Why are income levels higher in the developed world?

Over at Cafe Hayek they’ve been exploring a question they feel would make an excellent question for a final economics exam. Prompted by another bloggers experience of working in the peace corps in Nepal, the question is –

Why does a spectacularly intelligent and resourceful person in Nepal earn spectacularly less than a lazy untalented American?Robert Frank – the author that prompted the question gave this answer
Well-paid Americans owe an enormous, if rarely acknowledged, debt to the social investments that supported their success.

David Henderson answered
There’s a more-obvious cause of the wealth that we have been born into: a great deal of economic freedom compared to that in other parts of the world.

And the Cafe Hayek answer
Self-sufficiency is the road to poverty

The longer answer is that the lazy, unresourceful American of average intelligence has no incentive to learn how to fix a broken alarm clock or butcher a goat or thatch a roof. For the American, these elegant but time-intensive skills have a reward that is far below the cost in foregoing other activities. In Nepal these skills are worthwhile…

Why can the American afford so much leisure? The answer is that he has more people to trade with, people who bring more capital and skill to the table.

Links –

Cafe Hayek The Question
Cafe Hayek The Answer

What do you think? Are they poor because we in the West are rich, or are we rich because we have a more complex and developed economic system?

  • Laughing (Tory) Unionist

    There’s this quy I know by the name of Smith – Ad to his muckers – who’s got a few answers on this front. Pretty convincing guy. Even manages to account for why, cyclical down-turns notwithstanding, countries that listen to him are always, in the end, in the happy position of the lazy, stupid American, and not in the tragic situation of the talented, hard-working Nepalese.

    And in a moment of true serendipity, the “submit” word is ‘own’ (ask my chum ‘Herd’ de Soto why property rights are so important, viz the parable of the dumb Yank and the smart Sherpa).

  • jaffa

    Is Comparative Advantage your man? Dumb yank gets (comparatively) rich doing the thing he’s least worst even though everyone else is better at everything else because they’re too busy doing what they’re better at so they pay him to do the other thing (whatever that might be).

  • Itwas SammyMcNally whatdoneit

    Puts me in mind of the answer given by Castro as to why he continued to support Communism when it clearly didnt work – to which he asked why people still supported capitalism when it clearly didnt work in most of Latin America, Africa and Asia.

  • Mack

    Sammy – There are some countries that have managed to implement a successful market economy (including many in Asia – Singapore, South Korea, Hong Kong, Japan, and recently China and India) – I can’t think of a single, successful, centrally planned one?

  • Driftwood

    Should the Gurkhas get a mention here?

  • The Nepalese are poor because they live in a fucking backwater and were formerly squeezed between a Maoist insurgency and a Monarchy, both of which took them for all they were worth and they were/are dependent upon western tourism for their money.

    Look I can butcher an animal or fix my roof (though I couldn’t thatch my roof as it’s shingled), it doesn’t mean shit. Its elegant only when one looks at it from a Western, “isn’t that quaint” sort of view. If that’s what you do to survive there’s nothing elegant about it. Worthwhile? Yes. Elegant? No. It’s odd that the answer is that self sufficiency is the road to poverty because my grandparent’s generation were extremely self sufficient in many ways and were none the poorer for it. During this recession as we see thriftiness increase and seed sales at an all time high I would be curious to see how that idea plays out over time.

  • Itwas SammyMcNally whatdoneit


    well China – is still nominally run by the communist party – but I agree with your point – the reason I put that ‘quote’ in is to illustrate the Western-Centric view of the world – nobody really gives a flying feck in the West about the fact that we have 3 cars per house multiple foreign holidays and the poor feckers elsewhere have not got 2 coke-tins to rub together – well actually they might have – but not 2 loaves of bread.

    If this current crisis has done any good, it is to prove conclusively that Economics is as scientific as witchcraft (my favourite old chestnut) but much more importantly make people in the west realise that the inequalities of pay mentioned in the story above may well be reversed on the tide of upheavel sweeping all the old debunked self-serving economic assumptions away.

  • PaddyReilly

    It’s all based on a false, entirely dollar based, scale of values. The clever Nepalese will have a better looking wife, more servants, a better situated and more roomy house and greater position of respect in society that the stupid American.

  • PaddyReilly

    Btw several of my friends have been or want to go on holiday to Cuba but none feel the same way about Haiti.

  • Mack,

    You really think Japan has had a free market economy since World War II? There are quite a number of US senators interested in free trade who would disagree with you. Even more so in the case of somewhere like China.

    The reality is that these are mixed economies, with a good deal of central planning, particularly in the Japanese case, although that has lessened somewhat of late.

  • John East Belfast

    I dont think it is a particularly clever question at all.

    The answer though can be explained as

    Who they work for
    US Minimum Wage
    Basic State Welfare provsion
    What their Employer is selling
    To whom their Employer is Selling
    The ability of the latter to pay

  • Dewi

    Ricardo the comparative advantage bloke IIRC. The true reason for the US success is of course the work ethic of the Ulster Scots driven from Ulster by the religious oppression of the British government……

  • Mack


    Even the US is a mixed economy – with subsidies and tariffs to protect favoured industries. Japan was (is?) fiercely protectionist, but most of her large companies are in private hands. China economy has grown at breakneck speed since Deng_Xiaoping began a process of reform. I understand that those reforms started after the empirical evidence from giving farm workers ownership rights showed massive increases in farm productivity (in contrast to the results of the collectivism of the Great Leap forward, when farmers lied about their output to appear more productive resulting in more food being taken and redistributed elsewhere resulting in huge famines and the death of between 30 and 40 million Chinese from starvation.).

    Incidentally, I didn’t say free market, just market. I like a lot of Austrian economic thinking, but ultimately like Marxism, I think it’s unworkable in practice. We need sensible regulation where Schumpeter’s (another Austrian school economist) creative destruction isn’t allowed to work it’s magic, we do need the state to provide a range of services and welfare to prevent the kind of humanitarian disasters we have experienced in Ireland when laissez-faire fails (e.g. the famine).

