Economists typically explain the wealth of a nation by pointing to good policies and the quality of a country’s institutions. But why do these differences exist in the first place?
In “A Farewell to Alms: A Brief Economic History of the World” .Gregory Clark, an economics professor at the University of California, Davis, identifies the quality of labor as the fundamental factor behind economic growth. Poor labor quality discourages capital from flowing into a country, which means that poverty persists. Good institutions never have a chance to develop.
Professor Clark’s pessimistic view is that most forms of policy advice or financial aid do not solve the problem of economic development. Unless the quality of labor rises, those would-be remedies are addressing symptoms, not causes.
Professor Clark’s analysis counters Jared M. Diamond, who in his “Guns, Germs and Steel” (W. W. Norton & Company, 1999) located the ultimate sources of European advantage in geography, like safety from tropical diseases, and a greater number of available animals that could be domesticated.
A simple example from Professor Clark shows the importance of labor in economic development. As early as the 19th century, textile factories in the West and in India had essentially the same machinery, and it was not hard to transport the final product. Yet the difference in cultures could be seen on the factory floor. Although Indian labor costs were many times lower, Indian labor was far less efficient at many basic tasks.
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