Geography and the GDP puzzle

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Looking at the most productive economies in the world, one common element is striking: Western European influence. This is a most unfashionable observation to make.

I am looking at a list of the twenty most productive economies in the world. There is room for argument about how exactly you should compile such a list. But not much room. It might be different if we were discussing which countries are rich, or happy, or do most for the development of their citizens, (although I am not sure). But if you ask about product efficiency – which countries produce most output per weighted unit of physical resource – you are closer to objective fact.

The measure which has been used is per capita GDP in 1996, converted at average prevailing exchange rates. The list would not change much for any other recent date or any reasonable alternative criteria. These twenty countries, which comprise 10% of the world’s states and include a little more than 10% of the world’s population, produce most of its industrial output.

What makes these different from the rest is probably the most important single issue in the study of business and economic systems. Yet it is not much discussed, and most of that discussion is superficial. A glance at the list enables us to dismiss a number of commonly held opinions.

These are not the countries with the lowest levels of taxation, or which most limit state intervention in economic affairs. These are not the countries most generously endowed with natural resources. Their population ranges from small to large. They are not the countries with the largest armies in the world, or, for that matter, the smallest armies. They are not the countries most ready to sacrifice the natural environment in the pursuit of economic growth.

They are all market economies, although they include many different kinds of market economy. And they are mostly liberal democracies. It is these observations that have given rise to Fukuyama’s ‘end of history’ thesis, which proclaims the inevitable victory of a combination of market economics and liberal democracy. But there are many market economies and liberal democracies outside my top twenty. This association might be the product of an even stronger association. The striking feature of the list is the central importance of north-west Europe.

The twenty countries in the list include eleven of the fifteen members of the European Union. Of the others, Luxemburg is excluded because it is too small, although it would certainly qualify on the basis of its productivity: and Greece, Spain and Portugal because their output is too low. Before giving credit to Brussels, however, we should note that the two west European countries which have declined to join the Union – Norway and Switzerland – are also in my list. Four others – Australia, Canada, New Zealand and the United States – were established as colonies by west European immigrants, speak West European languages, and their dominant social mores, cultural antecedents and political institutions are all derived from western Europe.

The closer you look, the stronger the geographic connection. Two states stretch south to the Mediterranean – France and Italy – but in both the north is the more productive part of the country. The three EU states excluded from the list are the ones most distant from Frankfurt. And the east European states most likely to qualify for the list – Poland, Hungary, Slovenia and the Czech Republic – are those which border on the states already in it.

The productivity of former colonies reflects the extent of European influence. All the countries in which north west Europeans killed or overwhelmed the native populations – and so established the permanent hegemony of north west European culture and institutions – are on my list. Where the Europeans were more restrained, or the locals were too numerous or too well resourced to be wiped out, productivity is lower – two small, but significant, exceptions are noted below. The country in which white settlers imposed cultural domination but lacked numerical domination – South Africa – totters agonisingly on the edge between the first and third worlds. The Latin American countries in which the Spanish and Portuguese murdered most of the local inhabitants and the local culture are on average like Spain and Portugal themselves. They are not as productive as north west European states and colonies, nor as unproductive as those in which the European influence was less intrusive.

It is very unfashionable, and politically incorrect, to say these things. David Landes, the great American economic historian whose book The Wealth and Poverty of Nations argues that modern economic history is essentially the history of western Europe, feels obliged to apologise for his thesis on almost every page.

This is partly from fear of being called racialist. But the evidence against a European productivity gene is strong. The explosion of productivity in the last two centuries is on a time scale far shorter than evolution. And non-Europeans have been hugely productive in suitable cultural environments. Two of the remaining countries on my list – Hong Kong and Singapore – are racially predominantly Chinese but have strong West European influences. The economic success of Indians and Chinese outside their home countries is one of the features of our times.

And we are victims of two – contradictory – strands of contemporary American thought. One is the triumphalism of the American business model. Yet my list gives a perspective which makes it clear that the secrets of economic success were not found in Silicon Valley last week. If there was ever such an event, it happened two to three hundred years ago in Europe. But the real point is that there is no universal business model. Productivity is above all the result of culture and history.

This also contradicts a version of the American penchant for multi-culturalism. If the point to be made here is that manufacturing precision machinery is not the only, or even the highest, object of human endeavour, and that other cultures may score better on other values, then it is true and important. If the multi-culturalist suggestion is that people from all environments, historical and geographical, would be equally good at making Mercedes limousines if they were given the chance, then it is the economic equivalent of the flat earth theory. Productivity is achieved only when embedded in a supportive culture – and supportive cultures have many common, mostly European elements. There is only one country on my list where a north-west European with a dictionary of the major European languages would feel in any way uncomfortable or unfamiliar. And that is Japan.

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