The British Empire was the largest in history. At the end of World War II Britain had to start pulling out from its colonies. A major part of the reason was, ironically, the economic prosperity that had come through industrialization, massive improvements in transportation, and the advent of telecommunications, ethnic and religious respect, freedom of speech, and other liberties offered by the empire.
The colors represent the colonies of various nations in 1945, and the colonial borders of that time – click to enlarge.
After the departure of the British — as well as the French, German, Belgians, and other European colonizers — most of the newly “independent” countries suffered rapid decay in their institutions, stagnant economies, massive social strife, and a fall in standards of living. An age of anti-liberalism and tyranny descended on these former colonies. They rightly became known as third-world countries.
An armchair economist would have assumed that the economies of these former colonies, still very backward and at a very low base compared to Europe, would grow at a faster rate. Quite to the contrary, as time went on, their growth rates stayed lower than those of the West.
Socialism and the rise of dictators were typically blamed for this — at least among those on the political Right. This is not incorrect, but it is a merely proximate cause. Clarity might have been reached if people had contemplated the reason why Marxism and socialism grew like weeds in the newly independent countries.
According to conventional wisdom, the situation changed after the fall of the socialist ringleader, the USSR, in the late 1980s. Ex-colonized countries started to liberalize their economies and widely accepted democracy, leading to peace, the spread of education and equality, the establishment of liberal, independent institutions. Massive economic growth ensued and was sustained over the past three decades. The “third world” was soon renamed “emerging markets.”
Alas, this is a faulty narrative. Economic growth did pick up in these poor countries, and the rate of growth did markedly exceed that of the West, but the conventional narrative confuses correlation with causality. It tries to fit events to ideological preferences, which assume that we are all the same, that if Europeans could progress, so should everyone else, and that all that matters are correct incentives and appropriate institutions.
The beginning and end of the Soviet communist era in newspaper headlines. The overthrow of Kerensky’s interim government was the start of Bolshevik rule. To be precise, the Bolsheviks took over shortly thereafter, when they disbanded the constituent assembly in in early 1918 and subsequently gradually did the same to all non-Bolshevik Soviets that had been elected. A little more than seven decades later, the last Soviet Bolshevik leader resigned. It is worth noting that by splitting the Russian Federation from the Ukraine and Belorussia, Yeltsin effectively removed Gorbachev from power – the latter was suddenly president of a country that no longer existed and chairman of a party that was declared illegal in Russia. [PT] – click to enlarge.
The claimed liberalization in the “emerging markets” after the collapse of the USSR did not really happen. Progress was always one step forward and two steps back. In some ways, government regulations and repression of businesses in the “emerging markets” have actually gotten much worse. Financed by increased taxes, governments have grown by leaps and bounds — not for the benefit of society but for that of the ruling class — and are now addicted to their own growth.
The ultimate underpinnings of the so-called emerging markets haven’t changed. Their rapid economic progress during the past three decades — a one-off event — happened for reasons completely different from those assumed by most economists. The question is: once the effect of the one-off event has worn off, will emerging markets revert to the stagnation, institutional degradation, and tyranny that they had leaped into soon after the European colonizers left?
In the “emerging markets” (except for China) synchronized favorable economic changes were an anomaly. They resulted in large part from the new, extremely cheap telephony that came into existence (a result of massive cabling of the planet implemented in the 1980s) and the subsequent advent of the new technology of the internet. The internet enabled instantaneous transfer of technology from the West and as a consequence, unprecedented economic growth in “emerging markets.”
Meanwhile, a real cultural, political, and economic renaissance started in China. It was an event so momentous that it changed the economic structure not just of China, but of the whole world. Because China is seen as a communist dictatorship, it fails to be fully appreciated and respected by intellectuals who are obsessed with the institution of democracy.
But now that the low-hanging fruit from the emergence of the internet and of China (which continues to progress) have been plucked, the “emerging markets” (except, again, for China) are regressing to their normal state: decay in their institutions, stagnant economies, and social strife. They should still be called the “third world.”
There are those who hold China in contempt for copying Western technology, but they don’t understand that if copying were so easy, Africa, the Middle East, Latin America, and South Asia would have done the same. They were, after all, prepared for progress by their colonial history.
European colonizers brought in the rule of law and significantly reduced the tribal warfare that was a matter of daily routine in many of the colonies — in the Americas, Africa, the Middle East, and Asia. Britain and other European nations set up institutional structures that allowed for the accumulation of intellectual and financial capital. Western-style education and democracy were initiated. But this was helpful in a very marginal way.
For those who have not traveled and immersed themselves in formerly colonized countries, it is hard to understand that although there was piping for water and sewage in Roman days, it still isn’t available for a very large segment of the world’s population. The wheel has existed for more than 5,000 years, but a very large number of people continue to carry water in pots on their heads.
