Why Some Countries Are Rich And Others Are Poor ?

By: Bikal Dhungel

Why some countries are rich and others are poor ?: This questions remains in the mind of many. The question seems easy yet the answer is extremely difficult. Again, one answer does not fit all as every country is different. But still, we can see what made rich countries rich in order to see why poor countries are poor.

For most part of human history, the whole world was roughly equal. From around AD 400 until 1400, China used to be the richest part of the world, also in terms of per capita. Only when Europeans started trading with rest of the world, they slowly started to overtake. It is believed that around the year 1500, probably the Netherlands was the richest country in the world. European nations started slave trade in order to make the slaves work in plantations in occupied areas. The discovery of America in 1492 had already paved a golden way to exploit the American continent. As trade began, specialization began, and inequality took new heights as a large number of labourers worked for few aristocrats. It is not that, before Columbus discovered America, there were no people, there were people. Historians claim that, when Europeans started settling in the American continent, they also brought diseases with them. The diseases which were unknown to Native Americans spread rapidly, as a result of which many died. It was claimed that, diseases brought by Europeans killed more Native Americans than the warfare.

Colonization took new heights; it spread to Asia and Africa. We can assume that the root of colonization is the potential of profit. First European countries traded, then they exploited the resources, then to continue this process, they colonized. However, this argument cannot be generalized. Just taking an example of British East India Company, it had a monopoly to trade with Indian sub continents, peacefully. Slowly, in about 100 or 150 years, the company was involving in local politics by supporting the Mughals and later played one groups against the other to gain favourable policies for itself. When the last ruler, Bahadur Shah was captured, it led the British East India Company dissolved and Great Britain directly took control of India. (Note: For more details, go the article: 'Rise and fall of British East India Company’) One can say that, the mass control of raw materials played an important role to give birth to Industrialization. Obviously it was coupled with creative ideas about how to make machineries. Once the industrialization took place in Britain, it slowly spread to other European countries by the mediums of emigration, spying etc. As European countries were jealous about the superiority of Britain, they tried everything they could to copy these technologies. Britain on the other hand prohibited the emigration of highly skilled people fearing technology transfer. Industrialization helped Western Europe to grow rapidly and their amount of wealth sky-rocketed in a short time. Other parts of the world however, remained the same.

Other events like the French Revolution demanded higher political freedom and human dignity which can be given credit about the birth of modern day human rights. On these days, Europe was a collection of many tiny states. Within one country, there were many kingdoms, states and regions who repeatedly fought wars and so on. One positive aspect of this was, if somebody had a possibility of facing political prosecution, he could immigrate to other state which might welcome him. This helped ideas and opinions to flourish and reach the other part in a short time. When we look at China in that period, it was a big country and was ruled by one government which had one policy and creative ideas were never celebrated. China did not have this culture. When we go back, China was technologically advanced before Europe became rich. China was the place where gun powder, Printing press etc. were invented. German mathematician Gottfried Leibniz was caught saying the European traveller to China ' Dont tell about Europe, learn about their technology and bring it back'. But the Chinese technologies could not develop further; this did not belong to the policy of government. Later, after the Opium War between China and Great Britain, China saw the outsiders always as a threat. They suffered a lot from the hands of Japanese in World War II. It was only when Mao died and Deng Xiaoping took liberal market policy, China was opened to the rest of the world.

Coming back to Europe, before Industrialization and the granting of political freedom, the German sociologist Max Weber writes that, it was the 'Protestant Ethics' that made people devoted towards work. It said, people are born to work. ‘He who works, has a worthy life'. The idea of Human Capital was already there. Europe already had well established education system. The first university of the world, the University of Bologna was established in the Roman Empire, others in Oxford, Cambridge followed and these were the temples of ideas.

