Basic economics / Основи на икономиката: Chapter 23 INTERNATIONAL DISPARITIES IN WEALTH

Chapter 23

#1

INTERNATIONAL DISPARITIES

#2

IN WEALTH

#3

Everywhere in the world there are gross inequities of income and wealth. They offend most of us. Few can fail to be moved by the contrast between the luxury enjoyed by some and the grinding poverty suffered by others.

#4

Milton and Rose Friedman{846}

#5

Any study of international economic activities inevitably encounters the fact of vast differences among nations in their incomes and wealth. In the early nineteenth century, for example, there were four Balkan countries where the average income per capita was only one-fourth that in the industrialized countries of Western Europe.{847} Two centuries later, there were still economic differences of a similar magnitude between the countries of Western Europe and various countries in the Balkans and Eastern Europe. The per capita Gross Domestic Product (GDP) of Albania, Moldova, Ukraine and Kosovo were each less than one-fourth of the per capita GDP of Holland, Switzerland, or Denmark—and less than one-fifth of the per capita GDP of Norway.{848}

#6

Similar disparities are common in Asia, where the per capita GDP of China is less than one-fourth that of Japan,{849} while that of India is barely more than ten percent of the per capita GDP of Japan. The per capita GDP of sub-Saharan Africa is less than ten percent of the per capita GDP of the nations of the Euro zone.{850}

#7

Many find such disparities both puzzling and troubling, especially when contemplating the fate of people born in such dire poverty that their chances of a fulfilling life seem very remote. Among the many explanations that have been offered for this painful situation, there are some that are more emotionally satisfying or politically popular than others. But a more fundamental question might be: Was there ever any realistic chance that the nations of the world would have had similar prospects of economic development?

#8

Innumerable factors go into economic development. For all the possible combinations and permutations of these factors to work out in such a way as to produce even approximately equal results for all countries around the world would be a staggering coincidence. We can, however, examine some of these factors, in order to get some insight into some of the causes of these differences.

#9

GEOGRAPHIC FACTORS

#10

Whether human beings are divided into countries, races or other categories, geography is just one of the reasons why they have never had either the same direct economic benefits or the same opportunities to develop their own human capital. Virtually none of the geographic factors that promote economic prosperity and human development is equally available in all parts of the world.

#11

To begin with the most basic, land is not equally fertile everywhere. The unusually fertile soils that scientists call Mollisols are distributed around the world in a very uneven pattern. Large concentrations of these rich soils are found in the American upper midwestern and plains states, extending into parts of Canada, and a vast swath of these soils spreads all the way across the Eurasian land mass, from the southern part of Eastern Europe to northeastern China. A smaller concentration of these soils is found in the temperate zone of South America, in southern Argentina, southern Brazil and Uruguay.{851}

#12

While such soils are found in various parts of the temperate zones of both the Northern Hemisphere and the Southern Hemisphere, they are seldom found in the tropics. The soils of sub-Saharan Africa have multiple and severe deficiencies, leading to crop yields that are a fraction of those in China or the United States.{852} In many parts of Africa, the topsoil is shallow, allowing little space for the roots of plants to go down and collect nutrients and water.{853} The dryness of much of Africa inhibits the use of fertilizers to supply the nutrients missing in the soil, because fertilizers used without adequate water can inhibit, rather than enhance, the growth of crops. Where there are wetlands in Africa of a sort that are cultivated successfully in Asia, these wetlands are less often cultivated in tropical Africa, where wetlands breed such dangerous diseases as malaria and river blindness.{854}

#13

Even within a given country, such as China, there are very different varieties of soils—predominantly rich, black soils in the northeast and less fertile red soil in the southeast, {855}soil of a sort often found in tropical and subtropical regions of the world.{856} Not only does the fertility of the land vary greatly in different regions of the world, it has also varied over time. Heavy soils in parts of Europe became fertile after ways of harnessing horses and oxen to pull the plow were developed, but these soils were far less fertile in earlier centuries, when more primitive methods were used that were effective in lighter soils.{857} It was much the same story in Asia: “Japanese croplands were originally much inferior to those in Northern India; they are greatly superior today.”{858}

#14

The rain that falls on the land is not equal in amount or reliability in different regions of the world, nor does all land absorb and hold rain water equally. Loess soil, such as that in northern China, can absorb and hold much more of the rain that falls on it than can the limestone soils in parts of the Balkans, through which the water drains more quickly, leaving less moisture behind to help crops grow.{859} Of course the deserts of the world get little rainfall in the first place. In some places, such as Western Europe, the rain falls more or less evenly throughout the year, whereas in other places, such as sub-Saharan Africa, there are long dry spells followed by torrential downpours that can wash away topsoil.

