Geography?

Geography?

One of the oldest and, curiously, most recent explanations for the
difference between rich and poor nations is alleged to be geography.
According to the traditional argument, tropical climates provoke debilitating
diseases, inhibit agricultural productivity and militate against
hard work. Geographical reasons for poverty have been made for
centuries and on occasions they have been used to justify unsavoury
colonial, if not downright racist, attitudes. However distasteful they
may be, social scientists must nonetheless examine this old claim.
Recent research has in fact added a new twist to the story. There is
no denying that colonies of European settlement in temperate latitudes
have generally been more successful in achieving economic
growth than those established in the tropics. This is true, however, not
for the reasons given immediately above but because different geography
and climate has led to the establishment of different institutions
and it is these institutions which determine the pace of development.
Surveys have been undertaken of former colonies in different parts
of the world in order to control for a variety of factors. It is found that
where the death rate of settlers was high – typically due to diseases in
the tropics – the Europeans stayed away and set up institutions that
the 1980s, with the introduction of the Household Responsibility
System, individual households could lease their own land and
were able to keep or sell off any produce they made in excess of
official targets. As a result, farm production took off and China
has never looked back.
The moral of the tale is that where property rights are confined
to a few, or held in some collective ownership, then the majority
are denied access and incentive to utilise productive resources
efficiently. Give people entitlement to the fruits of their own
labour, however, and economic growth will result.
By this argument, land reform in agricultural societies,
privatisation and wide share ownership in industrial societies
and high levels of general education in knowledge societies are
all essential institutional reforms that promote growth and
development.
© 2004 Tony Cleaver
were designed to be extractive, using local or imported slave labour.
Whether it be mining precious resources (silver in Bolivia, diamonds
in South Africa) or farming in plantations (sugar in the West Indies,
rubber in Malaysia), the laws and institutions introduced were essentially
hierarchical – conveying economic and political power to a tiny
elite and denying any substantial rights to those below them in
society. Where geography and climate was agreeable to Europeans,
however, settler mortality was low and so colonists moved in, set up
property rights and democratic systems that devolved power,
promoted trade and generated growth. (The original inhabitants of
these temperate lands, it must be emphasised, generally lost out in
the face of this immigration. They had little say in what was to be
established in their homelands (see Box 7.5)).
Dances With Wolves (Orion Pictures, 1990), directed by and starring
Kevin Costner, is one of a long line of Hollywood Westerns that
depict the culture clash between native Americans and European
settlers. It only differs from its many predecessors in that it is
overtly supportive of the former in the dramatisation of the conflict
between a traditional society of nomadic hunter-gatherers and the
land-grabbing, modern market economy that overruns it.
The North American native experience was also shared by the
fate of aboriginal inhabitants of Argentina, South Africa and
Australia. Those not killed off by non-native diseases against which
they had little defence, were dispossessed of their communal lands
by immigrant settlers who recognised only private property rights –
established by their own laws and modern firearms. Removed from
the economic basis of their tribal societies, native populations
could not compete against the well-organised, economically and
militarily powerful newcomers who transferred the land they
acquired into alternative employments. US corn, Argentine beef,
South African gold and diamonds and Australian wool have since
been marketed around the world and enriched the lives of millions
of producers and consumers alike . . . though whether the ends
justified the means remains questionable to this day.
Box 7.5 Which is the Wild West?
© 2004 Tony Cleaver
An interesting illustration of this argument is the geographical
differences in institutions between the northern and southern states
of the USA. Types of farming, patterns of ownership, employment
and incomes in the more temperate climates contrast markedly
from those in the southern, plantation states where the nature of
society still bears the scars of its origins in slavery.
Geography in its own right, it should therefore be emphasised, is
not a good explanatory variable. Nor is colonialism, per se. Tropical
countries with good institutions can enjoy economic success (like
Singapore) – it is just that they have been the exception. The fact is
that even after the imperialists have gone, there are too few tropical
nations that have succeeded in throwing off their inheritance. Too
many countries with hierarchical social structures have still not
been able to change them, and remain saddled today with feudalistic
institutions that inhibit their advance. Those colonies established
with good, pro-growth institutions – typically but not always in
temperate zones – have meanwhile reaped the economic benefits
that have come with them.
CAN THE PLANET AFFORD IT?
The population of China numbers 1.26 billion and for the last
twenty years or so it has enjoyed increasing economic growth that
has lifted the great majority of its people out of poverty. The widespread
introduction of market institutions and incentives has
transformed the former highly inefficient, centrally planned,
command economy into the latest, and biggest ‘Asian tiger’.
Although slower to introduce institutional reforms, India has
also shaken off some of its more restrictive economic shackles and,
with a population of 1.06 billion, it too has now found its way on a
steady path of economic growth that is beginning to bring
improved living standards to all.
The average annual growth rate for these two giant countries
(which together account for 40 per cent of the world’s population)
over the decade 1990–2000 was, in the case of China, 10.3 per cent
and, in the case of India, 6.0 per cent. This compares to a world
average of 2.6 per cent per year (an average, of course, pushed up by
these two outliers).
© 2004 Tony Cleaver
These statistics represent a steady improvement in the fortunes
of billions of lives and must accordingly be celebrated. The question
to ask, however, is can this trend be sustained?
The environmental pressure group,WWF, calculates how much of
the Earth’s resources are consumed to provide for its population. The
ECOLOGICAL FOOTPRINT measures the total area of productive land or
sea necessary to produce the food, materials, energy and living space
currently used to provide for one person in each different country.
The results are given in Figure 7.4: the vertical axis registering the
hectares of land required per capita and the horizontal axis measuring
the relative population sizes for the respective continents.
