Korea and Ghana Started Equal in 1960. Why Do Some Countries Never Develop?

In 1960, South Korea and Ghana had almost exactly the same income per person. Both were mostly farmers. If anything, economists thought Ghana had the better hand. It had cocoa, gold and a working port. Korea had just been flattened by war.

Sixty years later, one is about 20 times richer than the other, and it is not the one anybody would have picked.

Three explanations that fail

Geography

Hot places are poor and cold places are rich. There is something in it, until you look at Singapore, which sits on the equator, and Botswana, which is landlocked and dry and grew faster than almost anywhere for 30 years.

Culture

Some people just work harder. The Korean peninsula is the cleanest test there is. Same people, same language, same food, two governments. One half is lit up at night. The other is almost dark. Nothing about the people changed at that line. The rules did.

Resources

This one is backwards. On average, countries with great natural wealth grow more slowly than countries without it.

Why resources hurt

A normal government is funded by taxing its people. It needs them productive, and it needs them not furious. That is where accountability comes from.

Replace that with a hole in the ground that earns more than the whole population. The government no longer needs you. It needs the hole and a few people to guard it.

There is a second effect. Resource money makes the currency strong, so everything else you might export becomes expensive. The factories never get built. Venezuela had the largest oil reserves on Earth and ended up importing food.

Norway avoided this. It put the money in a fund and spent only the returns. Botswana did something similar with diamonds. Both decided that the money belonged to the next generation and wrote it down.

Two kinds of institution

An extractive system moves value from most people to a few. An inclusive one lets anybody start something, own it and keep most of what it makes.

The test is simple. Can an outsider with a good idea get rich without permission?

Where the answer is no, people do not try. You can see it in what clever people choose to do. In one kind of country they build something. In the other they go into the ministry.

Extractive systems can grow for a while. You can order a country to build steel mills. You cannot order the next thing nobody has thought of yet.

What aid can and cannot do

Aid has saved an enormous number of lives through vaccination, malaria nets, clean water and treatment. That is not disputed.

Aid meant to build an economy works less reliably. Money given to a government arrives without being earned, like money from a hole in the ground. What tends to work is dull: cash given directly to people, and payment for results.

What does work

Every country that got rich in the last century did it by making things, and each began by making somebody else's product badly.

Korea made wigs and plywood before ships, and ships before chips. China made toys and shirts for 20 years. Japanese goods were once a byword for cheap.

The making is not the point. What you learn by making is the point. A factory teaches logistics, quality control and maintenance. Those skills live in people, not buildings.

The countries that climbed protected their beginners and then made them compete. Protection with a deadline works. Protection without one becomes a permanent subsidy.

The missing ingredient is time

Korea, Taiwan, Singapore, China and Botswana had different politics, but each had roughly 40 years in which the basic direction did not reverse.

A road takes five years. An industry takes 20. A research base takes 40. Argentina was one of the richest countries on Earth in 1913 and has defaulted nine times since.

It is not about the people

Move a person from a poor country to a rich one and their output rises at once. Economists call it the place premium. Same person, same skills, same week.

The difference was never in them. It was in the road, the power supply, the court and the bank.

The short answer

People are not the variable. The variable is built, and things that are built can be rebuilt. The countries that climbed were not luckier. They were left alone long enough to finish.