l J r ) ( ) I l i l r ) l . - ) r ) i l l r ; r )0 } ; {n l s i l ) l1 ) r i i ) .10 i l0

Yea

\1 tu t t t : I )u t i l l i ) i l . \ lu ld t \ r ) t | 2 t )0 I ) .

Thc etrlf betr\rcen tocla\"s ricir and poor courltries is thereft)re a ne\\.phcnonre non, ir 1,an'ning gap that ope rle cl clrrrin{r the period of moclcrncconornic sro\vth. , ls of 1820, the biguest gap betl.ccn the rich and1.roor'-specificallr ' , bctrveen the norlcl 's leaclir-rs econorllv ol the clar', theUnitecl Kinuclorn, and the rr,orlcl 's poorest region. Africa-las a ratio ofIottt-to otlc in per capita income (cvcn aticr acliustine for clif lcrelccs i1lttrlchasinu pon'cr). 81' 1998, the eap betrveen the richest econ()nr\., theUnitecl Statcs. ancl the pool'cst regiorr, Africi l, hacl l. iclernecl to nventv

r u l \ P R l . . \ t ) ( ) t t . ( ( ) \ o \ I I ( . P R ( ) s l ' u R r I \

r() ()ne' . Sitrce al l pat ' ts ol thc l-orld had a roughlv compar:rble start irr{-{

po i r r t in 1 ,920 (a l l ve l ' \ ' p ( ) ( ) l ' bv cur rcn t s ta r rdards) , todav 's vu .s t inequa l -

i t ics lel lerct the lnct thart some pal ' ts ol the rxrr lcl achier,erd nroclenr

ccorrottt ic gr 'o\rth n. l t i le otherrs dicl not. Todar' 's vast inconlc inccltral i-

t ies i l l r rn r in i r te t \ \ ' o cen tur ics o i 'h ieh lv l lneven p i l t te rns o l - econonr ic

g f ( ) \v t l l .

F i g u r e 3 : G D P p e r C a p i t a b v R e g i o n i n 1 8 2 0 a n c l 1 9 9 8

l r ) ( ) ( ) l l

l r l i O o

-)1 l { l ( I

. 2

i 1 . , , , t t , ,

:- l { ) o { ) o

t . ; ' ; \

L ( l ( r " t l r ' 7 ' i )

I r-rtttXtE

' : l 0 r ! l

E 3000 l _ : l I l l l Jrprn .\sia .\liica

{ r ' rc lncl ing

Japan )

This inequalitv is evicle nt in the bar chart in fisrtre 3. The heisht ofthe first bar inclicirtes the level of per capita income in 1820, and the sec-oncl in 1998, rrsing \ 'Iadclison's estirnates. The ntrrnber in parentheses atthe top o1'tl-re second bar is the averirge annnal grou,th rate ()f the re-

e ion (benveen 1820 ancl 1998) . Three main points s tand out :

. All resir)ns \vere poor in 1820

. All regions experienced econornic pr()gress

. Toclar' 's rich regions experienced by far the greatest econornic

progress

I I l I t \ l ) ( ) t t ' ( ) \ F R I \

\{that clo I rnc:rrr Lrv "highl' .r)c'er" ec.r'rrnric gro\rth acr()ss r.e-sions bctrvc'cn l82f) alrcl l9!)t l? Er.en snrall cl ifferenccs ir.r annrr:rl eco-nornic gl '()\\ ' th rirtes. if sustaint-<l for decaclcs or centuriers, eveptgalh.lcircl to htrge clif l 'clcnces irr the levels of econon'ric rveil-beir-rg (as mea-surcd hcrc bV thc a\erase per crrp i ta incornc in a socier t 'n ' ) . Thc percapita !Inr55 11xii6v11al pr-oclrrct oi the Unitccl .States, f irr exirrnple. sre\\.aran annual rate of arouncl 1.7 pcrccnt per veiu-dur ing thc per ioc l lg20 to199U. This lccl to:t tucntr.f i le-fir lcl iucrease in l iving stitr)clarcls, u.ith percapi ta i | rcornes l is ing f l -orn arorrnc l S1,20() pcr per-sor) in lg20 to aret l rd$30,000 toc lar ' ( in l ! )9() c lo l la ls) . - fhe ker f i r r . thc L 'n i tec l Stares ro bc-conre thc u'o|lr i 's l ichest major ecol)orn\ \ras l lot spectacular.lr- fastsro\\ 'th, srrch as chinii 's recelrt achievcnrent of 8 percent g-ro\rrh perlcar', brrt rathcr stt 'ncl.r 'eroh.tl) at a urrrch nror-e nrocle.st 1.7 pcrcent ltcrVear. The kev rvas cotrsistettcr', the fact that the Llnited St:rtcs rnaintaineclthat incorrre gro\vth ratc f or ahnost t\\-o ccl) turics.

By contrast, the ccrirrornics of Ail ' icir have gro\\ 'n i l t an aler-agc of0.7 pelcerrt per vear.

-fhis clif le rence na., not seem like nrtrch conrpared

* ' i th 1.7 percel l t per vcar in thc Uni tec l St i l tcs, but over a period of180 r'cars a sntall diff i :rence itr ltnnnal g-r()\rth leacls to htrge differelcesin incorne lclc' ls. \\ ' irh g-l-o\rth r: ' l '0.7 pcrcent pcr al)nLlnr, .\f i- ica'.s init ialincome (rouehlr'$400 per c:rpita) increasecl br. l i tt le nror.e than thrce_fo ld, t . rorrshl r '$1,300 pcr capi ta as of rhc rear 1g98, conrpared u ' i th analmost trve utr'f ir,e-fblr ' l irtcreasc in the L nitecl States. Todar.'s nver.rn-foldgap in itrcotne beftr 'cctr ther L'nitecl Stirrcs irrrc[ Afl-icit. therefbre, r.eslltsfl-orn a thlee-fblcl gap as of 1820, u'hich rvas rrragnificd selen tinres bv thedifT'erence in annu:rl 54rorr,th ratcs of 1.7 per-cent in the unitccl Statesvcrsus 0.7 percetrt in Afl-ica.

The crtrcial prrzzle for . 'clersta'dins toclar"s \-ast ineq*alit ies,therefore, is to unclerrstallcl wh\' difl'crent regions of the l-orld har.esrowll at dif l 'crent rates during the period ol'rnoclern e conomic grorr.th.Ever ' region bcgan t l rc per iod in ext rcnre p() \ 'e r t \ . . on l r 'one s i r th of the*'orld's popr-rlation achievcd high-incclme statl ls through consistent cco-nornic gr()\\ ' th. Another nvo thir-cls have riscn to miclclle-incone statusrv i th tnore nr t>dest rates of econornic gro\ r th. onc s ix th of humanin, issttrck irt extremc povcrt\ ' , rvith 'cn lorv rates .f econonric gro\rth dtrringthe u'h.lc peri.cl. First *'e m.st ' 'clerstand *l*'gro\rth rates difl 'cr o'erl<lnu per-iocls of t ime so that \ve can icle ntif i thc ker. \\ ' irvs to raise eco-ttornic rrlcxrth in toclar. 's laeeirrg regions.

I H [ . \ F R F . . { t ] L ) } F ( ( ) \ O } t t ( : t ' R ( ) S P n R I . t l ' ,

l-et rne dispose of one iclea right from tlre start. Many people as-

\ur)re that the rich har.e gotten riclt becrtuse the poor have gotten poor.

Irr rither \\ 'ords, thev itssLrme thert Europe arrcl the United States used

rrri l i tarr' lbrce and polit ical strellgth dtrrins and after the era of colonial-j\nl to extract $'ealth frr>m the poorest regions, :rnd thereby to grow

rich. This interpr-etation of events rl 'ould be platrsible if gross n'orld prod-

rLct had renrained roughlv const2urt, with a rising share uoing to the pow-

crfirl resions ancl a declining share going to the poorer regions. Holvever,

thirt is not at all rvl-rat l'rappenecl. flross worlcl product rose nearly fifn

fi'rlcl. Everl resion of the rvorld experienced solne econ()nric gror,vth (both

irr terms of the overall size of the economl', ancl er,en rvhen measured per

1>erson), but some regions experienced much rnore gro\\ 'th than others.

Tlre kel fact o{'moclern times is not the lransftr of income lrom one re-

g.-iorr to another, bv fbrce or othenrise, but rather the overall inctcuse tnrtorld income, but at a diff 'erent rate in different regions.

This is not t() sav that the rich are innocent of the charge of having

exploited the poor. Ther surelv have, and the poor countries continueto suffer as a result ir-r countless n':rvs, including chronic problems of po-lit ical ir-rstabil in'. Horr'erer, the real ston' of ntodern econornic growth

has been the abil in' r>f'sorne resiorrs to achieve unprecedented long-

terrn increases in total production to levels ner-er before seen in their-orld, n'hile other regions stasnated, at least bv comparison. Technol-

ogr has been the main force behincl the long-term increuses in incorne

in the rich rlorld, not exploiurtior-r o[ the poor. That nervs is r.erv goodindeed because it suggests that all of the u,orld, including today's lag-

gard regions. has a reasonable hope of reaping the benefits of techno-lOgical adraDce. EconoDr ic develOprnent is l l ( ) l a zero-sum game inn hich the rvinnings of sorne are inevitabll ' mirrored b1' the losses of oth-ers. This garne is one that everybocly can rvin.

On the Et,e rf Thkeoff

Until the rnid-1700s, the rvorld'was remarkabll,poor bv any of today's

sti lndards. l- ife expecti lncv was extremely lolv; chilclren died in vast

rttrmbers in the norv rich countries as well zrs the poor countries. Many

u'ar-es of disease and epidemics, from the black death of Europe to

sn'rallpox and measles, regularl,v rvashed throtrgh society and kil led mass

ruumbers of'people. Episodes of trtrnger und extreme rveather and cli-

3 2 T H E E N D O ! P ( ) \ ' L R T . l

mate f luct.uatiotts sernt socie t ies cri tshit tg. Tlrc r isc ancl fal l of ' the Ronran

Empire, for fantcd tncntiet l t-ccntun' histolian Alnolr l ' f6r '1Lrcc,

rvasmuch l i ke the r i se and dec l i t re < i f a l l o ther c iv i l i za t i c ins bc l i i re and s ince .Economic historv had lons bcen one of ups irncl clon'ns, rr ' i th gror\. th lol-lowed by cle cl inc rather than sustainccl ecorrotrr ic pr( )gl.r .s\.

John Malnarcl Kevnes u't-ote abotrt this r- ir t tral stagnation of 'hrrr lapec<rnornic progress in his 1930 essav on the Erottonic [ ,os.sibi l i t i t ,s for otLrGrandchildten:

Fr.nr the ea' l iest t imes l l .rrr * 'hich *-e l iu 'e.er.or.cl . that. sar. thc-nvo thousanrl le: lrs bclor.e ( jhr. ist. clon.rr ro the beginuing of theeighteenth centur\ ' , ther.e l-as nc> r.eal]r great ch:rnge in the stnn_clald of l i r , ing of ' the aler:rge man l iving in the c. ivi l izccl r.enters oithe earth. Ups a'cl dorvrrs, ce.tainlr r isi tat i .rs . l pl .grre. {a. irre:rnd $' iar, golde' inter 'als, but 'ci p' .u.essi 'e' i . le.t r .hu.ge. S.meperiods perhaps f i f t ' pe'cert better thir ' ot lrer-s. . t the l l t ' ()st .1hundred percent better in the fo.r t l r ,rrs:r.d'ear.s th' t err lecl. sar.in e .n . 1700.

