Why is Latin America Poor but the U.S. is Rich?
Obviously this issue is a lot more complex than one blog post. These books I recommend do not necessarily address why the U.S. is rich, but are about why in some ways (certainly not culturally) much of Latin America was left behind in development. I welcome your comments…
Updated November 2016
Anyone who’s traveled in both halves of the continent can’t miss the great divide in economic development between the Americans north and south of the Rio Grande. Walk across the border between El Paso, Texas and Ciudad Juarez, Mexico. Or venture into the mountains above ritzy Ipanema beach in Rio de Janeiro to visit a favela, the name for the countless “illegal” settlements in Brazil, most with electricity and internet but no running water.
Mexican university students, especially those who have traveled, ask me in class, Why is Latin America poor but the U.S. is rich?
I ask them what they think the answer is, and I usually get corruption, laziness, bad government, or bad luck. From time to time, one will answer, “We are stupid.”
If you ask a progressive-type north of the border, you will hear globalization, capitalism, and corporations, forces believed by many Mexicans to be the solutions to their economic woes.
To unravel this mystery, I recommend five books: Open Veins of Latin America by Eduardo Galeano, 1491 by Charles C. Mann, Guns Germs and Steel by Jared Diamond, Confessions of an Economic Hitman by John Perkins, and The Mystery of Capital by Hernando de Soto.
Click the photo of any book for more information.
Reason 1: Colonization
For the most part, the English and French colonists in the U.S. and Canada came to live, while the Spanish conquistadors came to Mexico and Peru looking for resources to send back to Spain.
It’s an ironic truth that resource-rich countries are some of the economically poorest on Earth, while on average resource-poor countries (like England or Japan) have been more successful. This is called the resource trap. In Latin America, gold was first sought after, then silver, sugar, coffee –- you name it. Eduardo Galeano tells this story in Open Veins of Latin America.
First came Spain and Portugal, replaced by England during the industrial revolution. The Catholic Church’s prohibition of usury gave England a great opportunity to allow money lending, and therefore raise much more capital than Catholic countries. Later the U.S., with leaders who considered Latin America to be their subservient backyard, took the reins from England.
I challenge the staunchest supporter of capitalism and free markets to read this book. Then read Confessions of an Economic Hitman (see below) for more about current, cutting-edge exploitation methods.
Reason 2: Diseases
This is well known: European diseases ravaged Native American populations.
The thesis of 1491 by Charles C. Mann is that America was heavily populated with advanced societies before Columbus came. Some scientists estimate that as many as 100 million people lived in the New World. They had great cities, advanced societies, and manipulated nature, not simply living in perfect harmony with it.
Smallpox came from Europe, where it had existed for such a long time that Europeans developed immune system protection. Europeans didn’t die from smallpox. But because it was Native Americans’ first exposure to these diseases, they were fatal and highly contagious. Often the diseases came generations before the conquistadors, spread by other native people. Some communities are estimated to have lost as much as 90% of their populations long before the colonists even visited. And, although there were big cities in the present-day U.S., the largest and most advanced civilizations were in present-day Latin America.
In Guns Germs and Steel by Jared Diamond, we learn why Europe had so many more diseases than pre-Columbus America (or Africa, or Australia). Europeans had all the big, domesticated animals –- the beasts of burden. Humans lived with animals and diseases jumped between them, as if they were filthy petri dishes heaped at the bottom of a trash can.
In America (the continent), there were no horses, no cows, no pigs, none of the big domestic animals. The Incas had llamas, but in Mexico they only had dogs, which were a food source incidentally.
The tour de force Guns Germs and Steel traces the history of world development and how it differed on each continent. The question he poses in the book is similar to mine: Why did Europeans colonize North America, and not the other way around?
In short, Diamond answers with technology and immunity to disease — guns, germs and steel.
Reason 3. Corruption and Bad Governments
Ok, now I challenge staunch supporters of socialism and government regulation to read The Mystery of Capital by Hernando de Soto. While it certainly isn’t a love letter to free markets, it shows how huge amounts of regulation makes it practically impossible to use legal channels to buy land, transfer property, or open a business in developing countries, including Mexico and Peru.
In Egypt, for example, 77 bureaucratic procedures, 31 agencies and 5 to 14 years are needed to acquire a piece of land, which comes with no guarantee that the deed won’t be revoked by the next ministry that comes to power while the paperwork processes. So naturally, bribery is much easier.
The title of the book refers to the huge amount of “dead capital” in developing countries. Dead capital is informal capital, property that has no title or legal recognition, owned by the world’s poor in developing countries. If a person trades or scavenges for building material and makes their own home in a slum (like the favelas of Brazil), they don’t legally own it and therefore can’t leverage it as capital.
DeSoto estimates that the value of the savings of the poor is so immense that “It would take the richest country on earth more than 150 years to transfer to the world’s poor resources equal to those they already possess.”
DeSoto doesn’t advocate a removal of regulation, but reform, the creation of standardized, transferable property rights that we in the West take for granted because it developed over such a long time.
Also on the bad government front is Confessions of an Economic Hitman by John Perkins. While The Mystery of Capital is quite academic, Confessions is the kind of book that keeps you on the edge of your seat, blows your mind, and changes your life. It shows you that the colonial period never really ended, but simply evolved into a much more efficient, scary form.
Reason 4: The Wrong Answer
These books will also tell you what the answer is not — that there is some fundamental difference, genetic or cultural, between Latinos and North Americans. There isn’t. Of course cultures are different, and cultures affect society. But, at a fundamental level, human beings are the same, at least at birth. Not equal, of course not, but the same. Anyone who travels extensively and independently most likely understands this on some level.
But hey, don’t take it from me, but from former Rolling Stone Magazine luminary P.J. O’Rourke in his hilarious travel collection Holidays in Hell:
“Finally, people are exactly alike. There’s no such thing as a race and barely such a thing as an ethnic group. If we were dogs, we’d be the same breed. George Bush and an Australian aborigine have fewer differences than a lhasa apso and a toy fox terrier. A Japanese raised in Riyadh would be an Arab. A Zulu raised in New Rochelle would be an orthodontist.”
Posted on May 1, 2012, in education, Mexico, Reading material and tagged 1491, Confessions of an Economic Hitman, dead capital, economic development, guns germs and steel, open veins of latin america, PJ O'Rourke, resource trap, The Mystery of Capital. Bookmark the permalink. 12 Comments.