This article is an excerpt from the Shortform book guide to "The Master Guides: The Global Wealth Gap" by Shortform. Shortform has the world's best summaries and analyses of books you should be reading.
Like this article? Sign up for a free trial here.
Why are some countries poor and others rich? Is it the result of factors and circumstances determined long ago—or of contemporary political and economic decisions?
Historians, economists, and others have pondered these questions for centuries. We’ll outline the four causes of the global wealth gap that several of these analysts propose: geographical differences, cultural differences, political differences, and exploitation.
Read more to learn why some countries have more wealth than others.
Why Are Some Countries Poor and Others Rich?
Why are some countries poor and others rich? In our guide to the global wealth gap, we’ll look at a number of perspectives on these questions from 11 economists, political theorists, and scholars:
- Prisoners of Geography by Tim Marshall
- The Bottom Billion by Paul Collier
- Guns, Germs, and Steel by Jared Diamond
- Why Nations Fail by Daron Acemoglu and James A. Robinson
- The Protestant Ethic and the Spirit of Capitalism by Max Weber
- Basic Economics by Thomas Sowell
- The White Man’s Burden by William Easterly
- The Shock Doctrine by Naomi Klein
- Poor Economics by Abhijit Banerjee and Esther Duflo
- Capital in the Twenty-First Century by Thomas Piketty
- The Communist Manifesto by Karl Marx
Cause #1: Geographical Differences
The geography theory of international inequality argues that differences in the physical locations of countries determine—or at least strongly influence—their economic success. Proponents of this theory point to two main geographical factors: natural resources and topography.
1) Natural Resources
The first key factor of geography theory is access to natural resources—everything from farmable land to oil to fresh water. These resources can determine whether a nation becomes rich or poor.
How Resources Make Nations Rich
Journalist Tim Marshall’s Prisoners of Geography argues that in some cases, simply having more natural resources makes a nation richer. Resource-abundant nations can generate more wealth through extraction and then use that wealth to develop faster than their neighbors. For a modern example, Saudi Arabia and other Persian Gulf states became some of the richest nations in the world in just a few decades due to their abundant oil reserves.
Some geography theorists make a similar argument on a more historical scale. In Guns, Germs, and Steel, anthropologist Jared Diamond argues that early in the history of civilization, access to natural resources gave some nations a head start on development that snowballed into greater differences in wealth over time. Specifically, Diamond suggests the availability of domesticable plant and animal species in Eurasia made larger-scale agriculture easier to develop, starting the “snowball” of international inequality.
How Resources Make Nations Poor
While more resources can mean more wealth, some geography theorists argue things aren’t always so simple. Economist Paul Collier’s The Bottom Billion argues that in the modern world, economies based primarily on natural resources are often more likely to be poor. He offers a couple of reasons.
1) Nations dependent on natural resources are vulnerable to shifts in the global economy—if prices for their resources drop, their economy will shrink massively overnight. For example, Venezuela’s dependence on oil revenue meant that a 2014 plunge in oil prices severely damaged the nation’s economy.
2) Nations dependent on natural resources are prone to government corruption. When there’s a sudden massive influx of wealth in an otherwise poor country (from discovering and exploiting a new natural resource, for example), the lure of personal gain through bribery and grift can overwhelm existing underdeveloped political institutions. Under a corrupt government, wealth from natural resources will benefit a few elites rather than raising the nation as a whole out of poverty.
2) Topography
The second geographical factor that impacts international inequality is topography, or a nation’s physical location and natural features—mountains, plains, rivers, and so on. Geography theorists argue that topography often determines the relationships between nations, which in turn has a large impact on a nation’s ability to generate wealth:
Topography Determines Trade
Marshall (Prisoners of Geography) notes that topography is one of the main factors that determines trade routes, which are crucial for a nation’s economy. Through trade, a nation can enter a global marketplace to generate wealth through exports and import goods it can’t otherwise acquire. Therefore, nations with topography well-suited to trade—rivers, a coastline, open terrain for highways or railroads—can generate a great deal of wealth. On the other hand, nations with hard-to-navigate topography like jungles, mountains, or no waterways have limited access to trade and the wealth it creates.
