Tuesday, July 12, 2016

The Wealth and Poverty of Nations by David S. Landes

The title of my latest reads intrigued me greatly: The Wealth and Poverty of Nations; Why some are so rich and some so poor. That’s a good question that David S. Landes asks. He does a very in depth job of researching how and why some nations succeeded and some failed. But in all his rich historical data, it was easy to miss a unifying theme. I tried to tease one out however. 

He begins with the reason why it is important to know what exactly contributes to a prosperous or poor nation. “Our task (the rich countries), in our own interest as well as theirs, is to help the poor become healthier and wealthier. If we do not, they will seek to take what they cannot make; and if they cannot earn by exporting commodities, they will export people. In short, wealth is an irresistible magnet; and poverty is a potentially raging contaminant: it cannot be segregated, and our peace and prosperity depend in the long run on the well-being of others.”

He begins with “Nature’s Inequalities” and discusses the role that geography plays in the success of a nation. He states, regular access to fresh water and temperate weather played a huge role in the early success of civilizations. “Life in poor climes, then, is precarious, depressed, brutish. The mistakes of man, however well intentioned, aggravate the cruelties of nature.” The patterns created by the well-suited geography led early people groups to form social and political organizations to help regulate the society. 

In the west, the notions of economic development and property rights began to develop. Part of this was due to the influence of Christianity. This belief system did not hold rulers to be gods, who could squeeze the people for more and more and take whatever they wanted. They believed everything belonged to the Lord, and we are His stewards. This transformed the economic development in Europe. In addition, the middle ages saw power decentralized in Europe. Unlike China, which considered itself the center of the universe, Europe offered somewhere else to go if one was unhappy with the current situation. The fall of Rome’s centralized authority led to decentralization and competition between areas that paradoxically added to the power of the overall supreme. The king knew that free people made the aristocracy less powerful and therefore less able to challenge his authority. And the free movement of people and goods led to higher tax revenues. In places like China which did not have free farmers but peasants under the control of a particular lord, the sense of rights and contract, to negotiate as well as petition, did not develop. 

Europe's decentralization proved a plus. Landes states, “In those middle years between ancient and modern, fragmentation was the strongest brake on willful, oppressive behavior. Political rivalry and the right of exit made all the difference.” In addition, within Europe the fragmentation created by the Protestant Reformation led to greater freedom of thought as compared to those areas under the dominion of a more controlling Catholic church. Yet even the more Catholic southern Europe suffered nothing like the thought-crushing Islamic countries. Even China, with no established faith, had a morality and belief system rigorously enforced by the mandarin class with no threats to the status quo allowed. In addition, the fragmentation made it difficult for the entire society to fall victim to a group of interlopers. An invading force would have to defeat myriad small kingdoms to gain a large territorial victory. 

As to the early success of Europe, Landes says, “The economic expansion of medieval Europe was thus promoted by a succession of organizational innovations and adaptations, most of them initiated from below and diffused by example. The rulers, even local seigneurs, scrambled to keep pace, to show themselves hospitable to make labor available, to attract enterprise and the revenues it generated.” The division of labor and widening of the market led to “one of the most inventive societies that history had known.” Some examples of technological innovations that Europeans, while not necessarily inventing them, exploited them like no other societies, were the water wheel to produce power, the eyeglasses, the clock, and printing. Many other places, like Islamic regimes or China, feared these developments as a threat to the stability of their societies and tried to shut them out rather than exploit them. Better to protect their power and religious interpretations if they could maintain the status quo than risk losing everything to an innovative and productive people. Once again, the Judeo-Christian character of Europe helps explain the difference. It promoted the value of work, believed in the subordination of nature to man, had a sense of linear time and progress, and promoted the basic equality of man to achieve and work to better himself. 

These western innovations eventually led to better weapons and transportation. This led, as it inevitably does, to expansion at the expense of the native inhabitants. Portugal led the way. Although China had some of the same advantages, they “lacked range, focus, and above all, curiosity.” They believed they were the center of the universe and had no need of outside goods or ideas. They disdained foreigners as inherently inferior. Why would they want to trade with or learn from them? 

Unfortunately this desire for expansion eventually led to the Atlantic slave trade. But this led in part to the Industrial Revolution as Europe sought to make products to trade. Landes believes the Industrial Revolution would have occurred without the slave trade, but it definitely helped fuel it. The Industrial Revolution then fueled a global search for markets, leading to empire building. 