Industries were productive hence, growing number of workers switched from agriculture to production. The number of farmers in the economy started to decline. Due to the help of efficient machines, lower numbers of people were able to feed the whole population. So, to work, people started to migrate from one place to other, mainly to cities. This gave rise to urbanisation. Industrial areas grew rapidly. The Greater London area, Rhein-Ruhr of Germany, Amsterdam-Rotterdam is among the places where large number of people concentrated. This brought few problems, but also solutions. For example, new breeds of plants were discovered. For example, Potato played an important role as well. Because it was easy to grow, people could simply grow it in the backward. No Economist and Historian would deny that Potato supported industrialization. (Note: How potato played a role, read the article ' Potato ' in the blog). As there were so many workers, the issues about workers’ rights, work safety and fairness was raised. Otto von Bismarck’s Social Security System led the workers save some money for their old age and this made their situation in old age stable. Because of this, people could save a little bit for later but also consume the remaining. As consumption grew, production also grew, furthering the growth.

When Steam Engine was discovered, it made the transportation of goods easier. It was helped by the discovery of oil and how to process it. The engine led to further inventions like Automobile and companies like Ford was already starting to produce car for everybody in the beginning of 20^th century. Electricity further led to other developments. It revolutionized the second parts of industrialization. Statistician and Doctor, Hans Rosling from Karolinska Institute in Sweden claims that, a Washing Machine revolutionized the world more than the internet. Actually the Washing Machine is the thing that made women equal to men. Rosling says that his grandmother spent long days washing clothes at home. She had to do everything by hand. When they bought a Washing Machine to wash cloths, she sat just next to it to watch the machine do her work. They put the cloths, turned-in the button and the machine started. His grandma watched the entire wash. She was surprised. Now she had lots of free time. And she started to learn to read and write, she had time to go to school, learn English, read the book ' Cat and the Rat '. This is the same story of millions of women in 20^th century. Hence, Rosling claims that women in Rio de Jeneiro needs washing machine, women in poor countries need washing machine. Thanks to Industrialization, thanks to Chemical Processing and thanks to great minds that invented it, life changed for ever. The rate of women going to school grew, when women were educated, they took care of the family. Women are better carer, they spend money with caution, they are more likely to take their child to vaccinate and help them to do better in school. With the entry of women, the economy got more skilled workforce, hence accelerated development. Today, in many European countries, more women enrol in the universities then men. Anyway, coming back to the beginning of 20^th century, that was also the time when lots of big corporations were born in every sector. Big corporations also invest more to research and development with an aim to generate higher profit. This led to more investment, and to the discovery of better technology.

However, the World War II brought a huge destruction. 80 million people died and material loss was immeasurable. Still, the countries came up together and understood the meaning of working together in order to secure peace. This led to the establishment of institutions. The United Nations, World Bank, World Trade Organisations and many others within them play a role in its own sector. The World Trade Organisations for example makes sure that there is no discrimination in trade and deals about many other trade related issues. Also nationally, rich countries have well established institutions in every sector. Some aim to ensure political stability, others financial and yet others anything else. For economics for example, the Patent Policy is important. When somebody discovers something, he/she should also enjoy its fruits. Their rights will be secured and this leads to other discoveries as people can trust their government that their rights are secured. Who will invest a handsome amount of time and money to invent something if his/her invention can be copied without any problem by others legally ? Similarly, another area important for development is also about securing property rights. Without better property rights, companies would move away to other countries where such rights are granted and even people with properties would go away. Hence, this is important.

So, wealth accumulated by these development processes, rich countries today can afford to provide free or subsidized education for their citizens, a universal healthcare, and social security system and a better infrastructure which all supports development. They also have credible government with science based politics which rewards skills and experience.

This is the story of rich countries today. Now we can use this to find out why poor countries remain poor. First lets go back to the times of Colonization. Before Colonization, countries in Asia and Africa were mostly peaceful, there were ethnic boundaries and people practiced their culture and religion. When the colonizers arrived, their policy was ' to divide and rule '. So, they favoured one group against the others and ruled. This made the oppressed group feel that the others are traitors. When the colonizers left, they drew the boundaries without regarding the ethnicities and ethnic culture. This left many countries with so many ethnic groups and religion, making them always prone to violence and war. This also caused several terrible genocides. Many countries in Africa and Asia are still ethnically diverse and a strong ethnic-nationalism is present. When one leader of a group gains power, he often denies education and other rights to the other group fearing an overthrow.

