Why is North America richer than Latin America?

[SeekTruthFromFacts]

A lot of Civ players are probably interested in understanding why some 'civilizations' develop more than others. There's an interesting new paper explaining the differences between North (Anglo) America and Latin America, available free from from Oxford University Economics.

Basically, it says that southern England was a high-wage economy and so North America had to develop in the same way to attract migrants. Iberian Spain had a relatively low-wage economy, and so migrants moved to Latin America for relatively low wages. So the difference was there from the start. It also meant that North America had more incentives to reduce labour costs by industrialization when that became a possibility.

It's an important step forward in understanding. I think the writers are a bit harsh on cultural, institutional and geographical explanations though, because their results basically push the question back to 'why was there a divergence between southern England and Spain?' A lot of the same factors are at work.

Matthew Yglesias has already attempted to draw some policy conclusions. (Please ignore the comments, since the writers have all ignored the paper in favour of their hobby-horses).

Of course, Civ players have known all along that cities on other continents inherit the economic structure of their homeland. :-;

 

[Tahuti]

Poor policymaking and corruption is what brought Latin America behind North America. Fact is, when the US gained its independence, Latin America had a major headstart compared to the North with its larger populations and better entrenched institutions.

Latin America simply failed to utilize them, while the US and Canada worked hard to establish such institutions from scratch and attract immigrants. Eventually the US and Canada overtook Latin America, while Latin America stagnated to corruption and poor governance.

 

[SeekTruthFromFacts]

Poor policymaking and corruption is what brought Latin America behind North America. Fact is, when the US gained its independence, Latin America had a major headstart compared to the North

This is exactly the kind of argument that the facts in this paper help to overturn. You're assuming that Latin America was ahead in 1776, then fell behind - we now know that wasn't the case.

The new research shows that North Americans had higher living standards than Latin Americans since the 1620s (see Figure 2 in the paper).

with its larger populations

As Chinese people can tell you, a larger population does not necessarily result in a more developed economy.

and better entrenched institutions. Latin America simply failed to utilize them, while the US and Canada worked hard to establish such institutions from scratch ....

I'm confused. Which North American institutions disappeared in 1776? The rule of law, legislative assemblies, slavery? The big change was the exclusion from the British 'customs area'. The paper states/assumes that Latin American went though two different economic systems in the 16th century.

 

[Winner]

Mostly environmental/geographic factors are to blame:

North America was (and arguably still is) a continent with a climate that's much more suitable for the kind of agriculture the Europeans were used to practising. This was a major boost early in the history of its settlement. It's interesting to note that the southern part of the US was evolving more towards the Latin American model - slave labour, major landholders holding political power, lack of industrialization, reliance of cash crop exports, etc.

Also, the North of North America had literally everything that the early industrialization required - vast reserves of coal, iron ore, wood, easy access to the world's markets (Atlantic ports, canals to transports goods from the interior), cheap labour, etc. This gave it a head start over the rest of the continent, in the same way Britain had got a head start in Europe (and the world).

 

[Masada]

Basically, it says that southern England was a high-wage economy and so North America had to develop in the same way to attract migrants. Iberian Spain had a relatively low-wage economy, and so migrants moved to Latin America for relatively low wages. So the difference was there from the start. It also meant that North America had more incentives to reduce labour costs by industrialization when that became a possibility.

There's some not insignificant degree of sense there. Still I wonder if the writers focus on Potosi, Bogota and Buenos Aires might be just a little distorting on account of them being cities, and large ones at that. I don't have time to go through 54 pages of content in detail but it seems, having read the abstract, the introduciton and skimmed the body that they don't look at the rather simple fact that migrants didn't matter as much in Latin America. Mestizo were and are an important facet of Latin America (excluding Argentina, Chile etc). North America with the exception of the Metis just lacks that dynamic. But that's really just a quibble, the methodology seems sound and assuming it holds true over the entire continent then I'm good with it. But that doesn't answer the more interesting question: why was North America capable of supporting higher wages? Because it's been long known that North America had higher wages, the paper itself references a host of earlier papers that have already come to that conclusion.

