The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor by David S. Landes

The Ultimate Road to Wealth Is the Adoption of a Market Economy

W.W. Norton & Company • 1998 • 650 pages • $30.00

Randall Holcombe is DeVoe Moore Professor of Economics at Florida State University.

Economic historian David Landes explains in this book why some nations are rich and some poor by appealing to the historical record. The history is fascinating, and Landes does a good job of relating the facts.

His explanation of the wealth and poverty of nations is simple: rich nations are once-poor nations that developed market economies; poor nations are once- and still-poor nations that did not. Market economies require governments that do not interfere with people’s economic affairs except to protect property rights. Landes builds his case by recounting the history of world economic development.

Landes maintains that western European, and especially British, culture is superior to others at promoting people’s well-being. He makes the same case for the virtues of Protestantism. The Roman church found truths about nature in the scripture, so new ideas were potentially subversive. Protestant culture gave individuals more freedom to think for themselves, to innovate, and to keep the rewards of their successes. The notion that one culture is as good as another is wrong, Landes argues, at least if one judges a culture by its ability to enhance the well-being of its practitioners.

This is a big book, so as you might expect, his argument is far more involved than this. Landes notes that geographical factors played a large role in the patterns of development, and that some areas had advantages due to climate and natural resources that enabled them to develop sooner than others. But he also argues that geographical advantages, in the long run, can be disadvantages, because if wealth comes too easily, people do not have as much incentive to work hard and to use their wealth productively. When the Europeans began settling the Americas, for example, the Spanish and Portuguese gained easy wealth through territory rich in gold and silver, whereas the British territory required more work and investment. That investment, however, produced a much greater long-run payoff. Similarly, Landes argues that the oil-rich countries in the Middle East today are squandering their wealth because they came by it too easily.

The same argument applies to the industrialization of Britain, which had some natural advantages, such as coal deposits, but lacked others and in any event could capitalize on its advantages only by hard work and innovation. Before the Industrial Revolution, many areas of the world were at least as wealthy as Britain and had developed at least as much scientific and technical knowledge. China, in particular, was far ahead of Britain in many respects, but the British had one crucial advantage over the Chinese—a culture that encouraged commerce, risk-taking, and innovation. The British culture produced the Industrial Revolution, and Landes argues that no place in the world was able to industrialize without British influence.

Landes’s argument is generally convincing, but not entirely so. For example, he notes that the Japanese culture once lacked the work ethic of western Europe and was hampered by an institutional rigidity and isolationism similar to China’s. But Japanese culture changed, permitting industrialization, economic growth, and wealth. Thus, culture is not unchangeable. Moreover, “religious” aspects of culture are not tied to particular religions. The Japanese adopted the Protestant work ethic without adopting the religion. Landes’s view of culture appears tautological; the culture he champions really amounts to any one that leads to the adoption of market capitalism.

Europe was characterized by many governmental jurisdictions, creating an environment of intergovernmental competition, whereas China and Russia were vast regions without that competition. Landes notes this fact, but fails to see its importance. Is it not plausible that industrialization developed first in Europe because governments faced the prospect of losing people and capital to rival governments, thus tempering the rulers’ interference with freedom? Culture has some explanatory power, but it shouldn’t be regarded as the only factor determining the extent to which the market is free to work.

Landes’s conclusion that the ultimate path to wealth is the adoption of a market economy is unassailable. Despite his questionable assertion that culture is the key determinant in the choice between the market and government domination, his book has much to offer in its recounting of the history of world economic development and its insights on the differences among nations and cultures.