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Colonization, Institutions and Inequalities of Development in the Americas

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If colonisation, depending on the type of settlement, creates situations that are sometimes favourable and sometimes hostile to economic growth, in the long run, colonisation induces inequalities.

Today, between North America and Latin America, or during colonization, a particular type of settlement is taking place between North America and Latin America, where the income gap is 1 to 5. If we go back in time and look at the process in the long term, there is something induced by colonization. The type of colonial settlement in North America being more favourable to long-term economic growth than the type of settlement in Latin America.

A Typology of American Colonial Economies[edit | edit source]

Engerman and Sokolov are two economists, the first is known for his work on the economics of slavery in the United States, the second was a professor of economics at the University of California and the founder of a center for economic history, he died in 2007.

It is possible to enter into this scheme by opening several doors. There is a question that these two authors ask themselves when they set out to make a typology for the Americas at the time of colonization.

This question is that of the origin and richness of the poverty of nations? Why is the world made up of countries at different levels of development?

This is an old question addressed by Adam Smith, and this question leads to another: what can be done to reduce the wealth gap?

As economists, they always bring out what they are interested in in the news: what can be done to reduce wealth gaps? In this way, they identify and isolate mechanisms to see what the solution might be.

The field of investigation to answer these questions is the New World, colonial America with the following peculiarity: the number of European countries establishing colonies in the Americas is small, mainly Spain, Portugal, Great Britain and France. It is pointed out that while there are few colonizing countries, in the Americas there are many colonies, a multitude of colonies on a continent made up of regions and a very varied natural and human environment.

Basically, the criteria for differentiation in order to establish a typology are geographical, climatic, epidemiological and demographic criteria, since they refer to the natural and human environment.

These two authors consider that America provides us with a kind of laboratory for understanding why some colonies in the Americas perform better economically than others over the long term.

So at some point, there is a divergence, some colonies will widen the gap and appear to be relatively well-off, rich and better off than others.

This proposed scheme is a causal line with starting characteristics :

  • of the colonized regions relating to the natural environment and demography, it is an approach by factorial endowment, on the other hand, these are indeed initial conditions.
  • institutions and the quality of institutions are involved.
  • economic performance.
  • Where do institutions come from, how are they formed, and why are some institutions adopted to promote growth while others hinder it?

One might ask, why the renewed interest in institutions in the 1990s? Why are we thinking about their importance for growth? to determine their origins? to understand their mechanisms of reproduction and transformation?

This renewed interest stems from a sense that economic factors alone are proving incapable of explaining why national income disparities not only emerge but also increase over time.

There are economic factors and other determinants of growth that are taken into account within this framework:

  • geography factor
  • institutions
  • public policy
  • history which is a reservoir of past experiences that can inspire development strategies for the future

There are three main categories of American colonies for which the inheritance is not the same, and then we will come back and say a little more about the criteria of differentiation on which this classification is based.

Academics try to simplify the world which is very complex, one way to simplify things for a rational mind is to make a classification, but when we make classifications there are always borderline cases like the southern states of the southern United States or Argentina.

The first category includes colonies of the type founded in the Caribbean in the northeast of Brazil or in the south of the present United States, their climate and the nature of their soil lend themselves to certain crops: sugar, coffee, tobacco, cotton. The specificity of these crops is their high commercial profitability, which is best ensured by the large slave plantation system.

The use of slave labour can be explained by the virtual disappearance of the indigenous populations, but the use of slave labour can also be explained by an economic factor. It is the significant economies of scale offered by some of these cash crops, when there is an increase in the quantities produced corresponding to a decrease in the unit cost of production, we talk about economies of scale, we also talk about factor productivity.

The particularity of the slave production system is that it induces strong inequalities in legal status and income, and these strong inequalities lead to the establishment of institutions.

These strong inequalities of status and income lead to the establishment of institutions in this first category of colonies that protect the privileges of the elites of European origin, but deprive the majority of the population of African origin of civil and economic rights.

Sources : B. Etemad, L’héritage ambigu de la colonisation. Économies, populations, sociétés, Armand Colin, Paris, 2012, p. 222.
Sources : B. Etemad, L’héritage ambigu de la colonisation. Économies, populations, sociétés, Armand Colin, Paris, 2012, p. 223.

By the mid-18th century, black slaves represented more than 70% of the population of the Caribbean and 40% of the population of the southern United States and Brazil. This type of settlement is hostile to long-term economic growth.

The second category is the continental Spanish colonies, notably Mexico and Peru, where the practice of the Hispanic colonizers of owning land, rich mineral deposits and indigenous labour to a small European or Creole elite led to the establishment of vast land estates.

The Spanish colonizer rested partly on pre-colonial structures with the system of encomienda, which gave conquistadors indigenous communities from which they could extract labour that was perpetuated beyond its formal prohibition in the mid-16th century. It is a system that was abolished quite early, but which is still being perpetuated. From the second half of the sixteenth century, Spain will reinforce the Inca system of tributary labour which is the mita of subjecting indigenous village communities to provide a quota of temporary workers employed in mines and plantations.

The colonial societies created by this type of settlement were based on authoritarian and extractive institutions that allowed the elites to exploit indigenous assets that were subject to the large landowners through a series of dependency ties. By the mid-18th century, the proportion of blacks in the eastern Hispanic colonies was less than 10 per cent.

One of the general characteristics of the colonies is the numerical size of the surviving Amerindian population. The population at the arrival of the European colonizer is in the range of 40 to 67 million, this population is decimated by the harshness of the conquest, the microbial shock, forced labour, social and cultural upheavals, this population falls between 5 and 6 million.

There are differences by zone, if we consider the Caribbean and tropical zones such as Mexico, depopulation is rapid and almost total, on the other hand, the demographic decline of these densely inhabited territories of the Aztec and Inca empires is followed by phases of recovery whose intensity and pace varies from one zone to another in Central and South America.

Sources : B. Etemad, L’héritage ambigu de la colonisation. Économies, populations, sociétés, Armand Colin, Paris, 2012, p. 221.

At the end of the 19th century, the Amerindian populations were located in the continental Spanish empire, which constituted 55% of the total population. The colonizer will help himself on the spot in areas where there is a capacity of the population to recover from the shock.

The third category includes very specifically colonies located in the northeast of the present United States and Canada. Basically, we're looking at an Atlantic coastal strip.

It's a type of settlement based on a European agricultural settlement type. What are the initial factors that make this type of settlement possible?

There is no prospect, as in Central America or the Andes, of plundering precious metals, which is why there is a century gap between the colonization south of the Rio Grande and the north, where the soils are densely endowed and allow for highly remunerative yields of tropical products. In the north, these soils are unsuitable for the planting of highly remunerative tropical products that favour the exploitation of the land by small farmers and their families.

In these small structures, there are no economies of scale at the outset that allow very high profits to be made. There is also a continuous flow of European immigrants who make up relatively small farms that are more or less evenly distributed.

The establishment of a European settlement in North America is facilitated by the very low population density accentuated by the epidemiological shock, by the extermination and push-back to the central and western United States suffered by the Native Americans. Settlement density is considered to be around one person per square kilometre.

On the eve of the arrival of European women in what is now the United States, the population density was around one person per square kilometer. This is an extremely low threshold, but it is characteristic of these societies of hunters, fishermen, gatherers, in other words, there are no farmers.

The lack of cohabitation between population and immigration means that the indigenous population is collapsing, being turned away and, if necessary, exterminated. This plays to the advantage of a white colonist, this absence is facilitated by the fact that a large part of non-American indigenous societies are not made up of farmers. There is no competition with local producers, neither in the land market nor in the agricultural commodity market.

Sources : B. Etemad, L’héritage ambigu de la colonisation. Économies, populations, sociétés, Armand Colin, Paris, 2012, p. 220.

In Table 10, we see how much this composition was changed between 1600 and 1800, when these first European settlements totally changed the composition of the population. The proportion of Europeans close to 0 at the beginning of the 1700s reached 80% by 1800, with the Amerindian peoples who were the inhabitants of this area in 1600, their population falling from 2% to 3%.

All the ingredients present can be found at the beginning of the 19th century in Australia, which is an entity outside the geographical and chronological framework of the typography of the Americas.

The original characteristics of the regions where European settlements were established are the colonies of the third type, the initial characteristics selected favour the constitution of colonial societies with a less unequal redistribution of wealth, with the establishment of less authoritarian political institutions, with the implementation of more growth-oriented policies with greater development potential than in the other two categories of the typology. In colonies of the third type, there are two communities: Amerindians and Africans who are excluded from the advantages enjoyed by Europeans, the colonies of European settlement are made by and for white immigrants. American Indians and Africans are excluded from the benefits enjoyed by Europeans, but these two communities account for a much smaller fraction of the total population than in the colonies in Central and South America.

By 1759, Native Americans and Africans accounted for about 5 percent of the North American population.

In North and South Carolina, Virginia, and Maryland, these states are an intermediate case in that they initially share common traits with other slave economies in the New World, but eventually embark on a path of development close to that of the northern United States and Canada.

To try to understand where the southern colonies of the United States can be located, one must make a comparison with the British colonies in the Caribbean, also known as the West Indies.

There is a difference in destiny between the southern United States and the British West Indies. Today, these regions are not at all similar, as was already apparent during the colonial phase.

The divergence of destiny can first of all be explained by the nature of the products grown there. From the moment we favour the environments, the geography, the nature of the soils and the nature of the products cultivated is a deterministic approach, but there are other conditions such as the conditions of departure, institutions, public policies, etc.

There are other conditions such as starting conditions, institutions, public policies, etc. In the starting conditions, there are objective conditions, one of the differences lies in the nature of the products cultivated, the West Indies is sugar, the development of sugar cane in the West Indies requires first of all considerable investments in land, in labour and in their refining, sugar plantations are big business.

The extensive use of slave labour gives this type of plantation its unique character. This type of culture is changing the demographic composition. In the first phase of colonial settlement the population resembled that of British West America, i.e. initially there were more Europeans than Africans, but with sugar in the mid-18th century Africans accounted for 85% of the total population of the British West Indies, relegating to 13% Europeans who, a century earlier, had made up a third of the workforce.

On the other hand, the black population will never be in the majority in the southern continental colonies. On the eve of the United States' declaration of independence in 1776, the south had a population of 1.2 million, 37% of whom were black.

The only part of the south that is unique to the Caribbean is the coastal area of South Carolina and Georgia, where blacks are in the majority -- 70 percent -- but the coastal area of South Carolina and Georgia is home to only one-tenth of the southern population. Everywhere else, the European population is between 60 and 85% of the population.

In the south, on average 37% are black, with the exception of the coastal area of South Carolina and Georgia, but they do not account for much of the total population of the south, which is 10%. In 90% of the south, Europeans account for 60 to 85% of the total population, which is primarily due to the nature of the produce grown.

This is primarily due to the nature of the products grown. We must first of all stress another element, which is the size of the farms. The system of exploitation in the south is slavery, but there are differences in the constitution of the population.

The size of the plantations depends on the types of crops, with the large economies of scale offered by sugar cultivation leading to the specialisation of production in large units in plantations of up to 400 hectares where more than 400 slaves work becoming the norm in most West Indies in the 18th century.

There is a system of production that gives the large growers enough income to enable them to have free costs: for their needs in goods and capital, they will resort to external rather than local circuits and agents.

The large West Indian grower is well-off enough to be able to live in metropolitan France and nurture ambitions for social advancement.

In other words, around the sugar crop there are no complementary economic activities on the spot, goods are imported, capital comes from outside, the owner is absent and lives a big life outside his plantation and the island, he does not have a resident mentality.

In contrast, the southern United States represents a different situation with tobacco cultivation, which has become established in Virginia and Maryland, but does not lend itself so well to economies of scale. Also, in Virginia and Maryland in tobacco growing, the production units are generally small. In Virginia and Maryland in tobacco growing, the farms and production units are generally small, operating with small groups of slaves of about ten.

In this part of the south, where whites are in the majority, tobacco production for export was not dominant until the 17th century. Sugar becomes a monoculture, it is so profitable that it is not worth the cost of doing something on the side, on the other hand, the extension of tobacco cultivation will give way to a gradual diversification, tobacco will gradually make way for cereal and forest products.

From a certain point on, there is a diversification that prevails over specialization in the southern colonies as well as in the north.

The only exception to this rule is the rice country of South Carolina, which is only profitable to grow on a large scale as sugar, which requires large investments and the use of a large amount of slave labour. South Carolina's rice plantations are only as large as those in North America.

Unlike the sugar magnates, the rice magnates are not absentee; they spend a major part of their income locally.

Cotton appeared at the end of the 18th century and at the end of the 19th century from South Carolina to Alabama on terms quite similar to those of the export crops of the colonial period. The majority of cotton plantations are larger than those of tobacco, but smaller than those of rice and sugar, because cotton plantations, compared to the latter, are less favourable to economies of scale.

The cotton owner has a resident mentality.

Without comparison, characteristics cannot be identified. It is because we have drawn parallels with the West Indies that certain peculiarities of the southern United States have emerged :

  • the production units are smaller in the southern United States.
  • whites outnumber blacks.
  • diversification trumps specialization.
  • resident mentality of growers in the southern United States involves them in a regional economic activity in which they are actively engaged.

It is possible to make a link between the size of production units and the composition of the population: the large plantation, i.e. the large sugar plantation, is the rice continent of America, the large plantation is the enemy of the small white man.

Sugar cane and rice crops reduce the attractiveness of the West Indies and South Carolina for European emigrants from modest circumstances. There is a particular way in which production is organised in these two areas: contract workers or also contract servants and the petit colonat.

It is a system that was used to populate America, especially and above all the British colonies. These are workers who, by contract, temporarily give up their freedom for 4 to 7 years in the hope of improving their lot in a new country to which they emigrate. Most of them are young people, debtors or outlaws.

They are sold to a landowner who in return provides clothing, food and lodging for the duration of the contract. At the end of the contract, the servants are free to settle wherever they wish.

The fact is that most indentured workers will become very reluctant to submit to the hardship of the regimented and regulated work of the large plantation. Conditions for workers in large production units are extremely harsh.

These workers do not commit themselves to the large plantation, while the small settler cannot compete with the large planters in sugar and rice crops where a large capital outlay is required.

Depending on the area, the settlement is done by different human groups. In the West Indies, there is a massive influx of black captives who bring with them deadly diseases from tropical Africa such as malaria and yellow fever, making these two regions the most unhealthy areas in America, prompting the small colonist and contract migrants to resettle in North America.

There is a movement of European migrants who are initially attracted. The large plantation is the enemy of the emigrants, small settlers and contract workers who leave these areas to settle in the continental colonies of North America.

On the other hand, the unhealthy conditions of the West Indies may explain the absenteeism of planters who know that residing on their land is tantamount to accepting a decrease in their life expectancy. Slaves are forced to live and work where Europeans do not wish to go.

Such considerations would not be possible if we were to limit ourselves to a case study. Unlike the West Indies, slave owners are in most of the southern United States a minority among the white population. In other words, there is not in the southern United States what one might call the social dominance of the planters, at least in the southern United States that social dominance that exists is attenuated.

It is on the basis of a demographic criterion, the composition of the population and the weight of the different groups that we can make such assessments.

If we become involved in the economy of the region and put down roots, then we can speak of a process of Americanization or creolization. It is basically because the planters in the southern United States are becoming Americanized that they are joining the north at a time when together they want to break away from England.

There is a process of rooting, of Americanization, which means that these Americans will want to become emancipated and, above all, no longer pay taxes to the British.

On the other hand, in the West Indies, which is a society dominated by large growers, they can afford not to be there. My sugar crop generates such profits that we can specialize to excess, we talk about monoculture.

When the thirteen North American colonies together declared their independence unilaterally in 1776, they could have been joined by the British colonies in the West Indies. On the contrary, the planters in the British West Indies did not join, did not follow the thirteen colonies on the road to independence.

The planters are not joining the thirteen colonies because they fear, they are a large minority fearing for their security and prosperity if they break away from the mother country. Basically, these absentee planters are not creolized, they do not consider themselves American.

They have remained at the bottom of the Europeans and as such they cannot renounce the link with the metropolis. It is these ties that keep them in place, whereas in the southern United States there is a process of empowerment at the level of regional economies.

Eventually, the colonies in the south of the United States will have a shared destiny with the states in the north of the United States.

The factor endowments approach[edit | edit source]

The approach that favours initial conditions favours factor endowments questions us about what initial conditions are.

Initial conditions are shaped by geography and history. The goal for the colonizer is to seize opportunities and overcome challenges. The colonizer has patterns, a model, the idea of an ideal colony.

However, this does not work. The idea is that there is a gap between what the colonizer wants to do and what he has in mind, favouring a model based on what he knows. When they arrive, they discover something that doesn't look like it, so a gap appears.

Every time you see something appear at the beginning, when you choose a type of settlement, you are forced to modify your plans. There is a discrepancy between the actual type of implementation and what was initially imagined, which is the basis for the relevance of the approach that favours the initial conditions.

The initial conditions are the natural environment, as well as the weight of man and the density of population.

Something unexpected is the man-land relationship, we are in the British colonial domain of the 17th century. In Great Britain, there is a situation according to this criterion of little land for many men.

On the other hand, when the British apprentice colonizers arrived in North America, they found a reverse situation with a lot of land for few men, which had not been anticipated.

We must remember two areas which are New England, that is Maine, New Hampshire, Rhode Island, Connecticut and the middles colonies which are New Jersey, Pennsylvania and Delaware.

These are loosely hierarchical societies in which the land is left to free settlers to work it. There was no evidence to suggest that this would happen. Initially, the British crown, which did not itself ensure the colonization of its territory, granted concessions by royal charter either to private companies or to English nobles. These were concessions of several million hectares.

On these millions of conceded hectares, the English nobles had the right of sovereignty and the exploitation of the land was entrusted to an immigrant workforce. The initial project is to transplant the metropolitan seigniorial system to North America; the colonizer wants to reproduce what he knows.

However, the abundance of land in relation to a labour force, whether Indian or emigrant, compared to a numerically small one, as well as the absence of economies of scale that preclude high profits, these two elements will combine to create a balance of power favourable to the small settlers.

Small settlements, given this balance of power, have easier access to land and increase the possibility of social advancement. It is not that private charter companies or English nobles have tried to go against this process of openness and democratization, but they have failed.

Penn's Treaty with the Indians, by Edward Hicks

William Payne was the founder of the colony of Pennsylvania in 1682. He was given a territory the size of England, and Payne, who was at the head of an immense fortune, was unable to prevent the birth of an egalitarian society of small landowners. What is important are the initial conditions, and we have to take into account the relationship between man and land, which is different. The same process is taking place in French Canada, where there is an attempt to introduce a seigneurial system of land ownership that is failing to make way for farms and small family structures geared to cereal production.

The original plan was to introduce into North America societies as unequal as European societies with privileges and strict hierarchies. The gap between the ideal of colonies and the actual settlements is the basis of the approach that favours the conditions of departure.

