Their work is both insightful and very readable. But is it novel or even very accurate? Douglass North and Robert Fogel won the Nobel in 1993 for their path-breaking work on the importance of institutions, which is now universally accepted. I wonder if AJR have taken those insights much further.
AJR show that settler-colonists from land-scarce Europe sought new places with abundant land. They initially attempted settlements in nearby West Africa. But these all failed. They were decimated by tropical diseases, high temperatures deterred migrants, and agroclimatic conditions were unsuitable for temperate crops like wheat.
In Latin America, the initial Spanish conquistadors sought to loot, and later mine, gold and silver. A small White aristocracy used forced local labour to run a monstrous extraction economy.
In Caribbean colonies, sugar was hugely profitable. But yellow fever eviscerated early European settlers. So, Europeans imported African slaves with substantial immunity to yellow fever, which was common in their homelands. This extractive colonialism was very profitable for tyrannical extractors and terrible for the colonised.
But settler colonies were very successful in temperate areas (North America, Southwest Australia, New Zealand). Agroclimatic conditions were excellent for temperate crops. European settlers came in millions, quickly forming majority of the population. Colonisers installed inclusive, not extractive, institutions from their native places – legislatures, civil services, and judicial and police systems, all flowing from ‘liberty, equality and fraternity’.Ordinary settlers acquired large farms – the US offered 160 acres to every new homesteader in Native American lands in the West. Gains were not limited to a few extractors but shared widely, creating an inclusive, entrepreneurial economy with strong civil societies. GDP soared, even as it stuttered in non-settler colonies like India.True. But why did European settlers create good institutions in North America, but lousy ones in South America, leading to very different economic outcomes? Early Spanish conquistadors focused on extracting bullion from tropical and mountain areas. But, later, millions of Europeans settled in the temperate climes of Argentina, Uruguay and Chile, becoming massive agricultural exporters to Europe.
Argentina became rich quickly. But then stagnated. Semitropical areas like southern Brazil and Paraguay also attracted settlers galore. Why did none of these settler countries create good inclusive institutions, or progress as fast as North America?
Max Weber provided an explanation that once seemed conclusive. All Protestant settler colonies had prospered, but Catholic ones hadn’t. Within Europe, the poorest, most backward countries were Catholic – Italy, Spain, Portugal, Ireland. Weber declared that Catholic values were inimical to good governance, and so explained poor outcomes in both Europe and Latin America.
France’s revolt against kings and the Catholic church brought in ‘liberte, egalite, fraternite’. But continuing feudal institutions in other Catholic countries blunted their progress. Latin America had no distribution of land to settlers as in North America, and giant landowners became feudal lords. Religion, said Weber, made all the difference.
Once Weber seemed irrefutable. But after WW2, the fastest-growing countries in Europe have been Catholic. Once-poor Ireland is now the ‘Celtic Tiger’. Its per-capita income ($103,685) is more than double that of its former imperial master, Britain ($48,866). Democratic institutions, membership of the EU and decline of the pope’s authority – his ban on contraception is widely ignored – have made a huge difference.
Extractive colonialism in Latin America led to bad institutions and slow growth. But the Persian Gulf shows that extractive colonies (or quasi-colonies) such as Kuwait, Saudi Arabia, Bahrain and the UAE can also develop good institutions, redistribute wealth and prosper. Clearly, no single explanation fits all cases.
AJR conclude, like many earlier studies, that democracies fare better than autocracies, on average, in the long term. Russia was among the most backward European countries in 1917. By 1957, it was a superpower launching the first satellite and putting a man in space. Communism seemed very strong institutionally.
Paul Samuelson’s standard economics textbook had a chart showing Soviet GDP starting well below the US’, but eventually overtaking it. Alas, what looked strong institutionally for six decades later collapsed. Yet, a model that yielded excellent results for six decades has its attractions.
South Korea, Taiwan and Singapore were quasi-autocracies when they became Asian tigers, growing faster than any country in history. South Korea and Taiwan became democracies after getting rich, leading some to conclude that this could be the best path.
Perhaps wisdom lies in avoiding grand ideologies and experimenting to see what works. Deng Xiaoping said it does not matter if a cat is white or black as long as it catches the mice. He also said we should cross a river by feeling the stones underfoot. This non-ideological approach made China the fastest growing in history. Deng never got the Economics Nobel. Perhaps he should have.