#15

During the many centuries when agriculture was the most important economic activity in countries around the world, there was no way that this crucial activity could produce similar economic results everywhere—whether in terms of a general standard of living or in terms of an ability to develop and sustain major urban communities dependent on local agriculture for their food. Given the large role of cities in economic progress and the development of a wide range of skills, a dearth of cities can adversely affect not only current economic conditions but also future economic progress.

#16

Such fundamental things as sunshine and rain vary greatly from one place to another. The average annual hours of sunshine in Athens are nearly double that in London, and the annual hours of sunshine in Alexandria are more than double.{860} Even within the same country, different places can have much different amounts of rain. In Spain, for example, the annual rainfall ranges from under 300mm to just over 1,500mm.{861}

#17

Sunlight has both positive and negative effects on agriculture, directly promoting photosynthesis and at the same time evaporating the water that plants need to survive. In various lands around the Mediterranean, abundant summer sunshine evaporates more water than falls as the meager summer rain in that region.{862} Thus irrigation may be necessary for agriculture in places that would not be considered arid if judged solely by the amount of annual rainfall, because most of that rain falls in the winter in this part of the world. In other parts of the world, there is far more rain in the summer than in the winter. In both situations, this limits which kinds of crops can be grown successfully in particular places.

#18

The larger point here is that the effect of different geographic factors, such as sunshine and rain, cannot be considered in isolation, because their interactions are crucial and their timing is crucial. The possible combinations and permutations of these factors are exponentially greater than the number of factors considered in isolation, leading to great variations in economic outcomes in places that may seem to be similar, when the interaction of factors is not taken into account. This applies not only to variations in the land but also to variations in waterways, and not only to effects in agriculture but also to effects on cities, industries and commerce.

#19

None of the valuable natural resources in the land—whether iron ore, coal, petroleum or many others—is spread evenly over the planet. Not only do particular natural resources tend to be concentrated in particular places, such as oil in the Middle East, the knowledge of how to extract and process such resources develops in different eras, so that a particular material thing becomes a valuable resource in different countries and at different periods of history. While there have been large petroleum deposits in the Middle East for thousands of years, petroleum became a valuable resource only after science and technology developed to the point that made it indispensable to the industrial nations of the world, and thus brought large amounts of wealth from these nations to the Middle East to pay for its oil.

#20

In addition to natural resources such as land and the minerals in it, which can contribute directly to economic prosperity and development, there are other geographic factors which contribute indirectly but importantly, by facilitating various economic activities. Among these are navigable waterways and animals that facilitate both travel and agriculture.

#21

Navigable Waterways

#22

There are economic reasons why most cities around the world are located on waterways, whether rivers, harbors or lakes. Some of the most famous cities are located at or near the terminus of great rivers that empty into the open seas (New York, London, Shanghai, Rotterdam), some are located beside huge lakes or inland seas (Geneva, Chicago, Odessa, Detroit) and some are located on great harbors emptying into the open seas (Sydney, San Francisco, Tokyo, Rio de Janeiro).

#23

Among the economic reasons for these locations are transportation costs. Land transport has cost far more than water transport, especially in the millennia before self-propelled vehicles appeared, less than two centuries ago. Even today, it can cost more to ship cargo a hundred miles by land than to ship it a thousand miles by water. In 1830, a cargo that cost more than thirty dollars to ship 300 miles over land could be shipped 3,000 miles across the Atlantic Ocean for just ten dollars.{863} Given the vast amounts of things that have to be constantly transported into cities, such as food and fuel, and the huge volume of a city’s output that must be transported out to sell elsewhere, it is not surprising that so many cities are located on navigable waterways.