He also pinpointecl technologv as the rc'ason f irr-this long-terr1 stasis:

The abse'ce of important tech'ological i ' r 'e ' t i . 's betrvee, thcprehistoric age and c''rparati'eh- 'rocler-r tir'es is tr.trh. r.er'ar.k-able. Almost eventhing rvhich real lr . nratter.s, anri rr.hich the rr.orlclpossessed at the comrnencement of ' the n.cler. age. \ \ ' i ls alreaclr-known to man at the daun of historr ' : la 'grr.ge, I i r-e. t l ie sanre clo-mestic animals rvhich rve ha'e todar' . * 'heat. bar. ler.. the' ine and theol ive, the plorv ard the rvheel, t l ' re oar, the sai l , leather. r i 'en a'dcloth, bricks ancl pots, gold a'd sih'er, c.pper-. tin, :r'c1 leacl-irr-rcliron rvas added to the l ist before one th' .sa'r l e.r: .-ba'kirs. state-craft, mathematics, astronomr', ancl rel igiorr. Tl.rcrc is no recordrvhert rve first possessed these . . .

what changed was the onsct of the Incltrstr iai Re'. lut ion, supportecl br.a r ise in agricultural procluct ivin. in northrvestem Europe. Fo.d r- ielclsrose rvith svsternatic impro'cments in agro.omic practice, i 'c lucl ing themanagement of soi l nutr ients throush impr'r 'ecl crop rorat ions. Thedramatic breakthro.gh came in Englard arotrncl r750, *hen Britair.r ,snascent industr l ' f i rst mobir ized nerv 1irrr 's of cnerea' for pr 'cl .ct io. at

f I I l s t R L . \ l ) ( ) l l . ( ) \ ( ) \ l l ( I ) R ( ) \ P I R I I \

scule\ t l l i , t t haci nevel Lre lore bt 'en uc:h icver l . l - l tc s tear t r e t tg i t t t ' t t t : r tkec l

r l r t , r iec is ive t t t rn ing point o1 ' t r toc ier t t h is tor \ . B ' r nr< lb i l iz i r tg a vast s tore

ol plirn:rn'energa'. I irssil ftrels. the ste:rrn engirre rrnlockecl the trutss 1ln>r l r rc t ion of goocls nrrd senices on a st : i r le bcxrr r r l t l ic u ' i lc lcst c l reat t ts oI

rlre pleincltrstrial erir. \{ocler-rr cllerel l ireleci everv aspcct of t ltc eco-

riornic takeofl ' . Foocl procitrction soarecl as firssil ftrcl urtcrgv tvus ttsed t<t

plochrce chemical f-erti l izers; industr-ial ptrr<lttctiotr skvrocketed as \ ':1st

i l i l) irts of fossil f irel enerqr' create(i eclrrallr rast porverr-horises oI steel,

rl irusp()rt eqtripr.nenl, chen-ricals ancl phartrt irceuticals. texti le and ap-

Palerls, and even'other- rr-roclcnr rn:rnrrfirctru'ing seclor-. Bv thc car-ly nven-

tieth ce nttu-r'. t lre service incirrstries, inclucling ruorlct'n inlirrtrtat.iott irtrcl

conrrnrrrrications technologies, \rere po\\ 'eled bv erlcctritrt:ation, itsell 'a

breakthrotrgh of the fbssil-t irel :rge.

.\s coal f irelecl inclustn', so. too, i l ldustrl f irelecl polit ical pou.cr'. The

Blit ish Empire becarne the global polit ic:rl nr:uri{ 'estation of the Indtrs-

trial Rer.oltrt ion. Brit:r in's indrrstrial breaktl lrotrsh. trrt iqtre in the tr,orld

as of the earh' nineteenth centurr'. created a htrgc rnil i tan' artcl f inatrcial

advantage thzrt allor-ecl Britain to expartcl its contr-ol over one sixth ol

humanin at the peak clf the empire cltrring thc- \ ' ictoriarr erir.

\\'hv n-:rs Britzrin first? \\'hr.' not China. rvhich rras thc rvorlci's techno-

logical leacler for abotrt a thousand vears, betl-eerl .\.t). 500 ancl .r.n.

1500? \ \hv not ot .her centers of pou'er on the Etr ropean c()nt inent ( ) r in

. \ ia? This quest ion is rnt rch debated a inong ecorror t t ic h is to l ians, br t t a

ferv goocl ans\vers are eviclent, and ther provide <lttes to thc dcepcr ttrr-

clerpinrrings of t l 're Industrial Reroltrt ion.

First, Brit ish socien' rvas relativeh open, n'ith rnorer scope f irr irrdir icl-

rral init iative and social rnobil itr. ' thzrn most other societies of'the norlcl.

The frxed social orders ol the I 'etrdal er:r hacl n'eakernecl enorrnouslv or

disappeared entireh'br' 1500, at a time rvhen serfdom wir.s sti l l the nrle

through much of Er.rrope. Ever-r rnore rigicl social hierarchics, strclt as In-

clia's caste svstem, \\ 'ere c()mnlon in other parts of the rvorlcl.

Second, Britain had strengthening instittrt ions oI polit icirl l ibertl ' .

Britain's parlianrent and its traditions clf '{ iee speech and open clerbirte

\\ 'ere po\\ 'erful contributors to the uptirke of nen ideas. 'Ihev

tr,erc alscr

increasinglv pol'erful pr()tect()rs of private propertv rights, rvhich in

turn underpinned inclividual init izrtive.

Third, and crit icalh', Britain becarne one of the leracling centers ()l

Europe's scier-rtif ic revoltrt iotr. ,\ l ier centuries in u-hich F-ttrope nas

merinh' the importer o{ scientif ic icleas fl-om Asii l, Etrropean scicnce

: t . + r H ! _ ! : \ t ) o r ' t ' ( ) \ ' r R r \

r)ladc pi\ '()tal aclvances begilrnine in the Renaissancc. trIoclern phvsicsemerged fronr the astronomical disc<tlerir:s of Cope rnicus, Brahe. Kep-le r. arrcl ciir l i leo. \\ ' i th Brirain's poliricirl ()pellness. spccirlative scie ntif icthinkins u'as given oPportunitv t() thrive, nnd the scierrtif ic adr.ances onthe (bntincnt stinlulated an explosion of' scicntif ic discover' in En-glarrcl. Thc decisi 'c brcakthrotrsh came n'ith Isaac Nerr.ton's principia

llalhernatico in 1687, one of the rnost irnportant b<ioks ever n'rittcr-r. Bvshorvin5; that phvsical phenomena could be clescribecl bl rnathenraticall irrvs, ancl br pro'n'icl inu the tools of calculrrs to discover thosc iau.s. Nerv-t()l l sct the stage fbr hurtclrecls of vcars of scientif ic itncl technologicaldiscoverr', and frrr the Ir-rcltrstrial Revolutior) that l 'oulcl follorv the scten-tif ic rer,olution.

Fo.rth, Britai 'r had scveral cnrcial gcouraptrical ach'2lltagcs. Firsr, asan island economv close to continental Etrrope, Br-itain enjovecl lou'-cost sea-basecl trade rvith all parts of'Europe. Britain aiso had exrensivenar-igable river u,avs for internal trade ancl enjoved a highlr.favclrableetl l ircitt l ttettt lor agricr.rlttrrc,'rvith a conrbination of plentif ir l rainfall, ar-ramplc grou.ing season. and so()d soils. Another crucial geographical ad-vuntage $'as Britain's proxirnin' tO North ,\nre rica. Tlle ne$.settiernentsirr North Anrerica proricled \:ast ne\\ 'territories for food procluction andr-aw materiir ls such as cotton for Brit ish inclustn', and ther. \\ 'ere thesaflen' r-alr.e that facilitatecl the e xodus of irnpoverishecl people from theBrit ish countn'side. As Englancl's orvn agriculttrral procluctivitv sre\r.,u.ith mor-e fi>ocl producecl bv f-cn'er people, rnil l ions of landless poor\\.ent to North America.

In his seminal 1776 u'ork, T'\rc l\'ealth rf \-ations, Adarn Smirh re-ferred to Britain's nattrral adr-antaqes:

l-neland. oll accorult of the natural f 'erti l i tr of the soil, of the greatexten t o l the sea-< ' ' i r s t in p ropor t io ' to thnr . f the *ho le co l * t l r ,and . l the man'r 'ra' icable r i 'ers * 'hich .rn through i t ancl al i i rr-t ithe conYeniencY of $,ater carr iage to some of the rnost inland partsof i t ' is perhzrps as *el l f i t ted b'nat.re as a'r ' large c.trnt^ ir Errrope t() l r t- the seat of lbreigD ( 'ommerce, of ' ran.facr.res for- dis-t?rnt sir le ard .{ al l the imp'.r 'errents * 'hich these can .ccasion.

Fi{ih, Britain rcnrainecl sovereisn ancl faced lesser risk clf invzrsion than itsttcishbors. Bei 'g an islarcl helpecl considerablr, , much the same \ra' rhat

Jaltan's ins'l.r eeoeraph' allorvecl it to escape invasion clespite llumerous

r H l : \ p R f : \ t ) o F I . . ( c ) \ ( ) \ t l ( . P R ( ) s P [ . R l f \

attelnpts f ioru the.\si :rn mainland. Incleed, rvi th a () l te-ccntl l l -r ' lag,.f aparl

\ras to plav a role sirni lar- to Bri taitr 's as the lea(lel ' r t f Asia's takeofl ' to r lr<ld-

crr) cc()n() lr ic gt-ou'th ()n the othel 'sicie of the F-irrasi:rt t lattcl tn:rss.

Sixth, Bri tain had coal. and rvith the invention of the steal l l el lgi l)e.

coal freed socien f i 'onr cnerer corrstruints that hacl l i rnited the scale of

ecortornic prodttct iotr tht 'ortghottt l tr t tnatr histrtn' . Before coal, eco-

nor.uic prodtrct ion rvas l in'r i tecl bv energv inptrts, i r lnrost ir l l of rvhich de-

pendecl ()n the procitrct ion of biornass: f i rod for httrnntts and farm

irninrals ancl l i rel uoort for heatirrg atrcl certaitr industr ial Pr()cesses.

\\ ' inr l poir 'er corr lcl also be l-r irrncssecl l i rr sea tnu)spol ' l . anrl rr, incl atrd rva-

ter p()\rer could be halnessecl fbr sorne indr.rstr i :r l processes. N<lne of

these energl sources, t tou'everr. ct l t t ld uule:rsh the potent. ial for rnass

p lodr rc t io r r tha t coa l c l i c l .

Br- i tain's aclvantages. in stt t t tur:trr, rr 'ere tnat-ked bv a cornbination of '

social, pol i t ical, ancl geographical factors. Bri t ish societv n'as relat ivelv

I l"ee ancl pol i t ical lv stable. Scienti f ic thinking rr 'as drnatnic. Geogr:rphv

enabled Br-i tain to benefi t f i 'om trade, prodtrcLive zrsrictr l ture, ir trd en-

er!r ' resolrrces iu vast stocks of coal. Other parts of the rvorld lvere uot as

ftrrtunate to lrave this cclnf luence of f avttrable f: tctors. Tl-reir entn into

inodeln ecorrott. t ic gro\\ ' th rvotr lcl be delavecl. I t t the ntost cl isacharltaged

environments, t ' t rodem economic gro\{th has been delaved unti l toda\:.

