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Old 03-18-2011, 11:03 AM   #1
TheOracleOfMMA
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Why Some Are So Rich and Others So Poor?

I'm approaching this from a global macro economic perspective - meaning I'm interested in why some countries are rich and have developed so much whereas others have not achieved similar results.

This thread was prompted by the book & documentary Guns, Germs and Steel by Jared Diamond that changed my views a bit (I used to believe culture was the primary determinant of wealth).

In a nutshell, the book claims the following factors determined why some parts of the world developed so well back in the day and others were left behind:

1) availability of potential crops and domestic animals (no domesticatable animals or fertile plots available in tropical islands so they had to rely on hunting/gathering and were left behind)
2) the orientation of continental axis to facilitate the spread of agriculture
3) transfer of knowledge between continents
4) population size.


According to him, Europe's rapid development was largely a result of "luck" and "geography" than anything else. This is where I disagree as I think many other factors are at work too. However, his points about domesticated animals and available crops ring true and changed my view of the historic development of our societies on a grand scale (more weight given to accidental factors as mentioned above).

However, if you assume that everything is a determinant of luck then how is it that Western European countries had been more wealthy than their Eastern European counter parts? There wasn't a significant difference in crop availability as well as animals (as far as I know).

Or how can you account for the vast differences in wealth/productivity between East and West Germany before the unification? Between North and South Korea today? Those countries were similar culturally, genetically and geographically before the separation, yet what vast disparities in living standards!

So to his list I'd like to add the following (especially for more advanced societies) and these are the missing factors IMHO:

5. Presence of law, order & court system that allows the free market to do its work
6. Culture that encourages entrepreneurship, risk taking and innovativeness
7. Democratic institutions that ensure checks/balances/freedom from tyranny


I think geography & domesticated animals may have played a role back in the day but with today's advanced societies factors 5-7 are much more important in determining the productivity/wealth of a society than factors like geography (Japan being one example).

Thoughts?

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Old 03-18-2011, 11:10 AM   #2
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I'm approaching this from a global macro economic perspective - meaning I'm interested in why some countries are rich and have developed so much whereas others have not achieved similar results.

This thread was prompted by the book & documentary Guns, Germs and Steel by Jared Diamond that changed my views a bit (I used to believe culture was the primary determinant of wealth).
North Korea and Sourth Korea shared the same culture/language/religions. South Korea is rich and North Korea is poor.

East Germany and West Germany had the same shared the same culture/language/religions. West Germany was wealthy and East Germany was poor.

Hong Kong and old Communist China shared the same culture/language/religions. Hong Kong was very wealthy (despite how tiny it was) while communist China was poor (until China opened their economy)

The answer is simple, countries that encourage capitalism, free enterprise and trade with the world are wealthy and those that don't are poor.

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Old 03-18-2011, 11:13 AM   #3
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The answer is simple, countries that encourage capitalism, free enterprise and trade with the world are wealthy and those that don't are poor.
What about a country like Russia? With the dissolution of the Soviet Union and the conversion to a market economy many assumed prosperity and progress would come on their own accord.

Didn't happen. Why do you think that was the case?

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Old 03-18-2011, 11:16 AM   #4
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What about a country like Russia? With the dissolution of the Soviet Union and the conversion to a market economy many assumed prosperity and progress would come on their own accord.

Didn't happen. Why do you think that was the case?
You can't have capitalism without the rule of law. And my understanding about Russia is it's mob rules.

Still most people would agree that Russia is far more prosperous now than when they were communists.

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Old 03-18-2011, 11:20 AM   #5
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You can't have capitalism without the rule of law. And my understanding about Russia is it's mob rules.

Still most people would agree that Russia is far more prosperous now than when they were communists.
Yeah, corruption and mob are the problem there. I guess rule of law and ability to thwart corruption are also vital to sustaining progress.

The question remains as to why some countries manage to enforce rule of law, while others struggle doing the same (countries like Russia, many African/Middle East countries, others).

Probably has to do with local values, culture and how it developed.

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Old 03-18-2011, 11:28 AM   #6
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Yeah, corruption and mob are the problem there. I guess rule of law and ability to thwart corruption are also vital to sustaining progress.

The question remains as to why some countries manage to enforce rule of law, while others struggle doing the same (countries like Russia, many African/Middle East countries, others).

Probably has to do with local values, culture and how it developed.
Culture has nothing to do with it and I gave you examples where it's not a factor at all.

Democracy preserves the rule of law which enables capitalism. Capitalism is the economic system that makes prosperity happen.

It's questionable how democratic Russia is, seems like the power hungry communists didn't quiet let go and they turned into mobs there. Like I said they are still better off with *some* capitalism than they were with no capitalism.

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Old 03-18-2011, 11:30 AM   #7
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Yeah, corruption and mob are the problem there. I guess rule of law and ability to thwart corruption are also vital to sustaining progress.

The question remains as to why some countries manage to enforce rule of law, while others struggle doing the same (countries like Russia, many African/Middle East countries, others).

Probably has to do with local values, culture and how it developed.
Solely on the rule of law. Some of those countries enforce a very strict rule of law but it serves only to further restrain the populace, not empower them.

There's no easy answer here. I think that one of the most overlooked elements is equality of opportunity. If the general population (both sexes) doesn't have the same basic level of opportunity as the elite then growth will forever be stymied.

It doesn't matter how it's achieved, capitalism, socialism, fascism, etc. Equality of opportunity will dictate how successful your nation is as a whole.

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Old 03-18-2011, 11:32 AM   #8
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It's funny you mention this topic cuz I was just thinking about it.

Specifically I was thinking about Haiti and why it's still in such squalor and abject poverty.

It was one of the first nation states to "liberate" itself from colonialists and imperialist powers in the late 1700's.

Yet, rather then forming a functional government, mob rule took over and dictators assumed power...and unfortunately nothing has changed since then.

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Old 03-18-2011, 11:34 AM   #9
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It doesn't matter how it's achieved, capitalism, socialism, fascism, etc. Equality of opportunity will dictate how successful your nation is as a whole.
You really don't think capitalism doesn't matter?! Is it only a coincidence that capitalist countries are prosperous?

Capitalism creates equality of opportunity (not necessarily equality of results).

Here is Milton Friedman explains the different values between Capitalism and Socialism


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Old 03-18-2011, 11:36 AM   #10
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Speaking of Communism....

Communism at its very core kills ambition, initiative...it has people accept their role in society with no drive or motivation to excel....almost like a caste system.

Capitalism with all of its problems, drives people to excel and move forward, it gives them incentive. It stimulates creativity.

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