We see that countries that industrialized quickly became more prosperous than those who resisted. This began a growing gap between the economic haves and have nots. “Paradox: the Industrial Revolution brought the world closer together, made it smaller and more homogenous. But the same revolution fragmented the globe by strangling winners and losers. It begat multiple worlds.” Even the apparent “winners” like the wealthy Spain and Portugal, wasted their wealth fighting wars. It was an industrial use of capital the spurned the economic growth of nations, not just the existence of wealth. Nations like Britain did not have the windfall gains made by early empire pioneers like Spain. Instead, they had to develop the habits of hard and innovative work. Additionally, some of the early economic players of Europe, like the Italians, were caught in a web of old structures like guilds, that suppressed innovation. Remarkably, Islamic and Chinese societies actively suppressed intellectual and technological advances. Whereas places like England were experiencing a “buildup — the accumulation of knowledge and knowhow; and breakthrough — reaching and passing thresholds.” Fame and a growing body of knowledge and technology spurred scientist to continue to push boundaries. 

Once again the Catholic/Protestant differences rise up. Landes quotes Max Weber’s thesis that the Protestantism of northern Europe created capitalism “by defining and sanctioning an ethic of everyday behavior that conduced to business success.” The doctrine of predestination led people to want to prove they were chosen by their moral and ethical work habits. Even after the belief in predestination faded, the habits remained. The Protestant Reformation also changed the rules for knowledge dissemination. Previously areas like Italy were great centers of the latest and greatest thinking. But then the Protestant Reformation came along and provided “a big boost to literacy, spawned dissents and heresies, and promoted the skepticism and refusal of authority that is at the heart of scientific endeavor. The Catholic countries, instead of meeting the challenge, responded by closure and censure.”

As the European empires began to grow, those founded by Catholic nations suffered from this insularity. They “did their best to close themselves off from foreign and heretical influences.” Dangerous new ideas and free thought were discouraged. This led to intolerance, superstition, and ignorance which continues to contribute the backwardness of some areas today. “The religious persecutions of old — the massacres, hunts, expulsions, forced conversions, and the self-imposed intellectual closure — proved to be a kind of original sin. Their effects would not wear off until the twentieth century… and not always even then.”

This Catholic/Protestant division led the Protestant Dutch to try to outcompete their erstwhile Catholic Spanish overlords. But the Dutch, where the Protestant Reformation flourished, valued tolerance and free thought. This upstart group of disparate provinces was able to challenge the very wealthy Spanish empire because the most innovative, free thinking, and freedom loving people fled from the tyrannical Spanish into the waiting arms of the Dutch. 

Britain soon followed the Portuguese, Spanish, and Dutch in empire building. They rapidly moved into India to create a colony there, which humiliated the resident Muslim rulers. Because Islamic fiefdoms operated fundamentally differently from the European system, the local rulers of India did not create the same barrier to entry as they did in Europe. In Europe, the local lords formed a largely hereditary system where they came to be intimately connected to the land and the people and competed with one another for free citizens. But in Islamic rule, the local lords were often randomly moved to prevent just such a possible threat to the Sultan. This led to a weakness the British were able to exploit. In fact, Landes makes the case that India was always going to fall to someone. It had been conquered multiple times throughout its history and never had a strong sense of nationalism to cohere it together in order to repel invaders. 

Eventually Britain moved well beyond its competitors. But why Britain? “By the early eighteenth century, Britain was well ahead — in cottage manufacture, seedbed of growth; in recourse to fossil fuel; in the technology of those crucial branches that would make the core of the Industrial Revolution: textiles, iron, energy and power. To these should be added the efficiency of British commercial agriculture and transport.” Britain, more than any others, was an ideal society to produce industrial, economic growth. He delineates 5 characteristics of an ideal foundation: “[The society] 1. Knew how to cooperate, manage, and build the instruments of production… 2. Was able to impart this knowledge and know-how to the young… 3. Chose people for jobs by competence and relative merit; promoted and demoted on the basis of performance. 4. Afforded opportunity to individual or collective enterprise; encouraged initiative, competition, and emulations. 5. Allowed people to enjoy and employ the fruits of their labor and enterprise.” This also implied gender equality, no irrelevant discrimination, a preference for scientific rationality over superstition, secure property rights, secure liberty rights, enforced rights of contract, stable government, responsive government, honest government, and a moderate, efficient, ungreedy government. In addition, there must be a sense of nation, “a self-aware idea characterized by common identity and loyalty and by equality of civil status.” There’s the formula for economic growth. Unfortunately, this has defined very few countries throughout history. 