Lead piping supplying water to homes already existed in Roman days, 2000 years ago.
The Ljubljana Marshes Wheel, which is more than 5,000 years old
There are easily a billion or more people today, who have no concept of either the pipe or the wheel, even if they went to school. It is not the absence of technology or money that is stopping these people from starting to use some basic forms of technology. It is something else.
Sir Winston Churchill, the war-time Prime Minister of Britain, talking about the future of Palestine said:
“I do not admit… that a great wrong has been done to the Red Indians of America or the black people of Australia. I do not admit that a wrong has been done to these people by the fact that a stronger race, a higher-grade race, a more worldly wise race… has come in and taken their place.”
Cigar-puffing British war-time PM Winston Churchill was as politically incorrect as they come. If he were alive today, he would probably be labeled the newest Hitler by the press and spend 90% of his time apologizing. Perhaps we shouldn’t mention this, but there are many Churchill monuments dotted across Europe and one can be found in Washington DC as well (alert readers will notice that a decidedly non-triggered Washington Post fondly remembered Churchill as an “elder statesman” a mere 10 months ago; rest assured that won’t stop the social justice warrior brigade if they decide to airbrush him out of history). Just to make this clear, your editor is not exactly the biggest fan of the man who traded away half of Europe to Stalin because he felt he could “trust the Soviet communist government” and who was clearly a tad too enamored of war, a characteristic Robert Kaplan described in his strident, amoral pro-war screed Warrior Politics: Why Leadership Demands a Pagan Ethos as follows: “Churchill’s unapologetic warmongering arose not from a preference for war, but from a breast-beating Victorian sense of imperial destiny…” Neither the breast-beating nor the sense of imperial destiny are really our thing, but we tip our hat to the man’s utter lack of political correctness and his associated willingness to offend all and sundry with a nigh Trumpian alacrity and determination. [PT]
On Islam, he said:
“How dreadful are the curses which Mohammedanism lays on its votaries! Besides the fanatical frenzy, which is as dangerous in a man as hydrophobia in a dog, there is this fearful fatalistic apathy. The effects are apparent in many countries. Improvident habits, slovenly systems of agriculture, sluggish methods of commerce, and insecurity of property exist…”
Talking about India he famously said:
“I hate Indians. They are a beastly people with a beastly religion.”
A remark often attributed to Churchill, although this remains unverified, has certainly stood the test of time so far:
“If independence is granted to India, power will go to the hands of rascals, rogues, freebooters; all Indian leaders will be of low caliber and men of straw. They will have sweet tongues and silly hearts. They will fight amongst themselves for power and India will be lost in political squabbles. A day will come when even air and water will be taxed in India.”
Europeans of that time clearly knew that there was something fundamentally different between the West and the rest, and that the colonies would not survive without the pillars and the cement European management provided.
With the rise of political correctness this wisdom was erased from our common understanding – but it is something that may well return to haunt us in the near future, as the third world fails to fulfill expectations, while people who immigrate to Europe, Canada, Australia and the US from there fail to assimilate.
Until now, the hope among people in the World Bank, the IMF, and other armchair intellectuals was that once the correct incentives were in place and institutions were organized, these structures imposed from on high would put the third world on a path to perpetual growth. They couldn’t have been more wrong.
The cart has been put in front of the horse. It is institutions that emerge from the underlying culture, not the other way around. And cultural change is a process taking millennia, perhaps even longer. As soon as Europeans quit their colonies, the institutional structures they left started to crumble.
Alas, it takes a Ph.D. from an Ivy League college and a quarter of a million dollar salary at the World Bank or the IMF to not understand what the key issue with development economics and institutional failures is: the missing ingredient in the third world was and is the concept of objective, impartial reason – the basis of laws and institutions that protect individual rights.
This concept of reason took 2,500 years to develop and get infused into the culture, memes, and genes of Europeans — a difficult process that, even in Europe, was never fully completed. European institutions were at their root products of this concept.
A justly famous quote by Thomas Paine (a prolific writer with a side job as a founding father and revolutionary). Paine was deeply suspicious of self-anointed authorities, both of the secular and clerical variety, who in turn regarded him as dangerous. His writings inter alia provoked a so-called “pamphlet war” in Britain (it would be best if all wars were conducted via pamphlets). [PT]
Despite massive efforts by missionaries, religious and secular, and of institutions imposed on poor countries, reason failed to get transmitted. Whatever marginal improvement was achieved over 200 to 300 years of colonization is therefore slowly but surely undone.
