x
Financial Literacy

Why Are Some Countries So Rich and Some So Poor?

Why are a few nations today so rich but many others poor – some desperately so?

It’s a fundamental question that has bedeviled the economics profession for a very long time.

As you can see from the map above, a handful of nations enjoy wealth levels comparable to the U.S., while most are significantly poorer.

There is no shortage of theories explaining these vast discrepancies in wealth and living standards between nations.

Some say it’s the result of colonialism – that is, Europeans raiding and pillaging other nations and stealing their resources.

Others point out that the large differences in wealth preceded colonialism. Instead, they point to geographical and ecological factors – more advantageous animals and plants, essentially – that brought accelerated growth to some regions.

UCLA geography professor Jared Diamond won a Pulitzer Prize for his book advocating this theory called Guns, Germs, and Steel. Even if you don’t buy into the idea, I highly recommend the book. The research that went into it is formidable.

Some theorists say the great global wealth divide is a cultural issue. Several nations – England, the United States and the Netherlands, for example – adopted early on just the right cultural combination of free markets and light regulation and taxation. Essentially, they were pro-business from the beginning, and it paid off.

Recent history certainly seems to support the idea that functioning capitalism eradicates poverty, while socialism does not, as Chief Investment Expert Alexander Green argues.

In 1990, 1.85 billion people – or about 36% of humanity – lived in extreme poverty according to the World Bank. By 2015, that figure had been cut by more than half, to 736 million.

But guess what? Of the people who escaped poverty, 800 million were Chinese, and they did so due to China’s embrace of global markets and capitalism. Despite the labels, China is not a communist nation. It is a one-party capitalist economy. And it has reaped the rewards of free markets in a very big way.

We used to call poor nations the “Third World.” Today we call them “emerging markets.” The idea is that they too can achieve prosperity if they copy what wealthier nations have done by creating and sustaining markets.

Some are doing just that. And that presents opportunities for investors, which ETF Expert Nicholas Vardy wrote about recently. Nick is a longtime expert on investing in these nations, so his advice in this area is truly valuable.

Investing in emerging market countries puts much-needed capital into these nations, so it can be a win-win for you as an investor and the people in these countries.

There’s another way to help people in poorer nations. That’s donating to charities that work directly in impoverished areas to deliver much-needed services that those who live in wealthy countries take for granted. Our friends at The Oxford Club support The Roberto Clemente Health Clinic, which works to bring healthcare to the underserved region of southwestern Nicaragua.

It’s one of my favorite charities. I hope you’ll check it out.

Enjoy your day,

Matt


About

Matt has worked as an editorial consultant to the International Monetary Fund, the World Bank, the Economist Intelligence Unit and other global macro-institutions. He wrote about markets and economics for U.S. News & World ReportBloomberg News and Investor’s Business Daily, among other publications. He also worked for several years as head of political economy for a Financial Times-owned macroeconomic consulting firm, advising hedge funds around the world. Matt’s claim to fame is that he’s interviewed two U.S. presidents and has spoken with five Federal Reserve Chairs from Paul Volcker through Jerome Powell. Matt also served as The Oxford Club’s Editorial Director for two years.

Articles by
Related Articles