T h r Cren t ' I ) 'n r t sforrn t t t i utr

The cornbinirtion of nerv industrial technologies, coal po\\:er, :rnd mar-

ket forces created the Incltrstrial Revolution. -fhe

Ir-rcltrstr-ial Revoltrt ion,

i1 trrrn, led to the most revolution:rry econort-tic events itr htttnatr ir istort '

siuce the start of agrictrlttrre ten thousand rears earlier. Suddenlr', ect>

nomies coulcl grorv bevond long-accustomed bttr.rnds rvithortt hitt ing the

biolclgical constraints of food ancl t irnber prodtlcti()n. Industrial pro-

duction grerv rapidlr ', and the p()\ver of ecotromic gr()\\ ' th spil lecl out

fl 'om Great Britain to all parts of the lr 'orld. Societies the n'orld over

u'ere ftrndamentallv changed, oftett ttrmultr.tottslt ' .

The Industrial Rer.olution, al)d the moclern econotnic gr<trvth that

follorr'ecl, has changed the tvat'people l ive in everv fnncl:rrnental sense:

rvhere and hon'thev l ire. rvhat kind of rvork or econ()tl l ic actirity thev

per-frl lrn, hou' thev fbrrn fzrrnil ies. In Britain first, irncl then elsel'he re, i l t-

dustrializatiol) lneant ir shilt of people frotn overrvheltninglv agrarian

lrcrivit ies to irrdtrstrial activit ies. eiving rise to urbanizatiou, social mobil-

I { ) l i l r l \ l ) ( ) l I ' ( ) \ f l i l \

i t r ' . pe l q t '1c lc r ru r ( l l l l l l i l l l o lcs . l r r l c ' r r roe l l t y r l i i c t t l t t t s i t io t t . l t t t r l :1 l t ' c i l t l -

i za t ion i r r labor :

X,l9cft i1t ec() l t() t l t i ( ' g11)\rth is ac contplt t t icc[ f i lst l t t lc l f i r t 'e ' t l lost l l r l r t '

f u t n i ; r t l i r t r t , t h a t i s , l t l u l i s i n g s l r : r t r ' < l f l l r l i l ( i ( ) t t ' s l r o l t r t l l t t i < t r r l i v i r r g i r r r r r - -

l tan ar - r , l rs . T l r t . r 'e : l re t \ \ ' o l tas iC t -eaSor ts U 'hv eCot to l t t i t g l ' ( ) \ r t l ) l l l lC l

tulbarr izrtt icln go hirncl irr harrcl. Thc I ir-st is r isir tg l tgt- ictt l t tr t 'al pr 'ocltrct ir-

in . , \ s I i r r>c l px)c l i t c t i ( ) l t pe l f 'a rn rer l i ses . r i r r cc ( ) l ) ( r r t t v t )c t ' ( i s le \ r ( ' t ' l t l l c l

f 'ervcl f i rrnrel 's t( l f 'ec(l the olcral l pt iprr lut ion. Ar I irocl pt 'oclt tct iott l tet '

l i r l rnc l r i scs , f i roc l l t r - i c r< 's f l l l , inc l r rc ing f i l rn t ' t ' s an( l es l ) ( ' ( ia lh t l re ' i r c l - r i l -

d rer r to seek e l tp lO\ I l c l l t in l t ( ) l i l : l r l t l l t c t i v i t i cs . T l i t ' scco t lc l i s the 'ac i -

vantag( ' o { } r igh-dcns i t l t r r - l tan l i f ' e f i r r lno \ t r ) ( )n fh r ' l t l ecor l ( } l t l i c l rc t i r i t i t ' s .

cs l tcc ia lh th t ' fuce- t t> fnce r tenran t ls o f cor t t t t t c r ( ( ' t l l td ( ) t l t c l P : . i r t \ ( ) f the

sen' ice sect()r. Spalselr poprrlatccl r t l ral ar( ' t iS l l lake g()( ld ecol lol l l lc

sense r r 'hcn each housc l i< l l c i ncec ls a lo t o f l i rn r l f i r l fn l t t t p t 'oc l t t c t io t t .

Bu t thcv lDakc l i t t l c sense r r hen peop le i l r ' c cng i tg t ' c l rna inh i t t t t ta t t t t f t i c -

turing, f inance, col l t lnerce. altcl thc l ikc. ()nce the laltol f i l rce is r l tr

longer engagec l rna i l l l v i r r f i roc l l l rodu( t i ( )n . i t i s na t r r la l t l ra t t l r c b rL lk o f

the popr r la t io r r rv i l l r c loca te t ( ) c i t ies . c l r i i l t r b r h ic l re r \ rascs tha t i t t tu ru

ref lect thc highcr pr()ductivi t \ of l .ork irr cle rtsch'\ctt lccl t l r l lal l l re2rs.

\ ' {oclcrn cc()non}ic g-to\vth htrs aiso pt 'ocit tcecl i t revrl t t t i<l lr t t stt t iul

mobil i ty. Establ ishecl social lanki lrgs-srrch as the f ixe(l hit ' r 'alclr iclr l cl i r- i-

s ions be f lveen peasa l r ts anc l gcn t r \ ' . t i l r l i th i t r the I r rc l ia r t ( l t s tc s t r t l c t l t rc ,

o t ' in t l t c : soc ia l ( ) rc lc rs o f nob i l i t r ' , p l ies ts , r t rc rc l r : rn ts , anc l f i t t r t te t ' s tha t

chlrractcrizc'd mrun' tradit ional . \siart socict ics-al l t l l l l ' t l lel t l l )clcr thc

f i l rces of tn:rrket-based r l loclel-t t ccouottr ic gr()\ \ ' t l l . Fixccl social ()rders

rlepend on a st ir t ic and larseh i tgrarial l econolnic sctt ing r lhelc l i t t le

clt i rnses in l iv inc- staltdards or technologies f l 'onr olte gclte r ir t iou to the

next. - fhcv

c' .rnnot rvi thstarrcl the strdden al ld ( lranlat ic l)ut 'sts of tecltr-tc>

lcxricir l change th:rt occrtr cluring rnodcrt l ccol lol l l ic gr()\vth' i r l rr 'hich

()ccupati()ns and social roles shi l t clralnatical lr . fr .otr one gcltcrat i()rt t()

the nex t , ra ther than bc ing inher i ted b l so t ts f io rn fa t l te l ' s a l l (1 ( la l rgh-

ters f l 'otn nrothers.( ) r tc i rspec t o f chnng ing s< . rc ia l n rob i l i t v l t .q t t i res sPcc ia l l - i ( ) t c . the

changc rtt sendrr ro1z,s. -fr-acl i t iol lal

socie t ies tcnd to Lre stt 'ortgh cl i f l i ' r 'cnt i-

ated in gencler r() les, \vi t l l \ \ 'olncn alnrost al l-avs gett ing the short ( 'nd of

thc c lca l . In sc t t i r rgs l 'he lc thc t r> ta l f c ' r t i l i n ru te - the l1 \c l r tge t t t t t t t l te r

o1'clr i lc lren pcr' \rol lr lut- is f ipical lv at lcast f ive, at 'rcl often tnltcl t hi-^he r,

\vol l len spcncl rnost <lf t l rcir aclrr l t l ivcs rcirr- irrg chi lcl lerr. - fr irci i t ionai lv

t l t r \ t ' R I - . \ t ) ( ) l t { : ( ) \ ( ) \ 1 I ( : l , R ( ) s P } R l l \ : a l

l i11111s l to r rnc i , rvornen l i re l i ves o f back-b le : rk i r tg labc l r ( ) l l thc fu t ' rn . end-

less uu lk ing to co l lec t l i re l rvooc i ru rd \ \ 'a te l ' , : rn t l ch i l c l rear i r rg . \A ' i th

Irrocletrt ecolt() l t l ic gl 'o\vth, this r lvnantic cl latrges. \ \ i rmcrr cert l :u' l t i l them-

:clves of 'rrrb:rrrJnsccl ernl>lor rnerrt, as i l l t l lc cuse of the vortng rvott lctt i t t

rhe apparel factories of 'Dhaka. leirding thenr tr l t imatelv ton':r lcl social

ru rc l po l i t i ca l c tnpor r 'e r r r ien t .

T l re ch ; tnges in l i v ins cor rc l i t ions : tnc l econotn ic l rc t i v i t ies lead to

1re\r real i t ies l t funi\ ' stru(lut" rts n'el l . The irst of t trarr iase is tvpicir l lv

r lclaverl, ancl scxtral lel ir t iorrs ale t larrsl irr-mecl, tr ' i t l t gr(- l l ler sextt l t l free-

ckrrn rntrch less ci irerct lv l inkerl to cl-r i lc l t 'ear- irrg. Fencr genel ' i r t ions of

f l i rni lr nrernber-s l ive rrrrder- one rool. And cnrci: i l l r ' , the desirecl nunrber'

r>l chi ldr-ern changes renrarkablv as farni l ies rnove f lortt t ' r tral to t trban

sett inqs. hr rtrr ir l societ ies, lar-ge farni l ics are altrtost alrvals the uorm. I tr

rr lbl in societ ies, fanri l ies choose to h:rve ferver chi lclrerr. Tlr i-s is t l te crtrx

o l the c lemouraph ic t la r . rs i t ion , one o f the most f i r t rc lamenta l o1 'a l l so-

cial changes citrr ing the era of rnodern cconomic growlh.

C)rre mrire cnrcial clement ()ccl lrs rr ' i t l -r clecp strt tctt t t 'al chart--e: the

rl i t , is ion of laborincr:eases, as pcople become n-r()re and rnole special ized

in their ski l ls. The talctrts ofa poor r l l r?rl far lner in Afr- ic:r toclav, ot ' in

Scotland at the t irre of ' . \r larr i Srnith, are tnrlv ntat ' t 'elorrs. These lanners

tvpical lv knon'horv to bui ld their onn houses, glon'and cook {ood, tencl

to ani lnals. and rnake their orvn clothing. Thev are, t l -rerel irre, corlstruc-

t ion u'orkers, \ 'eterin: lr ians an(l agronolnists, and apparel manrt l 'actur-

e rs . Thev do i t a l l , anc l the i r ab i l i t ies a re c leep ly ' i rnpress ive .

