The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor

by David S. Landes

  …a regulation which effectually prevents the establishment of any manufacture of such commodities for distant sale, and confines the industry of her colonists in this way to such coarse and household manufactures, as a private family commonly makes for its own use, or for that of some of its neighbours in the same province.31

  Conscious of the injustice here, Smith condemned it as “a manifest violation of the most sacred rights of mankind.” But in view of the economic circumstances of the colonies, he found these measures not “very hurtful.” “Land is still so cheap, and, consequently, labour so dear among them, that they can import from the mother country, almost all the more refined or more advanced manufactures cheaper than they could make them for themselves.” The prohibitions, then, did not make that much difference. Even before these prohibitions had been instituted, he argues,

  …a regard to their own interest would, probably, have prevented them from doing so. In their present state of improvement, those prohibitions, perhaps, without cramping their industry, or restraining it from any employment to which it would have gone of its own accord, are only impertinent badges of slavery imposed upon them, without any sufficient reason, by the groundless jealousy of the merchants and manufacturers of the mother country. In a more advanced state they might be really oppressive and insupportable.

  “Probably” “perhaps” “badges of slavery.” Indeed. Smith should have known better. If the British could make and sell these things for less, delivered in New England, they did not need the prohibitions, and the colonists would have found better things to do. This is what they had found, said Smith, who without talking about comparative advantage understood and advocated the principle that resources should go to the most profitable employment:

  It has been the principal cause of the rapid progress of our American colonies towards wealth and greatness, that almost their whole capitals have hitherto been employed in agriculture. They have no manufactures, those household and coarser manufactures excepted which necessarily accompany the progress of agriculture, and which are the work of the women and children in every private family.32

  Fortunately for the later United States of America, the colonists did indeed have manufactures, and Alexander Hamilton and others understood that today’s comparative advantage may not be tomorrow’s.

  As for the supportability of these British constraints and impositions, Smith might have rested his argument better on the inefficiency of British enforcement. The whole system was a bad joke. London was trying to impose constraints on colonial trade using a handful of agents. Most of these lolled about in England while hiring underpaid subordinates overseas. They in turn found it more gainful to accept bribes from colonial merchants than to carry out their duties. Or to levy duties: Britain was paying these loafers some 8,000 a year to collect some 2,000.33

  So, yes, these prohibitions made little difference in money.34 But that does not mean they made little difference. When, in the 1760s, new and activist British ministers vowed to set things straight and make the colonists pay the costs of their security and administration, as good colonists should, the shock made otherwise reasonable measures intolerable. (It is astonishing how quickly neglect and tolerance become a vested right. And how quickly prospect outweighs retrospect: what will you do to me next?) The Boston Gazette expressed outrage: “Men of war, cutters, marines with their bayonets fixed, judges of admiralty, collectors, comptrollers, searchers, tide waiters, land waiters, and a whole catalogue of pimps are sent hither not to protect our trade but to distress it.”35

  Adam Smith’s great treatise was published in 1776, in the same year that the colonists declared their independence. Even had his economic reasoning been correct, injustice perceived is injustice felt. Men are not moved by bread alone.

  20

  The South American Way

  Comparing the population of Spanish with that of British America, we shall at every step be struck with the wonderful difference in origin, in progress, and in the present situation. The conquerors from Spain, instead of the frugal, laborious and moral description of our English settlers, partook of the ferocity and superstition of an earlier and less enlightened period. The warriors who had exterminated the Mahomedanism of Granada were readily induced to propagate their own religion by the sword….

  —Quarterly Review (London), 17, 34 (July 1817): 537.

  We [Santo Domingo] became an economy of the West, not of the most developed models of Europe, but of the Spanish model. Spain transmitted to us everything it had: its language, its architecture, its religion, its dress and its food, its military tradition and its judicial and civil institutions; wheat, livestock, sugar cane, even our dogs and chickens. But we couldn’t receive from Spain Western methods of production and distribution, technique, capital, and the ideas of European society, because Spain didn’t have them. We knew the evangel but not the works of Erasmus.

