Why Some Nations Are Rich And Others Are Poor
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Published: Fri, 12 May 2017
Why are some countries rich and others poor? And to this question, only history can give us some guidance to the answer because past societies constitute thousands of natural experiments with known outcomes. According to many readings, the answer to the question involves both external and human factors. In Mancur Olson’s essay, “Big Bills Left on the Sidewalk: Why Some Nations are Rich, and Others Poor,” he focuses the reader’s attention to the remarkable variations in levels of productivity and income marked out by national boundaries. In fact, we realize that countries with higher income levels richer. When an immigrant from a poor country lands in a rich country, his/her earnings rise by a factor or more. But because the immigrant did not unbelievably obtain either more human capital, or presume radically different cultural or religious values, then the determining factors must lie in the institutional and policy differences between the two countries. In general, many economists believe that people are rational and will grasp opportunities for gains from innovation, allocating efficiencies, and contractual adjustments. However, Olson disagrees. Olson considers neoclassical variables such as technology, capital, the quantity and quality of labor, land and natural resources. And in each of these sections, he mentions that knowledge is widely available at low costs, human capital differences are insufficient, and land/labor ratios and diminishing returns do not appear explanatory. Which then leaves policies and institutions that explains the differences between the rich and the poor countries.
It is commonly said that by improving economic and social conditions a country can reach an appropriate standard of living for all people. In developing the country, the governments of poor countries put their utmost effort in enhancing their domestic conditions. However, some countries still need assistance to develop; they do not have enough natural resources, knowledge and funds to develop independently. Taking a look on the access to productive knowledge, Olson takes the third world countries into consideration as an example. Third world countries, such as South Korea, have been growing very rapidly from the adoption of modern technologies from the first world. According to Olson’s statistics, the costs of intangible technology were minuscule. In fact, the foreign owners of productive knowledge obtained less than a fiftieth of the gains from Korea’s rapid economic growth. In history, statistics have shown that the level of technology has increased more quickly in developing countries and quickest in low-income countries.
Based on what we learn from economics class, good economic governance and investments in human capital are key factors in developing into a rich country. In fact, it has become a primary responsibility for poor countries. Also, many people believe that culture is a significant factor to economic development. Thus, people predict that some countries are poor because they lack cultural traits – not proficient in responding to economic opportunities. “The average level of human capital in the form of occupational skills or education in a society can obviously influence the level of its per capita income.” In order to produce continuous growth, there must be a factor or a combination of factors that can be collected indefinitely without diminishing returns. Olson points out that since life is limited; there is a maximum limit to the amount of human capital that can be accumulated. Therefore, while increasing human capital may be able to lengthen the duration of the transition period in the growth model, human capital accretion cannot be the basis of perpetual growth.
We often make an assumption that overpopulation, low ratio of land and other natural resources to population increases the poverty in the poor countries. A simple model tells us that a continuous incentive for the poor to migrate to the rich countries will reduce the differentiation in incomes. And if the lack of land or overpopulation is crucial, certain countries like Ireland should have experienced rapid growth of per capita income – also resulting in the end of outmigration. But as we see in Olson’s essay, these countries are still experiencing outmigration and its level of per capita income is still lower than those wealthy countries (where everyone migrates to). Essentially, the economic concepts and models of these factors contradict the results happening in the world.
The answer to the differences in rich and poor countries is the quality of the countries institutions and economic policies. Studies today observe that the fastest-growing countries are never the countries with the highest per capita incomes but always a subset of the lower-income countries. However, low income countries tend to struggle and fail to grow more rapidly than high-income countries: but a subset of the lower income countries show a fast pace in economic growth. If poor countries can create fine economic policies and institutions, they will be able to raise their per capita incomes by investment in technology and other elements in developing the economic growth. There are still big bills that are left on the sidewalks to pick up. ã…ã…-ã…
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