    Paddy Reilly – Collectivism done well is superior to anarchy 😉 It even has a place in predominantly market economies.

    I do think though that decentralised competition leads better to innovations that drive living standards higher, than central planning alone would.

  • joeCanuck

    A couple of reasons may be:
    1. Access to and control of natural resources both at home and abroad.
    2. Ability and willingness to use military power to gain direct or indirect control of foreign resources and the willingness to corrupt public and private individuals both at home and abroad.

    The latter is still widespread but are not called bribes in “polite” society; common euphemisms are finder’s fee, completion bonus, commissions.

  • Mack

    Joe –

    I’d have thought corruption at home would be an impediment to economic development. #1 definitely could be a big factor, specifically for the USA. Other countries with significant natural resources haven’t fared quite so well – at least in part because of domestic corruption.

    There are lots of examples of resource poor countries building successful, dynamic economies (e.g. Japan, Singapore).

    Imperialism probably does give a short term boost, but most empires collapse economically under their own weight. In a period of around a century the silver content of a Roman coin collapsed from over 95% to under 0.002% as the Empire debased the currency to fund it’s wars.

  • joeCanuck

    Yes, Mack. Point about Japan etc taken.

    But surely domestic corruption allowed the 19th century US robber barons to initially build their commercial/industrial empires which did benefit the general public; railroads and the like and reasonably well paid jobs which allowed further expansion?

  • Greenflag

    ‘Are they poor because we in the West are rich, or are we rich because we have a more complex and developed economic system?’

    The answer to the question is not one or the other but both and a myriad of other factors . For different countries across different continents you can throw to the equation political system, cultural and religious beliefs ,the legacy of individual countrie’s histories e.g colonialist nation or a colonised one . You might also want to include access to scarce natural resources , size of population and market , and climate as well as geographical location in the northern hemisphere .

    The Cafe Hayek proposition is a nonsense . The reference as how Americans can afford so much leisure is evidence enough . Americans work more hours -have less time off – fewer holidays and less vacations than any other developed country bar perhaps Japan . Perhaps the coffee drinking tyros in Cafe Hayek have a somewhat blinkered view of the reality of daily life for most Americans ?

    In the ‘real ‘ world the market cannot be fully ‘trusted’ as we have seen on numerous occassions throughout economic history going back to the Dutch ‘tulip ‘ bubble etc . We also assume at our peril that democratically elected governments will always legislate in the interests of the people rather than for a narrow and usually wealthy minority of interest groups such as corporations , unions , religions , ethnic groups etc etc .

    Eternal vigilance – transparency and accountability for public institutions and corporations is needed and has to be legislated for . Even then there will always be those who will endeavour to circumvent whatever obstacles are in their path to become either ‘masters of their particular business or political universe ‘ or more likely as we have seen recently ‘masters of disaster ‘

  • Mack

    Joe – It may well have – maybe that’s the exception that proves the rule!

    Greenflag – I don’t think it’s a nonsense, but it’s certainly not the full story either. It rhymes with our own history, does it not? The move from De Valera inspired isolationism and self-sufficiency to the modern Ireland, with it’s open trading economy within a huge common market?

  • Mack

    Greenflag –

    In the ‘real ’ world the market cannot be fully ‘trusted’ as we have seen on numerous occassions throughout economic history going back to the Dutch ‘tulip ’ bubble etc

    Sort of. Bubbles occur, but eventually the market brings them crashing back to earth – the market does work, in that respect, it’s just not very nice 😉

  • Greenflag

    joe canuck ,

    ‘But surely domestic corruption allowed the 19th century US robber barons to initially build their commercial/industrial empires which did benefit the general public;’

    True enough JC . The other side of that coin is that same corruption ultimately led to the great depression -the collapse of the nascent German Weimar Democracy etc . Yes it did leave the USA economy in ‘good shape’ to be reinvigorated by the demands imposed by World War 2 . And the destruction in WW2 of course created the ‘new demand’ which launched prosperity in post war Europe and the USA although we Irish missed out on that as we clung to an earlier ideas of economic ‘sovereignty ‘ ? Perhaps we could do with less destructive ‘creative ‘ capitalism assuming such is possible . The Swedes have managed to avoid ‘war’ for several centuries however they have not eschewed ‘warfare ‘ altogether as they maintain a large enough defence force and armaments industry to keep several tens of thousands of people ‘gainfully’ employed .

    Your points in 14 above are on the ball imo.

  • Mack

    Greenflag –

    And the destruction in WW2 of course created the ‘new demand’ which launched prosperity in post war Europe and the USA although we Irish missed out on that as we clung to an earlier ideas of economic ‘sovereignty ’

    Surely this can’t be right. I agree with the part about Ireland vis a vis economic sovereignty.

    If destruction generates demand and leads to prosperity why don’t we go on a wrecking spree now? Henry Hazlitt would argue that we shouldn’t because while destruction does generate some visible economic activity, the opportunity cost is even greater – http://jim.com/econ/chap02p1.html

    It’s the destructive (in the economic, not physical sense) part of capitalism that frees up space for new innovations, ideas, products and services to come to the fore. We probably need more destruction, much earlier in the cycle, and not less. That way companies with dodgy practices should never get to big to fail. The moment any company does the regulators should be all over them – even to split them up into small destructable entities.