Topography Determines Conflict
In addition to trade, Marshall (Prisoners of Geography) outlines how topography shapes conflict between nations. Features like mountains, deserts, or cold climates can make nations difficult or nearly impossible to invade, while wide open plains or access via water can make invasion easy. Conflicts often have significant economic impacts—they can destroy a nation’s infrastructure, shut them off from the rest of the global economy, or earn them wealth through a favorable peace settlement. Therefore, by shaping the nature of conflict, topography also impacts global inequality.
For example, Switzerland remained neutral during both World Wars and wasn’t invaded in large part because of its mountainous topography—invasion would have been too difficult. Because of this, Switzerland didn’t suffer the large-scale destruction that other European nations faced at the time.
Cause #2: Cultural Differences
Some authors argue that differences between cultures are responsible for international inequality. Culture, they explain, determines the values a nation promotes in its people. When these values are aligned with good economic practices, a nation is more likely to be rich. When they resist good economic practices, a nation is more likely to be poor.
Proponents of cultural theories of inequality argue the following three cultural values contribute to whether a nation is rich or poor: work ethic, openness to new ideas, and public trust.
1) Work Ethic
Max Weber (The Protestant Ethic and the Spirit of Capitalism) argues the religion Protestantism is conducive to economic success because it encourages hard work, frugality, and smart investment. He notes that at the time his book was written in the early 20th century, majority Protestant nations like the United Kingdom, Germany, the Netherlands, and the United States tended to be the most successful. On the other hand, economist Thomas Sowell’s Basic Economics argues many nations in tropical climates are poor in part because their cultures lack discipline or urgency—because the climate ensures crops year-round, they never had to plan ahead and store food for winter.
2) Openness to New Ideas
Sowell (Basic Economics) suggests openness to new ideas and cultural exchange is crucial for economic success. Cultures that encourage these values will more readily adopt new technologies, improving efficiency to create more wealth. On the other hand, cultures that are resistant to new ideas or shut themselves off from the world will stagnate and fall behind economically.
For example, plantation owners in the antebellum South resisted industrialization, fearing the new technologies would unseat their place in the social and economic order. This meant the South had far less developed infrastructure than the North for many years, and lagged economically because of it.
3) Public Trust
Economist William Easterly’s The White Man’s Burden argues that in a capitalist global economy like the one we have today, public trust is a cultural value crucial for success. Easterly argues that without public trust, people won’t enter into economic exchanges because they’ll fear getting ripped off or cheated. Without these economic exchanges, an economy will stagnate.
Easterly uses the fall of the Soviet Union as an example of why public trust is so important. During this period, free market capitalism was suddenly imposed on the new Russian state with little time for them to adjust. Because there was no opportunity for Russia to develop public trust, politicians and business leaders instead turned to corrupt backroom dealings and allowed the economy as a whole to suffer for their own personal benefit.
Cause #3: Political Differences
Some authors argue that political decisions are a more direct cause of the global wealth gap than geography or culture. They suggest certain types of governments, laws, and political norms are conducive to success while others lead to poverty. In particular, they focus on three main elements of government:
1) Market Regulation
Some authors argue that the use or misuse of market regulations—the way a government manages and controls its economy—can lead a nation to success or poverty. In Why Nations Fail, economist Daron Acemoglu and political scientist James A. Robinson argue government regulation of the economy is crucial for success. Specifically, they say regulations must create an economic environment that is fair, competitive, and easy to enter into. Under these circumstances, people are able to put their ideas on the market and the best ideas will be able to succeed. This economy of good ideas encourages technological development, which increases efficiency to create more wealth.
Acemoglu and Robinson explain that to create this economic environment, the government must enforce property rights and contracts, split up monopolies, and provide high-quality public services like schools and roads. This evens the economic playing field enough that anyone with a good idea can succeed.
2) Corruption
Some experts also note that varying levels of government corruption—politicians using their positions for their personal economic gain—also contribute to international inequality. Collier (The Bottom Billion) argues that corrupt governments tend to impoverish their nations by prioritizing loyalty over competence and personal gain over broad economic success. For example, say a nation needs a new train station to transport goods and people more efficiently. Corrupt government officials hire their own political allies to build the station and overpay them to ensure their loyalty, or award building contracts to whoever pays the biggest bribe regardless of their qualifications. This makes the train station simultaneously worse and more expensive.