  —JUAN BOSCH, COMPOSITION SOCIAL DOMINICANA

  …the provinces on the Rio de la Plata…contain an immense extent of fertile soil, blessed with a salubrious climate, and fitted for the growth of every species of produce. Under a liberal government they must soon teem with inhabitants and wealth. They must every day abound more and more in all sorts of raw commodities, in exchange for which they must want manufactures…

  —RODNEY and GRAHAM, REPORTS OF THE PRESENT STATE (1818)

  Latin America followed a very different pattern. It was not poorer to start with, in say the seventeenth century; on the contrary. The Spanish and Portuguese invaders thought of their English rivals as orphans of destiny: How could one compare the woods and fields of North America or the used-up or useless isles of the Lesser Antilles with the silver and gold of New Spain and Peru, or the dyewoods and diamonds and gold of Brazil? The best the English could do was lurk like jackals on the flanks of the Spanish bullion fleets while their colonists struggled to survive in a hostile environment. Even in agricultural potential, Latin America compared well, especially in its temperate parts.

  But nothing stands still, and yesterday’s comparisons are today’s history. Gold and silver mines are wasting assets, and some two hundred years later, when the American colonists had won their freedom, North America far surpassed the lands to the south—richer in income per head, richer in its more even distribution of wealth. The only exceptions were small areas of lucrative specialty crops—specifically the sugar isles of the Caribbean; and even there only if one excludes the slave population from the data.

  The change in relative wealth had deep roots. Where the English found a land lightly peopled and pushed the natives out of the way to make room for settler families—creating over time an absolute apartheid—the Spanish found the most densely populated parts of the New World and chose to intermarry with the inhabitants. Some see this difference as evidence of English (or Protestant) racism vs. Spanish (or Catholic) open-mindedness. Perhaps; although population distribution had its own logic* Whereas the English migrated to the northern and central colonies in families, so that except for people over sixty, the age distribution was similar to that of England, the Spanish did not encourage the emigration of families or even women to the New World.

  As the native population succumbed to violence, exhaustion, despair, and above all disease, the Spanish imported black slaves from Africa. These were worked growing sugar, panning for gold, and the like, but they never played so large a role in mainland Hispanic America as on the Caribbean islands and in the southern United States. Meanwhile immigrants from other European countries were not available. In Spain itself, locals complained bitterly of the competition and pretensions of non-Spanish and non-Catholic businessmen, traders, and craftsmen. Not so in Spanish America: the crown did its best to keep these outsiders away from its possessions in the New World. This exclusion deprived the empire of badly needed skills and knowledge, to say nothing of the cultural advantages of diversity, of those quarrelsome Protestant heresies that fostered intellectual challenge and sustained an app
etite for education.1 Everywhere in the Spanish colonies, moreover, the Inquisition pursued heresy, hunting those crypto-Jews who thought that an ocean would shield them from prying fanaticism. The aim was to complete the cleansing; the effect, to recreate the closed environment that prevailed at home. All of this proved great for purity but bad for business, knowledge, and know-how. (None of this, note, bothered Spain. As late as the beginning of the nineteenth century, the Spanish still thought their country to be the center of European civilization and the paragon of faith and virtue, equating ignorance of the Spanish language with ignorance pure and simple.)

  In New Spain (Mexico), the ratio of male to female immigrants was ten to one.2 Interracial marriage was inevitable, and indeed, in the beginning before Christian monogamy constraints took hold, some of the conquistadors collected veritable harems of Amerindian concubines. In the event, the mestizos of Latin America became an intermediate ethnic group, the whiter the better, few in number but more numerous than the Creoles, lower than they in status and function, but much higher than the pure natives. The mixed bloods became the overseers, the foremen, the shopkeepers, the petty officials. The Indians were assigned and conscripted to labor in fields and mines, in homes and on the roads.3

  In this simulacrum of Iberian society, the skills, curiosity, initiatives, and civic interests of North America were wanting. Spain itself lagged in these respects, owing to its spiritual homogeneity and docility, its wealth and pursuit of vanities; and Spain exported its weaknesses overseas. How could it be otherwise? Those Spanish who came to the New World did not go there to break the mold. They went to get rich by it and even bribed people to obtain places and offices; a few years would do the trick. The road to wealth passed, not by work, but by graft and (mis)rule.