Most poor countries lie in the tropical region, between the Tropic of Cancer and the Tropic of Capricorn. This is a hot place. Tropical region is hence prone to diseases like Malaria, which causes over half million deaths per year. Most deadly diseases are all present in these regions. As a result, the life expectancy of most African countries remained below 35. Just recently, thanks to modern medicine, it has again started to rise. When people die in such a young age, it is less likely that they will come up with an idea to invent something. Tropical diseases are also neglected because of the lack of finance. Almost all of investment in medical technologies and medicines are done by rich countries in Europe and America who focuses on diseases prevalent there and little have been invested for tropical diseases. Hence, developing countries face over 80% of the global disease burden. They only spend 20% on health worldwide because they cannot afford. A CEO of Bayer, a big Pharmaceutical Company once told ' we did not make this medicine for Indians. We made this for westerners who can afford this '. So, developing countries have high burden of disease. More disease = less productive people because when you are sick, you are more likely to miss school and more likely to be less skilled in the future. When this is there in a massive scale, the health-based poverty trap will hinder development.

Now let us assume a king in a country. He is in power since 30 years. He has divided all ministries among his brothers. His son is the head of Chamber of Commerce. Important positions are filled with people who favour him. There is no political opposition. People who oppose his role were detained and kept in jail. He does not let people to go outside because he makes it impossible for people to make passport to travel. Schools and Universities are limited to few people. He gains money by selling the natural resources to foreigners. The half of the country’s forests has already been cut down. He never builds any roads because he fears, if he build roads, people from other parts will come and revolt against him. He buys himself Mercedes S Class whereas there is no medicine in the public hospitals. Major industries belong to him and he does not allow foreign companies to enter the country as he fears that, they will throw his inefficient industries out of market very soon. The large majority of people are extremely poor. When the king dies, his son comes to power and continues the same rule. Even when the king has been toppled, he takes enormous wealth and goes to a rich country and lives there. The new government then struggles to build roads. They have huge foreign debts acquired by the king. As trees were cut massively, there are more environmental problems like landslides. Even democracy is there, 25 years after the King has gone, the country is still struggling to sustain. The legacy of the king has left the country devastated. This is the story of many countries, be it is king or a dictator. There are countries like Botswana and South Korea, which was poor but good governance for the leaders made them very rich. Good Governance is very important factor of development. Until there is discrimination based on religion, sex, ethnic origin, caste, class, geography, achieving richness is difficult.

(Note: It is more difficult to develop in a democracy. Chile, China, and Indonesia were dictatorships when they achieved economic development. India, a democracy is messi and the process of development is very imbalanced where policies were frequently changed when the government changes. Whereas China plans a development process and can finish it without any opposition. These two schools of thought has led to intense discussions about either democracy is good or bad for developing countries)

Let’s come to an interesting part, Culture. As I already mentioned, work ethics is important. Rich countries have mostly individualist societies whereas poor countries are mostly collective. Albert Einstein once said ' Be a loner, it gives you more time to wonder, to search for truth'. This saying can be extended, when you are lonely, you are more likely to come up with new ideas and exchange ideas with other creative minds, from there comes a great idea. Second aspect of culture for development is the will to learn. Japan, a country that lies far from Europe, sent delegations to Europe and America to bring back technologies, governance systems etc. Economist David Weil raises the topic of culture in development and gives the example of Arab World and its dislike of learning from abroad. He claims, even though there are over 300 million Arabic speakers in the world, only 330 foreign books are translated into Arabic every year. Five times as many books are translated into Greek, a language that is only spoken by about 13 million people. Developing country's people are also more likely to avoid law. So, even though a good policy is in place, when people are not following it, this will bring no change. Important part is also the acceptance of technology. How much a country accepts, for example a TV. Television has the power to change the society in a good way. A famous tele-serial was shown in Brazil that showed about social issues like family planning which changed people's traditional understanding. 'Small Family, Happy Family' was another project of World Health Organisation which was trying to stop people from getting more children. ‘Mina Cartoon ' is another UNICEF, WHO funded cartoon showed in South Asia to end things like early marriage and dowry system and for more education for girls, healthy living etc. So, if people follow these instructions, it can revolutionize their life. But if people see such thing as an instrument of western imperialism, as a thing that has been prohibited by religion or god, development is not possible.