#24

The benefits of navigable waterways are by no means evenly distributed around the world, whether in terms of the number of rivers and harbors or the suitability of those rivers and harbors for transporting cargoes. The navigability of rivers is limited by the shape of the lands through which they flow. Western Europe, for example, is criss-crossed with rivers flowing gently across wide and level coastal plains into the open seas, which provide access to countries around the world. By contrast, most of sub-Saharan Africa, except for narrow coastal plains, is more than 1,000 feet in elevation and much of it is more than 2,000 feet high. Africa’s narrow coastal plains are often backed by steep escarpments that block the penetration of the interior by vessels coming in from the sea, and prevent boats from the interior from reaching the coast.

#25

Because of the physical shape of the land, rivers in sub-Saharan Africa plunge from a height of a thousand feet or more, down through cascades and waterfalls on their way to the sea. The huge Zaire River, for example, begins 4,700 feet above sea level, {864}and so must fall nearly a mile before it finally flows out into the Atlantic. Such rivers are navigable only for limited level stretches, usually navigable for boats of only limited sizes, and often for only limited times of the year, given the more sporadic rainfall patterns in sub-Saharan Africa, compared to the more even rainfall patterns in Western Europe. During the dry season, even a major African river like the Niger, draining water from an area larger than Texas, is at some point less than three feet deep.{865} Yet, during the height of the rainy season, the Niger has been characterized as “a 20-mile-wide moving lake.”{866}

#26

Although the Zaire River empties more water into the sea than does the Mississippi, the Yangtze, the Rhine or many other great commercial waterways of the world, the thousands of feet that the Zaire must come down on its way to the sea, through rapids, cascades and waterfalls, preclude any comparable volume of cargo traffic. Ships coming in from the Atlantic on the Zaire River cannot get very far inland before they are stopped by a series of cataracts.{867} Neither the length of a river nor even its volume of water says anything about its economic value as an artery of transportation.

#27

Like other African rivers, the Zaire provides many miles of local transportation, but these are not necessarily long continuous miles that would connect the interior of Africa by water with the open seas and international trade. The extent to which African rivers connect different communities within the continent with each other is also limited by the many cascades and waterfalls which determine how far a given vessel can go.

#28

Sometimes canoes may be emptied of their cargoes and carried around a cascade or waterfall, to be reloaded for the next portion of the journey. But this not only limits the size of the vessels used, and therefore the size of the cargoes, but also increases the cost of the additional time and labor required to get a cargo to its destination. The net result is that only cargoes with a very high value in a small physical size are economically viable to transport. By contrast, in parts of the world where rivers flow continuously for hundreds of miles through level plains, large cargoes of relatively low value in proportion to their bulk and weight—such as wood, wheat or coal—are economically viable to ship.

#29

Harbors are likewise neither as common nor as useful in some parts of the world as in others. Although Africa is more than twice the size of Europe, the African coastline is shorter than the European coastline. This is possible only because the European coastline twists and turns far more, creating many more harbors where ships can dock, sheltered from the rough waters of the open seas.

#30

Moreover, the deep waters in many European harbors mean that large, ocean-going ships can often dock right up against the land, as in Stockholm or Monaco, whereas the shallow coastal waters in much of sub-Saharan Africa mean that large ships have had to anchor offshore, and unload their cargoes onto smaller vessels that can travel in these shallow waters—a far more expensive process, and one that has often been prohibitively expensive. For centuries, trade between Europe and Asia took place in ships that sailed around Africa, usually without stopping.

#31

Even within Europe, the rivers and harbors of Eastern Europe are not the same as the rivers and harbors of Western Europe. Because Western Europe is warmed by the Gulf Stream flowing through the Atlantic Ocean, Western Europe’s rivers and harbors are not frozen as often or as long in winter as the rivers and harbors of Eastern Europe. But, even when the rivers in both parts of Europe are flowing, those in Western Europe are more often flowing into the open seas, providing ships with access to every continent in the world, while many rivers in Eastern Europe flow into lakes or inland seas, or into the Arctic Ocean, which is more distant from the rest of the world, even when the Arctic Ocean is not encumbered by ice.