  These contrasts in economic potential were matched by differences in political capability. The North American colonists came out of a society of dissent, moderately open to strangers and new ideas. I do not want to imply that England and its political culture were a liberal romance. Some of the earliest colonists, after all, refugees from religious intolerance, went on to afflict and harass in their new home. England had its share of John Bully stuffiness, of class pretension and privilege; also a tenacious legacy of older constraints, going back to medieval exclusions and anti-Puritan snobberies.4

  But everything is relative, and when one compares English ebullience and diversity with the Counter-Reformation orthodoxy and superstitious enthusiasms of Spain and Portugal—the power of ideas and initiatives in North America as against discontents in the Spanish and Portuguese dominions—one can understand the political outcome. The British colonists made their revolution. They picked and defined the issues, challenged their rulers, sought the conflict; and when they had won, thanks in part to the assistance of some of Britain’s rivals in Europe, they already possessed a sense of identity, economic aspiration, and national purpose.*

  In Latin America, independence came not of colonial ideology and political initiative but of the weaknesses and misfortunes of Spain (and Portugal) at home, in the context of European rivalries and wars. When Spain proved unable to rule from across the sea, New World strongmen exploited the vacuum and seized power, encountering only spotty resistance. Independence slipped in—a surprise to unformed, inchoate entities that had no aim but to change masters.5 This kind of anarchic negativism invited macho warlordism (caudillismo). No wonder the history of Latin America in the nineteenth century was a penny-dreadful of conspiracies, cabals, coups and countercoups—with all that these entailed in insecurity, bad government, corruption, and economic retardation.

  Can any society long live in such an atmosphere? Or get anything done on a serious, continuing basis? The answer is that these were not “modern” political units. They had no direction, no identity, no symbolism of nationality; so no measure of performance, no pressure of expectations. Civil society was absent. At the top, a small group of rascals, well taught by their earlier colonial masters, looted freely. Below, the masses squatted and scraped. The new “states” of Latin America were little different, then, from Asia’s autocratic despotisms, though sometimes decked with republican trappings.

  In such instability and insecurity, no writ of authority went far. In the underpopulated open spaces, notables throned on their ranches and haciendas, ruling as well as employing, exercising private justice and police power. The nearest analogy would be the baronial domains of East Elbean Prussia, where the state stopped at the front gate. In the cities—usually ports where home goods crossed imports and customs duties yielded hard cash—the notables and their henchmen divided the spoils.

  The one coherent institution that might have made a difference, the Catholic Church, had a vested interest in the status quo. It owned much of the land, and its wealth hung there like an apple of envy and discord. When the state got ready to seize these assets, the Church found few friends. Its clergy, literate in a sea of ignorance, held fast to legal and civil privileges going back to feudal times. They knew the darkest secrets of the confessional, held the keys to salvation. Not a recipe for popularity. But aside from alcohol, sex, and violence, the Church offered the only serious antidote to despair. The trouble was, it saw all intellectual and political novelty as subversive. A few liberals believed in fine slogans and sought to pull the people into the present. Much of their political energy was spent in a running war with the clergy.