  • Mack

    Apologies, it was Frédéric Bastiat who developed the parable of the broken window –


  • Greenflag

    mack – I meant a ‘slight’ nonsense not total 😉

    Isolationism /and or protectionism is not an option in today’s world not for most smaller countries anyway . Even the larger economies are dependent on trade for a large measure of their present prosperity . The only large countries that successfully isolated themselves from the rest of the world for extended periods i.e more than a couple of centuries were China and Japan . It can be argued that the former’s isolation led it to losing it’s position as the world’s ‘greatest ‘ economy and civilisation post 500 AD . It can also be argued that Japan’s self imposed isolation during the Tokugawa period 1600 to 1850 approx gave it the cohesion and strong sense of nationhood which allowed it to resist the colonial powers and eventually pursue it’s own industrial transformation on largely it’s own terms . Thailand was also never ‘colonialised ‘.

    In today’s world the isolation option is not available to the likes of say Iceland , Ireland or the Czech Republic etc . Of all the major powers the USA is the one which is least dependent on foreign trade.

    ‘eventually the market brings them crashing back to earth’

    That part does’nt bother me 😉 I’m a down to earth type 😉 . It’s the fact that it’s the same market forces that contrive to blow up the bubble in the first place with the political powers that be either powerless, or in ignorance, or even worse in collusion with the froth merchants , thats the part that bothers me ;)?.

    I think you underestimate the powers of imperialism re giving a short term boost . I would’nt classify as short term say the 300 year British Empire nor the 700 year Roman Empire nor the Spanish ? 400 year . Imperialism gave Britain the scarce resources which it needed to accumulate the capital to finance the world’s first Industrial revolution . Along with slavery and the flight of Dutch capital to London and the loss of the Dutch maritime supremacy these factors gave England the power to ‘create ‘ Great Britain and Ireland ‘ neutralise local opposition to such an Empire (Scotland 1707 and Ireland 1801 ) and go on a ‘corporate ‘ acquisition trail which would eventually encompass a quarter of the globe . That Empire kept the UK in the style to which it was accustomed or at least it’s ‘ruling classes’ for several centuries .

    Ditto for the Spaniards and earlier Romans .

  • joeCanuck

    That is a very worthwhile article, Mack.
    It certainly helped to clarify my thoughts about the benefits of war. But a lingering suspicion remains; if the second world war hadn’t started, how long would the depression have gone on with the human misery that went along with it? How do you factor in economically the benefits of improved happiness, health etc?

  • Mack

    Point taken – I still wouldn’t recommend imperialism as a path to growth. For two reasons

    1. Switzerland is still powering away and after 800 odd years of peace, and is much wealthier than long since collapsed Spain or Portugal (the original empire on which the sun never set).

    2. You’ve got to be in a position to be able to beat your neighbours in the first place – superior population growth, superior technology, infrastructure etc. Once you’ve figured out how to do that effectively, why change by going on the warpath ? It’s only my opinion, but I reckon the invasion of Iraq was a huge strategic blunder by the US.

  • Glencoppagagh

    Another stimulating thread.
    The simple answer surely has to be the enormous
    accumulated capital employed in the US economy which is reflected in per capita output.

  • Greenflag


    We’re crossing here 🙂

    ‘Surely this can’t be right.’

    I was not imputing any kind of ‘morality’ to the phenomenom of so called ‘creative ‘ destruction merely just pointing it out as a recurring theme which is found in the economic history of europe (and probably elsewhere )going back at least 600 years or so.) i.e references citing various commentators on ‘war ‘ being necessary to reduce the surplus population etc.

  • joeCanuck

    I reckon the invasion of Iraq was a huge strategic blunder by the US.

    I think so too. However, although it has caused the general citizens of the USA (well, perhaps their descendants) a huge loss of treasure, it has benefited a few enormously. Was the war really about WMD or, as many suspect, a ploy by Cheney and associates to get control of Iraq’s oil?

  • Greenflag

    joe canuck ,

    ‘But a lingering suspicion remains; if the second world war hadn’t started, how long would the depression have gone on with the human misery that went along with it? ‘

    Probably until ‘communist ‘ revolutions took place in Europe . The German , French and Italian communists were powerful in the 1920’s and 30’s . In the absence of WW2 and given continuing economic emisseration of their populations the ‘red ‘ alternative would have presented itself . Britain would also have been partial to ‘red’ revolution .

    Your comment addressed my own ‘lingering ‘ suspicion of the likelihood of the length of time that may be needed to ‘recover’ from the present economic mess and whether or no President Obama’s stimuli will be sufficient . Not that I think there is any real practical alternative to what’s being attempted or at least I haven’t come across one that’s credible . We can’t all buy gold eh ?

  • Mack

    Joe –

    But a lingering suspicion remains; if the second world war hadn’t started, how long would the depression have gone on with the human misery that went along with it? How do you factor in economically the benefits of improved happiness, health etc?

    It’s a problem, and I hope we don’t get to find some sort of answer to that in this crisis.

    Depending on which school of thought you believe (from my limited understanding) –

    Keynesian – A massive stimulus (much bigger than the New Deal) would have brought the US out of depression. Arguably the USA would have emerged in better shape if it (the stimulus) wasn’t WWII. Keynesians argued Austrian remedies (liquidate malinvestments, sound money policies etc) prolonged the depression.

    Austrian – Depression is the cure for the malinvestments and misallocation of resources in the preceeding boom. They argue that Keynesian attempts at stimulating the economy interfered with that process and prolonged the depression. They argue that WWII helped end it, by forcing families to save, the pent-up demand after the war ended was a result of austerity measures implemented during the war. Fundamentally they argue you can’t stop a depression only postpone a worse one later.

    Monetarist – Milton Friedman argued (I think) that increasing the money supply massively and lowering interest rates would have prevented the economy falling into deflation and encouraged investment by business preventing the depression.

    Both Friedman and the Keynesian’s were highly critical of Austrian business cycle theory, current best practice seems to be a mix of Keynesian economics and Monetarism, I think the world would have been much better off with a good dose of that and no WWII. (Though I think the Austrian’s have a good explanation of what causes depressions).

  • Mack

    Thanks Glencoppagagh.

    True, but how did the USA (or any other development nation) end up with significantly more accumulated capital wealth?

