Why are some countries rich while others remain poor?
Source: Growth Economics Blog
Some countries are wealthier than others. This fact has inspired all kinds of discussion and analysis over the years, from Adam Smith’s The Wealth of Nations to Marx’s Das Kapital, 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 17th century.
Sometimes a great idea or new technology transforms an economic backwater into an industrial powerhouse. Ready access to coal, limestone, and iron ore allowed Pittsburgh to grow into a great metropolis by the early 20th century. But even more important was Andrew Carnegie’s vision to build and run the world’s most advanced steel mill.
Nations have the potential to grow wealthy because of their resources, but they need the rule of law, property rights, and the intellectual capital to develop these 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