Tuesday, 13 July 2010

Finance and Investment

From one of my favourites; the Psy-Fi Blog:
Geography Is Wealth

Summarising briefly, the peoples of the European-Asian land mass were favoured because the East-West directionality of the continents meant that people and animals could spread without encountering hugely unfavourable climate conditions. In Africa, for example, spreading North-South meant overcoming widely different temperature conditions, a malarial zone and the Sahara Desert.

Europe and Asia were favoured by access to the widest range of domesticatable animals and plants, and furthermore then benefited from natural selection in favour of those people best fitted to survive the diseases which could jump species.

Persistent Institutions

Robust institutions – many of today’s economic success stories are those countries where European colonisers laid down roots and established lasting institutions, while many of the basket cases are places where expropriation of resources was the main, lasting accomplishment of the colonial powers.

Property Rights Rule

In particular there appears to be a link between property rights and economic growth which seems to make intuitive sense. If you believe you’ll be allowed to reap the rewards of your labour you’re more likely to work harder and re-invest earnings. If you expect your profits to be expropriated then you’re more likely to bury them in the back garden or hide them in Switzerland where they won’t help local economic growth.

History Matters

Decisions made centuries ago are still influencing the differences between the haves and the have nots of this world. For instance, the way that revenue collection in British controlled India was performed, can predict multiple economic factors in different regions: direct revenue collection by British officials has led to better levels of education and health.

It’s not the precise economic or political system that matters but the infrastructure supporting the rule of law. Corruption and a disregard for property rights is the enemy of economic advancement, not lack of freedom. Of course, all too often these go hand in hand but it ain’t necessarily so...