 

When we talked about the Social Security System of Otto von Bismarck from Germany, we discovered that, a huge fund was created so that it can be paid back to the depositors later. Such funds should earn interest so that it does not lose value on inflation. That is why it should be invested. Because of this saving, companies could borrow this money and invest. Also individuals with good ideas could invest and contribute to the economy. This saving has a technical term ' Pension Fund', Soon after, other forms of Banking was launched, the Saving Banks and Associations (German Sparkassen) is one of the form. The Banking and Financial Sector got advanced and today there are countless specialisations for the purpose of lending, like Agricultural Banks, Trade Development Banks, Investment Banks and Lending institutions of individual companies. Banks are an integral part of an economy. They provide liquidity to the business who invest in the economy which gives employment to the people who then use a part of their income as consumption (hence providing income to the producing companies) and save the remaining in a bank which pools the fund and lends to the private person or companies. This is called Business Cycle that keeps our life moving. Coming to developing countries, financial sector is terribly underdeveloped. It is extremely difficult to get a loan from the bank. Even if you have a good idea but no security, no bank will provide you a loan (Taking exception of Microcredit, which is a relatively new phenomenon). Banks provide no funds because there is no trust. As a result, there will be less investment, hence lower level of employment, and poverty will continue to exist. But if there is no availability of borrowing from banks, people choose informal way, that is, borrowing from other individuals, sometimes in extremely high interest rate that they will never be able to repay. Inability of paying the debt is one reason why most poor are in poverty trap because though they have income, a large part should be used to repay the loans. Unfortunately, only in India, every year there are about 90,000 suicides that is directly related to debt repayments. So, establishment of well-functioning financial sector is a pre-condition of development.

So, up to now we have discussed few critical sectors that is helping developing countries to lag behind. The longer such culture exists, further they remain from developing. Countries that were developed in a very short period, like Botswana, South Korea, China, Singapore, Malaysia etc. removed all the factors they knew to kick-start growth, sometimes they did in a violent manner and did not care about things like human rights and environmental consequences in the short run. They sent students to study in foreign countries and bring back skills. They invested radically in infra-structures. They invested more in health and human capital. The Prime Minister in Malaysia for example himself looked at development and health ministry as they are the most critical ones. They opened up their economy for international trade. There is strong evidence that, free countries in terms of trade are richer than those who are not. They seduced foreign investors, in forms like lowest or no corporate tax or other facilities. This was the way to bring foreign technologies inside. They reformed tax system. They created an environment where people could make profit. This in turn created a culture of entrepreneurship. They invested in research and technologies. And the list goes on. South Korea and Malaysia, that were very poor until the 1950s have one of the highest per capita income today.

The issues we discussed are main ones but we did not explain sufficiently because it would require a long time and it can be a PhD thesis. But this gives us a basic understanding about why some countries are poor and others are rich. Why some countries prosper and others fail etc. One thing we can conclude is, our world is changing with an unprecedented speed. The barriers to development are no more a barrier today. You cannot say that you lacked quality education, so you are not rich. The information technology has made possible that you study from world's best universities from any corners of the world mostly free of cost. More and more universities are taking part in massive open online courses (MOOC). One can read about how to start a mushroom plantation at home from the internet, get required information and start the business. It is possible today because, there are far more mobile phones than toilets. The telecommunication technologies have reached even the most rural areas. Tele Health can help a woman without access to medical services with some consultancy from a doctor sitting in another city. Along with this, the idea about good governance, civilian power, human rights, women’s rights, animal rights are really being a global issue and people have started to care about it. During the Arab Spring for example, the photos and videos posted by the people in Facebook passed the information to the rest of the world who in turn supported these people for the good cause. This places pressure on oppressive leaders in the future who would fear international prosecution. A global society is on its best way to be global and I think this time, development will also go global so that we should not see a child dying from easily preventable cause.