  As a result, newly independent Latin America saw few economic changes. As before, the key sectors were mining (gold, silver, copper), agriculture, cattle raising, forestry. The aim: to produce a surplus that could be traded for foreign manufactures. Little was done for industry, and little industry was done. As any good British classical economist would have advised, these cobbled political entities stayed with comparative advantage. Besides, manufactures were potentially antisocial. They would compete for scarce labor and generate a discontented proletariat. The Latin American countries had no program, then, no vision of economic development. Where Alexander Hamilton summoned a young America to develop industry and compete with Europe, the viscount of Cairu in Brazil “superstitiously believed in the ‘invisible hand’ and repeated: ‘laissez faire, laissez passer, laissez vendre.’”6

  So the nations of South America remained, after independence as before, economic dependencies of the advanced industrial nations: Britain to begin with; then Germany toward the end of the nineteenth century, reflecting its scientific and technological gains; and from the twentieth century, the United States. Foreigners built the railways and port facilities, in large part to tap the surpluses of the interior (just as in India).7 Foreigners lent money at high rates to poor regimes and their opponents (bad borrowers pay, and should pay, more). Foreigners built arsenals and plants and ran them. Naturally, foreigners were blamed for all the shortcomings of these economies. This cultivation of resentment, partially justified but dogmatically exaggerated, made everything worse. It ideologized economic policy, turned practical matters into issues of principle.

  (The irony—but not unconnected—was that in colonial times, the Spanish and their clergy had done their utmost to keep foreigners out. Here are the comments of a ship’s officer visiting Manila in 1788: “Since the Spanish make a rule of prohibiting entry to foreigners, the inns, the furnished hotels, all those amenities so necessary to hospitality are absolutely unknown, and one has to be ready to sleep in the street when all one has is money and no personal connections in the place.”)8

  One mechanized industry did gain a foothold—the textile manufacture—but only late in the nineteenth century. Brazil and Mexico led here. In cotton, the raw fiber often had to be imported, and yielded a coarse product for popular consumption. Mexico also boasted a woolen industry. This went back to colonial times, took the form of hand workshops (obrajes), and died in the face of imported fabrics; then was reborn in small factories behind tariff walls, drawing fleece from a somewhat degraded stock of merino sheep, and again supplied popular needs. Rich folk bought
their fabrics from abroad. Their skin was more sensitive.

  South America’s industrial beginnings did not generate an industrial revolution. Even the construction of railways did not do the trick. Some things had to be done at home: the machines had to be serviced and repaired, for example. But these shops stuck to maintenance; almost never did they move on to manufacturing on their own. Once again, natural and social circumstances were unfavorable. Fuel and materials cost more than in Europe or the United States, and skills were wanting. It was all very rational: comparative advantage made it easier and cheaper to buy abroad.

  The trouble with such rationality is that today’s good sense may be tomorrow’s mistake. Development is long; logic, short. The economic theory is static, based on conditions of the day. The process is dynamic, building on today’s abstinence to tomorrow’s abundance.* Some things will never happen if one does not try to make them happen. If the Germans had listened to John Bowring…That British economic traveler extraordinary lamented that the foolish Germans wanted to make iron and steel instead of sticking to wheat and rye and buying their manufactures from Britain. Had they heeded him, they would have pleased the economists and replaced Portugal, with its wine, cork, and olive oil, as the very model of a rational economy. They would also have ended up a lot poorer.

  The Latin country with the best chances was Argentina, although no one would have suspected this in the great days of Spanish empire. Buenos Aires around 1600 was the end of the world. Located on open grasslands lightly peopled, it was a way station between the silver of Potos, high in the Andes in today’s Bolivia, and the food exports of southeastern Brazil. Commerce was in the hands of Portuguese traders. An internal proletariat composed of escaped slaves from Brazil, mestizo deserters, and other shirtless marginals (gente perdida) squatted in huts and shacks on the outskirts, living on the leavings, taking cattle and horses as needed from the wild herds around (but why not—were these anyone’s property?). Missing were craftsmen, tools, and industry (in both senses)—the kind of virtue that could pick up the slack as the mines played out. In colonial Buenos Aires a horseshoe cost several times the price of a horse; not surprising: the horses outnumbered the shoes. Nails were scarce throughout the Spanish empire, and wagons were held together by rawhide. People rich enough to own European clothing put it on only for special occasions and presumably hid it in between.9 (More than three hundred years later, during World War II, things had not changed. Manufactures still had to be imported; manufacturers as well; and local industry got its biggest boost not from growth of home demand, but from wartime interference with supplies.)