Chapter Three - Why Some Countries Fail to Thrive
Eight major categories of problems can cause an economy to stagnate or decline:
1. The Poverty Trap
Poor do not have the ability by themselves to get out of it - too poor to save for the future.
2. Physical Geography
Americans, for example, believe that they earned their wealth all by themselves. They forget that they inherited a vast continent rich in natural resources, with great soils and ample rainfall, immense navigable rivers and thousands of miles of coastline with dozens of natural ports that provide a wonderful foundation for sea-based trade.
Many of the world's poorest countries are severely hindered by high transport costs because they are landlocked; situated in high mountain ranges; or lack navigable rivers, long coastlines or good natural harbors. Culture does not explain the persistence of poverty in Bolivia, Ethiopia, Kyrgyzstan or Tibet. Look instead to the mountain geography of a landlocked region facing crushing transport costs and economic isolation that stifle almost all forms of modern economic activity.
Sub-Saharan Africa, in particular, has an ideal rainfall, temperature and mosquito type that make it the global epicenter of malaria, perhaps the greatest factor in slowing Africa's economic development throughout history.
Fortunately, none of these conditions is fatal to economic development. It's time to banish the bogeyman of geographical determinism, the false accusation that claims about geographical disadvantage are also claims that geography single-handedly and irrevocably determines the economic outcome of nations.
3. Fiscal Trap
Even when the private economy is not impoverished, the government may lack the resources to pay for the infrastructure on which economic growth depends. Governments are critical to investing in public goods and services like primary health care, roads, power grids, ports and the like.
4. Governance Failures
Economic development requires a government oriented toward development.
5. Cultural Barriers
Cultural or religions norms in the society may block the role of women, for example, leaving half of the population without economic or political rights and without education, thereby undermining half of the population in its contribution to overall development.6. Geopolitics
Trade barriers erected by foreign countries can impede a poor country's economic development.
7. Lack of innovation
Consider the plight of inventors in an impoverished country. Even if inventors are able to develop new scientific approaches to meet local economic needs, the chances of recouping investments in research and development through later sales in the local market are very low.8. The Demographic Trap
Rich countries have a big market, which increases the incentive for innovation, brings new technologies to market, further raises productivity and expands the size of the market, and creates new incentives for innovation. This momentum creates, in effect, a chain reaction, which economists call endogenous growth. Innovation raises the size of the market; a larger market raises the incentives for innovation. Therefore, economic growth and innovation proceed in a mutually reinforcing process.
Half the world, including all of the rich world, is at or near the so-called replacement rate of fertility, in which each mother is raising one daughter on average to replace her in the next generation.
One reason for a poverty trap is a demographic trap, when impoverished families choose to have lots of children. These choices are understandable, yet the results can be disastrous. When impoverished families have large numbers of children, the families cannot afford to invest in the nutrition, health and education of each child.
- The problem of extreme poverty is much larger than any one idea or thought.
- This chapter is set up for more of the concrete and tangible solutions later in the book. Look for my notes on those in a few weeks - my library copy of the book can't be renewed anymore.
- The paragraph about Americans "forget[ing] that they inherited a vast continent" was sobering. I never thought about it that way before. Gives even more weight to the idea that we have been blessed to be a blessing.