    At the turn of the last century the USA and Argentina were similarly endowed both in terms of accumulated wealth and in terms of natural resources – but took very different political / economic paths with very different outcomes for both states!

  • Greenflag

    glencoppagh ,

    ‘The simple answer surely has to be the enormous
    accumulated capital employed in the US economy’

    Not to mention in the US case the ability to wage war anywhere on the globe with an almost insignificant possibility of any serious retaliation being possible on USA ‘soil ‘ by any current ‘enemy’ .

    Enormous accumulated capital is also the case for Germany, Japan , the UK , France and newly emerging China among others . Money makes money and the money that money makes makes more money;) (or at least used to ) 🙂 . Several centuries of accumulated compounded capital be it financial , human or industrial does impact the balances of trade and political power between and within countries , corporations and individuals .

  • Greenflag


    Switzerland is an exception to the rule i.e that countries bordering on other countries have traditionally ‘enjoyed ‘ war as a means of addressing harvest shortages , trade deficits , religious or ideological issues .

    Japan is commonly used as an example of an island with no natural resources. What people forget about Japan is it’s 250 years of peace and prosperity during the Tokugawa era . At the same time (1600-1850) the Europeans were constantly at war with each other for dynastic , religious and imperial reasons .

    Your comparison between the USA and Argentina is exaggerated . It’s true that Argentina was at least in terms of living standards among the wealthiest at that time but in overall natural resources , size of population , market and access to market the northern hemisphere emerging power the USA was much more endowed than Argentina .

    What made the ‘difference ‘ was politics or to be more specific political stability in the USA and the lack of in Argentina . A better comparison and more meaningful for your case imo would be that of Taiwan and newly independent Ghana in 1960 when both countries had a similar GDP per capita . 25 years later Taiwan’s GDP per capita was 20 times that of Ghana’s although the latter was richer in ‘natural ‘ resources .

    What made the difference ? Politics and economic policies . The same can be said for West Germany v East Germany, North Korea v South Korea and even to a lesser extent Northern Ireland v Republic of Ireland ( 1939- 1965 ) (1970 -2005)approx

    If you don’t get the politics right you will not get the potential out of your economy that is possible .

    As to what are the right ‘politics ‘ ? Well we know what does’nt work and we know what sometimes works at least for a while . 😉 ?

  • Itwas SammyMcNally whatdoneit

    Friedman’s conclusion are shared, though for completely different reasons, with the
    Internation Federation of Witchdotors a secretive organisation particularly popular during times of economic hardship and recession who also rejected the “business cycle theory” theory preferring their own “lucky charm theorem”.

    This organsiation, having previously being dismissed by many as unreliable, has now
    become more popular given that withchdoctoring is believed by the international business community to have a more robust basis for making predictions about financial matters than economics and this has been backed up by recent research which shows that the periodical “Witchdoctoring in the 21st Century” had only predicted 10 out of the last 3 recessions whilst
    “the Economist” magazine had preidcted 208 and had missed the recent one that flattened Western Capitalism.

    The editor of “Witchdoctoring in the 21st Century” graciously remarked that the problem for Economists was that at any time about 50 percent of their theories were correct but nobody knew which 50 percent.

    The editor of the Economist, ungraciously remarked, that conclusive studies, by “leading fiures in the field” could theroetically prove that there had in fact been “over 200 recessions” since WW2 but he did concede that although “this had not in fact been the experience of any actual people” most students and professionals in the “discipline” of economics did share his views.

  • Glencoppagagh

    “True, but how did the USA (or any other development nation) end up with significantly more accumulated capital wealth?”
    Now there’s a good question. One answer might be a generous endowment of natural resources both agricultural and mineral.
    A more contentious explanation would be the relative economic freedom throughout US history and very democratic institutions. Sometimes it’s attributed to immigration – the US received the most ambitious and industrious from other nations.
    Have you read David Landes ‘The Wealth and Poverty of Nations’.
    This thread reminds me to my shame that I never managed to finish it.

  • greenflag


    LOL 😉

    The Economist alas is not alone 😉 The most respected witchdoctoring economic forecasting institution in the world of the early 20th (1920’s /30’s) was the Harvard Economic Society .

    J.K Galbraith in his ‘The Great Crash of 1929’ (Penguin edition ) pages 163 to 165 gives a humourous listing in daily format type of the HES’s false prophecies on the imminent ending of the ‘recession’ and on it’s positive belief on the non likelihood of a major depression .

    The Society was eventually dissolved – it’s reputation for infallibility rather dimmed .Worth a read if only to put in some perspective the ruminations of today’s soothsayers be they Rubini or Schiff or Krugman and some of us doomsayers or positive spin merchants on slugger 😉

    Bit like a Pope forecasting the imminent return of JC to the planet on the 2nd Jan 2008 and then on the non arrival having to change the date of arrival seventeen times until finally fessing up on April 1 2009 that an exact date was not possible to forecast because ‘untoward market forces have conspired to delay the return despite the inevitability of an eventual return in glory ‘

    The ‘faithful ‘ would not be impressed by such hypothetical papal forecasts . Of course many non papal ‘forecasters’ have pulled the imminent arrrival or end of days ponzi scheme in a manner most pleasing to their bankers if not to the suckers who believed and gave up their dosh along with their brains 😉

  • Glencoppagagh

    Not to mention in the US case the ability to wage war anywhere on the globe with an almost insignificant possibility of any serious retaliation being possible on USA ‘soil ’ by any current ‘enemy’.
    That’s just so much guff. Waging war on a large scale anywhere carries a heavy economic cost.
    Of course, I would accept that a high proportion of Europe’s physical capital has been destroyed in wars.

  • Greenflag


    ‘That’s just so much guff’

    Not at all .It’s the USA army etc thats in Iraq and Afghanistan and not the other way around . Cheney and Co would probably have liked to add Iran to the list

    ‘Waging war on a large scale anywhere carries a heavy economic cost.’

