This morning, I came across a youtube clip from the ‘School of Life’ about the reasons why poor countries are poor.

https://www.youtube.com/watch?v=9-4V3HR696k

Like any true millennial, I found it deeply offensive. It identifies three reasons why poor countries are poor:

1. Institutions: poor countries have bad institutions and lots of corruption (oh, and of course, lots of tax evasion).
2. Culture: poor countries have too much religion and too much clan-based thinking.
3. Geography: poor countries are plagued by pestilence, drought, resource curses, and temperatures that are too high to promote good agriculture.

Apparently, our practical response to this should be:

1. Modesty: because people in rich countries should acknowledge how lucky they are to have good institutions, good cultures and good geography.
2. Sympathy: because why not have a pity party.

The problems

Whenever I talk about something like this, there is usually someone that says “But taking your offendedness out of this – aren’t there possibly some harsh truths?”

My answer is usually something along the lines of “Yes, but quite a few of them are missing here.”

Some notes:

1. Institutions: Corruption is not necessarily a cause of poverty – it is also a function of it. Countries that are poor have more corruption because people are more desperate, so you get more rent-seeking in order to get by.
2. Culture: clan-based thinking is also what happens when people are desperate. And as for the decline in religiosity, that seems to coincide with the alleviation of poverty – it doesn’t cause it. Europe was once incredibly religious – that didn’t seem to stop it from becoming filled with rich countries. The same goes with the rich Arab nations, who somehow manage to be deeply Islamic but still rich.

On the Geography front, there are some harsh truths. Those I can agree with.

But also, there is surely an obvious point missing here?

Why would you remove history from the equation?

Overlay former-colonies atop that map of poor countries, and you have your poverty predictor right there:

Ironically, Australia, Canada and the United States are the three former-colonies that now sit at the top of the list. They’re also the only big colonies where the former colonizers are still in control. Because they won.

And this should make sense, because where you have a foreign colonial power trying to run a large local population, they’re hardly going to create ‘solid’ institutions. Instead, they’re heavily-incentivised to foster:

1. Weak institutions: because these limit the threat to their power; and
2. Clan-based thinking: because this means that the population can be controlled by controlling the heads of families and/or chiefs.

There’s even an incentive to foster a degree of poverty, because this distracts the native population from protest while they focus on the day-to-day necessities of getting-by.

This only really shifts when there are no longer threats to colonial power. You know, when the native populations are small and conveniently-susceptible to smallpox, so one can build good institutions that eventually allow the colonists themselves to throw off the shackles of their old homelands.

The direct consequence of this is that when the former colonies of Africa decolonised, you had novice former-guerrilla-fighters-turned-politicians stepping into artificially-weak government institutions, and attempting to govern using the patronage-based status quo that they inherited.

How’s that for a harsh truth?

Also, the appropriate response is ’empathy’, not sympathy. Because if there was true empathy, then there wouldn’t be this type of bollocks-youtube-clip floating around, trying to blame all the problems on local culture and corruption.

Rolling Alpha posts opinions on finance, economics, and sometimes things that are only loosely related. Follow me on Twitter @RollingAlpha, or like the Rolling Alpha page on Facebook at www.facebook.com/rollingalpha.