Tue, Jan 05, 2016 - Page 9 News List

Stolen-wealth theory does not explain global wealth distribution

By Noah Smith  /  Bloomberg View

If you get involved in online debates about economic history, it is not long before someone tells you that the West is rich because it stole the resources of the regions it colonized. This stolen-wealth theory is cited as the reason that Britain and France are rich today, while Ethiopia and Burundi are poor. It also is sometimes used to argue that international capitalism is inherently unjust and that wealth must be radically redistributed between nations as compensation.

The problem is, the stolen-wealth theory is wrong.

Oh, it is absolutely true that colonial powers stole natural resources from the lands they conquered. No one disputes that. At the time, this definitely made the colonized regions a lot poorer. The UK, for example, caused repeated famines in India by raising taxes on farmers and by encouraging the cultivation of cash crops instead of subsistence crops. That is a pretty stark example of destructive resource extraction.

It is also probably true that this stolen wealth helped much of the West get rich. Of course, Western nations did not simply consume the resources they plundered — the international economy is not just a lump of wealth that gets divvied up, but rather relies on the productive efforts of individuals, companies and governments. Britain, for example, was able to industrialize not by consuming spices confiscated from India, but because its citizens invented power looms and steam engines and other technologies and because its people worked very hard at factories and plants that used those technologies.

However, steam engines and power looms and other industrial machinery required raw materials like coal and rubber as inputs. When those materials became less expensive, it became cheaper to substitute machines for human labor. That means that some of the resources stolen from colonies probably did give Britain and France part of the boost they needed to jump-start the industrialization that eventually made them wealthy.

So if the West did steal resources from colonized nations, and if this theft did help them get rich, why do I say that the stolen-wealth theory is wrong? I say that because the theory does not explain the international distribution of income today. It is no longer a significant reason why rich nations are rich and poor nations are poor.

The easiest way to see this is to observe all the rich nations that never had the chance to plunder colonies. Germany, Italy, Sweden, Denmark and Japan had colonial empires for only the very briefest of moments and their greatest eras of development came before and after those colonial episodes. Switzerland, Finland and Austria never had colonies. In addition, Taiwan, South Korea, Singapore and Hong Kong were themselves colonies of other powers. Yet today they are very rich. They did it not by theft, but by working hard, being creative and having good institutions.

Meanwhile, poor nations have long since taken control of their natural resources. State-controlled oil companies in nations such as Saudi Arabia, Venezuela, Iran and Russia own far more of the world’s oil than do giant Western corporations like Exxon or BP. African nations control their own mines and Latin American nations their own crop land. The era of resource theft by rich nations is over and done.

Yet still, somehow, these nations are not very rich. Only a small handful of tiny nations whose economies are based on natural resources — Brunei, Kuwait and Qatar among others — are actually rich. Most are poor, despite controlling all of their own wealth. This sad fact is known as the resource curse.

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