Thev are also cleeph' ineff icier-rt . Acl:rrn Smith pointecl ott t thi l t spe-

cial izat ion, u'here eaclr of us learns just one of those ski l ls, lcacls to a

general improvement of evenbodr' 's rvel l-being. The idea is sinrple and

1 > o n c r l \ r l . B r r p c c i : r l i z i r r g i n . j t t s t o t t r ; 1 1 1 1 1 i 1 1 - q 1 1 6 l r : t s f o o r l t ; r i s i t t q .

clothing production, or home constnrct ion-s26]1 \\ 'orker gair)s lnas-

terv over the part icular act i \- i t \ ' . Special izat ion makes sertse, horvever,

cinlv i f the special ist clrn strbseqrrenth trade his rtr her ()utput u' i th the

output of special ists in <it l -rer l ines of act ivin' . I t l lould make no sense to

prodirce n'rore fbod than a householcl needs rtnless there is a rnarket

ol l t let t() trade that excess food for ckrthing, shelter, and so fbrth. At the

same t ime, without the abi l in ' to bu\ lbod on thc tnarket, i t u<ruld not be

possible to be a special ist l .rolne brr i lclcr ot ' clothitrs maker. since i t

rvould be necessan'to farrn f irr one's ou'n srtn' ir ' : r l . f 'hrrs Smith real ized

that the division of labor is l imited bv the extent ol t l ' re rnarket (that is,

3 5 I H E ! : N I ) ( ) l l ' , ( ) \ ' , t s R 1 1

bv the abi l i tr to tr l tdc). u'het 'eirs the

bv the degrce o f spcc ia l i zn t ion (and

- f H F , S } ' R E A D O } ' \ 1 O D E R N . -

E C O N O N { I C T } R O \ V T H

N,Iocleln ecr>norrric gro\rth first emersecl in England because of the con-flrrelce of favorable conclit ions. Horveler. these t-onditions n'ere notuniquc to Engluncl, and ont:cr the Industrial Revolutiort rr-as under rvar',thc same combination of moderrn techr.rologies and social orsanizationcotrld spread to other parts of the rvor-lcl. \\hat stalted in one corner ofNorthcrn Europe rvotrld evcntuallr ' reirch alrnost the entire planet. Incloing so, the forces of modern ccononric sro\\ 'rh prope lled a generalincrease in global production of unprccedented dinrensions.

()n paper, the transition to rnodeln economic gro\\ 'th r-night appearto be an unambistrolrs and straightfonlard benefit fcrr the rvorld. Afterall, nerv technologies enablecl socien' t() harness energl' and ideas thatraisecl labor productivin' (economic olrtptrt per person) to lelels neverbefcrre irnaginecl. This proclrrctir itr bror-rsht abotrt a rise in l ir ing stan-dards of unprecedented scale. \ 'et the transition \r ' l ts more tuntultuousthan not, ir-rvolving vast social strr.rgulcs and often rvar. Before turning tothe historical record, it is rrrrrth consiclering for a mornent.rr 'hv the tran-sit ion rvas so cliff icult in so nant places.

IIost in-rpor-tirnt, modertr econornic gro\\.th \\ 'as l lot onlv a questionof "more" (ontput per person) but also "change." The transition tonroclcnr economic growth involr,ed urbanization, changing genderroles, increascd social rnobil itr ' , changing farnilr stnlctLrre, and increas-inu specialization. Thcse \rerc diff icult rransitions. int'olvins rnultipler-rphear,als in social orsanization and in ctrltural beliefs. In addition, thespread of rnodcrn economic grou'th n'irs also marked bv a svstenraticaud repcated confrontation bctrr,een the rr,orld's ncn'lv rich countriesand the u'orld's sti l l poor countries. Since modern economic gro\{th oc-crtrrccl at such clifferent rates in different places, it created an extent ofirteqtralin'<lf glob:rl rvc:rlth and poner that u'as unique in human histon.Britain's industrial dominancc-the restrlt of Britain's lcad in inclustrial-ization-gave it a unique militan, dominance as rvell, rvhich it in turnconve t'ted to ernpire. More senerallr ' , Europe's earlv indr.rstrialization in

f H t : s P R l . \ l ) o l L c ( ) \ o \ t I c P R ( ) s I ' E R I I \

t lrc nineteetrth centrtn ertcled tlP fttcl itr l i- i t \. l tst Ellropeatr etlrpire throtrqh-

orr t Asia. AJI- ica, and the Atner icas.

I inallr, the vast dif l 'erences in porver contribtrtecl to f:rtrltr. 'social the-

olies of these diff 'erences tir:rt are sf i l l rvith rrs toclar'. \{ '}rert l l societr is

r .conomical lv don' r i r rant . i t is e i isr f i r r i ts membet 's to assun)e t l ta t s t rc l r

clr>nrinance reflects a cleeper sttperioritv-n'hether religiotrs, racial, ge-

rretic, culturirl, or institutional-rather than irn accident of t imine or gc-

ographr'. Thtrs the ineqrurlitr. of'porver and econortrics of thc nineteentlr

ce l ) turv in favor of Et t t t , l>c \ \as acc() r r lparr iec l bv t l - re spre i rd of nen' tornts

of r-acisrn ancl "ctrlturisn," l 'hich offered psetrdoscientif ic.justif icatiotrs

lirr the vast inequalit ies tl 'r:rt l tacl oltened. These theories irl ttrrn jtrsti-

f iecl brutal fbrrns of exploitation of the poor throLrgh cokrnial nrle, dis-

possession of the properties and l:rnds of the poor bl ' the ric h, and evelt

siar-err-.

Sti l l , clespite these ciiff icult ies, the basic trnclerlvins for<'es that pr-o-

1-rellecl the Indrrstrial Reroh-rtiou coltld be ancl w'ere replicnted else-

rvhere. .\s ther rvere r-eplicated, rnrrlt iple sites of industrialization :rnd

e conomic grolvth took hold. Like a chain reaction, the rnore places that

rr'ere undergoing this change, the nrore thev intcracted lvith each other

l t r t d t he rehv c t c : t t e ( l t he l t a . ; es f o r r e t t t t o t c i n t t ov l ( i r l t t s . I t t o te c t ' on t rm icgronth, and rlore technological actirin. Britain's industrialization spread

to other markets in several rvavs: bv stimrrlating the demand for exports

from Britain's trading parttrers, br strpplving those tradinu partners rvith

Brit ish capital to make investrttents ir-t infi 'astrttctule (fc-rr exirntl; le, porls

and railroads), ancl bv spreadinu techr-rologies fir-st pioneered in Britain.

This difftrsion of modern economic gro\\ 'th occurred itr three main

fcrrms. The first. and in sorne \\ 'avs, nrost direct spread of the Inclustrial

Revolution rvas from Blitain to its colouies in North Arnelica, Atrstralia,

and Nerv Zealand. All three regions are in ternperate zones rvith condi-

tions for farming and other econornic activit ies sirnilar in matr-v wavs to

those of Britain. It was therefore relativelv straightforrvard to transplant

Brit ish technologies, food crops, and even legal institutiorts into these

new settings. -fhese

nen homes of rnodern economic gror,vtl'r rvere literalll'

:r "Net England," in the case of the North American seacoast, or a "\{rest-

ern offshoots" in the phrase of Angus N{addison. Icle<llogicallr: the impe-

rial pon'ers and colonizers considered North Antcrica and Oceania to be

empt)' places, despite the presence of native inhabitants in both re-

g ions . B r s l augh te r i ng . cc l rne r i ng . o r t ' emov ing t I r ese na t i ve i r r hab i t an t s

cxtent of the r r rarket is c lc ternt inecl

hence, procluctivitr ') .

l I I t [ . \ I ) ( ) l I ' , ( ) \ l ] R l ]

f i -e rn t l rc i l lanc ls . l -ng lnnc l ' s ne l -co lon ize ls luc lec l i I l l uge exp: r t ts ion o f

l lo l r t r l : r t io t t anr l s t tbsc t luc l r I cc ( ) l r , r t t i c g t -o t r ' th o f No l th - {n re t ' i cn a t rc l

( )c 'e r r r t i i r .

A seconcl f i r l rrr o1'cl i f1irsion took place rvit l r in Europc i tself , broacl lr ,

in a process that larr f lorn \\ester-u Errrope to l lastern Lru'ope irncl f t 'om

\or thcr r r E . r r rope to Sor r the l r r Eu lope c lu l ing thc r r ine teent i r ccn tur \ ' .

Northneste ln l lur-opt ' st:r l tecl i r ' i t l r ccr-tairr a(hiurt:rges ove r Easterrt arrd

Sor.rtherr-rr Etrrol>e. Fi l 'st, l rort l l \ \ 'estel 'n L,rr lope is on the -\ t lantic sicle of

the cont inent . a r rc l t l re r -c lo le l rac l bc r re f i tec l r r io re th i rn E : rs tenr E tu 'ope

fiom t lre grelrt explosion of oceirn-l ;asecl t lacle u-i th the Anreric:rs ancl

Asia. Seconcl, nolthrvestern Errrcipe general lv hacl rrtore J-avorable natu-

r:r l resorrrces. inchrcl ing coal. t imber-. r i lels (for- rv:rter-pol-elecl rni l ls),

ancl lain{: i l l . Thircl, north\\ 'cstel-n Errrope gencral l l berncfi tercl f l 'orn a

rnore benign cl isease environment, less r-rr lnelable to t lopical ancl sub-

tropical <l iseases l ike ni: , t lar ia. FoLrrth, fol n host of reasons, sorne rnr( ler-

stoocl ancl otherr-s much debatcci, the pol i t ical i rncl social concl i t ions rvere

more f:u.orable. Serf<lorn hacl essentialh'cl isappealed in mrrch of north-

\\ 'esLer'n Errrope br the selenteenth centur\, n'hereas serfclonr ancl other

social r igicl i t ics rvere f ' i rr mor-c intact in the south ancl enst. Cler-m:rnv irnd

Italv n'erer st i l l not nati() l l states bv the st:rrt of t j re Lrcir.rstr- ial Rer.oh-rt ion,

:rncl thev sufferecl f i -om extlenrel l high ban' iers to tr i lde arnor)g cornpet-

inu pr inc ip : r l i t i es .

\A.hen the Irrclustr ial Revolrrt iorr bcgan, ancl especial l l rvhen i t began

to spreacl in the micist of ancl alter-the Napoleonic \ \als, the obstacles to

cleveloprnent in Sorrthern ancl Eastern Errrope bcgan to diminish. Serf-

clorn u,as abolished, { i tJir l l r , ol tcrr violentlr ' , across Errrope. Consti trrt ional

e()vernance \\ 'as introducecl. Rai ln-ar.s \{erei erstabl ishecl to l i r-rk European

regions. Icleas and technologies f lorvecl l i t l t ever greater speed and

rvere backecl bv erer larger'zl lnounls of f i r-ranci:r l capital. Bv the encl of

the rr inetecnth centun, inch-rstr ial iz:rt iotr u'as rrraking i tself fel t throrrgh-

otrt al l of Eur-ope.

The thi lcl cl i f f trsion involved the spr-ead ol rnodem economic

srotvth f i 'orn Errrope to Latin America, A1i ' ica, ancl Asia. The process n'as

tttnrtr l t rrotrs evenrvhere, ir-n olr. in g the confi-ontat ior-r of ar) i l tcreasin glv

indrrstr ial izecl ancl r- ich Etrrope u' i th noninclustr ial izecl, largeh' nrral,

ancl nri l i tar ih n,eak sociert ies in other parts of ' the rvorlcl . Sonte rrere

ancient civi l izat ions nith Fi land t lacl i t ions, l ike China or.fapan; sorne

were sparselr poptr latecl regions l ike those in rnnch of tropical ,A,fr ica.

