When the heat is on the cool places still prosper

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The connection between a country’s climate and its wealth can prove elusive.

As the hottest European summer most people can remember comes to an end, it is a timely moment to consider why cool countries are rich and hot countries poor.

The most productive economies of the world are all located in temperate zones. There are three exceptions – but they support the observation. Hong Kong and Singapore are city states that became prosperous only after the advent of air-conditioning. And the tropical area of Australia includes much of its landmass but little of its population.

The simplest explanation is that we are less disposed to work when it is hot. But when the quarterly gross domestic product figures for sweltering Europe are published in the autumn, they will not be down by much. This is partly a problem of measurement. If a teacher is in front of a class, we assume everyone is doing something, though they may only be sweating and waiting for the bell to ring. But we do measure the phone calls answered, the cars assembled and the parcels delivered, as well as the ice-cream eaten and the beer drunk. The overall impact of the heatwave on output will be very small relative to established differences in national income between rich and poor.

Jeffrey Sachs, one of the few economists to have investigated the relationship between climate and growth, attributes much to the effect of disease. Sub-Saharan Africa has long been ravaged by malaria and is today ravaged by Aids, and these illnesses do great economic damage. But we need to think carefully about causation. Diseases that caused similar havoc in Britain, such as smallpox, have been eliminated; and much of the US was once malarial. Rich countries have remedied most medical conditions that stop people working before old age. And they have been able to do so because they are rich.

Another explanation – differences in agricultural techniques – confronts the same problem of causality. Farming is more productive in rich countries and the seeds and animals we use today are well adapted to temperate latitudes. But modern agriculture was invented in Iraq. Historians write about the fertile crescent of Mesopotamia as though it were a different place, and in a relevant sense it was. The US is able to invade Iraq but Iraq is unable to invade the US; this is not because of differences in endowments or technology but because of differences in how these endowments and technology have been used.

And it is to how resources are used that we must look for explanation. Rich countries are not rich because they are specially blessed by their environments. If you were leading a mission to find the economic promised land, you would probably not stop in Finland, Switzerland or Minnesota. But all these areas have become affluent. It is not terrain that matters but people, culture and institutions.

The modern market economy is a western European invention and is most fully developed in western Europe itself and the areas where western Europeans settled. The ideal climate for emigrants is one a little better than, but not very different from, the one to which they are accustomed. That is why European settlers went to the North American seaboards, the south- east coast of Australia, the north island of New Zealand and the cape of South Africa. It is why Germans went to Minnesota but the British did not. And all these emigrants brought the values and the social, political and economic institutions of the countries from which they came.

When Europeans arrived in the Congo, or Indonesia, they had come to loot, not to settle, because they found the weather uncomfortable and the environment threatening. Their guns were just as effective as at home but their seeds were not. They had neither the aspiration nor the capacity to reproduce the economic and political structures with which they were familiar and they returned home without having done so. These areas remain poor today.

There is one – only one – country that has developed a prosperous modern economy without importing European settlers and institutions. Is it a coincidence that Japan is also located in a temperate zone? Probably – but I wish I could be sure.

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