    The cost is always weighed against the potential gain and often that gain may not be economic but can be strategic , ideological or in earlier times merely dynastic . Those who can profit from war and have the power to wage or engineer it usually end up assuming their side ‘wins’ with a larger share of personal loot even if the wider society loses on average .

    I would accept that a high proportion of Europe’s physical capital has been destroyed in wars.’

    Not to mention an even greater proportion of human capital . Add it all up from the 16th century and you could be in the hundreds of millions and their never to arrive ‘descendants ‘

    USA losses have always been less in terms of numbers than the larger european nations . Even today USA fatalities since Bush have been approx 7,000 ( 4,400 in Iraq/Afghan and 9/11). Indigenous lives lost in Iraq , Afghanistan etc now probably total 500,000 ?

  • NCM

    Maybe because we pay people in Nepal 5 cents an hour to make us lazy Americans stuff worth $5.00 and then we bribe the foreign leaders that go along with this scam and have shot or imprisoned those that don’t. This really isn’t rocket science, folks.

  • Harry Flashman

    “Are they poor because we in the West are rich, or are we rich because we have a more complex and developed economic system?”

    Christ help us there’s an awful lot of twaddle being posted on this thread by people who haven’t the first feckin’ clue where wealth comes from.

    Do yez all think that the “lazy Yank” just came across his wealth by pure chance? Do you think he found a leprechaun at the end of the rainbow and the poor but no doubt salt of the earth Nepalese chap just missed out on his chance of finding a leprechaun?

    The people of the United States and western Europe got rich by simple dumb luck, is that it?

    Our ancestors must be spinning in their graves at the collective idiocy displayed on this thread. We are rich because tens of thousands, nay hundreds of thousands of people in our past worked, experimented, struggled, argued, fought and yes died to make us rich you silly plonkers.

    They worked out political and economic systems and invented new ideas and imposed laws and fought for their liberty to create the environment where we are today and youse ungrateful clods who are the spoilt brats of their hard won inheritance all just think it came down with the morning dew.

    Idiots, no wonder western society is going out of business.

  • abucs

    I think societies in the west are extremely sensitive to preventing an underclass that is incapable of doing well for itself. This is a great benefit although it does have its drawbacks. A stupid and lazy person is going to be looked after in the west, relatively speaking. If you are lazy, then the west is the place to be because of the redistribution of taxation.

    On the other hand, being intelligent and resourceful is not a guarantee of success in a developing country although in many places that is changing fast. Unless you are part of an aristocratic dictatorship, you need your market (usually the people around you) to have money in order to ‘trade’ your intelligence and resources.
    If they don’t have money, then you are not going to get it from them – you’ll need a printing press.

    If you are going to trade your intelligence and resources to people with money then you are either going to have to move country or get into the outsourcing game. Some people in developing countries have done this and made a success out of it, although they are also competing with host countries who are wanting to set up the same structures.

    As more and more wealth flows from the west to the developing countries then more economic activity will be possible there and people trading their intelligence will no longer have to look for foreign markets.

    I think this is happening right now in many parts of the world.

    The question for me is that as jobs disappear in the west and taxation levels reverse, will there still be enough for a good (and expanded) social welfare system and what will all the formerly employed people in the west do.

    The experts say it will be all OK. I’m not so sure.

  • There is a lot in what Harry says, but he is also leaving a lot out. Europe moved ahead of the rest of the world in the early modern period. A lot of that development was based on the exploitation of peoples and resources beyond our shores. For example, the Spanish empire and Latin American precious metals; the slave-based sugar and tobacco islands of the eighteenth century; the naked imperialism of the nineteenth century; and the continued exploitation of the former colonies through puppet regimes and corruption, as well as debt. The story of economic development does contain its heroic elements. But also its vicious and evil ones.

  • Mack

    Garibaldy –

    I’d take issue with that. Precious metals are effectively money, they had little actual use beyond a means of exchange. Extracting precious metals from another country (or the ground) doesn’t make you wealthier (though the confusion of money and wealth is pretty common). It’s exactly the same thing as printing money. Because of the repatriation of South American gold, Spain experienced massive inflation. The increase in the money supply crowded out productive economic activities, and led directly to the collapse of the Spainish empire. Allowing Holland to extricate itself from Spanish control and British, French and the Dutch empires to rise in her place.

    My point is that while imperialism may help boost economic activity, it’s also a double edged sword. In every case so far it has contributed to the collapse of the Empire. Imperialism can occur under any economic system – whether it be Socialist like Soviet Russia, or mercantilist like the European empires, as long as the oppressing country is stronger than the oppressed.

    It confuses the issue (the drivers of economic development – Nepal and USA are examples / metaphors) as imperialist conquest is always of a weaker country or region, by a stronger country or region. It doesn’t tell you what led to the superior development in the stronger country in the first place.

  • Harry Flashman

    Garibaldy you know as well as I do that the Spanish Empire was utterly ruined by the discovery of gold and silver in the New World and the tiny slave plantations of the West Indies were not responsible for Britain’s Industrial Revolution no matter how many guilt ridden white liberals say they were.

    So if it was all just a result of evil whitey exploiting the dark skinned races how come Sweden, Switzerland, Denmark, Japan, and Germany are rich when they had no overseas empires worth talking about?

    And if exploiting natives of other lands and stealing their resources was the guarantee of getting rich then the Russians and the Javanese and for that matter the Iranians and the Arabs would have the most advanced, wealthy societies in the world today.

    Nice try but sorry, nul point.

    The “west” is rich because they built up the best and most enlightened societies and they did so by themselves through their own hard work.

    No-one is stopping Nepalese people doing the same thing today, except of course other Nepalese.