Brrt the gt 'eat clranra th:rt el lsuecl ir l rnost evenl 'here u'as the ttrrmoil of

I I t t . s t , t i ! . \ t ) o l l c o \ o \ 1 I ( I ' R ( ) s P l . R l l \ ' . l l

r p r r f l - t l1 tu t i91 bc tu ' t ' c r r t l rese r l i f J 'e r -e l t t soc ic t i c \ . ec ( ) r ) ( ) l l i es , a r rc l c r r l -

l r i l t ' s . L . r 'e r i rvhe ' r r i t la ised l i i i ng s tanc l : r l c ls . n roc le rn cc( )nor l l i c g rorv th

l1 'o r rg l r t f i r r rc l i r rnen{a l char rgc to soc ia l o r -gan iza t io r r anc l pa in f t t l c las i tes

r r i t l r t l re n io l e l )o \ \ 'e l ' f i r l E t r r -opeans.

l 'he corr l l -ontut iorr betrr 'een l ich arrr l poor \vas verv stark becattse

tlr t ' - . .ap of u'calt l i i l lso lnel int t l ic git l> of porvct. atrcl pou'er cotr l t l be trsed

lo l exp lo i tu t ion . Er t t -ope 's s t tpc t - to r l )o \ \e l t v l i s t t scd re tpca tec lh ' to c to l t t -

n t ' l ac t io r rs bv t l ie rveakcr soc ie t ies on beha l f o f t l te r i cher ovcr lo rds . E t r

l - ( ) l )e ln i r r rper ia l l )o \ re rs fb lccc l ' \ l i i ca r rs to g lo \v cash c rops t l rev chose.

( .o lon i r r l r l r r t l l o l i t ies i rnposec l l t cac l taxes , conrpe l l inu 'V l ' i cans to \ \ 'o rk

i r r r r i ines anc l on p l : r r r ta t ions . o f ten hunc i rec ls o f tn i les f i ' o tn the i r ' la r t t i -

l i es a r rc l hornes . Er r lopear r inves tors : ln ( l governrnents c ro l ru l tandeered

natru' l t l resources. irrclrrcl irrs nrinelal l 'ei i l th ancl r ' :rst rvoocl lancls in

-\t l ' ica arrcl . \si :r . I)r ' i r-ate Eur-opcan cornl>nnies tnaintainecl pt- ivate arlr ies

irr the coloniers to ensrrre conrpl iance u' i th corni)r lr l \" ' l i rrv," ktrou' i trg as

r rc l l t l ra t the i l na t iona l govc ' r ' r rn rer r ts r r 'o i r l c l back them up rv i th r r r i l i ta rv

Io lce in cx t l c r r r i s .

'l'ltc (lusrurle of 'lbchrtologitul

Chunge

l . i r ing s tanc la lc ls bcgar r t ( ) r i sc i r t u t r r r r per - ts o f thc rvor lc l , even u ' i th a l l

i l r i s bnr ta l i t \ ' and su f te l ' i ng in p laccs t l ra t l rac l succu lnbec l to co lon ia l

r-tr le. ancl cve n in places n l iele <--olonial rnustcrs, rzrt l ler t i ran the iocal pop-

Lriat iorrs. glabbecl rntrclr of the increirsecl econorrr ic ()utput. Often the

cl imb otrt of extrenre l)o\ert\ ' \ ras verv gr- irchral and f i t f tr l , set back bv r.var

:rrrcl fanrine. Occasionir l lv i t ivas r iU)i(I . sl lch as.J2rpal l 's ec()nolnic takeoff

lrrrcl incltrstr i i r l izat ion in t lre last quarte r of the nineteetrth cetrt t tr t ' .

I bel ieve that thc singlc ntost inrporlzrnt reas()u rvhv prosperitv

splcacl. ancl u. lrr i t contir irres to spreacl, is the transnrission of technolo-

g ies i rnc l the ic ieas r rnc lc ' r l l i ng thent . Evet r n rore impor tan t than l rav i r tg

slrecif ic res()r lrces in t lre qrorrncl. sr.rch as c()al, rvns the abi l i t l ' to use mod-

clrr. scie nceJrasecl icie:rs to organize pxicltrct iort. The beatrt.r ' of icl t :as is

t l ra t ther .can be t rsec l over ' :u rc l over i rq : l i11 , rv i tho t r t ever be ing c le rp le ted .

l ' -c 'ononrisls cal l ic leas nonli ' r 'al i rr the sense (htr( one pers()n's use of an

i r lea c loes no t c l i rn in is l i the nb i l in 'o f o thers to use i t as \ \ 'e l l . - I ' h is

i s u 'hv

\\ 'c (un errvisiorr ir \rorlcl in rvhich evelvboch nchieves prosperit". The

c\sel)cc of t l re fr lst Inclrrstr ial Revoltrt ion \\ ,21s n()t t l te coal; i tn'as horv tcr

ttsc the coal. [ ' - \ 'en nlore general lr ' . i t n' i rs :r l)orrt ho\v to l lse a nerv fcrrrn of

( 'n ( ' r 'ga . The lessc . r r rs o f cor i l cvcr r t t r i r l l r becan ie the bas is fo r r t ra t r t 'o ther

I r l r [ \ l ] o l t ' ( l \ l l R f \

elterg] slslelns as \\ 'el l , f iorn lrvcl lol)o\!er, <t i l arrcl g: ' ts, atrcl tr t tcle: ir Po\ver

t() nc\\ ' f i rr-r ls of lel te\\ 'able enerLx st lch as wil)cl al ld solar Po\rel ' con-

ver . re ( l {o e lec t r i c i t r ' . T l rese lessor ts a le i t va i l i rb le ro a l l o f h t t t r la t r in , t lo t

j r rs t f i - , r the f i l s t i r r t l i r i t l r ra ls r r 'ho r l i sc r>r 'e l 'ed t l le l )1 .

T [e l i r s t ua le o f ' t l re I r rc lus t r - ia ] Rerohr t ion \ \ ' : IS the c le re lopr r l te t l t o f

the stearn engirre arrcl relaterl technrikrgics, incltrcl ing t l te orgatt izrt t iot. t

of ' large-scale lactor-r lrrnclrrct iorr, nen' machinerv in the text i le artcl a1>

l ) 2 1 r e l s e c t ( ) l ' . i r n c l r r e r r t e c l r \ i q u e s t o p t o < l t t c e s t e e l . - \ s e c o t r c l l i t r e o f l e c l t -

n<tlogical l ;reaktfrrotrghs c: inre irr t l re nriclcl le of t l -re tr i t teteertth cerl t t l r \ '

lv i th the lai l , ancl e\.en nlore notal>lv the teleelaph. l .hich offerecl the

first i l tstalt taneous telcct lnrnrLrnicaticrns arour)( l the rvorlcl . a Phenolre-

nnl breakthnugh in thc al; i l i t r to cl i f l i rse infcrt ' tnatiott t lu a lnrge scir le.

Tlre scconcl technological rr 'ave also incluclecl ocearl stearnels. slobal-

scale tr irdc, ancl trr-o hug-e inf i-astrt tct l tre pr-oject.s: the Strez C)arlal, corn-

pleted in 1869, u'hiclr signif ic:rnt lr shortettecl the tracle t i t l te befir 'een

Eur-o1-re ar)( l Asi i ,r . 11n(l t l le Panarna ( l i rnal, cornpleteci in 1911. nhich clra-

matical lr leclrrcerd thc tr-acle t irne l tetrr 'een the L'.S. eastet- l l seaboart '( l at ld

clest inatiotrs in the rvestem Uniteci Stzrtes, tnrrcl l of Latir l - \nlel ica, l lud

East Asia. Epidenrics o{-r 'el lorv fevel and malaria that ki l}ecl thotrsanrls of

n'or-kers clelarecl the f irst 2rtteIIr[) t to brr i lcl the catlal i r l the 1880s. ()nce

scientists undc'rstoocl that rrrosqrri toes \\ 'ere transrtr i t t i t rg those ki l ler dis-

eases, the canal bui lders made a ftr l l - f leclgecl ef lbrt to cotl trol t l re rt los-

quito breecl irrg zrlor-rgsicle the constl- t tct ion of the can:r l atrd therebv

cornp le tec l the pro jec t i r t l9 i 4 .

The thirr l n'ave of technologicir l aclvance involved electr i f icat ior-r of

inclustry and urban societv at the end of t l -re rt ineteenth cel l t t ln ' , i r lch-ld-

ing Ec l i son 's i r t ven t io t r o f the iuca t rc lesce t t t bu lb and o ther e lec t ron ic

appliances. Ecl ison, \ \est inghotrse, and others cltal l tpionecl l :rrge Po\\ 'er

plants thit t coulcl bring elect l ici tv ir) to honres. t>ff ice btr i ldinus. ancl fhc-

tories br,u' ire, nhich n'as the defining nen' i tr f l 'astt-t tctt l re of the earlv

trventieth centur\ ' . The clerektpment of the intertrurl conrbrtst iotr el lgi l te

tvas also cri t ical, as \\ 'as t l te pivotal adval)ce irr the chenical indtrstrr;

n ra in l t in ( le rn ranr ' . n ' i th t l ' re l le \ \ 'p rocess fo r - tak i r lg a t rnosp l re r ic n i t l t l -

gerr arrcl c()nvert ing i t int<l 2unntotl ia fol fert i l izer (the Haber-Bosch

process). ' fhis use of f i lssi l fuel erter 'g1'to create tt i troselt-baseci fert i l iz-

ers \ \ : : ls t l re breakthlor.Iglt advance in raisirrg fclod prodrrct iorl in the

t$'cnticth ccnrur\ ' , erralt l i rrg a great l)roport ion of hr-rrnanitr. thotreh st i l l

not al l ol ' i t , to overcorne chronic l tr tnger ar-rd the r isks of ' famine that

fracl fbrevcr l t lautrecl hrrmankind.

T H T - S P R [ , \ L ) ( ' ) I E ( : O N O I \ t I ( : P R O S P E R I I ' \

These rvares of teclrnological advance dif fusecl arouncl the rvorld

throrrgir the spreacl of tracle and foreign investment: rvi th i t , econorrr ic

1 ; r 'ospe l i t r ' sJ ) read to o ther par ts o f ' the lo r lc l as rve l l . BLr t so , too , d ic l the

g lobu l svs tenr o f European po l i t i ca l < lonr ina t ion . T l r i s c lominat i ( )n l c -

f l t 'ctecl the last ineqrral i tr of pon'er that grerv ol l t of-Europe's hea(l start

in incltrstr ial izat ion, a heacl start that\\ 'e have seen is rooted in an aclvan-

rrrg,-cous confluence of pol i t ics, geoer:rplrr, ancl rcsorrrce base.

Bv the car lv t r r 'en t ie th centun , E t r lope l i r lgeh r lominatec l the rvor lc l .

L.rrropean enrpires control led essential lv al l of Afi ica ancl large 1;arts of

. \sia, anci loomecl larse in f inancing alrcl organizing I-at in Anrerica's

1r'r lcle 2ls rr 'el l . This \ \ 'as the f irst age of elobal izat ion. an er:r of global

( r ' : rc lc . z rn e ra o f g loba l conr rnr rn ica t ions t i ver te lee la l> l r l i nes . an era o f

l l r i lss production and ir-rdtrstr ial izat ion-in shrlrt , n,hut rr,otr ld seel l l to be

l l) era of inevitable progress. Ancl i t n'as global izat ion trnder European

clornination. I t rvas vierve<l as not onh economical lr unstoppable. but

also zts the nattrral order of things. Ttr is inrasinecl nattrral orcler gave

r-isc to the inf irnror-rs "rvhite rnan's btrrcler.r," the r ight aud obl igatiorr of

L,trropean and Europezrn-descenclecl rvhites to nrle the l i r . 'es of others

ar'<'rtrrtd the rvorld, rvl .r ich thev bl i thelr,did rvith a corrtradictor! nrix of

r raivete. compassion, ar-rci l trrrtal i tv.

