As we reflect on this important day in American history, I think we should remember what we should be most thankful for in this country: the bad luck of the early British colonists. Hear me out.
Many people seem to think the United States became such a rich country either because our early colonists were good and moral pioneers or because they exploited the heck out of the native population (and everybody else).
But if we compare our history to the history of poorer countries like Mexico, we find out that the Spanish colonists there were more brutal exploiters, and that the British colonists here tried to be just as brutal, but failed because of bad luck. And that failure is what eventually made America so rich and so free.
Why Nations Fail
In their book Why Nations Fail, economists Daron Acemoglu and James Robinson start out by looking at the city of Nogales, which borders the United States and Mexico. On the US side, residents have higher life expectancies, higher incomes, and better infrastructure. Acemoglu and Robinson puzzle over why this disparity happened. To find the answer, they look back to the colonial practices of the Spanish and the English.
When the Spanish arrived in what is now Latin America, they overthrew the Guaraní kings, married their princesses, and ruled the people themselves. They also stumbled onto incredible stores of wealth and unwittingly inflicted upon themselves what economists now call the resource curse.
The Spanish exploited the native populations, subjecting them to brutal conditions.”]
The Spanish exploited the native populations, subjecting them to brutal conditions. But the colonists were exploited, too, in that they didn’t own their estates: the king of Spain did. This arrangement made the colonists dependent on the favor of the king. He had incredible and absolute power. Few could stand up to the person with control of the land, resources, and profits.
Concentrating political and economic power in this way caused great instability in the colonies and in Spain. There were revolts and constant tension between the exploited people and the colonists, and the market for gold and silver fluctuated wildly as the Spanish flooded it with the precious metals, tanking the value of both.
The native populations saw their living standard fall to subsistence levels.”]
The Spanish created what Acemoglu and Robinson call extractive institutions. While colonists became rich off the work of the natives and the king became rich off the gold from the mines, the native populations saw their living standard fall to subsistence levels. The Spanish forced them to work for low wages, imposed high taxes, and charged high prices for necessary goods. Due to these institutions, Latin American became “the most unequal continent in the world,” as Acemoglu and Robinson put it.
The English had a remarkably different experience — but not, I’ll add quickly, because they had more noble intentions. The English founded the Virginia Company with the exact same intentions and the exact same objective as the Spanish: find precious metals and get the indigenous population to get it out of the ground. What they found, however, was the Powhatan Confederacy of North American Indian tribes, led by Wahunsunacock, who would have none of it. And Virginia’s climate was no more hospitable than the Confederacy: the English endured dangerous shortages during their first winter.
Enter John Smith.
He saw that the colony needed tradesmen and that the colonists would have to farm the land themselves. He bullied the colonists into working and bullied the natives into trading. He required everyone to pitch in. Thankfully, they survived a second winter.
The English imposed draconian rules on the productive colonists.”]
Seeing this model taking shape, the Virginia Company thought about its bottom line. Without an exploitable native population and precious metals, it was not making enough money. For that reason, the English imposed draconian rules on the productive colonists.
They forced the men to live in barracks, gave them rations, and had someone from the company oversee the work gangs. They made running away, stealing, and trading outside of the established rules punishable by hanging. But these tactics did not turn things around for the Virginia Company.
Colonists in Virginia had options.
The colonists could run away beyond the company’s jurisdiction — and they did. As this trend continued, profits fell and the Virginia Company had to change its ways. It learned it had to give the colonists incentives to work hard. It spread economic and political rights among those individuals, which caused the colonists to feel like they were partners in the establishment of a successful colony. The colonists stopped revolting and running away (well, not all of them, but it stopped the flood).
Other US colonies experienced a similar progression, and by the 1720s, most of the colonies had similar governing structures: a governor, a legislative assembly, and enfranchised male property owners. By the standards of democratization and free market reforms in the early 18th century, that was phenomenal.
The luck of the Spanish turned out to be their misfortune, and the curse of the English turned out to be a blessing.”]
The luck of the Spanish turned out to be their misfortune, and the curse of the English turned out to be a blessing. The United States has experienced the amazing power of what Acemoglu and Robinson call “inclusive institutions,” those that give people the incentives and the level playing field they need to innovate, invest, educate, and create economic growth. It is thanks to those inclusive institutions that the United States enjoys a great deal of political freedom, economic freedom, and safety.
We should all reflect back on those intrepid colonists who struggled through hungry winters and fought against draconian rules so we could enjoy fireworks, hamburgers, and ice cream on the 4th of July.