The First Question: Why do Countries Differ?

We know that all people are different. Each of us differs in quite significant ways from others of our kind. We are all human beings of course but still we are all distinctly different in various ways — in our physical and mental endowments, in our preferences, in our abilities, and so on. There’s variation among us even when we’re part of the same family, not to mention others in our society or the world at large.

What distinguishes us from others of our kind is our nature which boils down to our genes, and also to our nurture. Even siblings differ among themselves because their genetic inheritances differ. That is the basic explanation of why we are all different: we don’t have the same nature and don’t get the same nurture.

So also countries differ from one another. Different countries have different histories, different cultures, different geographies, different endowments of resources, different climatic conditions, etc. And most importantly for our purposes, we note that countries differ in their level of prosperity.

Not all countries are rich. Some are quite rich and others are desperately poor in comparison.

Here’s the question. If we agree that countries differ in their prosperity, what is the one factor that clearly distinguishes countries regardless of any other factors that may or may not be similar?

Meaning, even if you do take into account all other factors — geography, history, culture, climate, endowments — into account and yet you find difference in prosperity between two countries, what is that factor?

I would like you to ponder this question. If you have an answer, please post it in the comments below. We will discuss this question in the course.

UPDATE: I have a follow-up post in which I have given my answer to this question. See Different Rules, Different Countries. The point briefly is that all else being equal, differences in prosperity arise from differences in the rules that countries follow.

Author: Atanu Dey

Economist.

8 thoughts on “The First Question: Why do Countries Differ?”

  1. Firstly, its very courageous to even admit that genetic differences exist in today’s world without being labelled as a racist. I feel religion is underrated as it is the backbone of culture and determines the public attitudes towards work, learning, openness and ability to adapt. All of these contribute towards GDP and other related metrics.
    Political systems i.e. how do societies organize themselves is another determinant of progress. An argument can be made that the underlying religious backbone of societies shape their respective political philosophies and subsequently determine how they govern themselves.

    1. Abhinav,

      Thanks for your comment.

      Religion of course matters in a big way. It defines norms that societies follow. Those norms distinguish countries, naturally. However, there are other laws and legislations too. Together those more strictly distinguish among countries. That’s the thrust of my claim that countries differ in the rules they observe.

  2. Religion has entered recently and even before that difference in prosperity was there. I see difference in prosperity as a result of the difference in perspective. What we call prosperity in India need not be prosperity in US. It depends on our perception.

    1. Abhilash:

      Certainly, prosperity need not mean precisely the same thing to everyone. The definition of “the good life” varies between people and between groups. But still there must be some level of material prosperity that is absolutely necessary for any life to be considered not bad. Chronic starvation, for instance, cannot be consistent with a good life regardless of whether one is in the US or in India.

      1. Sir,
        This reminds me of one point I heard sometime back in the context of World Economic Forum. They were referring to Inclusive Economics. Right now, individuals are concerned about their economic prosperity whereas nations are conferring it to their boundaries. Instead if inclusiveness can be brought in economics then I think that will help to bring in prosperity to all. But definitely, this does not answer your actual question of “What is the deciding factor?”. Will think more about this and come back with suggestions.
        Thanks
        Abhilash

      2. Abhilash:

        Thanks for your comment.

        “Individuals are concerned about their economic prosperity.” That’s right and proper: individuals should be. It’s their responsibility. It’s arrogant for someone to assume that responsibility on behalf of another. That attitude smacks of paternalism, the attitude that you lack the intelligence and understanding to do what you should do, and I know better than you do what is good for you, and therefore I will assume power over you and control you.

        H. L. Mencken said it best: “The urge to save humanity is almost always only a false-face for the urge to rule it.”

        “Instead if inclusiveness can be brought in economics…” I don’t quite know what that means. Economics is a discipline, an area of inquiry, a method of understanding one particular aspect of human society. The concept of inclusiveness or inclusion or exclusion does not apply.

        The question in this post sought to identify some factor that above all others was critical in the prosperity of nations (where the prosperity of a nation refers to the aggregate prosperity of the individuals within the nation.) The answer I advanced was that the prosperity of a nation depends on the rules that the people of the nation agree to abide by. A good set of rules leads to good outcomes.

  3. My answer would be that countries are different in terms of prosperity by virtue of the social cohesion, trust among communities and shared beliefs grounded in metaphysical reality.
    1) Social Cohesion
    In brief, countries that are socially torn apart either racially or ethnically spend most of their wealth in destructive activities or in attempts to restore peace. Constantly war torn countries are thus not prosperous materially speaking.

    2) Trust
    A lack of trust among communities inside a country makes for a definite resistance to increasing prosperity and would be breeding ground for strong narratives of inequality, crime and social justice.

    3) Beliefs
    And lastly, it is the beliefs held that prompt social action towards wealth and prosperity. For example, the Protestant Ethics prompted the American entrepreneurship that we saw in a Jay Goulding or a John D Rockefeller. Similar beliefs that may seem absurd or wanting to an atheist or one with a scientific temperament can actually prompt socially beneficial outcomes. Shared beliefs of history/culture create a nation in the first place and nations prosper if the narratives are in tune with metaphysical reality and prompt human action.

    1. Walter:

      Thanks for your response to the question. All the factors that you mention are relevant. The original question, however, asks that if you hold all factors including culture (which include social cohesion, trust and beliefs) constant, what explains the economic differences. I submit that all else being equal, it’s the set of formal and informal rules that account for the difference. Please see the follow-up post Different Rules, Different Countries.

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