' I 'he Creat Rupture

.\t the beginning of the tn'entieth centlrn, globalization n'as viervecl ls scrinevitable thltt sorne tl-rorrght rr 'ar itself l.as probabh passe, and certainlvso irrational thirt no riglrt-thinking leadel in Etrrope n'orrld ever take hiscountr\.to \\ 'ar. In 1910, a leadins Brit ish pundi', Norntan Angell, rvrote'l ' l te

Oreat l l lusiott. rr 'hich rightlv arsued th2rt national economies had be-(orne so inter-cle1>enclent, so much part of a global division of labor', that\ri l | amollg the econornic leaders had become uninrasinabl,v destnrc-tir-e. \4hr, Aneell rvarned, \,\.ould so undermine the nettvork of interna-tiorral trade th:rt no rnil i tarr' \ 'eltture ltv a Europeun power againstanotheL could cor-rceivabh lcad to econornic benefits f irr the aggressor.IIe sunnisecl that lvar itself rvotrld cease once the costs and benehts of\rar were more clearh' rrnderstood.

Aneell trernendorrslv trnderestimated the irrationalit ies ancl social

l)rocesses tl-rat leacl to devastating ()utcolnes, even rvlten they rnake nosense. Angell rvas therefore half right: rvirr had becor.ne much too clan-gerous to trse for economic gain. But it didr-r't stop war frorn happenine.

t l I l t L [ \ l ) o I I ' ( ) \ t l l . I \

l ' i re re r t t ' l 9 l4 bcgar r t l ) c g rea t r t l l ) t r l re o f the t \ ren t ie t l ) ce l l t t l r \ ' . even

rnoLe clr ' : l r lui t ic a nl[) tule t l tatt \ \ i r l lc l \ \ 'al I I rvotr ld Prove to be.

\\ ' l rv rr 'as \\ i r l lc l \ \ ' i r l I so clr-arrtat ic: uttc[ so trart lni t t ic: I t er lcled the erra

o f 'E t r r .opcur r - lec l g lobn l i z l r t i c )n . I t s c leu t l r to l l r r 'as s tu rgget . i t r - - , l t t rd i t lec l t c r

sere l i r l ca t i i c lvs r t t i c e \en ts tha t cas t the i r -shac low over t l )c t -es t o f the ce t r -

trrn' . The f i lst siclc ef lct: t iv:ts thirt i t clestabi l ized the Rtrssiar-r czat- ist

rcginic" trnleaslr ing the Bolsher ik revolul iotr. A relat ir .el l backn'arcl Rtrs-

sia, rr ' l ' r ich hacl been the l tst courltrv in EtLrope to colt le otLt <tf selfdom,

I 'e l l i r r to t t r ln ro i l r rn r le r t l re f i sca l anc l i r r r r t in t t b t t rc le t rs o f ' r r 'a t ' . \ ' l ac l in r i r

l-err in artcl a s|nal l gl1)ul) ol cottspit-ators \ \ 'cre irble to seizc porr-er Nith

vcn ' l i t t l t ' pop t r l i r r su l ) l x ) r ' t anc l i r rs t i t r r t c n revoht t io t ra r . r ' r loc t r ine tha t

sel l t Russia () l l a seventvt i le-r 'ear detour- of euortrtotts bnrtal i f i ancl eco-

nor r r i< n -as te . A t the i r r r rax i rnurn ex ten t . the co tnnr t tn is ( c loc t r ines tha t

l -en in unc lJ< iseph Sta l in ins t i t t r t cd in Rt rss iu ensnarec l ro t rghh a th i rd o f

the uor . l c t ' s popr r la t io r r . inc l t td ing the f i r t -u re t ' Sov ie t L ln i< t t t , C lh ina . the

Elrstcrrr E.rrrol>eirrr stntt 's rrrrclel Sovict ckrrnination, Crrbir, \orth Korear,

ancl othcr-self-snlccl relolrrt ionarv states al ignecl rvi th the Soviet L nion.

Another- great consequence of \ \bt ' lc l \ \hr I rvas t l-re prolonged f i-

rranci:r l instalr i l i tv i t createcl in Errrope nfier the * 'ar. The'rr 'ar created a

n l ( ) r 'Ass o l i r r te r lock ing f i r ranc ia l lu r< l eco t lo t t r i c p rob lc rns , inc l t rc l ing the

nrc i r r r r tu i r r o1 'c leb t incur - r -cc l l l conrbutun t cor tn t r ies ; the des t r t rc t ion and

cl ismernl>ering of the Ottonratr and l lnl>slt t trg etnpires atrcl thett ' re-

pl ircenrr-nt br srn:r l l , Lrnstable, ancl fetrcl irrg successor states; zrncl the Al-

l iercl claints fbr r-eparati<)t l pa\Inel l ts f i -ortt Clermanr' . rvhich embittered

the ne'xt generatiolr of ( lertnirns aucl nrrs otre of the ral lr ing poirt ts for

IJi t ler- 's r ise to po\rer.

John -\ lavn:rrd Kevnes rtnclcrstootl that t l tc n'orlcl as Ite krtel ' i t had

been brorrglt t to an eucl ir f ter \ \bricl \ \ 'ar I . ln tr is larnotls esszl\ ' <trt The

Ilronomir C,ortsequentes of Ihe Peace, Kevues niastelful lr ' captured al l t ]rat

i rac l beer r los t :

\ \ ' l r :r t an extraorr l inrrrr episode i tr the etoltorl ic progress of ntan

tlr :r t agc rr-as rvhich canrc to an cncl in Artsrtst 191-{i Thc greatel 'Part

o{ thc populzrt inn, i t is t t ' r tc, ivorked }rarcl atrcl l i red at a lorv statrclard

of coni l i rr t , \ct \ \ 'cre, t<l al l appearances, r 'easoltabl i contcntccl 'ruith

t lr is lot. l l rr t cscnpe l ls possible, f i rr anv tnltn of capacitr or cl t : l rac-

to -a t a l l c rcccr l ing t l r t : lnerage, in to thc n r ic ld le anc i r rpper c lasses ,

l i>r-rr ' l ronr l i le ofFcr-ccl, at a lorr 'cost ancl rr ' i th t l -re least troul>le, con-

rc r r i cnces . conr l i r r t s . ln< l a rne n i t i cs bc ' r r rnc l lhc cornDass o f the l i ch-

(,\ t :ul( l ntost l torr 'c|ful ntOnarch s of 0t irer ages. The iD, 4'c

l .o rck . rn t :o r r l c l o lc le r - b r tc lcphor re , s ipp ing h is n ror .n ing teu ,th r ' r 'a l io t rs l t roc l t r< ts o f the l 'ho lc .car th , in such quant i t v asr r r igh t scc f i t . l r r r r l re l rson : rbh ( . \ l ) cc t t i i e i r -car l r c le l i ver . l ' r - rpon h ist loo t ' s te1 t : hc cor r l c l : r t t l r c sar r re r ron ter ) t an t l b t ' the sa tne rneans ad-\rrrtrrrc his rr 'calth in the rrnttrra resoulces an<l nerv elt terprises of

i ln\ ( luaItct 'of the \\ 'o|1cl. urrcl shlrre, rr i thout exert i()n r)r eVen trou-

lr lc. in thei l ptrrspe ct ive I l 'ui ts ancl:rclr: tnrages; ol he could decide to

< otrplc t lrc secrLl i tr of his [ irr trrnt s nith r l te good faith crf the torvns-

p t 'op le o f u i rn s r r l t s t : r r r t ia l n r r rn ic l ta l i t r rn Anv con l inent tha t Iancy

ol irr folrnation nrrghr reconul)en C. l le rould sccure frrr-thrvith, i f he

rr ishcrl i t , cheap : int l r 'onrf irr tuble- nrei in: r i I ' t lansit ro ar)\ 'corultrv or

c l i r t ra tc * i tho t r t passp( ) r t o r 'o t l re r - fo ln ra l i t r , cou ld desp: r tch h is ser -

\ an t to thc treigh borrr irrg r) l l ice o- :r birnl, f i rr such supplv of the pre-( io r . rs n r r - t i l l s t rs n t ig l r t sccnr c ( ) l ) \ c l r ie r r t . anr l cou ld thcn proceed

lul>road to foreign quartcri , rr i t l :orr l knorvledse of their rel igion,

langu:iger, or ( ustor))s, bcaring co ined uealth upon his person, and

l 'otr lcl consicler- hirnse l f sreatlv ae 3-r ier ecL and rnrrch surprised at the

Ieast inter ' fclence.. [JLrt, nrost inrportarrr of al l , he regar<led rhis state

oI af lair-s as rror-rr i :r l . cclt l t in. anrt pernr.rnt-trt , except in the direc-

t ion of f i rr ther irnlt lovcrnent, :rurl i tnr cloiat ion front i t as aberrant,

st :rnclaklrs. irnrl t l oir lablc.

. \s Kernes str-essecl, in a nress:rge fc,r our r inle, the encl of this era wasr in i p lv t r r r in rag inab le :

The plojects and pol ir ics of 'nr i l i :ar- isrn .rnd inrperial isrr, of racial

anrl cLrl tural l ivalr ics, of ntonoprt l ies. r 'estr ict iotrs, and exclusion,

rr 'hich r leler to plar the serpcnt to this paradise, u'ere l i t t le more

thuu ttrc arnl lscurents <tt his clai lv rte\vsprper, and appcarecl to exer-

cisc'.r lnrost rto inf lrrence at al l olr t l re oldinary cortrse of social and

ecorronric l i fe, thc irrtcrnaticlnal isat ion ,rf rvhich was nearlv com-

plere in pri tcr ice.

' I-he ecorronric inst irbi l i tv that fbl lol 'ecl \ \or ld \Ahr I lecl to the Great De-

lr lession of the 1930s ancl then to \ \- , ' -rr lcl \ \ ' i r l I I . The l inkuges are subtleancl clebatecl in cletai l . btrt l rncleniable in basic fact. The overhang of badclebts, slrnrrrke n tracle rr. i thin Etrrope, and overstretched budgets of the[ '-uropean po\\ 'ers nleant that inf lat i ,- ln, stzrbi l izat ion, and austeri ty were

r H E S P t i t . \ t ) ( ) l l : ( t o N o l r l c i I\ * t

4 6 T I I I t N D o F P o \ E R t \

f l16- olr lers of the cl:rr throttghottt the 1920s. The Ertt 'opeirn cottrt tr ies

<lrr lr cl imbecl one bv one back to the 54old stan(lal ' ( i . r ' ietr 'ecl at the t i l l le as

rlre gu:rrantor of lotrg-terrn f inatrcial stabi l in ' . Nas, the retul ' l l to the

gold st:urdarcl dicl l i t t le more thirn exacct-bate the condit ions that had

prevai led in the 1920s. \ , Iost inrportant, the sol( l stzrnclarcl ancl i ts "rrr les

of the g:rnre" f or rnonetirrv nriulalJenrent m:rcle i t cl i fhcrr l t i f not inrpossi-

ble for the rnir jor econouries to escape f i-onr a sl ide into cleep depr-essiotr

in t l re earh '1930s . The Gr -e i r t Depress ion . in t r r t ' t r , t r iggere< l a ca la rn i -

tous spread of tracle protectiolt isnt ancl the r- ise of 'Nirzistt t in Ciermanl '

and mi l i tan nr le inJapan.

