Tomas Pueyo’s Substack, “Uncharted Territories” is another to which I’d subscribe if I had the jack which I don’t. I think it is interesting and he is insightful. I don’t know whether his basic theme is that geography is dispositive or merely a highly important factor but it’s one of the two.
In a recent post he considered why Argentina is poor. A century ago it was one of the richest countries. Now it isn’t. His conclusion is that the Argentines have mad a lot of bad decisions over a long period of time.
I would suggest that Mr. Pueyo (a Spaniard) consider an additional question. Why are nearly all former Spanish colonies poor and nearly all former British colonies rich? I would suggest two reasons and they both apply to Argentina. The first is that the Spanish did not invest capital in their colonies (the opposite if anything) and the second is cultural.
Consider the British colonies as a comparison. The British (and Dutch) invested heavily in the young United States. Even just a few years after the War of 1812 the Erie Canal (now celebrating its bicentennial) was heavily financed by British and Dutch investors. The same is true later on of the railroads that enabled the U. S. to remain a single country which were heavily financed by foreign private investors (mostly British and Dutch). The British were also vitally important in financing the telegraph lines that tied the farflung country together.
I think that a major reason the British and Dutch invested so much in the U. S. is cultural. The United States was settled by middle class and lower class Britons (then the Germans, then the Irish). By and large the British nobility stayed at home.
And, as I noted in one of my earliest posts, although settlers don’t bring their meager possessions with them when they emigrate they do bring their cultures. Behaviors, practices, religion, language. And so on. The British and Dutch saw that as an attractive basis for investment.
Along those lines, the British civilians arrived and settled in America before the British army arrived. The Spaniards and to a degree the French, came with soldiers first and never encouraged their citizens to immigrate to the new world. They had no roots when trouble came.
I have always thought the reason the former British colonies are wealthy was not due to investment, but values. Specifically, the British had a lasting legacy of following the rule of law and protecting personal property rights. These were passed down from the Magna Carta. These are foundational to a nation’s success. Spain did not have these values or implement them in their colonies.
Argentina weakly recognized these rights for a while, but abandoned them under Peron. The reason they were so easily abandoned is because they weren’t part of the Argentine cultural DNA. The good news is that Javier Milei is instilling these principles in younger Argentines. If it sticks, I expect Argentina to become very wealthy again.
The part about property rights or more generally how investment is treated is the critical distinction.
I’ll point to a completely different place and time period; China from 1960 until today. From 1960-1978; China didn’t get any foreign investment, it wasn’t welcomed either. Then from 1978-2021 or so; China was the top destination globally for foeign investment; despite not having common law or a liberal political entity — despite that, investors put their money because it was perceived they would be treated well (and the allure they could make money) — for the most part, foreign investment was treated well in this period. From 2021 coinciding with the “shared prosperity drive”, FDI dived as foreign investors felt they weren’t treated well.
Foreign investment goes where it is treated well and there is perceived opportunity to make money; that can be a bottoms up cultural value (derived from the English like the US), or it can be a top down directive (like China in the opening up period). The question is which way is it more enduring.
It was in 1978 that I stood up in the boardroom of an international company (where I was being offered a high-level position in a new venture by that company in China) and explained to them the realities of the situation. That the currency was not convertible. That they would be required to accept a Chinese partner. That all proprietary IP would need to be opened. That the Chinese preferred to produce their own rather than buying stuff produced by outsiders (addressing the “access to markets” incentive). Of course, they didn’t believe me. Of course, everything I told them is exactly what happened. They didn’t make a dime from the investment. Just as I advised them.
Seeing the handwriting on the wall, it was soon after that I left Fortune 500 companies for good.
Or it can be neither which is why most former Spanish colonies are poor.