This post continues the weekly series discussing themes from Gregory Clark’s book A Farewell to Alms. In chapter 15, Clark observes that world capital markets were reasonably well integrated by 1913, so that capital returns were roughly equal for all countries. Thus differing rates of capital return does not provide an explanation for the great divergence between countries which have become wealthy and those which have not.
Clark also asserts that, as a result of transportation improvements in the 19th Century, most economies had access to the resources needed for industrialisation by 1900. Most of the countries which did not possess the necessary natural resources were at no significant disadvantage relative to other countries. Clark therefore concludes that the divergence in the wealth of countries is attributable overwhelmingly to differences in efficiency.
In other words, wealthier countries are those which, at the end of the day, manage to produce more useful stuff per person than do other countries. This is achieved by having citizens who work hard, by adopting efficient work practices, and by encouraging the creation and efficient deployment of technology which enhances productivity, enabling each individual to produce ever-increasing amounts of stuff. Somehow, poorer countries miss out on this virtuous cycle.