  • Mack

    This is a good book on the long history of intertwined human economic development & conquest –


    Gives a pretty convincing overview of the forces that driving the current carve up of the world, starting from deep in human history (and at a very fundamental level – domesticable plants & animals, climate, human settlement & isolation etc).

  • Sammy Morse

    What people forget about Japan is it’s 250 years of peace and prosperity during the Tokugawa era . At the same time (1600-1850) the Europeans were constantly at war with each other for dynastic , religious and imperial reasons .

    During which period Japan had virtually no economic development at all. When it began to interact with the rest of the world it enjoyed spectacular rates growth, which were only exceeded once it was smashed to bits by conventional weapons, and then atom bombed a couple of times.

    (I.e. your theory is wrong.)

    Not to mention an even greater proportion of human capital . Add it all up from the 16th century and you could be in the hundreds of millions and their never to arrive ‘descendants ‘

    Unlikely. Europe’s population was food constrained until at least the 1950s. It took all of Europe’s food and quite a bit of other continents’ to feed Europeans until our grandparents’ time. Germany nearly starved during WW1 and the need to avoid a repeat was a significant factor in the genocidal murder of the Jews and an overwhelming one in the abuse and mass murder of Poles, Ukrainians and Russians. There simply wasn’t enough food in Central and Eastern Europe to feed all Central and Eastern Europeans; the decision to starve the Ukraine was taken as much by OKW officers who were somewhat repelled by it as a matter of military necessity as it was by Nazis looking for a racial final solution.

    If Europeans hadn’t killed so many of each other in wars, they’d either have killed even more people in Oceania and the Americas or more would have starved and died of disease.

    There’s no secret as to what makes societies work – free markets, free courts, enforcement of contracts and elites being subject to the same norms as the rest of us.

  • Driftwood


    This article demonstrates how Nepalese “immigrants” are of benefit to the UK than many hopless layabouts on Incapacity benefits

  • Mack,

    The influx of gold and other precious metals had an impact far beyond Spain, stimulating trade throughout Europe, and between Europe and other parts of the world. It may well have ultimately contributed to the decline of the Spanish empire (although there are other factors there) but it had a stimulating effect on the European economy as a whole. We need to look at this at a supra-national level.


    I’d say the same thing to you. The slave and tobacco plantations were not just owned by Britain as you know. By far the most dynamic elements of the French economy in the eighteenth century were those connected to the imperial trade. As for the British industrial revolution. That was intimately connected with imperial markets and resources.

    And Harry, you know too that I never said that exploitation of foreign countries was the sole reason for European development – quite the opposite. I said it was an important component that cannot be ignored. So nul point to you for creating straw men.

  • Mack

    Garibaly –

    An increase in the money supply in the world’s super power does tend to increase economic activity in her trading partners too – temporarily. It doesn’t generate real wealth, and when the rate of increase in the money supply slows you get a severe recession as the illusory wealth evaporates – we’ve just had / are having a pretty good example of this in practice.

    I’m arguing that imperialism is a thoroughly bad thing by the way – obviously it’s terrible for the oppressed, but I also think it harms the oppressor in the long term too (which admittedly can be many human life times before it becomes unsustainable).

    I think we need to separate the exploitation of the weak by the strong from the factors that enable countries to become strong in the first place. (Unless you feel exploitation is the only way to get strong? If so, and you’re right, we’re totally fecked!).

  • Mack

    Garibaldy –

    To take another example – white Europeans affected a land grab on the North American content – after the native populations were decimated by diseases to which they had no resistance and in wars against armies with much superior technologies. (Many centuries earlier the Spanish conquered armies of 70-80,000 with ‘armies’ of 100 or so soldiers). You could look at this as a win for white Europeans but it’s not neccasarily a win for European countries (and their development). The white European farmers in the US, with their huge farms (on free land) were able to sell crops back to Europe at much lower prices than farmers were able to produce crops in Central European countries (Europe’s bread basket). So did European’s win from this? White European settlers did, but their countries of origin lost out.

  • So did European’s win from this? White European settlers did, but their countries of origin lost out.


    Mack, read what I wrote up the thread. Without the importation of food in vast bulk from the Americas from the later-middle 19th Century, Europe could not have industrialised to the degree it did as it could not feed its industrial workers.

    When continental Europe, under Nazi rule, was blockaded by the Royal Navy, continental Europeans starved in big numbers. End of. This was in the 1940s. Modern agricultural techniques probably make Europe self-sufficient in food again if we’re willing to accept a more drab diet than we’ve become used to, but that wasn’t the case until about 50 years ago.

  • Mack,

    The expansion of trade stimulated by imperialism opened the way for industrial and technological advances that had lasting consequences. Holland being a good case in point in terms of the development of the financial industry there, which was heavily influenced by imperial wealth.

    Europe was roughly equal to the other advanced continents until the early modern period. It then leapt ahead in the following century or two. This was the result of a diverse range of factors, but empire was important both in terms of stimulating industry at home, and in destroying rival industries elsewhere (India being the classic example).

    Expoitation is not the only way to get strong. But in the story of European development, exploitation of foreign countries playd a vital role.

    On the home countries ultimately losing out. That’s just dialectical materialism in action.

  • Mack

    Sammy – Easy tiger. You haven’t refuted my point.

    Farmers in Central Europe were undercut by cheap American imports. You’re arguing that imports from the Americas enabled industrialization – the counter argument is that farming was not as profitable as it could have been in Europe so there wasn’t the same incentive to improve farm productivity there – it was cheaper to buy imports from the Americas. Note the population of Europe doubled during that period from 200 million to 400 million. This does seem to demonstrate the effectiveness Ricardo’s ideas on comparative advantage, but it’s difficult to argue that there was a relative decline for most of the European Empires in comparison to the rapid emergence of the USA as a world power. In short we don’t know what the outcome would have been had American colonisation not taken place.

  • Harry Flashman

    European nations were able to acquire their empires and survive the loss of them because they had already developed sophisticated economic and political environments which gave them the wherewithal to do so. The empires were the results of successful business plans, they were not the reason for them.