Georgia is located in the south-eastern part of what is now the United States and, together with North and South Carolina, forms what is known as the lower south. Its founders are a famous social reformer, a small group of Anglican church merchants and politicians. Georgia's founders were men of good will, but idealistic. We are going to see a gap appear, they have something crazy in mind. The foundation of Georgia dates back to 1732, and this foundation gave rise to a debate on the usefulness of slavery as an institution, that is to say that the founders of the colony believed that they could do without slavery.

Basically, the project is designed to make slavery unnecessary while Georgia borders South Carolina where there is a system of large plantations, rice cultivation is prosperous and enriches the farmers, and blacks outnumber whites.

There is a project to offer an opportunity to immigrants who are poorly off in Britain to get out of precariousness and unemployment. In fact, the initial project of the founding group of Georgia is to provide Britain with some of the raw materials developing in the colony from Mediterranean-type crops such as vines, silk mulberry and chambray.

These are types of culture totally unsuited to the environment, but in choosing these types of culture they had the idea of not using slavish labour, obtaining in 1735 from the British parliament a ban on slavery in the new settlement. This decision was opposed by a group of colonists whose arguments were not based on morality or religion, but on common sense. Opponents of the prohibition law argue that the economic and social project conceived for Georgia by the founders was not feasible given Georgia's geographical and climatic conditions.

In view of the starting conditions, the slavery of Africans and the most adequate and economically advantageous labour system. This argument, reinforced by the triumph in neighbouring South Carolina in a slave-rice economy, would eventually prevail over that of Georgia's founders, who were convinced that migrants could work without black slaves.

In 1750, slavery was introduced into Georgia, which converted to a plantation economy.

On the basis of such examples, it appears that the contrast between the north and south of the thirteen North American colonies in terms of population composition and economic structures has less to do with cultural differences than with the immigrants who settled in these parts of the future United States than with the different backgrounds of baggage common to all British settlers in the New World.

The contrasts are not so much due to cultural differences as to the necessary adaptation to different backgrounds. The choice of the south to institute bonded labour depends less on the worldview of the early settlers than on the influence of climate and soil conditions on production systems and techniques.

The same British settler arrives with baggage, but the British settler will establish colonies in the West Indies which bear no resemblance to the thirteen North American colonies of European settlement.

It is possible to find the same enlightening opposition in the French colonizer who established a colony in Santo Domingo, which became Haiti, dominated by the system of the large slave plantation and founded a settlement in Canada, which is what Quebec is today, a settlement colony.

In other words, what matters is not the identity of the colonizer, but the weight of the initial conditions that make us understand why the same colonizer will ultimately opt for very different types of settlements from one area to another.

This is also true for Asia and Africa: the colonizer imports the same baggage, but the type of settlement marks a difference imposed by the physical and demographic characteristics of the land invested.

In the end, for us, it is the type of colonial settlement that makes the difference. Engerman and Sokolov's scheme is a powerful tool, but one that we must try to adapt to see if it is operational elsewhere than in America.

In this concern to adapt or extend the adaptation scheme to other regions for the initial conditions, we have so far insisted on two categories which are related to the natural environment and the nature of the soils, for Asia and Africa we have to add the epidemiological environment, but for the second category we have to add the population density.

Among the starting conditions are the pre-colonial structures, what is in place. Pre-colonial structures collapse and disappear in this part of the former colonized world, so these two authors working inside the American laboratory, when they consider the natural environment and the weight of man.

To export the American scheme to Asia and Africa, the pre-colonial structures will take on a much greater weight.

For us, the conditions of departure are:

  • factorial charges
  • natural environment
  • weight of the men
  • level of economic and technical development achieved by Aboriginal societies at the time of the meeting

These groups of criteria should be used in varying combinations and weights to establish the MSDS for each type of colony. Once obtained, the fate of the colony or its destiny and its evolution in the long term can be linked to the initial conditions of the colony.

The other approach privileges the identity of the colonizer, the British do not colonize in the same way as the Portuguese, for example British institutions are said to be more flexible than in Portugal or Spain. The identity of the colonizer and his level, the higher his level of economic and technical development, the more the colonizer would have a force of transformation and penetration.

There is also the political and legal system, but also cultural values. Whether authors of the past or the present, there are supporters who favour the identity of the colonizer such as Adam Smith, Thomas Malthus and more contemporary authors.

When Smith wonders why there are no colonies that have progressed faster than the English colonies in North America, Smith already sees that there are some colonies from the mid-18th century that are different from others. He compared this with superficial settlements of Europeans, British and Dutch in Asia, India and Java, finding that the northern colonies fared much better. For Smith, this is because the institutions transplanted by the metropolis and the economic policies of the mother country are more favorable to growth in these colonies than in France, Portugal or Spain. Smith is writing at a time when the original ideal colonial model has been abandoned.

Malthus already sees between the beginning of the 18th and 19th centuries gaps between the south and the north that are linked to the identity and legacy of the colonizer. According to him, Spain and Portugal introduced into their colonies all the vices of their mother party that hindered wealth, while the virtuous English political and legal institutions ensured prosperity in the English colonies.

