BQ 3: Why are some nations richer than others?

The big questions of history

The problem predates nations. In the days when humans were hunters and gatherers, certain bands and tribes did better than others. Some of this reflected advantaged access to resources. The Indians who controlled Celilo Falls on the Columbia River, where millions of migrating salmon came within reach of nets and spears, were among the richest people in North America. This reliable source of protein and fat drew traders from hundreds of miles away, bringing goods to swap for the dried fish. Bison were harder to corner than migrating salmon, but the Lakota people of the northern Great Plains built a trading empire upon their control of large swaths of the hunting grounds.

Richness from resource extraction continues today. Saudi Arabia was a poor kingdom until oil became a hot commodity. Norway was the poorest of the Scandinavian countries until North Sea oil made it the richest. Russia isn't a rich country but its numerous valuable resources make it richer than it would otherwise be. Chile modernized on copper and looks forward to a lithium future.

To some degree, wealth derived from resources is a matter of luck. To some extent it's a matter of imperialism. The United States acquired California in 1848, not knowing that gold had just been discovered in the foothills of California's Sierra Nevada. The gold was an unexpected bonus of a war fought to gain possession of California's harbors. But when Japan invaded China's Manchuria in the early 1930s, the Japanese government knew full well the resources Manchuria contained.

Resource extraction is essentially a zero-sum game. What one country extracts, another country cannot. Iraq invaded Kuwait in 1990 to secure control of an oil field that lay beneath the two countries.

But most other forms of economic development are or can be based on positive-sum transactions. Cities developed as places where farmers could exchange their surplus produce for goods and services the farmers couldn't as well provide for themselves. Participants on both sides of the transactions came away feeling better off. Venice carried the idea to great lengths both commercially and geographically. The Italian city-state constructed an empire of trade that stretched as far as China and made its merchant princes wealthy and powerful.

This is where the question of who gets rich and who stays poor becomes interesting. Why Venice? Its harbor at the head of the Adriatic might have been a necessary condition for its particular kind of success, but it wasn't a sufficient condition. Did the Venetians know something their Italian and Mediterranean neighbors didn't? Were they smarter? More daring? More ruthless?

A few centuries later the same questions were asked of Europe generally. The Portuguese and Spanish, and then the Dutch, the English and the French built empires of commerce and sometimes settlement that spanned the globe. Europe colonized North and South America. Europe colonized large parts of Asia. Europe colonized Africa. In the process Europe became rich. Was it the colonies that made Europe rich? Or were the colonies a manifestation of something deeper?

As humans do, the European colonialists claimed peculiar merit for themselves. The merit was said to be racial, civilizational and religious. The colonizers believed they deserved their success. They frequently claimed to have the interests of the colonized at heart, but that interest was long-term and often vague. In the short-term the colonies were expected to yield profits.

Among themselves, the Europeans didn't consider each the equal of the others. After northern Europeans appeared to outpace southern Europeans, one of the northerners, the German Max Weber, proposed that Protestantism, the religion of the northerners, gave them an edge over the Catholic southerners.

Weber wrote of a “spirit of capitalism.” This at a time when capitalism characterized cutting-edge economies. Weber was one of the first but definitely not the last to look to institutional arrangements such as private property and the rule of law to explain differential economic development. In fact the 2024 Nobel prize for economics was awarded for research into this very subject.

The three winners—Daron Acemoglu, Simon Johnson and James Robinson—concluded that beneficent institutions were indeed crucial to economic success. Such explanations had often sat poorly with residents of poor countries, for they seemed to blame the poor countries for their own poverty. Those residents preferred theories that blamed previous colonizers.

The theory of Acemoglu, Johnson and Robinson did that, too. It distinguished between colonial regimes that established inclusive institutions and those that established exclusive ones. The former empowered individuals to chart their own destinies and generally gave rise to post-colonial prosperity. The latter deprived individuals of responsibility and led to post-colonial poverty.

Critics said the winners cherry-picked their cases and ignored contemporary counterexamples like China and India. Authoritarian China’s institutions were and are exclusive, while democratic India’s have been more inclusive, yet China’s economic development has far exceeded India’s.

Supporters and critics agree that more research is necessary, as researchers generally do. Historians ought to join the investigation. Certain natural experiments present themselves. Haiti and the Dominican Republic share the island of Hispaniola but the former is much poorer than the latter. Why? At the time of the Korean War in the early 1950s South Korea was as poor as North Korea, but the former is now far wealthier than the latter.

Other historical cases are more free-standing. In the early 20th century Argentina had one of the highest per capita incomes in the world. Since then it has become a model of economic fecklessness. What happened? Japan’s economy looked ready to take over the planet in the 1980s. Then it flatlined and it has never regained its verve. Will it ever? Observers of South America haven been known to say that Brazil is the country of the future and always will be. What’s kept Brazil from fulfilling its promise?

At a more profound level, the question circles back to the starting point of this essay. When resource extraction was the principal mode of economic development, one group’s gain was others’ loss. As economies modernized, the positive-sum model in which everyone could win took hold. It especially dominated economic thinking during the second half of the 20th century, producing what was called globalization. During the 21st century this liberal model has come under attack, and a return to the I-win-you-lose approach has begun.

Historians—economic historians particularly—should be part of the conversation.