It's an important step forward in understanding. I think the writers are a bit harsh on cultural, institutional and geographical explanations though, because their results basically push the question back to 'why was there a divergence between southern England and Spain?' A lot of the same factors are at work.

They're right in doing so. Culture is basically impossible to measure the impact of. Institutions are similar dead letters. And geopraphy is a dead hand, usually wrong and ignores agency.

 

[SerriaFox]

Ok I going to betray my ignorance here but:

In north American wasn't "every" family lead by a land owner. And did English culture at the time strongly recognize the rights of land owners?

In South American was it held by the crown, or for crown?

 

[aronnax]

I'm going to say... Protestant Work ethic.

 

[Tee Kay]

I'm going to say... Protestant Work ethic.

This makes little kangaroo sad.

 

[SeekTruthFromFacts]

North America was (and arguably still is) a continent with a climate that's much more suitable for the kind of agriculture the Europeans were used to practising. This was a major boost early in the history of its settlement.

That depends whether you're talking about New England, Labrador, or New Mexico. New England and California have European-style climates, but so does the River Plate estuary.

It's interesting to note that the southern part of the US was evolving more towards the Latin American model - slave labour, major landholders holding political power, lack of industrialization, reliance of cash crop exports, etc.

Yglesias makes a similar point too. But the South has surely moved away from this model, not towards it? E.g. end of slavery and industrialization after the New Deal.

Also, the North of North America had literally everything that the early industrialization required - vast reserves of coal, iron ore, wood, easy access to the world's markets (Atlantic ports, canals to transports goods from the interior), cheap labour, etc. This gave it a head start over the rest of the continent, in the same way Britain had got a head start in Europe (and the world).

This overstates the case. Brazil is the world's third biggest producer of iron ore, has at least one decent-sized source of wood, and has plenty of ports ;-) The key insight of the paper is that Latin America had cheaper labour than the North. I agree though, that King Coal was a bit lacking, and that North America had a transport advantage. The paper says: "most of the continent was ‘out of range’ of Europe due to the high cost of shipping [food staples]" until steamships appeared.

 

[SeekTruthFromFacts]

they don't look at the rather simple fact that migrants didn't matter as much in Latin America. Mestizo were and are an important facet of Latin America (excluding Argentina, Chile etc). North America with the exception of the Metis just lacks that dynamic.

This dynamic is discussed, but you're right, it's buried in the details. Firstly, the pool of Indian labour helped to hold down wages in Latin America. Secondly, that restraint was removed as the Indian population shrank, and Latin American wages start to rise towards the end of the colonial period.

But that doesn't answer the more interesting question: why was North America capable of supporting higher wages? Because it's been long known that North America had higher wages, the paper itself references a host of earlier papers that have already come to that conclusion.

They explain it through staples theory and the fact that North America was closer to European markets.

 

[Godwynn]

North America is populated by the obviously superior Germanic people (except Quebec, but they are outnumbered.)

This is why we need to seal the border with Quebec and Latin America, we don't want the United States and Superior Canada to become a banana republic.

 

[Winner]

That depends whether you're talking about New England, Labrador, or New Mexico. New England and California have European-style climates, but so does the River Plate estuary.

And interestingly, Argentina and Uruguay have historically been among the richest and most developed of the Latin American nations...

Yglesias makes a similar point too. But the South has surely moved away from this model, not towards it? E.g. end of slavery and industrialization after the New Deal.

Did it move away from this model on its own, or because it lost the Civil War and the victorious Northerners forced their will upon it?

This overstates the case. Brazil is the world's third biggest producer of iron ore, has at least one decent-sized source of wood, and has plenty of ports ;-) The key insight of the paper is that Latin America had cheaper labour than the North. I agree though, that King Coal was a bit lacking, and that North America had a transport advantage. The paper says: "most of the continent was ‘out of range’ of Europe due to the high cost of shipping [food staples]" until steamships appeared.

