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.

Favela in Brazil

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.”

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About Ted Campbell

U.S.-Canadian writer, translator and university teacher in Mexico. Travel stories and practical tips on my blog No Hay Bronca: nohaybronca.wordpress.com Twitter: @NoHayBroncaBlog // Contact: nohaybroncablog (at) gmail.com

Posted on May 1, 2012, in education, Mexico, Reading material and tagged , , , , , , , , . Bookmark the permalink. 11 Comments.

  1. Enlightened Hispanic

    Latin American Inequality: Colonial Origins, Commodity Booms, or a Missed 20th Century Leveling?

    Jeffrey G. Williamson

    Most analysts of the modern Latin American economy have held the pessimistic belief in historical
    persistence — they believe that Latin America has always had very high levels of inequality, and that
    it’s the Iberian colonists’ fault. Thus, modern analysts see today a more unequal Latin America compared
    with Asia and most rich post-industrial nations and assume that this must always have been true. Indeed,
    some have argued that high inequality appeared very early in the post-conquest Americas, and that
    this fact supported rent-seeking and anti-growth institutions which help explain the disappointing growth
    performance we observe there even today. The recent leveling of inequality in the region since the
    1990s seems to have done little to erode that pessimism. It is important, therefore, to stress that this
    alleged persistence is based on an historical literature which has made little or no effort to be comparative,
    and it matters. Compared with the rest of the world, inequality was not high in the century following
    1492, and it was not even high in the post-independence decades just prior Latin America’s belle époque
    and start with industrialization. It only became high during the commodity boom 1870-1913, by the
    end of which it had joined the rich country unequal club that included the US and the UK. Latin America
    only became relatively high between 1913 and the 1970s when it missed the Great Egalitarian Leveling
    which took place almost everywhere else. That Latin American inequality has its roots in its colonial
    past is a myth.

    • The question is not just why is Latin america unequal, but rather why is it poor. Surely that is in part due to historical forces, especially the way Latin America was colonized and the type of economic system that developed (especially the Hacienda system), which favoured large land holdings with plentiful cheap labour and little incentive to invest in mechanization (and a lack capital with which to industrialize). And without industrialization little incentive to invest in education. To be honest I don’t really know. I am just speculating.

  2. No, “lol”, you are the stupid one here.

  3. Let me just say shortly. They are stupid.

  4. Nice article.
    Also a fascinating and recent book on the same topic is Why Nations Fail: The Origins of Power, Prosperity and Poverty whose thesis is that some developing nations are held back not down to climate, geography or culture, but because of institutions. i found it to be very illuminating.

  5. One theory that I read was the Hacienda system which concentrated all the wealth in the hands of a very small number of people. And that wealth was primarily in the form of land, with plenty of low cost tenants, but with very little capital necessary for industrialisation (and because labor was so cheap little incentive to invest in mechanisation). Whereas is the north of the United States land holdings were much smaller and owned mostly by ordinary people who had more opportunity and a greater incentive to better themselves. Consequently the economy of the North Eastern United States developed (with the benefits flowing into the rest of the country) while South and Cental Ameica stagnated.

  6. good article…the dichotomy between rich and poor is IMPOSSIBLE to miss south of the border

  7. I’m going to have to check out those books. This is a very interesting post. Thanks!

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