Over the past two centuries, quite staggering differences in income have opened up between countries. Understanding why this has happened, and what can be done to reverse it, is the most important project in social science. Although the phenomenon is evidently economic, the discipline of economics has not so far provided a compelling account. The resulting vacuum has attracted other approaches, some from the other social sciences and some from non-mainstream economists. Two recent books, Lawrence E Harrison’s The Central Liberal Truth: How Politics Can Change a Culture and Save it From Itself (OUP) and Erik Reinert’s How Rich Countries Got Rich, and Why Poor Countries Stay Poor (Constable & Robinson), are, respectively, examples of these variants. They both neglect recent mainstream analyses, but would probably disagree even more strongly with each other than with the mainstream economics they criticise. While they cannot both be right, they can both be wrong, and I think that they largely are. However, each contains enough painful truths to be discomforting for conventional thinking.

Harrison pins the blame for economic divergence on culture, while Reinert blames trade liberalisation. By contrast, in recent years the mainstream contenders have been geography, institutions, and leadership. The geographical thesis has two variants. One emphasises intrinsic differences: for example, being landlocked and being prone to malaria are seen as major obstacles to development. The other variant emphasises differences that arise because some countries develop before others; in traditional economics, late starters should catch up, but according to the “new economic geography,” a country that gets ahead then gets further ahead. The institutions thesis, meanwhile, following the work of Douglass North, sees institutions as setting the rules of the game, in particular shaping the incentives for investment. The most celebrated, and contentious, variant of the thesis is that institutions came with European settlers. Colonies that got a lot of settlers got good institutions and these have persisted, accounting for subsequent success. At the other extreme are colonies that got extractive industries without settlement, such as the Belgian Congo, so that good institutions never got established. Finally, the work on leadership proposes that individuals make a big difference to national economic performance.

I am reasonably confident that we will eventually conclude that geography, institutions and leadership are all important in particular contexts: we will not find one single explanation for the many failures in the development process. Institutions and good leadership are probably substitutes: only in the context of bad institutions is there a real difference between having a good leader and a bad one. Both institutions and leaders are only likely to matter where geography is conducive to development: some geographic configurations will frustrate the best human endeavours.

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