This kind of readiness for industrial growth largely existed in northwest Europe and rapidly declined as one moves southeast on the map. While leftist political economists and economic historians like to blame poverty on the exploitation by richer nations, that is not the correct explanation. “Europe’s development gradient ran from west to east and north to south, from educated to illiterate populations, from representative to despotic institutions, from equality to hierarchy, and so on. It was not resources or money that made the difference; nor mistreatment by outsiders. It was what lay inside — culture, values, initiative. These peoples came to have freedom enough. They just didn’t know what to do with it.” He further states, “It is not want of money that holds back development. The biggest impediment is social, cultural, and technological unreadiness — want of knowledge and knowhow. In other words, want of the ability to use money.”

This explains most of the world. What then, explains America? “America’s society of smallholders and relative well-paid workers was seedbed of democracy and enterprise. Equality bred self-esteem, ambition, a readiness to enter and compete in the marketplace, a spirit of individualism and contentiousness.” America started with a tabula rusa and an optimistic open culture. Because Americans did not have to overcome a fossilized culture, all the fundamentals for success were already in place from the beginning. “The decisive and most distinctive American innovation, though was not any particular device, however important, but a mode of production — what came to be called the American system of manufactures.” Europeans eventually fell behind because the “found it harder than Americans to accept the ruthless logic of productivity.” America began to set the standard for productivity and ruthlessly pushed for more, faster, and cheaper. 

Landes then looks at why South America and Asia, specifically China, lagged so far behind. South America fell because of the same things that held southeastern Europe back. China suffered from “cultural triumphalism combined with petty downward tyranny [which] made China a reluctant improver and a bad learner.” 

He also spends time discussing Japan. Unlike China, they were learners. While initially open to trade and Christianity, this very traditional society began to feel threatened when the newly converted seemed to owe more allegiance to God than to their emperor. So like China, they shut down and turned inward. In a reactionary vein so common around the world, they wanted to “freeze the social order, fix relations of social and political hierarchy, prevent disagreement and conflict.” Eventually they saw how far they were falling behind the rest of the industrial world and made an incredibly valiant effort to catch up. Eventually they put their European and American competitors to shame. They were exemplars of the catch-up model, proving that sometimes, it pays to be late.

He looks at what ails the Islamic regions of the world. It starts with the dysfunctional Ottoman Empire. “The Ottomans had originally filled a power vacuum — they had taken over a region once strong, now enfeebled — looting as they went. Now they could no longer take from outside. They had to generate wealth from within, to promote productive investment. Instead, they resorted to habit and tried to pillage the interior, to squeeze their own subjects. Nothing, not even the wealth of high officials, was secure. Nothing could be more self-destructive.” Today the heirs of the Ottoman Empire, the Islamic countries “are without exception despotisms, where leaders are not responsible, actions are unpredictable, loyalty is a ruse or a mirage of propaganda, and everything, including the economy, is subordinated to politics and can be turned around by an event. Instead of courting legitimacy by appeals to material improvement — have I made you better off? — Arab leaders have boasted of victories over colonialism or Zionism and waved the bloody shirt of jihad, promising to put history right….[Arabs] had more pressing things to do — first of all, to defeat Israel. Prosperity could follow.” Which is to say, prosperity never.

Today, we see, what Landes calls, the losers. The Middle East is a failure. “Its political, social, and cultural institutions do not ensure security of enterprise or promote autonomous technological development. Also, cultural attitudes, and above all, gender biases, inhibit industrial undertakings.” “Most Latin nations have resorted to the manipulation of trade and money: import barriers and quotas, differential rates of exchange, a carapace of restrictions that some have called the ‘inward-looking model’ — and, of course, to borrowing.” These measures exact a heavy price. “Among the heaviest losers in this period of record-breaking economic growth and technological advance were the countries of the Communist-Socialist bloc… The striking feature of these command economies was the contradiction between system and pretensions on the one hand, performance on the other… The joke had it, they made believe they worked, and the state made believe it paid…” “All the ills that have hurt Latin America and the Middle East are exponentially compounded in sub-Saharan Africa: bad government, unexpected sovereignty, backward technology, inadequate education, bad climate, incompetent if not dishonest advice, poverty, hunger, disease, overpopulation — a plague of plagues.” Until these areas develop the cultural attitudes that lead to prosperity, they are bound to fall further behind. No amount of western meddling can pull a society out of its self-imposed limitations. 

Going forward, Landes states, “Until very recently, over the thousand and more years of this process that most people look upon as progress, the key factor — the driving force — has been Western Civilization and its dissemination: the knowledge, the techniques, the political and social ideologies, for better or worse.” “If we learn anything from the history of economic development, it is that culture makes all the difference.” Yet here we are, by far the most successful economy on the planet throughout all of history and our colleges and universities are working feverishly to destroy all that that prosperity is based on. Pick a place where Western Civilization has not invaded, Somalia, Pakistan, and figure out which one we should become, because that is life apart from Christianity and Western Civ. 

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