Contemporary writers argue that this difference is largely due to the fact that the former British colonies have a comparative advantage in inheriting from Britain institutions that are more conducive to growth.

For those who stick to the legal system, there is a difference between the common law system of Anglo-Saxon origin and the civil law system of French origin that is supposed to influence economic development: the colonizer would put in place a legal system that sometimes favours and sometimes is hostile to economic growth.

The more open and flexible common law system is characterized by the right of ownership and would favour the establishment of a small and efficient state. The second system is presented as narrow and hierarchical, linked to an interventionist state, with less economic performance and more corruption.

These systems are transplanted to the colonies. The first system is imposed in particular in the English colonies of European settlement, the United States, Canada, New Zealand and Australia, while the second is introduced by the Spanish, Portuguese, Dutch and French themselves in their possessions in Latin America, but also in Asia and Africa.

The advantage of Engerman and Sokolov's scheme is that it keeps a low profile, the approach to be favoured and that of the starting conditions.

The "reversal of fortune" hypothesis[edit | edit source]

« The last will be first, and the first will be last. »

— Mathieu XX.XVI

Initially, it is certain colonies that appear to be rich, these are the so-called exploitation or plantation colonies. The colonies that attract the most migrants are the exploitative colonies.

Basically, the colonies in North America are set up late because nobody is interested in them, they are unpromising territories. Voltaire does not think differently than his contemporaries describing the North American colony as doomed to failure and expensive, where you have to go and develop are the plantation colonies that are the richest; it lasts about 250 years.

After two and a half centuries, there is a reversal, the reversal of fortune hypothesis that can be illustrated in figures. This reversal can only be understood if one adopts the pattern that favours the initial conditions.

First of all, it is necessary to recall the explanatory schema that had emerged: until a certain point in time, when we considered colonization and then the economic performance of the colonies in the long term, we favoured a schema in which the identity of the colonizer, namely the level of economic and technical development, as well as cultural values and the legal system, dominated.

What we have retained as a schema differs from this long historiographical tradition that favours the identity of the colonizer in order to retain the initial characteristics of the colonized regions: it is the initial conditions that indirectly influence the quality of the institutions.

These initial conditions, which indirectly influence the quality of institutions, explain much better than the approach favouring the identity of the colonizer and precisely the setback that is more explicitly the evolution of the levels of development of the large regions that make up the Americas.

At a certain point, this evolution is experiencing a reversal: the reverse; the roles are reversed. To understand why at a given moment a reversal is taking place, we must look at the pattern that favours the starting conditions.

The first, i.e., the better-off, the parts of America that appear to contemporaries, but also to historians as the richest and that attract the most immigrants: these are the plantation colonies that pass for being richer and more profitable than the settlement colonies.

At first, that is to say during the first two and a half centuries, late 18th century early 19th century, the settlements are considered unproductive and expensive. They are expensive to set up, develop and obtain convincing results, but the plantation colonies bring immediate and substantial profits.

Carte de la Nouvelle-France, par Samuel de Champlain, 1612

Voltaire pitted New France, Canada in the temperate zone, against another French possession, Louisiana in the tropical zone: « French Canada is a country covered with snow and ice eight months of the year inhabited by barbarians, bears and beavers ». It is absurd to undertake a settlement in such a hostile region. This new France has « always been very poor while there are 15,000 carriages in Mexico City and even more in Lima City ». He implies that these are rich cities where there is an accumulation of capital: « I wish that Canada was at the bottom of the icy sea and that we were busy in Louisiana planting cocoa, indigo, tobacco and mulberry ».

For Voltaire, as for the enlightened minds of the 18th century, the richest and best are the plantation colonies and sugar islands of the Caribbean.

Two indicators are available :

  • retrospective accounting which is an attempt by quantitative historians to measure per capita income which is an indicator of wealth and poverty.
  • the number of immigrants: where do they go? Which country are they attracted to? It is the attraction to lands of opportunity, opportunities for a better life.

Based on these two indicators, during the first two hundred and fifty years after the arrival of Europeans, the Caribbean, Central America and South America appear to be the most promising regions, with the highest per capita income and the areas that attract the most immigrants.

On the other hand, there are less popular areas such as the present United States and Canada: the vast majority of the 6 million immigrants are for 1/3 of the African captives and 2/3 of the European immigrants, who arrived between 1500 and 1760, are concentrated in the economy of exporting profitable tropical foodstuffs, even though mortality rates from disease are higher there than in North America.

The wealthy colonies will be overtaken by those that initially appeared less promising. The situation was reversed at the end of the 18th and beginning of the 19th century, from then until today, North America attracts the majority of European immigrants and performs better economically than the rest of the American continent.

Degree of inequality, quality of institutions and development trajectories[edit | edit source]

The origin of this reversal of fortune can be found in the degree of inequality in the emerging colonial societies in terms of wealth distribution, human capital in terms of training and education and inequality in political power.

