The Wealth of Nations

Why are some nations rich and some poor? From Adam Smith to Jared Diamond, authors have tried to explain the discrepancy. Now Gregory Clark takes his turn--with a new book, A Farewell to Alms: A Brief Economic History of the World, to explain the difference that makes a difference in the wealth and poverty of nations. The following excerpts of a review of Clark's book provide a small glimpse into the ambitious work:

In this quantitative, long-term economic history, Clark seemingly rejects the ‘institutional development theory.’ ‘Despite the dominant role that institutions and institutional analysis have played in economics and economic history since the time of Adam Smith,’ he writes, ‘institutions play at best a minor role in the story of the Industrial Revolution told here, and in the account of economic performance since then’ (10). He tells us that ‘economists, and the institutions they inhabit, such as the World Bank and the International Monetary Fund, have adopted a false picture of preindustrial societies, and of the eventual causes of modern growth’ (ix). (2)

Clark writes that institutions alone are not sufficient to trigger a takeoff into economic growth. Indeed, do-gooders such as the Melinda and Bill Gates Foundation, the World Bank, and UN peacekeepers all too easily cause only misery.....Clark attacks the authors of various widely accepted theories about the Industrial Revolution, and indirectly confronts many economic develop-ment theories, including institutional ones. He dismisses theories as varied as Gary Becker’s (that fewer children were being endowed with better human capital), Douglas North’s (that property rights and free markets after the Glorious Revo-lution got modern capitalism going), and Kenneth Pomeranz’s (that scale economies in a big, compact population facilitated modernisation).

....We must acknowledge that not all people are the same when it comes to fulfilling the requirements of modern economic prowess. Many societies around the world today are far behind where western Europeans were in their basic cultural attitudes in the sixteenth century (or the Chinese and Japanese in the early nineteenth). The slapdash work ethic of Indian textile workers is still a hindrance to competitiveness, and complex modern production processes require a more disciplined workforce and social climate than can be found in many parts of the third world. Recently, we were again reminded of the importance of fundamental internal institutions when the Kenyan flower export industry, once extolled as an outstanding African success, collapsed and quickly shifted elsewhere after the outbreak of tribal strife. We must therefore guard against the illusions that all third-world societies will now find it easy to transit from the Malthusian fraternity into the world’s expanding growth league, and that outside aid can do much to produce the all-important cultural changes.

...Clark has taken the magnifying glass to contemporary ‘institutional development theories,’ which have proven fruitful and influential. He shows to my satisfaction that it is naive merely to ‘export’ formal institutions such as property rights legislation, transparency compacts, and democracy to underdeveloped societies. To do so now is almost as unsophisticated as it was fifty years ago to simply send capital goods to ports in less developed countries. What really matters is the populace’s receptiveness to freedom, which is based on deep-seated cultural institutions and attitudes, and which does not grow overnight. By overlooking the cultural foundations of prosperity, development optimists and freedom apostles in Washington and Canberra are wasting resources. Do-gooders who simply offer alms may indeed cause harm if they entrench dependency and a claimant mentality among people trapped in the ‘Malthusian mindset.’ _Source

The last paragraph of the excerpt sums up the basic take-home message from the reviewer's reading of Clark's book. Quite provocative, in the light of conventional wisdom on the topic.

There seems to be at least a grain of truth in most of the "wealth and poverty of nations" hypotheses. Certainly division of labour in modern societies allows a greater productivity. But we must keep in mind that while legal and economic freedoms are important to prosperity, if the underlying society is not "prepared" to use those freedoms constructively and cooperatively, the same political and economic liberalisation that has so helped the Anglosphere to prosper, may be a deadly curse to other societies.

Finally, it is very important to understand that culture and genetics are intimately tied together. For a society to evolve from a "Malthusian" to a "Prosperity" culture, it must have the genetic wherewithal to do so. I suspect that such potential limitations to societal evolution may be more than just a step beyond what today's politically correct, post-modern, faux multi-cultural academics and think tankers are willing to brave.