#32

In Western Europe the Rhine, for example, flows northward from Switzerland through Germany, France and Holland, and out into the North Sea, which is part of the same vast, continuous expanse of water as the Atlantic Ocean. But the Danube flows generally southeastward through Eastern Europe into the Black Sea, an inland sea far distant from the Atlantic Ocean, which can be reached only by sailing westward across the entire length of the Mediterranean Sea before finally getting out into the Atlantic to gain access to the rest of the world. Economically, the rivers of Eastern Europe and Western Europe are obviously not equivalent for purposes of overseas trade, however valuable the Danube may be for trade among those parts of Europe that it flows through.

#33

Nor are the rivers that flow from Southern Europe into the Mediterranean the economic equivalent of rivers to the north. As a distinguished geographer put it: “The rivers which flowed north of the Alps were incomparably more useful than those of the Mediterranean basin. Their flow was more regular; they were deeper, and low water and ice rarely interrupted navigation for more than short periods.”{868} He also said of Europe’s waterways:

#34

Only in southern Europe was river navigation of little or no importance. There were exceptions, like the Po and Guadalquivir, but most Mediterranean rivers were torrents in winter and almost dry in summer.{869}

#35

When one considers the depths of rivers, there are still more inequalities that are economically relevant. Although the Nile is the longest river in the world, its depth was not great enough for the largest ships in the days of the Roman Empire, {870} much less for the aircraft carriers and other giant ships of today. Yet an aircraft carrier can sail up the Hudson River and dock right up against the land in midtown Manhattan. Some of the rivers in Angola are navigable only by boats requiring no more than 8 feet of water.{871} During the dry season, even a major West African river like the Niger will carry barges weighing no more than 12 tons.{872} By contrast, ships weighing 10,000 tons have been able to go hundreds of miles up the Yangtze River in China, and smaller vessels another thousand miles beyond that.{873}

#36

China has had an “immense network—unique in the world—of navigable waterways formed by the Yangtze and its tributaries,” as well as an “indented coastline,” full of harbors.{874} These navigable waterways contributed to China’s development as a nation, including during many centuries when it was the world’s most advanced nation.

#37

Rivers in Japan, however, have smaller and steeper drainage areas, making these rivers less navigable, because their waters are flowing more steeply down to the sea.{875} Japan was for centuries a poor and underdeveloped country before it began, in the second half of the nineteenth century, to import modern technology from countries more favorably situated geographically in Europe or from the United States. As of 1886, the per capita purchasing power in Japan was one-fortieth of that in the United Kingdom, though by 1898 this had risen to one-sixth.{876} Only in the twentieth century did Japan rise to the level of being one of the most technologically advanced and economically prosperous nations in the world.

#38

Japan lacked the geographical advantages—such as natural resources and networks of navigable rivers flowing over vast level plains—that enabled first China, and later Western Europe, to become the most technologically and economically advanced region of the world in their respective eras. Without these geographic advantages, Japan had little opportunity to pioneer the kind of epoch-making technological advances that marked early Chinese, and later Western European, civilizations. But the ability of the Japanese to incorporate the industrial revolution that had originated elsewhere, master its requirements and then exploit its opportunities, enabled Japan to become the technological equal of Western nations and to surpass a China that had, over the centuries, eventually lost its technological lead and dynamism.

#39

Given the dependence of cities on waterways, it can hardly be surprising that Western Europe became one of the most urbanized regions of the world, and sub-Saharan Africa remained one of the least urbanized. In the Middle Ages, China had larger cities than any in Europe. What urbanization means in terms of people, and the range of their knowledge, skills and experience—their human capital—is that first the Chinese, and later Western Europeans, had opportunities to develop urban industrial, commercial and financial skills and orientations far more often, and far longer, than the peoples of the Balkans or of sub-Saharan Africa. For centuries, in countries around the world, achievements and advances in many fields of endeavor have been far greater in cities than among a similar number of people scattered in the hinterlands.{877}

#40

To the direct economic benefits created by low transport costs on navigable waterways must be added the value of greater human capital resulting from exposure to a wider cultural universe that includes the products, technology and ideas of countries around the world. The economic benefits of this exposure to a wider cultural universe may well equal or exceed that of the direct economic benefits of international trade.