Initial differences in the degree of inequality have profound and persistent effects on development trajectories in that they affect the quality of institutions.

We now know that the regions of the New World with factor endowments that can generate an extreme degree of inequality are those that are home to two categories of colonies: on the one hand, areas whose environment is conducive to the cultivation of commercially profitable tropical commodities produced under the slave plantation system and, on the other hand, colonies that contain relatively large Amerindian communities.

Two situations emerge that contribute to the formation of highly unequal societies that do not weaken over time, in which a small elite of European descent manages to claim a disproportionate share of the wealth, but not only a disproportionate share.

The small elite of European descent also manages to establish its political dominance over the vast majority of the population. The extreme inequality of these societies stems from two possibilities not present in the category of North American colonies. In the sugar colonies, an abundance of servile labour of African origin is used, while in the second category, in the Spanish mainland colonies, numerically supplied indigenous populations are cut off.

During the colonial phase, the composition of entities changed and differed from one category of colonies to another: areas of the New World with a high degree of inequality contain heterogeneous populations in the sense that elites are distinct from the bulk of the population, while areas where relatively egalitarian societies are formed have more homogeneous populations.

If on the one hand we have institutions and on the other hand factor endowments and the degree of inequality, there may be interactions, not necessarily in one direction.

Degré d’inégalité, qualité des institutions et trajectoires de développement.png

These are the British colonies in America that can be classified as follows:

  • New England
  • Middle Colonies
  • South
  • West Indies

The Middle Colonies are richer because the land is more fertile and the production more important while New England is handicapped by cold lands and it will take a long time to develop temperate crops, these are varieties and selection that over time must take into account a particular environment.

In these colonies there is the presence of black slaves or indentured servants who are not free.

This table shows the inequalities in the distribution of wealth, between these first three regions there is not much difference. On the other hand, if we compare with the British West Indies, the differences become extreme.

Within the thirteen North American colonies, between the north and the south of the Atlantic coastal strip that forms the core of the future United States, there are no significant differences, which is why the south joins the north after a certain period of time.

Looking at the British West Indies, the contrasts are very strong: the difference reflects the high proportion of slaves in the total population, the high profitability of the slave production system and the high degree of inequality in the sugar colonies.

It is possible to do the same exercise for Brazil at the beginning of the 18th century and join this approach: these studies show that Brazil is richer than Europe in terms of per capita income. At the time, Brazil was the colony of Portugal and was much richer, much larger, much more populated than Portugal.

Allégorie montrant l'arrivée du prince Jean et de sa famille au Brésil. Œuvre anonyme, XIXe siècle.

If we look at the distribution of wealth in Brazil, it is extremely unequal, concentrated in the hands of a very small minority of Europeans, be they Europeans, native-born Europeans, Creoles or assimilated Europeans.

At the end of the 18th century and the beginning of the 19th century, Portugal was threatened by French military troops who entered Portuguese territory and Lisbon around 1806. The whole Court will embark protected by the British fleet to Rio de Janeiro. Joao VI will settle in Brazil: no European Metropolitan Court has moved to settle in the colony.

So far, we have seen that the starting situation and the degree of inequality influence the choice of institutions. We will now see that institutions can have as much influence on the starting conditions as on the distribution of economic and political power.

The reason for this persistence is that the influences can be reciprocal. Thus, some institutions tend to maintain the initial endowment of factors or the same degree of inequality, these institutions can be :

  • political, in which case it is the right to vote, that is, the proportion of the population that can vote.
  • school, with the degree and level of literacy as an indicator.
  • Fiscal with direct or indirect, heavy or light taxation.

At the same time, government policies on immigration or land distribution are being pursued, which may tend to maintain the initial endowment of factors or the same level of inequality throughout the development paths taken.

In the Spanish colonies, land policy favoured the constitution of large estates. It should be noted that the large number of indigenous workers who are put at the service of the Crown and the elites encourages the metropolis, in this case Spain, to adopt a restrictive immigration policy in order to preserve in these American possessions the situation rent of the first arrivals.

The land and immigration policy contributes to maintaining inequalities and accentuating the conditions of departure.

On the other hand, in the North American colonies, the policy of distributing small plots of land and open immigration policies allow the institutions induced by the initial characteristics to contribute either to reproducing or accentuating them.

  • Why, over time, does the high degree of inequality not diminish in the slave-exploiting colonies and in the Spanish mainland colonies?

It is because in both of these categories the elites have the capacity to establish an institutional and legal framework that ensures them a disproportionate share of power and wealth. Elites manage to maintain their privileged status from generation to generation.

What is good for elites is not good for long-term growth. The North American colonies show that objective factors such as the human-land ratio restrict the ability of elites to shape institutions to their advantage. The balance of power is not in favour of the elites.

This objective factor restricts the ability of elites to shape institutions to their sole advantage. Even if elites shape them to their advantage, there are limits imposed by objective factors.

