December 24, 2004

Colonialism's Surprisingly Weak Impact:

Colby Cosh writes:

"'Using sophisticated mathematical models, a group of four economists has proven...'--well, the stunningly obvious: that the best thing a country can possibly do for its economy (and probably its general well-being) is to go back in time and get itself subjugated good and hard by the British Empire."

Yet, this doesn't seem that stunningly obvious to me: e.g., Zimbabwe (Where the joke du jour is, "Q. What did we have before candles? A. Electricity"), Burma, Iraq, Nigeria, Sudan, Pakistan ... Maybe these are exceptions that prove the rule, but the rule is starting to look awfully shaky.

In an article in Legal Affairs by Nicholas Thompson about this theory advanced by "Rafael La Porta of Dartmouth's Tuck School of Business, Florencio Lopez-de-Silanes of the Yale School of Management, Andrei Shleifer of Harvard's economics department, and Robert Vishny of the University of Chicago's business school" begins:

MALAYSIA AND INDONESIA COULDN'T BE CALLED TWINS, but they might be called siblings. The adjacent Southeast Asian nations possess similar natural resources and their citizens speak similar languages and follow similar strains of Islam. But Malaysia's economy is prospering while Indonesia's is floundering. Malaysia's stock market is far more vibrant than its neighbor's, and its average resident is three times richer...

Another explanation lies in the countries' legal systems, however. Malaysia was a British colony and its legal system is based on the common law: the set of rules, norms, and procedures that has guided the legal system of England and the British Empire for about nine centuries. Indonesia was a Dutch colony and its legal system derives from French civil law, a set of statutes and principles written under Napoleon in the early 19th century and imposed upon the lands he conquered, including the Netherlands.

According to research published by a group of scholars beginning in 1998, countries that come from a French civil law tradition struggle to create effective financial markets, while countries with a British common law tradition succeed far more frequently. While the scholars conducting the research are economists rather than lawyers, their theory has jolted the legal academy, leading to the creation of a new academic specialty called "law and finance" and turning the authors of the theory into the most cited economists in the world over the past decade.

C'mon, the main reason Malaysia is better off than Indonesia is because about a quarter of Malaysia's population are Chinese, who, according to Malaysia's former President Mahathir Mohamad, are smarter and harder working than the indigenous "bumiputras." Mahathir set up a clever system of affirmative action for the majority that keeps them from rioting against the Chinese while not burdening the more productive group so much that they all leave Malaysia. In contrast, as Amy Chua pointed out in World on Fire, Indonesia is only 3% Chinese, and the ruling Suharto family climbed in bed with the Chinese businessmen, so that when the Suhartos were overthrown in 1998, the Chinese were attacked in populist pogroms, many fled to Chinese-run Singapore, and the new "democratic" government nationalized $58 billion worth of Chinese-owned businesses, with the usual disastrous results for the economy.

Just by spinning the globe, it's easy to see that the correlation between the colonizer's legal system and the ex-colony's economic success is relatively faint. It's quite possible that in the esoteric area of financial markets law, the British heritage is more useful than that of the Code Napoleon, but, obviously, that's merely the icing on the cake of prosperity.

Obviously, a far more important factor is ideology. Vietnam did poorly up until about a dozen years ago, not because it was a former French colony but because it had a Communist economy. Ever since it turned to capitalism, it has grown quickly. Similarly, despite its continuity in common law judicial philosophy, India did not thrive after gaining independence from Britain in 1947 because it also inherited the Fabian socialism dominant in Britain at the time. On the verge of economic collapse in 1991, India began liberating its economy and has grown steadily ever since.

Overall, it's striking how little impact colonialism, despite all the intense emotions it engendered, has had on the post-colonial world. Consider Japan's ex-colonies: South Korea and Taiwan are success stories, while North Korea is a disaster. Similarly, a half century of American rule did not leave the Philippines with an economy has dynamic as America's, or even as it neighbors in the region.

Paul Johnson pointed out that colonialism was an intensely visual process, manifesting itself, for example, in painting the map of the world in the red of the British empire, but much of its impact was on the surface.

A less publicized factor that has become even more important since the collapse of communist ideologies 15 years ago rendered the ideological playing field a lot more level appears to be IQ. Something that strongly correlate with level of prosperity is national average IQ. In their 2002 book, "IQ and the Wealth of Nations," veteran academics Richard Lynn and Tatu Vanhanen estimated, from studies published in scientific journals, the average IQs for 81 countries. Despite the large amount of noise in this IQ data, they still found a strikingly high correlation coefficient of 0.73 between average IQ and average GDP per capita.

It's important to point out that all the obvious problems with estimating average national IQ -- such as obtaining nationally representative samples and finding culturally unbiased tests -- work to lower, not increase, the correlation with average per capita income. So, the correlation between income and the "true" average national IQs is likely even higher than 0.73.

And it's not like there's nothing we can do about national IQ -- UNICEF issued a report early this year, "Vitamin & Mineral Deficiency: A Global Progress Report," spelling out two steps that could raise 3rd world national average IQs: put iodine in salt and iron in flour or other staples. That helped eliminate "cretinism" and similar medical problems lowering intelligence in the industrialized world a few generations ago.

Of course, nobody picked up on this report in the press, because that would require talking about IQ.

My published articles are archived at -- Steve Sailer

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