Rich Land, Poor Land

There was a popular book a few years back, Rich Dad, Poor Dad by Robert Kiyosaki which gave some very good advice about financial health and wealth. It was a catchy title, so I came up with something similar: Rich Country, Poor Country. 

I’m going to examine why some countries are rich and some are poor. I’m going to use Latin America as my model. But first I need to show who’s who so you can see which countries are rich and how rich and which are poor and how poor.

There are two ways to show this. One is by comparing gross domestic product (GDP), the measure of how much an economy produces. The other, which is more significant, is how much each household spends, a measure of personal wealth. These 2022 numbers are given to you per capita, so you can see it from a consumer’s point of view. My sources are the World Bank and The Federal Reserve.

Can you guess which countries’ citizens are risking everything by walking to our border? You can also see how powerful an economic producer of wealth is the USA. 

Why are some countries poor? It’s not about natural resources or the lack thereof that makes a country rich or poor. Hong Kong and Switzerland don’t have any, yet they managed to get to the top. It’s not about education systems, or pension systems because a lot of poor countries have natural resources, a minimal education system, or even a pension system (as wobbly as they may be). 

What poor countries lack are the right ideas about how things really work. 

Poverty was the norm since we evolved as homo sapiens. For millennia other systems failed and failed. There is only one economic system that has ever worked to bring people out of poverty and that is capitalism.

If you look at world history through an economic lens you will see economic output (GDP) hovering just above zero until around 1820. By the 1820s, in countries that had embraced capitalism, economic growth took off like a rocket; literally the graph looks like a hockey stick. Commensurate with growth came another hockey stick: worldwide longevity went from about 32 years in the mid-1800s to our present 70-80 years. It was the wealth generated by capitalism that funded the improvements that brought that result. 

Despite a world of exemplars of success, we still have poor countries. The formula of success is no secret: Freedom. Free markets, free trade, stable currency, the right to private property, freedom to act and pursue one’s “happiness”, a just government, and the rule of just laws. Basically, it’s freedom from government’s excesses and interference into our affairs. 

You don’t see this formula for success being employed in Latin America which has been plagued by Marxismo, Socialismo, and Fascismo. These systems represent a triumph of rhetoric over policy.

Socialism failed spectacularly, resulting in poverty, corruption, and dictatorships of various stripes. Venezuela is an example of a fairly prosperous country (by Latin American standards), blessed with oil, which now is one of the poorest. So poor in fact, it won’t divulge its economic data. Socialist poster boy Hugo Chávez and his jack-booted gangs achieved that. They nationalized everything and the country fell apart as Chávez grabbed more and more power. Millions left. Today people are scrounging for food. 

Argentina has an interesting but sad history. At the turn of the 1900s, it was one of the world’s wealthiest nations. Then, in 1946, along came Juan Perón, a populist, socialist-fascist strongman who started rearranging the economy by nationalizing industries, regulating the economy (inspired by FDR’s New Deal), empowering labor unions, erecting tariffs and currency controls, and raising taxes. Then he spent and spent to satisfy his base. It didn’t work and the economy has been in a steady decline ever since. Succeeded by mostly socialists, it has gone broke many times.

As of the Argentine presidential election last November, inflation was at 143%, people were abandoning the peso for the U.S. dollar, taxes were among the highest in Latin America, meat was scarce, unions kept striking, and 40% of its 46 million people lived in poverty.

Then something of a miracle happened: they elected a charismatic free-market libertarian, a pro-capitalist intellectual, as president. In his campaign he promised to change things by freeing up one of the most heavily regulated economies in the world. 

President Javier Milei has already started deregulating the economy, selling off state businesses, closing bureaucracies, and much more. He plans to dollarize the currency since the central bank is broke and no one wants the peso anyway. He has a very difficult task that will take time to work.

It will be interesting to see how this will play out. If successful, Argentina will be on the road to recovery. He faces strong opposition from entrenched authoritarian institutions (unions and the military) with a stake in the present system that has rewarded them at the expense of its citizens. Milei believes he has the support of the people who voted him in and he promises to keep moving forward. If he succeeds it will be a beacon of light for other Latin American countries and an object lesson for government planners worldwide. Wish him luck.