    Let us examine Holland. In 1945 the country had been devastated by the Second World War, by Christmas of that year people in Dutch cities were literally dying in the streets of hunger. Holland was bankrupt, some of her cities wrecked and a high percentage of her once huge merchant fleet lay rusting at the bottom of the Atlantic and a very significant section of her mercantile class had gone up in smoke in central European death camps. By 1949 her vast empire in the Indies (the source of Dutch wealth some people would have you believe) was gone. In the horrific floods of 1953 thousands drowned and up to as much as a sixth of the country was under the sea.

    So what about the Indies which had broken free from Dutch rule? Well by 1950 almost all of the infrastructure left behind by the Dutch was still in working order; the bridges, railways, canals, tea, coffee, tobacco, and rubber plantations, the oil wells, gas fields, the coal, tin and gold mines were producing away and the vast new state of Indonesia had hardly any debt.

    Looking at these facts one would have safely presumed that Indonesia would by 1960 have become the world’s fourth biggest superpower while her former imperial mistress would resemble something akin to a damp grey version of Portugal.

    Didn’t quite work out that way though did it?

    Why? Because overseas empires were a symptom not a cause of economic success in Europe. Holland wasn’t wealthy because she owned the East Indies and Indonesia isn’t poor because they were once ruled by Holland.

  • Mack

    Garibaldy –

    We have a problem in separating both cause and effect as regards Europe (did imperialism expand trade, or did the expansion of trade expand imperialism – e.g. the British invasion of China to force the Chinese to buy ‘British’ opium made in India!) and opportunity cost. Because recent European history is one of conquest and Empires we don’t really know what our economic development would have been like had the European powers focused on peaceful trade. We almost certainly wouldn’t have had two World Wars, although there may still have been effectively European colonies / trading posts in parts of the globe that European disease would have depopulated.

  • You can’t just isolate things like that Harry, nor take such a short-term view as from a few years after WWII. The Marshall Plan is absent from your account of Dutch rebirth. Without the Marshall Plan, much of westen Europe would have been totally screwed for possibly decades afterwards.

    As for isolating things. Some empires, such as those developed by Germany in the late C19th, were certainly symptoms of success at home. But others were so tied up with the development of the imperial power that it is absolutely impossible to separate them in the way you are trying to do.

  • Mack,

    We agree anyway on the impossibility of separating the two out. The expansion of European trade was to a large extend dependent on force as you note yourself.

  • Greenflag

    sammy morse ,

    ‘During which period Japan had virtually no economic development at all.’

    Compared to the previous 150 year period in Japanese history the Tokugawa period was an advance . For over a couple of centuries the foundation was laid such that when the country was opened up it did NOT become another european colony but instead was able to largely direct it’s own industrialisation much earlier than other asian countries such as Indonesia , Vietnam , Cambodia , Laos , China, India etc .

    I.e. your theory is wrong ????

    I didn’t realise I was theorising merely pointing out that Japan and Switzerland are exceptions to the rule on both their continents. Neither countries path to economic prosperity is likely to be emulated by Slovakia or the Ukraine or Lesotho .

    ‘There’s no secret as to what makes societies work – free markets, free courts, enforcement of contracts and elites being subject to the same norms as the rest of us. ‘

    Depends on what you mean by societies ‘working ‘ . Feudal England ‘worked ‘ for several centuries as did Feudal Japan . The Roman, British and Spanish empires functioned for several centuries without the encumbrances of free markets or free courts and their elites could rob, steal , plunder and exploit their colonial underlings without too many obstacles . The USSR ‘worked ‘ for 70 years ? Even the Celtic Tiger managed 15 years ?

    It’s always been the case historically that the nation/nations at the top of the economic pyramid favour ‘free markets’. This is because they get to use and enjoy the long standing capital, trading, military and political advantages they accumulated during their ascent.

    ‘free courts , enforcement of contracts and elites being subject to the same norms as the rest of us. ‘

    Nobody is going to disagree with these laudable ideals . As for ‘elites ‘ being subject to the same ‘norms ‘ I read that the City of London’s ‘masters of disaster ‘ are so upset at proposed UK Government measures directed at restricting their ability to ‘coin ‘ that they have become desirous of removing themselves to Geneva in Switzerland form which secure base they can continue to inflict their ‘norms ‘ .

    Nice ideals sm and while I agree with you in principle I’m afraid what we see and have seen in the real world deviates so far from the ‘ideal’ as to make such comments a wish list .

  • Mack

    Greenflag –

    When bankers take such extreme risks that they manage to lose more money than has ever been made in the history of banking – I think no tears should be shed when those, who would continue to take such risks, feck off to inflict those loses on someone else!

  • Harry Flashman

    OK then Gari let’s take your previous assertion;

    “Holland being a good case in point in terms of the development of the financial industry there, which was heavily influenced by imperial wealth.”

    That is simply incorrect, empire followed trade not the other way around.

    The world’s first joint stock company was the Dutch East India Company – the VOC – which was quite simply a trading organisation with no thought of empire creation. The Dutch were able to go all the way out to Ambon in the Molluccas to buy nutmeg off the local bloke there and ship it back to Amsterdam at a profit because of factors in Dutch society that already existed.

    Namely these were in no particular order; the ability to design, build, finance and equip ocean going trading vessels, the knowledge of global maritime navigation and the charts and tools to allow that navigation, the schools that taught young sailors, the banks that provided credit, the courts that enforced contracts, the availability of free labour, proper accountancy methods, rudimentary insurance, mass literacy etc etc.

    All these features were in place before the hardy Dutchmen sent out their frail vessels tens of thousands of miles around the world to purchase spices that they hoped, maybe just maybe, might be back in the markets of Rotterdam a year or two later. This proceeded for at least a century or so before the Dutch hit on the idea of simply taking over the Indies as their own imperial property.