By the enci of \ \br ld \ \hr I I , the pre-1914 global svstern hacl sone to

pieces. Internirt ional tracle n': ts nroribttnd. \at ional ctt tretrcies \\ 'efe l tot

conver t ib le one to another , so even the bas ic l l i r vme[ ts mechan is tns fo r

i l r tel ' l rat ional cornrnerce hatl broken clorvu. \ Iercif tr l l r , the ase of Euro-

pear.r inrperial ism nas also coming to an end, althorrgh i t r toir lcl take

decades lor-rger, ancl manr' \ \ 'ars, for i t to end clecisirelr ' . St i l l , stancl ing on

the ruins of \{brlcl \4ar I I , the benefi ts <-rf a global rnarketplace-r- i th a

global division of labor, a peaceful spread of technolosr ' , ancl open in-

ternational trade-looked lorrg gone, Lntr ieci rrncler- the rr-rbble of nvo

rvorlcl rvars and a great clePressior-r.

R E C O N S T R U C T I N C A C ; I , O B . { L E C O N O N { \ -

Much rvork bet ' l leen the end <lf \4bricl \ \ar I I in l94ir ancl t i re end of the

S o v i e t L ' r r i t - r n i n 1 9 9 I r r ' e n t i n t o r e c o t t s l r t t c t i r t g r r r r e r r ' g l o b a l e c o t t o m i c

system. The ir lrnecl iate strugele \\ ,as ph)'sical reconstruction: to repair

or rebui ld t l ' re roads, briclges, po\{er stat ions, and ports that under-

pinned national economic prodl lct ion and international trade. Yet the

"plumbing" of the international economl also needed to be recon-

structed. with currency arrangements ancl nrles for interuational trade

that rvotrld permit the market-based flo'rr, of soods ancl services, and the

procluctivin gains that rvotr ld enrerse from a renerr 'ed global division of

labor. This reconstruction effort took place in three steps.

First. the countr ies alreadv industr ial ized irs of 1945-Europe, the

United States,Japan-reconstructed a nerv internirt ional trading svstem

under U.S. pol i t ical leadership. Step bv step, these countr ies reestab-

l ished currencv convert ibi l iq- ( in rvhich businesses and individuals could

buy and sel l foreisn exchange at market rate) in order to create a pay-

1 t ( ' l l t s s \s tc t ) t f o t ' i t t le r r t : r t iona l t r i t c ie . 1 'he Eu lopean c r rn 'enc ics becarne

( ' ( )nver l ib le i rga i t t in 1958. The ren l )ccanre c ( )n \ .e l ' t ib lc aga in in 196,1 . A t

t l r t . s : rn re t in re , these co i ln t r ies lg leec l to re r l t rce the tn tc le bar r i c r -s , i r r -

t l r r t l i ng l r ie l r ta r i f f s i rnc l q r ro tas . n 'h ich thev hac l p r r t in l r lace in t l rc ch : rgs

o1 the ( i lea t Dep less io r r . l ' he t la r le bar - r - ie rs cur r ie c [o rvn in severa l

lo t r r rc ls o l i t r te l ru r t io t ra l t r i t c le n ( 'go t ia t ions l runc l le r l t rn r le l t i re ' ; r i rs1- l i ce :

o f t l r t ' ( lenera l - \g r -cer len t on l i i r i f l l s a r td l l ' ac ie t ( ; , \TT l , : r ser t o f n r les

l l r l r t cons t i t t r tec l the f i r r -e r - ru r r re r - t ( ) to ( la \ ' ' s \ \ i r r - l t l ' I l a r l c ( ) r 'gan iz l r ion .

l l re r - i c l i *o r lc l . soon ca l led the f i rs t rvor lc l , s t rcceec lcc l in recons t l r rc t i ;g

: r n ra lke t -basec l t lac i ing svs ten l . \ \ ' i t l t i t c l ln re u b r r rs t o l ' ra l t i c l econoru ic

gr-()\{t i r . a porler- l i r l recovcrv ir f ter-clecarles of n-ur ' . blockecl tracle, and f i-

r l r r r t ' i a l i n s t a b i l i t r .

T l re t -es to ra t io t r o f t luc le i t t t l re f l rs t rvor l< l c l i c l no t , l ro r r 'evcr , l l re : l l l

t l r t ' t-estot 'at iotr of a elobir l ec()n() l ]) \ . ' fhe

cl ivisions in the rr 'orld eci irr-

ortn' arfter 1!)-1ir rvent cieepel thirrr cr ir lerrcv inconter-t i l t i l i t r ' ancl tr : ide

lnlr iers. Br the encl oi the \\bl lcl \ \- i rr I I . the rvorlcl hucl become starklv

cL i r i c lec l in po l i t i ca l te rnrs t l la t rn i r ro lec l the ecr )n ( ) rn ic lup t ru 'es . These

r l i v is ions lou lc l lu rs t fo r c lecades : rnc l a re on lv nox 'be ing l rea lec l .

The seconcl rvorld rvas the soci:r l ist lvol lcl . the n,clr lcl f i r 'st forged b,v

[-err in ancl Stal irr in the l 'ake of \ \ i r l l r l \ \ 'al L The scconcl rvorlcl r .e-

r rn inec l cu t o f f econorn ica l l r f ro rn the f i rs t n ,o r lc l r r r r l i l the fa l l o f thc

Ber l in \ \ .a l l in 1989 anc l the enc l o f the Sov ie r Ln ion in 199 l . Ar i t s peak ,

the second ir-orlcl incltrcled arorrrrcl thi ln cotrntr ies (dt-pendinc on the

c l i te r ia fb r inc lus ion) , anc l inc l r rdec l :11) ( ) l l t a th i rc l e l 'h i r rna l i6 ' . ' Ihe

overriding characterist ics of ' the second * 'orlcl rverc state o\rnership of

the rneans o f l t roc l t rc t ion , cer r t ra l l t l tu rn ine o f l t r -od t rc t i ( ) l ) . one-par tv

l t r le bv corn t t t t t t r i s t l )a r t ies . i r r rc l ecor ro rn ic in t rg la t ion u ' i th in the scc ia l -

i s t rvor ' l c l l th ro r ruh bar te r t r - lde) cornb ined rv i th econorn ic separ -a t iou

florn the f irst rvorlcl .

Tire third rr 'or lcl incluclecl the rapiclh. r isins nrrmbcl of postcolonial

countr ies. Tociar \ \ 'e Llse the ternr third zL,orld sirnplv to lrrean poor. Ear-

l ie r o r t , the th i rc l r lo r - l c l l rac l 2 r lnore v iv ic l conr ro tu t i ( )n : rs a e roup c t f

cotttr tr ies enrergirte f l-orn inrperial cloruination thlrt c hose rreither to be

I)art of the c:r l t i tal ist f i rst n.orlcl nor t l re sociul ist secr>rrcl rvorld. ' fhese

\ \ -e re the t r -ue t l r i rd - r rav count r ies . ' fhe ideas : r t t l te c ( ) re o f the th i rc l

rvorlcl rverc: "\ \ 'e u' i l l clevelop on ()rrr orvn. \ \ 'e l ' i l l rrurt.ule inchrstr l ' ,

sometinres throrrgh state o\vlterslt ip, sornetirnes bv givine srrbsicl ic.s and

Pl'otect iolt tr t pr ivate brtsiness, but \ \ 'e wi l l clo i t u, i thotrt f i rreign rnrr l t i -

l lat ionals. \ \e rvi l l do i t rvi thout () l lel t intcrnationir l t l i rcle. \ \ 'e clo r-rot

t x ' I r r r : t \ l ) ( ) t l , o \ u R I \

tn ls t the ( ) l r t s i ( le \ \ ' o r l (1 . \ \ ' e x 'an t t ( ) s ta \ r to t t i i l i gner l . l ' he f i l s t rvor ld

c( )u l ) t r l ( ' s a l 'e l lo t o tu l r t ' r -oes : t l te l le t 'e o tu l i r t ' t t te t ' co lo r r i l t l l ) ( ) \ re rs .' I -he

secor rd no l l r l l c 'ac le l ' s l i r c r ) ( ) t to b t ' tn rs tec l e i t l r c r ' . \ \ -e c lo n ( ) t \ \ ' an t

the Sov ie t L - r r io r r to s l -a l lo r r r rs . l - l r t ' r ' e f i r le . po l i t i ca l l r l t ' a t ' c t ton-

a l i suc( I , an( i ec ( )n ( ) ln ic i r l l r \ \ ' ( ' a r ( ' sc l f -s r r l l i c i c r r t . "' I -h r rs ,

t l r t ' pos t - \ \o r - l c l \ \ ' a r - I I lo r l c l e ro l rec l o r t t l r r -ce ' t l i r cks . I ' l re f i rn -

c la rnenta l l t lob le r r r r . horverer ' . \ \ ' as tha t the seconc l rvo l l c l : inc l th i r '< l r ro r ld

app loac l res r l i r l no t r r rakc cc<. rnor r r i c sc r rsc . u r rc l t l re r bo t l r co l la l rsec l un-

c le l a p i le o l f i r le ign r leb t . Seconc l r r -o l l c l cen t lu l p lu r rn ine- r r 'as a bad

ic lea , i i r r r l so . t ( ) ( ) . \ vas th i rc l n 'o l l c l u t r ta r -k r . i r r l ro t l r cascs lo t leas( )ns t l ia t

Ac la rn Sr r r i t l r h : rc l ex l ) l : r inec l . Bv c los ing the i l econorn ies . bo th t l re sec-

onc l r r 'o r l c l anc l t l r i l c l n 'o l l c l cor r r r t r - ies i r l so c losec l t l re r r rsc l i ' es o lT h -orn

g loba l ecor ror r r i c p rogress and t l le i l (hance o f techno logr . ' I

her c lea ted

h igh-cos t loca l i r rc l r rs t r ies tha t cor r l c l r ro t c ( )n l l )e te i r t te ' r ' ru t t io ru i i l r cven

x 'hen thev chose to tn . Thc c loserc l n r r tu rc o { tbcse soc i t ' t ies . in r rh ich

ckr r r res t i c b r rs i r resses rve le she l te lec l f l ' onr conr l )e t i t i ( )n . f i r s te lec l a g lea t

r iea l o f ' c :o r r t rp t io r r . T l re r ro r ta l ig r rec l t l r i r -c l uor - l c l cor rn t l ies los t the

chance to par t i c ipa ter in t l i c tcchnokrg ica l ac lvar rcc o f ' t l i c f i r s t \ vor ld

rna in lv becar rse thev c l i c l l ro t tn ls l the f i r ' s l r lo l l c l . Ther ne le i rnc le ls tnnd-

ab lv i r r ten t on pro tec t ins t l le i r h : r rc l - lo r r so le re ig r r t r ' . evcr r r r ' l r c r r tha t

sovcrerignn'\ \ ' : rs not r-eral lv at r- isk.

iVv o t ln n 'o rk as an ecor rorn is t begar l i r t a t in )e n l ren t l re second

x'orlcl i , tncl t l re thirr l n'orlcl econonries nere lr lreaclr ccorrorrr ical lv rrrori-

b t r r rc l , anc l n 'e lc l i i l l i ng i r r to a deeper r i r rg sp i la l o { 'e 'conorn ic ' chuos . The

ear' lr ' rnanifeslat i() l ls of that cr isis, t l 'pical lr ' , rr 'ele r ising lerels of f i rreisn

c leb t : rnc l i r rc reas i r rg ra tes o f i r r f la t ion . \ l r e :u 'h rvo lk cc r r tc r -cc l o l l m l lc ro -

eccnornic stabi l izzrt ion-the encl of higlr inf lat ion-ancl this rr.ork

blorrght rne into col l t :rct n-i t l r corrnt l ies that u-er-e isolatecl l ionr f i rst

rvor - l c l marke ts anc l techno lo$ . Th is carh n 'o lk invohec l techn ica l n ron-

e tarv econor r r i cs . b r r t i t b rought rne face to f i rce rv i t l r t l re n ror -c bas ic a r rd

l i tnc lanren ta l cho ices o f hon cor rn t r ies sho i r l c l le l i i te econor r i i ca l l v to

t lrc l troacler t lor lcl .