  • The question that arises when you leave the Americas and want to keep this pattern is whether it is applicable elsewhere in other parts of the world that were colonized. The question is whether this model is exportable to Asia and Africa.

From then on, a comparative perspective has to be put in place. It appears that in the Caribbean and the Pacific, in these two great regions, the European colonizer is benefiting from a clean slate: the European colonizer, at a frank cost, what was in place before collapses and sometimes disappears completely, giving him all the attitude to rebuild and build colonies without taking into account the pre-colonial structures that were under, the shock of colonization, collapsed.

This is not the case in Asia and Africa where pre-colonial structures are more resilient, they are much more resistant to the shock of colonization. The European colonizer most often has to compose.

In America and the Pacific, structures are replaced by others and new ones are created, whereas in Asia and Africa, the colonizer can at best superimpose something on structures that were there and do not disappear and with which he has to deal.

Sources : B. Etemad, L’héritage ambigu de la colonisation. Économies, populations, sociétés, Armand Colin, Paris, 2012, p. 217.

In order to mark these differences, the colonial composition of the subject populations can be varied.

At the beginning of the 19th century, 60% of the New World in America was of extracontinental origin. This is more marked in the Pacific, with a proportion of 95% for Australia and New Zealand.

Sources : B. Etemad, L’héritage ambigu de la colonisation. Économies, populations, sociétés, Armand Colin, Paris, 2012, p. 222.

On the other hand, throughout the colonial period, in Asia and Africa the European population is less than 1%.

Sources : B. Etemad, L’héritage ambigu de la colonisation. Économies, populations, sociétés, Armand Colin, Paris, 2012, p. 223.
Sources : B. Etemad, L’héritage ambigu de la colonisation. Économies, populations, sociétés, Armand Colin, Paris, 2012, p. 224.

This is what appears when one tries to export the America schema with the appearance of an initial condition that Engerman and Sokolov had neglected. In the initial conditions, it is the socio-economic structures at the arrival of the Europeans that matter most when one wants to study Asia and Africa.

World Bank experts are aware of what is being done in colonial economic history. The history of European colonization appears in the 2002 edition of the World Bank report because development economists are not interested in historians who go back in time and do what we have tried to remember.

The World Bank's experts are trying to explain why a very unequal distribution of income goes hand in hand with poor quality institutions, because the contrasting development history of North and South America reveals that a very unequal distribution of wealth at the outset, social cleavages and a population that is not very homogenous can be obstacles to the dynamics of institutional reforms.

In the 2006 report, the influence of Engerman and Sokolov is clearly highlighted, the World Bank experts affirm their conviction that inequality and institutions matter for economic development, and they repeat the pattern according to which American colonial history confirms certain things: "confirms the validity of hypotheses concerning the link between prosperity and equality in the political and economic spheres [...] an institution that believes that a reason for the inequality between rich and poor countries can be partly explained by a difference in institutions".

  • Gaps are difficult to reduce, they are actions surrounded by uncertainty, and they take a long time. Why are there difficulties? Why are there uncertainties? Why does it take a long time?

Changing institutions is complicated because there are winners and losers. The problem here is that gains spread over a large number of people are deferred while losses suffered by a minority powerful enough to block the process are immediate.

There is a link between economic development and indicators of well-functioning institutions. There is a positive correlation between the two, but it is not clear what the linkages between particular institutions are. The difficulty lies in determining the nature of the links between institutions and the development of the multifaceted nature of the concept of institution.

Institutions are constraints that structure political, economic and social interactions, but these constraints can be very different in nature, with state or non-state constraints, constraints that are market or non-market, formal such as property rights or informal such as customs, operating at the macro or micro level.

It is important to remember that institutions matter, but studies continue because there is still uncertainty: we do not know today which institution(s) are virtuous for long-term economic development.

It is possible to argue for this or that formula, this or that institution, but if we want to build effective institutions, we have to take into account the political and social realities of each country and how those realities evolve.

More concretely, this implies that, in order to produce the desired results, an institutional innovation must acquire legitimacy in the importing society. To do this, institutional innovations must have an affinity with the existing culture, it must have a link with existing institutions, in other words, institutional innovation, here, leads to hybridization.

The society that adopts an institutional innovation does so by combining it with something that is already there, and this observation is especially valid for colonial Asia and Africa, which retain under European domination the essence of their demographic foundation, but also the essence of their socio-economic foundation.

On the other hand, this type of observation is much less valid for the regions of the Pacific and America where the colonizer enjoys a clean slate.

In America and the Pacific there is a process where institutions are imported, but in Asia and Africa there are colonial institutions brought by the colonizer in his baggage, but in order to be operational, here they are married to the existing institution or else they are rejected. External institutions if they do not meet these conditions are rejected because there are structures that remain in place, are consistent and substantial, while the populations that remain in place and manage to take a share of the labour force, find themselves in a situation of taking, adapting or rejecting.

Annexes[edit | edit source]

References[edit | edit source]