#41

In addition to being arteries of transportation, waterways can also supply the drinking water necessary to sustain both human and animal life, as well as the water needed to irrigate crops in arid regions. Waterways also supply food directly, in the form of fish and other marine life. In none of these roles are waterways the same in different places and times.

#42

Waters around the world contain very different amounts of fish and other marine life, so that fishing has long been a far more flourishing enterprise in some places than in others. Most of the Mediterranean countries, for example, have had far less productive opportunities for fishing than in the Newfoundland Banks or other places on the Atlantic coasts of North America or Europe. The continental shelf that goes far out into the Atlantic Ocean creates an environment more conducive to abundant marine life, compared to the Mediterranean Sea, where such a shelf is lacking.{878} In short, the waters of the world differ from each other, like the lands, and they differ in many different aspects, adding to the factors that make equal economic outcomes unlikely.

#43

Mountains

#44

Mountains, like waterways, have had both direct economic effects on people’s lives and, indirectly, effects on how those people themselves developed. But, unlike waterways, these direct and indirect effects of mountains have tended to be negative on those living in these mountains. As distinguished French historian Fernand Braudel pointed out: “Mountain life persistently lagged behind the plain.”{879}

#45

This pattern of both economic and cultural lags among people living in the mountains, compared with their contemporaries on the land below, has been as common in America’s Appalachian Mountains as in the Rif Mountains of Morocco or the Pindus Mountains of Greece. In times past, there was a similar contrast between the people living in the highlands of colonial Ceylon and people of the same race living on the land below, just as a similar contrast existed between Scottish highlanders and Scottish lowlanders.{880} Moreover, the economic and cultural contrast between Scottish highlanders and Scottish lowlanders persisted, even after both had immigrated to Australia or to the United States—the lowlanders being much more economically successful and more socially integrated in both countries.{881} Cultural differences that developed over the centuries do not vanish overnight when people move from one environment to another, or when the environment around them at a given place changes.

#46

In the ages before modern transportation and communication, mountain communities tended to be especially isolated, both from lowland communities and from each other. While these communities were not hermetically sealed off from the whole world, the culture of the lowlands tended to reach the highlands only very belatedly. Thus the Vlach language survived in the Pindus mountains of Greece for centuries after the people in lower elevations were speaking Greek, just as the Scottish highlanders continued to speak Gaelic after the Scottish lowlanders were speaking English. Islam became the religion of people living in the Rif Mountains of Morocco centuries after the people living below had already become Muslims.{882}

#47

Technological, economic and other developments likewise tended to reach the mountains long after they had spread across the lowlands, so that mountain peoples have long been known for their poverty and backwardness—whether in the Himalayas, the Appalachians or the mountains of Albania, Morocco or other places around the world.

#48

Villages in the Pindus mountains of Greece have had populations of fewer than a thousand people each in the past and, in more recent times, the average permanent population of these villages has usually been fewer than two hundred people. The Vlach language had still not yet completely died out in these mountains in the 1990s, though by then it was usually spoken by old people, while the younger generation was now educated in Greek and identified themselves as Greeks.{883} In these mountain villages, there were places where travel was very slow because it was limited to travel by mule or on foot, as distinguished from using wheeled vehicles, and a few villages could be reached only on foot. Many villages in the Pindus Mountains have, from time to time, been cut off from the outside world by snow or landslides.{884}

#49

Such severe geographic limitations have not been peculiar to the Pindus Mountains. Similar conditions have existed in other mountains around the world. But, as a geographic study of mountains put it, “In gentler environments, such as northwestern Europe or eastern North America, such tight constraints have never existed.” {885} Peoples living in isolated mountain settings have never had the same opportunities for either economic prosperity or self-development as peoples living in those “gentler environments.” Nor has resettlement of mountain peoples on the more promising land below always been a viable option, given their lack of the skills, sometimes the language, or even an understanding of a very different way of life in the lower elevations. {xxviii}

#50