It's not that Latin American countries are resource poor. It's just there wasn't a place where everything was so neatly concentrated. That's in my opinion the main reason why the industrial revolution started in Britain - everything that was needed was concentrated in one (relatively) small island that already had the means of transporting its products all around the world.

North America industrialized as an extension of the British trading system; Latin America didn't have the same advantage.

---

Of course, I am not trying to downplay cultural/social issues, which conspired with the geographic/environmental reasons to hinder the development of Latin America.

Let me put it this way - all things considered, if North America had been a Spanish colony and if it had been Spain who 'invented' industrialization, then this "Latin North America" would still have got richer and more developed than the "Anglo America" in the South. Now isn't that a fun scenario to consider We'd now keep hearing about how the Iberian culture is superior to all others, how Catholic values are essential for healthy economic growth, and so on and so forth, ad nauseam. At the same time, millions of poor English-speaking Protestant Meximericans would pour across the border in search of a better life...

 

[Tahuti]

As Chinese people can tell you, a larger population does not necessarily result in a more developed economy.

No, but it does more a easily lead to a larger economy still, which in turn obviously allows for more political leverage.

 

[LightSpectra]

I'm going to say... Protestant Work ethic.

I'm hoping you meant that as a joke. Projected inevitability and balance-of-power theory are to Dachs as Protestant work ethic is to me.

 

[civ_king]

I'm hoping you meant that as a joke. Projected inevitability and balance-of-power theory are to Dachs as Protestant work ethic is to me.

Let me get comfy

Go for it

 

[LightSpectra]

Do I have to? It's a sociological theory from 1905 that, even by its own day's standards, was critically flawed in several respects. That should tell people enough about that.

 

[cybrxkhan]

Ok I going to betray my ignorance here but:

In north American wasn't "every" family lead by a land owner. And did English culture at the time strongly recognize the rights of land owners?

In South American was it held by the crown, or for crown?

I actually took a class on this, and though I don't remember exactly, in England, land claims worked through the establishment of physical structures - that is, you claim land by building a structure like a fence or something (it's a bit more complicated than that, but that's the idea). In Spain, I think there was more legal work involved for the claiming of land. Also remember that the Spanish colonies had the encomienda system, though I can't exactly say what the importance of that is to the discussion here.

Do I have to? It's a sociological theory from 1905 that, even by its own day's standards, was critically flawed in several respects. That should tell people enough about that.

To elaborate, if I remember correctly, it basically argued that the social, political, and cultural organization of the Protestant faith allowed for Protestant countries to gain an economic upper-hand over Catholic ones.

 

[Traitorfish]

North America industrialized as an extension of the British trading system; Latin America didn't have the same advantage.

Well, yes and no: North-America, while certainly an economic off-shoot of Great Britain, industrialised in opposition to the British trade system (which was ever so fond of being "the workshop of the world"), while most of Latin America remained its economic dependencies (and, later, of the industrialised world generally) and very often under informal political hegemony, inhibiting their ability for independent industrial development.

Which is basically my answer to the question. Perpetuation of economic colonisation > Lack of economic development > Poor forever.

 

[SeekTruthFromFacts]

In north American wasn't "every" family lead by a land owner.

No, not necessarily. Even if we includes slaves and indentured servants as 'family members', there were still labourers working for wages.

And did English culture at the time strongly recognize the rights of land owners?

English culture very strongly recognized the rights of land owners - it was the chief point of having any legal system at all. See how much of the contents of Blackstone's Commentaries are about property law.

Hope that clears things up.

 

[SerriaFox]

No, not necessarily. Even if we includes slaves and indentured servants as 'family members', there were still labourers working for wages.

But as a percentage of the population, was there not a much higher degree of land ownership in North America (British) as compared to South America (Spanish). Or am I mistaken.