Why are some nations richer than others?
Source: Growth Economics Blog
Different countries have different levels of wealth. This truism has inspired all kinds of discussion and analysis over the years, from Adam Smith’s The Wealth of Nations to Jared Diamond’s Guns, Germs, and Steel. One factor is geography. Some places have more resources: fertile soil, natural ports, precious metals.
But it’s not enough to have stuff. A society has to use it effectively. North America has always been blessed with temperate weather, convenient rivers for transportation, and abundant sources of energy. These weren’t really appreciated, however, until Europeans began to arrive in the 16th century.
Sometimes a great idea or new technology transforms an economic backwater into an industrial powerhouse. Ready access to sources of coal, limestone, and iron ore enabled Pittsburgh to grow into America’s 8th largest city by the early 20th century. But critical to that growth was Andrew Carnegie’s vision to build and run the world’s most advanced steel mill.
Nations can grow wealthy because of their resources, but they need the rule of law, property rights, and the intellectual capital to develop their resources. As we consider where to invest, how to invest, and who to invest with, it’s important to remember: it’s not just what you have—it’s what you do with what you have—that matters.
Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!