As can be seen, the average North American citizen consumes
nearly ten times the resources of the average African or Asian individual.
Note, however, the numbers of those who consume least
greatly exceed those who consume most. What will happen therefore,
if current Chinese and Indian growth rates are maintained,
and every Asian eventually gets to drive around in cars of the size
and gas-guzzling capacity of the average North American? The
column for Asia/Africa in Figure 7.4 will grow in size to the height
of the others. If this were to happen then the planet will be devoid
of resources and polluted with waste!
Quite clearly, this brief example shows that future populations
cannot enjoy the wasteful lifestyles practised at present by the
world’s richest. The heavy ecological footprints left on the earth
today by Americans and Europeans would devastate the natural
Hectares per capita
Ecological footprints
10
8
6 Western Europe
4
2
0
Asia/Africa
Population
North America
Figure 7.4 Hectares of land needed per capita to support consumption in
different continents, against population, 2000.
Sources: WWF, World Bank.
© 2004 Tony Cleaver
environment and exhaust the planet if repeated by future billions in
the rest of the world.
There seems to be even more injustice for the developing world
implied in this prediction. Just as soon as these countries seem to be
on the way to implement the institutions and policies to produce
growth, so the finite resources of the Earth will hold them back –
thanks to the profligate behaviour of those who got there first. Is this
really true? Would the replication of current North American
consumption patterns in developing countries impoverish the planet?
Fortunately for us all, that is unlikely to happen. The major reason
for this – despite some of the scariest scenarios painted by a few environmentalists
– is the operation of the free market. To explain how
markets can assist in protecting scarce resources we can take one
important example as an illustration: the supply of oil reserves.
In 1972, in a famous publication by a number of authors referred
to as the Club of Rome, The Limits to Growth (by D. H. Meadows
et al.) set out a pessimistic scenario where the world was destined to
run out of oil and other essential, exhaustible resources by the year
2000.World economic growth was thus destined to come to a full stop.
Evidently this has not happened. People can still fill up their cars
at the local petrol station with no restriction. Growth rates of the
wealthier consumer nations are still positive and the newly industrialising
countries are growing even faster. What went wrong with
the calculations?
Based on US patterns of oil consumption in 1972, if all other
nations as they grew richer emulated such practice then there is no
doubt that there would be much less oil left in the ground today.
Maybe world growth would have stopped. Similarly, if all Asia
tomorrow drives the US cars of today, then world economic growth
might indeed come to an end. But, of course, the problem of basing
predictions on current practice is that this assumes future behaviour
will not change . . . and it always does. That is the fascination
of economics – it is a social science and people, unlike phenomena
in the ‘hard sciences’, are capable of choice and change.
Free markets, in particular, provide powerful incentives for people
to alter their consumption and production habits. Consider the
implications of continuing high demand for oil.
If the rate of world consumption continues to grow steadily, or
even accelerate, such that existing oil resources become depleted
then, in the open market, prices would rise – slowly at first but at
© 2004 Tony Cleaver
an increasing rate also, as supplies reduce. The effect of this price
rise is twofold: it immediately puts a brake on demand and it simultaneously
increases the profitability of oil production.
Demand is affected in two ways. Some people may reduce their
consumption directly where possible (they may take fewer car journeys).
They will also seek out alternatives. Since oil is a basic
energy source, immediate change is unlikely but so long as the
price rise is sustained then consumers (in private homes and in
industry) will find ways to economise and will seek out alternatives
in the longer term – other forms of transport, other forms of
heating, and so on (see Box 7.6).
The major consumer of oil is transport. But consider what has
happened over the last 30 years or so to the technology involved
in producing the internal combustion engine. Because oil is
expensive, car engines today are far more efficient in their
consumption of fuel (and far less polluting) than they were in
1972. The cars that Asia buys tomorrow will certainly not be
anything like those Americans use today. Americans will not buy
today’s cars tomorrow either. In fact, if the price of oil does rise
much further then fuel cell technology (which produces energy
from water!) will receive yet another impetus. The big car multinationals
have already produced the prototype motors – they are
currently racing to try and get prices down and engine performances
up. Their future profits depend upon it.
Imagine now if there is a breakthrough in fuel cell technology.
What would happen to oil prices? They would fall dramatically –
signalling much less demand than supply – and oil companies
and OPEC oil producers would stand to lose much income. The
fact that this threat is real is driving the producers to look for
alternative sources of income. The ‘oil majors’ have diversified
and are now more energy companies than oil companies these
days and the OPEC countries are urgently attempting to develop
other industries. Their worried actions are the clearest possible
indication that oil resources in future will not be exhausted and
put a limit to world growth.
Box 7.6 The motor car
© 2004 Tony Cleaver
Supply also responds to price changes. More exploration and
development will take place since anticipated future profits are a
spur to action. Oil reserves in diverse locations previously though
uneconomic to exploit now become profitable to do so. For example,
US and Canadian oil shales (rock formations that contain diffuse
organic matter within them) are still too technologically difficult
to exploit at present, but, if oil prices rise continuously then this
enormous resource may well one day be pressed into service.
The price mechanism is thus a sophisticated device that works to
economise on scarce resources. What are prices? Nothing more nor
less than an instant indication of relative scarcity. The fact that the
real price of oil today (corrected for a fall in the value of money) is
lower than it was in the late 1970s is an indication that oil is now
less scarce than it was. It changes in the daily or SPOT MARKET in
response to fluctuations in current demand and supply – and it will
continue to rise and fall in the future in response to the variety of
factors that impact on this (currently) important resource.