    If you can get your political and economic conditions at home right first and are willing to risk money as well as accept many failures along the way then perhaps you might possibly get an empire but empire was not the driving force of European economic development.

    One must simply ask the obvious question, how come the Dutch were able to go all the way out there and the locals weren’t able to do the same in reverse? Why were no Javanese galleons sailing up and seizing Utrecht?

    Simple; Java was a magnificent courtly society, with a hugely rich culture and literature, the courts of the sultans of Java were every bit as sophisticated as those of north western Europe, hell they were far more sophisticated but Java was nonetheless a fundamentally medieval, feudal society and as such was incapable of developing the phenomenal scientific, philosophical, legal, financial and political advances that were shaping northern Europe at that time.

    I state again; empire followed trade, trade followed political freedom and economic development, that’s why Americans are rich and Nepalese are poor.

    It ain’t rocket science.

  • Harry,

    The imperial wealth I was referring to was that of the Spanish, the impact of which was to provide the market for lending, and the valuable materials with which to secure loans. I wouldn’t disagree with the factors you identify (although not necessarily placing the same stress on the same things), nor did I say that empire was the driving force for European economic expansion. I simply said it was one of the major driving forces, and that it cannot and should not be left out of any account for that expansion.

    As for trade following the flag, or vice versa, depended where and when.

  • greenflag

    mack ,

    ”I think no tears should be shed when those, who would continue to take such risks, feck off to inflict those loses on someone else! ‘

    I’ll not be shedding tears 🙂 With UBS now facing legal action from the USA with regard to Swiss Banks aiding and abetting US tax evaders on US territory I trust the Germans , French ,Italians and Austrians are planning a four pronged invasion of Helvetia , putting all the Zurich gnomes to the sword and imposing a trade and investment embargo on the harbingers of the fleeing British hedge fund reckless risk takers;)

    I’m not against risk per se but when it gets to the point where the entire world economy can be undermined by a few flash suits and dodgy mathematicians in Wall street or the City of London then as some cleric was quoted re the Fenians – hell is not hot enough etc etc 😉

    The Swiss have had it coming for decades . I hope the Yanks take UBS to the cleaners for their alleged criminal tax evasion conspiracies 😉

  • Greenflag

    harry flashman ,

    ‘trade followed political freedom ‘

    Not strictly true . There was trade long before there was even the concept of political freedom . The ancient Pheonicians , Mesopotamians , Sumers etc etc -even the peoples who lived on these islands were trading long before the Greeks discovered the word politics;)

    Even neanderthal man was reputed to have traded with his /her neighbours . IIRC the English were developing the wool trade with the lowlands even before Magna Carta ?

    Empire building or to give it it’s proper name ‘overseas captive market ‘ acquisition had different impacts on the economic and political developments of differing european countries just as it did on their OCM’s .

    In the final analsyis the empires ‘defeated ‘ themselves by allowing their ‘financial services sectors ‘ to become the dominant ‘lobby’ at the court of their kings or in the parliaments of their political leaders .

    And that’s exactly what happened to the USA over the past couple of decades 🙁

    Kevin Phillips – ‘Bad Money ‘

  • Harry Flashman

    “I hope the Yanks take UBS to the cleaners for their alleged criminal tax evasion conspiracies ;)”

    And I hope the Swiss tell the Yanks to go away and boil their heads and stop interfering in the internal affairs of their country.

    Switzerland ain’t Iraq.

  • abucs

    I think the control of resources in colonies certainly helped host countries to ‘specialise’ and create more wealth. (i don’t know Spain’s case well).

    I think Ireland’s contribution to Britain in supplying food contributed to large numbers of British to be employed in manufacturing which allowed the creation of wealth which then leads to the questions of how that is going to be controlled and owned and ‘shared out’.

    It was a slow hard process for the British and the fruits of those thousands of workers would not be seen in their lifetimes.

    But in the end it was a matter of a mass of British (and other) people ‘doing the right thing’ and supporting people who ‘did the right thing’.

    This was in politics, education, representation, law, charity and medicine etc.

    I think the mindset of the people, in the end, is what creates progress and what created progress in the West. It was the mindset of large numbers of people ‘doing the right thing’ which allowed progress.

  • Greenflag


    ‘and stop interfering in the internal affairs of their country’

    Eh ? That’s the exact charge the USA taxpayer bringing against the Swiss namely that UBS did illegally not just conspire but actually on american soil, extract over 100 billion dollars in taxation revenues from US citizens using encryption equipped laptops which enabled said US citizens to evade their taxes without physically leaving the USA and by not leaving any “paper trail’
    Mr Madoff and others of his ilk in the Wall St criminal financial services sector among others are expected to feature on the list of names .

  • Greenflag

    abucs ,

    ‘which then leads to the questions of how that is going to be controlled and owned and ‘shared out’. ‘

    Indeed back to the politics of distribution or redistribution 😉

    In the case of Ireland it was generally one way traffic . The food and soldiery were sent out but the investment capital generated in Britain did not return to Ireland to any great extent but instead went to the sugar colonies and elsewhere where a much better return on capital could be made . The British aristocracy/ landed class had learned at the time of the enclosures that a much better return could be got from sheep than from peasants and sheep were of course less troublesome and not likely to hold mass political demonstrations against the established order .

    Mindset no pun intended does not arise in a vaccuum . That mindset is created by local political , economic and social conditions and they are always changing .

    I think what you are trying to get across is that the idea of progress being practically possible is a requirement for it to take place ? During feudal times – there was no ‘progress’ . The established order was considered god ordained and that was that . That ‘mindset’ was of course changed by the black death after which the feudal order mindset was replaced by another ‘mindset ‘ and again later post reformation by another ‘mindset’ the ‘imperial’ one . And that now is passe except for a brief period in the USA 2003 to 2008;)?