Br , the ear l r ' 1990s , the ove ln tc l rn i r ru n . ra jo r i t r o l cor .u r t l ies o f ' the

set:oncl u'orlcl arrcl thircl rvorlcl rr.er-c saving. "\ \ 'c rreccl t() bc part of ' the

u l o l x t l e c ( ) l l { ) t ) l \ o r r c e t t g a i l r . \ \ ' c r r ' ; t r r t ( ) u r ' \ ( ) \ c l c i g n l \ : \ \ c \ \ i u r l ( ) l u s c l f :

c lc te l t t r i r ra t io r r , b r r t r t ' e r r - i l l : ibanc lo r r Len in is t -S ta l in is t cen t la l y t la r r r r ing

becattsc i l cloesn't rvork. Ancl n'e u' i l l al t i rnclon the iclea of self : i rr i l tosed

i l t t t :rrkr ' , I tecause ecol lontic isolat ion nrakes l t() lnore seltse for a cotuttrv

I I I I \ l ' R U \ l ) O l - l a O \ ( ) \ I t ( . I ' R ( ) S l ' 1 . R t I l t ! l

r l r l rn i t r lo t ' s l i l an i r rc l i v ic l r ra l . " ln esse t rce . ( ) r )e o l r r rv lo lcs f l ' o r r r the nr ic [ -

l1 )$0s or r r ra lc l t r ' : i s tc l l re l l ; c :o r rn t r ies to beconre sorer r -e ig r r n r t ' r r rL rc r -s o [ 'a

r t ' r , i r r le ' rn i i t io t ra l s rs tenr . I re l ) ( ' r l tec l l r rk 'a l t rv i th th ree b ig r l r res t io r rs :

\ \ ' l rat i-s t l re best n'ar Llack t() inter 'nrrt iol ial tr- lrr le? FIorv ckr \ \ 'e esc;r l)e

l lonr t l re barnac les o f 'bac l c leb ts anc l ine f f i c ie r r t i r r r lus tn? Horvc lo \ \ 'e ne-

go t iu te ne$ ' t ' t t les o f t l re g : r r r rc to ensure tha t the er r ie rg i r rg g lO l ta l t ' con-

( ) l r \ \ \ ' o t t l c l t t - t t l r se t ' r 'e t l re r t t ' ec ls oJ l i l l o f the cor rn t l ies o f t l re n 'o r - l c l , r ro t

on l r t l re l i c l res t a r rc l r r ros t Dower f r r l?

T \ \ ' O } I U

E

E - \ R S O F ' N I O I ) F - R N

( ] ( ; R O \ \ - T I I

I luuc tottcheci l igl i t l r i r l )(1 l)r iel l \ ()n t \ \ 'o l i rrnclrecl rears of 'rnocler-r eccF

norn ic g ro \ \ ' th -conrp le te rv i th c l lance. t r r r rno i l , c r tn f l i c t , anc l i c leo logr ' .

\ \ ' l rat hi is this ela of nro<lerrr ecorrontic gro\\, t l l bxlrght the tvorlcl?

II ig-her- l iv ins stanclarcls t lran rvere inragin:-tble nr<r centrrr ies ago, a

s1r'encl of tnoclerrr technoiogr'1o rnost parts of the ivorlr l . i rncl a scienti frc

rutcl teclrrrologic:r l levolrrt iorr t l ia.t st i l l sains strensth. l , i r , ins slanclalds

;rr.e rr-ruch highel in alrrrost al l places tharr therr ' \ fere at the start of t tre

l)r-ocess, the rnajor excepti() l t being the cl isease-r 'avase(l parts of ,Vj ica.

BLrt rrrodern econoniic gro\{th h:rs :r lso brcitrght phenornenal g:rps

irt ' t rveen the r ichest irr tcl poolest. saps that rverc simplv irnpossible nten

l)()\ 'ertv eripped al l of the u-ol lcl . Tl-re era of nroclern econonric gr-ou,th

lras becltre:rthed us an ecorrornic picture of the rvorlcl : ls seel l in rn:rp 2,

tr ' l iere each corrntr-r is shadecl accorcl ing to i ts per cal) i ta CIDP (mea-

:Lrr-ed in pt irchasine-po\\ 'er ' :rcl jrrstecl prices) as of 2002. The r ich l 'or lcl(abo le S20.000 in pcr cap i ta in r :o rne) i s shac lec l g reen, anr l inc l t rdes the

[.-nitecl States. (]anacla. \ \estcr-n Etrrope,.Japan, ; \Lrstral ia, :urd Nerv

Zealancl. The countr ies in t ire rniclcl le- income range (betrveen $4,000

arrcl $20.000) ale sh:rclecl in r.el lon'. ancl include rnost of E:rst Asia (such

r ts Korea : rnc l S inuapore) , Cent ra l Er r lope, the fb rn te r Sov ie t Un ion ,

ar tc l La t in Ar r re r ica . ( loun t r ies r r - i t l r i r r t l re upper enc l o f thc kxr incorne

lanee (benr'een 52,000 ancl $.1,000) ale shaded in or:rnse, ancl incltrcle

;ralts of 'South Anrerica, Sotrth Asia, and East ' \sia. I 'he poorest corlr l-

t l i cs (be lon 52 ,000) n le shac lec l in rec l . anc l : r re c ( )ncren t ra tec l in s rLb-

Saharan Af i i ca i rnd South - \s ia . ' fhe le i s , o f cor r rse , i r s t r i k inu s i rn i la l i t r

l retrveen this rnap ol average GNP pe r pcrs()r l i incl the nrirp slrrxr, inu fhe

^ . . l ) R L . D \ '

C ] O N O \ I I

I } I I ] T ] N D O } P o I E R ' f \

proport ion of houselro lc is in pover t l ( rnap l ) : the lor t . - i t tconre cot t t t t t ' ies

;rre, notablr', the c:ortntries rvit lr lr igh propot-tiorrs of ttroclet-ate :rttcl ex-

treme POVert\ '.So rvhv cloes a r':rst gulf 'ci ir icie one sixth ol hurnanitr ioclav in the

richest countries fl 'orn the clne sixtir of t i-re rvorlcl bar-cii able to sustain

lif-e? The ricirest cour-rtr-ies n'ere able to archieve nvo centttt-ics of nroclern

economic gron'lh. The poorest clici not er.etr begiu their ecotrottricgrorvth ullt i l dcca(les later. and then of terr rrrtcler tt 'errtetrclolts obstacles.

In some cases. t l )e \ facer l the b luta l explo i ta t ior r of c lorr i i t r : rnt co lonia l

po\\,e rs. Tl 'rel f;rced geographical barlierr-s (related to clinrate, foocl pro-

clrrction, clisease, energl resorlrces, topouraphr-, proxirl in to *-orlcl tnar-

kets) that hacl not burclened the earlv inchrstrial econornies l ike Gr-eat

Britain:rncl the Unitecl States. Ancl ther rnade clisastroris choices in ttreir

orvn national policies, often r.rnti l the past clec:rde. Al1 of t ir is lef t them

r,ithout the goocl f-ortrrne of trvo centrrries of rapid economic gro\rth. in-

stead grou'ing onlv sporaclicallr. dr-rrir.rg a f err'r 'ears.

The kev poir-rt for these countries is that t ltere are practical solutions

to almost all of their problems. Bad policies of' the past can be cor-

rectecl. The colonial era is trulv finished. Even the geouraphical obsta-

cles can be overcorne l ith ne'rv technolog;ies, such as those that control

malaria or allou,fbr larse crop vielcls in rn:rrginzrl prodrrction areas. Brtt

as there is no single explar-ration fbr n'hr certain parts of the rvorld re-

rnain pooq there is also no single re medr'. -\s I sl 'rall stress lepeatedlv in

the pages aheacl, a good plan of action starts u'ith zr goocl clifferential di-

agnosis of the specific f:rctors that have shapecl the ecotromic conclit ions

o{ a nat ion.

T h r e e

WHY SOME, COUNTRIES

FAIL TO THRIVE,

f ' the l 'orlcl 's population of 6.3 bil l ion, r-oughll, 5 bil l ion people

have reuchecl at le:rst t lre first nrng of econornic development. Five

sixths of the n'oricl 's poptrlation is :rt least one step above extreme

l)overt\ ' . I lorever, approxirnatelv 4.9 bil l ion people l ive in countries

rr'here average income-nreiistrrecl bv CDP per persolr-increased be-

tleen 1980 ancl 2000. -\n even larger nurnber, roughll ' 5.7 bil l ion

pcople, l ive in countries rvhere l ife expectancl increased. Economic de-

relol>rnent is real ancl l ' iclespr-eacl. Tl.re extent of extrerne poverh'is

slrrinking, both in absolrrte numbers and as ir proportion of the rvorld's

poprrlation. Tirat fact is u'hv rve can rezrlisticallv envision a rvorld rvithout

e\trerne povertv as sooll as 2025.

Preciselv because ecor-ronric cleveloprnent can ancl cloes nork iu so

nranv parts of the rforlcl, i t is all the more important to rtnclerstancl and

solve the problems of the places n,here econornic developrnent is not

rlor-king, rvirere people are sti l l off the ladder of der"eloprnent, or are

stuck on its lorvest rungs. 'ftr

rrnclerstand u'hv ecortotnic glor'vth succeeds

or fails, u-e fir 'st neecl a concepttral f ianren'ork that can account fbr

ch:rnges over tirner in C}DP per person. I have alreadl'cl iscussed some ot

tlre f:r.ctor-s tlrat pr-ornote long-terrn cleveloprnent, l lut here I address

thern nrore svsteunaticallr ' , includins a discussion of rvhv the process of

economic clevelopnrent breaks don,n in nrarn places, especially the

l)oorest places. I)erhaps it rvorrlcl be clearest to begin rvittr a very specific

c:r.se: a single farrn hotrseholci.

48 • why nations fail

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