Acemoglu and Robinson (Why Nations Fail) note that corruption often discourages development, preventing economic growth. Corrupt governments often intentionally discourage development because large changes in the economy—shifting away from natural resources, for example—might threaten to shift economic and political power away from them.
3) Internal Stability
Finally, several authors argue that the global wealth gap also results from some nations being embroiled in conflict, whether they are under attack, engaged in a civil war, or otherwise unable to maintain a functional government. Acemoglu and Robinson (Why Nations Fail) explain that in an unstable country, people have no incentive to generate wealth since no government can guarantee they’ll keep what they make. Collier (The Bottom Billion) makes a similar argument, pointing out that instability causes people, investors, and their money to leave a nation altogether.
Cause #4: Exploitation
Instead of studying the differences between nations, some authors focus on how nations interact to explain the global wealth gap. Specifically, they view exploitation—nations taking advantage of others for their own benefit—as the main cause of international inequality. Put simply, they argue that rich nations often become rich by taking wealth away from poorer nations.
They focus on two main methods of exploitation:
1) War and Colonialism
Acemoglu and Robinson (Why Nations Fail) explain that the most direct way nations exploit one another is through violent force. This can be as simple as one nation declaring war on another to try and secure economic benefits, or as complex as one nation establishing a network of colonies across the globe to extract wealth from elsewhere. Either way, one nation uses violence to benefit at the expense of another, creating or widening inequality.
Easterly (The White Man’s Burden) discusses how colonial governments established by European nations in Asia, Africa, and South America created political and economic problems that still exist long after decolonization. Europeans imposed arbitrary borders that ignored the ethnic, linguistic, and religious makeup of a given area and purposefully heightened ethnic tensions to divide and conquer colonial populations. Many of these divisions remain today and are responsible for ongoing conflicts and civil strife that impact those nations’ economies. In addition, colonies had political and economic institutions designed around slavery and harsh working conditions—institutions whose economic consequences are still felt today.
2) Political Pressure
Nations can also use subtler forms of political and economic pressure to exploit one another. For example, author and activist Naomi Klein’s The Shock Doctrine explores “economic shock therapy,” where the United States used political and economic influence to force other nations into mass privatization—selling public services and industries to private owners at very low prices. The main benefactors of economic shock therapy were foreign corporations who were able to buy formerly public services for little money or speculate on vast market shifts. Meanwhile, nations that underwent shock therapy often became more impoverished as social safety nets and jobs were cut to minimize public spending and maximize corporate profits.
For example, when Indonesia’s economy was on the verge of collapse in the 1990s, the International Monetary Fund would only offer to loan the nation money if they adopted a number of free-market reforms, causing unemployment to skyrocket and massively increasing inequality within the country. Then, multinational corporations bought up large amounts of stock in Indonesian companies to profit off of the nation’s economic troubles—causing so much social unrest that the people eventually rose up and deposed their government.
Exercise: Analyze Your Nation’s Wealth
Consider where your nation lies on the global wealth gap and what factors may have influenced its placement.
- On a global scale, would you consider your nation to be rich, poor, or somewhere in the middle? Why?
- How could your nation’s geography contribute to its wealth? For example, maybe it has lots of coastline that has enabled lucrative international trade.
- How could your nation’s culture contribute to its wealth? For example, maybe your culture highly values and encourages monetary success.
- How could your nation’s political system contribute to its wealth? For example, maybe your government has problems with corruption or inefficient spending.
- Historically, has your nation been harmed by or benefited from exploitation? Do you see any lingering effects of this today? For example, maybe your nation still owns many corporations in its former colonies.
———End of Preview———
Like what you just read? Read the rest of the world's best book summary and analysis of Shortform's "The Master Guides: The Global Wealth Gap" at Shortform.
Here's what you'll find in our full The Master Guides: The Global Wealth Gap summary:
- A look into why some nations are poor while others are rich
- What causes the global wealth gap and whether or not it can be closed
- How natural resources often make a nation poor, not rich