Without reason, subsidiary concepts such as equality before the law, compassion and empathy won’t operate. Irrational societies simply cannot maintain institutions representing the rule of law and fairness. The consequence is that they cannot evolve or even maintain institutions the European colonizers left behind.
Any institutions imposed on them — schools, armies, elections, national executives, banking and taxation systems — must mutate to cater to the underlying irrationality and tribalism of the third world.
Education has become a dogma in “emerging markets”, not a tool; it floats non-assimilated in the minds of people lacking objective reason. Instead of leading to creativity and critical thinking, it is used for propaganda by demagogues.
Without impartial reason, democracy is a mere tribal, geographical concept, steeped in arrogance. All popular and “educated” rhetoric to the contrary, I can think of no country in the non-western world that did well after it adopted “democracy.”
The spread of nationalism (which to a rational mind is about the commonality of values) has created crises by unifying people along tribal lines. The most visible example is provided by events in the Middle East, but the basic problem is the same in every South Asian and African country and in most of South America.
India, the geographical entity I grew up in, was rapidly collectivized under the flag and the national anthem. It has the potential to become the Middle East on steroids, once Hindutava (Hindu nationalism) has become deeply rooted in society.
In Burma, a whiff of democracy does not seem to have inhibited a genocide perpetrated by Buddhists against the Muslim Rohingya. Thailand (which was not colonized in a strictly political sense) has gone silent, but its crisis continues.
Turkey and Malaysia, among the better of these backward societies, have embarked on a path of rapid regression to their medieval pasts. South Africa, which not too long ago was considered a first-world country, got rid of apartheid only to end up with something even worse.
The same happened with Venezuela, which was among the richer countries of the world in the not-too-distant past. It is ready to implode, a fate that may befall Brazil as well one day. Pakistan, Bangladesh, Nepal, and East Timor are widely acknowledged to be in a mess, and are getting worse by the day.
Indonesia took a breather for a few years and is now once again in the thrall of fanaticism. India is the biggest democracy, so its problems are actively ignored by the Western press, but they won’t be for long, as India continues to evolve toward a police state.
Botswana was seen as one of the countries with the fastest and longest-lasting economic growth. What was ignored was the fact that this rather large country has a very small population, which benefited hugely from diamonds and other natural resources. The top political layer of Botswana is still a leftover from the British. The local culture continues to corrode what was left by them, and there are clear signs that Botswana is past its peak.
Part of the central business district in Gaborone, Botswana. Long time readers may recall an article we posted about 2.5 years ago: “Botswana – Getting it Right in Africa”. We are not sure if much has changed since then, but it is worth recalling that Botswana started out as the third-poorest country in Africa when it became independent in 1966 and is today one the richest. The very small population (by African standards) combined with the large income the country obtains from diamond mining no doubt played a role in this, but being rich in natural resources means very little per se. Botswana never fell for Marxism. When the country gained independence, its political leadership adopted democracy and free markets and never looked back. Botswana is a very homogenous society in terms of religious and tribal affiliations, which differentiates the country from most other former colonial territories in Africa. From our personal – admittedly by now a bit dated – experience, we can state that Botswana is the only African country in which one is unlikely to encounter any corruption – not even the lowliest government minion will ask for bribes as far as we could tell (in many African countries, officials begin demanding bribes the moment one wants to cross the border). Considering all that, we are slightly more hopeful about Botswana, but it is not an island. Deteriorating conditions in neighboring countries may well prove contagious at some point. [PT]
Papua New Guinea was another country that was doing reasonably well before the Australians left. It is now rapidly regressing to its tribal, irrational, and extremely violent norms, where for all practical purposes rape is not even considered a crime.
The world may recognize most of the above, but it sees these countries’ problems as isolated events that can be corrected by further impositions of Western institutions, under the guidance of the UN or some such international (and therefore “non-colonialist”) organization.
Amusingly, our intellectual climate — a product of political correctness — is such that the third world is nowadays seen as the backbone of humanity’s future economic growth. Unfortunately, so-called emerging markets are probably headed for a chaotic future. The likeliest prospect is that these countries will continue to cater to irrational forces, particularly tribalism, and that they will consequently cease to exist, disintegrating into much smaller entities.
As the tide of economic growth goes out with the final phase of plucking the free gift of internet technology nearing its end, their problems will resurface rapidly – precisely when the last of those who were trained under the colonial system are sent to the “dustbin of history”.
Don Kaufman delivers what readers are calling 'HIS BEST YET!' In this exclusive Guide, Don will give you ALL the secrets he's taught millions of other traders to help guide them along in their successful options trading journey...
Now, this is NOT for those who only want to make a HALF attempt...nope...this is ONLY for those serious about becoming a better trained, more profitable, and long term options trader!
If that's YOU...Download Your Copy below: