Naked Economics Wheelan, Charles (books to read for 13 year olds TXT) 📖

countries should, in theory, be able to narrow the gap with richer nations by borrowing their innovations. Once a technology is invented, it can be shared with poor countries at virtually no cost. The people of Ghana need not invent the personal computer in order to benefit from its existence; they do need to know how to use it.

Now for more bad news. In Chapter 6, I described an economy in which skilled workers generate economic growth by creating new jobs or doing old jobs better. Skills are what matter—for individuals and for the economy as a whole. That is still true, but there is a glitch when we get to the developing world: Skilled workers usually need other skilled workers in order to succeed. Someone who is trained as a heart surgeon can succeed only if there are well-equipped hospitals, trained nurses, firms that sell drugs and medical supplies, and a population with sufficient resources to pay for heart surgery. Poor countries can become caught in a human capital trap; if there are few skilled workers, then there is less incentive for others to invest in acquiring skills. Those who do become skilled find that their talents are more valuable in a region or country with a higher proportion of skilled workers, creating the familiar “brain drain.” As World Bank economist William Easterly has written, the result can be a vicious cycle: “If a nation starts out skilled, it gets more skilled. If it starts out unskilled, it stays unskilled.”13

As a side note, this phenomenon is relevant in rural America, too. Not long ago, I wrote a story for The Economist that we referred to internally as “The Incredible Shrinking Iowa.”14 As the working title would suggest, parts of Iowa, and other large swathes of the rural Midwest, are losing population relative to the rest of the country. Remarkably, forty-four of Iowa’s ninety-nine counties had fewer people in 2000 than they had in 1900. Part of that depopulation stems from rising farm productivity; Iowa’s farmers have literally grown themselves out of jobs. But something else is going on, too. Economists have found that individuals with similar skills and experience can earn significantly higher wages in urban areas than they can elsewhere. Why? One plausible explanation is that specialized skills are more valuable in metropolitan areas where there is a density of other workers with complementary skills. (Think Silicon Valley or a cardiac surgery center in Manhattan.) Rural America has a mild case of something that deeply afflicts the developing world. Unlike technology or infrastructure or pharmaceuticals, we cannot export huge quantities of human capital to poor countries. We cannot airlift ten thousand university degrees to a small African nation. Yet as long as individuals in poor countries face limited opportunities, they will have a diminished incentive to invest in human capital.

How does a country break out of the trap? Remember that question when we come to the importance of trade.

Geography. Here is a remarkable figure: Only two of thirty countries classified by the World Bank as rich—Hong Kong and Singapore—lie between the Tropic of Cancer (which runs through Mexico across North Africa and through India) and the Tropic of Capricorn (which runs through Brazil and across the northern tip of South Africa and through Australia). Geography may be a windfall that we in the developed world take for granted. Development expert Jeffrey Sachs wrote a seminal paper in which he posited that climate can explain much of the world’s income distribution. He writes, “Given the varied political, economic, and social histories of regions around the world, it must be more than coincidence that almost all of the tropics remain underdeveloped at the start of the twenty-first century.”15 The United States and all of Europe lie outside the tropics; most of Central and South America, Africa, and Southeast Asia lie within.

Tropical weather is wonderful for vacation; why is it so bad for everything else? The answer, according to Mr. Sachs, is that high temperatures and heavy rainfall are bad for food production and conducive to the spread of disease. As a result, two of the major advances in rich countries—better food production and better health—cannot be replicated in the tropics. Why don’t the residents of Chicago suffer from malaria? Because cold winters control mosquitoes—not because scientists have beaten the disease. So in the tropics, we find yet another poverty trap; most of the population is stuck in low-productivity farming. Their crops—and therefore their lives—are unlikely to get better in the face of poor soil, unreliable rainfall, and chronic pests.

Obviously countries cannot pick up and move to more favorable climates. Mr. Sachs proposes two solutions. First, we ought to encourage more technological innovation aimed at the unique ecology of the tropics. The sad fact is that scientists, like bank robbers, go where the money is. Pharmaceutical companies earn profits by developing blockbuster drugs for consumers in the developed world. Of the 1,233 new medicines granted patents between 1975 and 1997, only thirteen were for tropical diseases.16 But even that overstates the attention paid to the region; nine of those drugs came from research done by the U.S. military for the Vietnam War or from research for the livestock and pet market.How do we make private companies care as much about sleeping sickness (on which no major company is doing research) as they do about canine Alzheimer’s (for which Pfizer already has a drug)? Change the incentives. In 2005, British Prime Minister Gordon Brown embraced an idea that economists have long kicked around: Identify a disease that primarily afflicts a poor part of the world and then offer a large cash prize to the first firm that develops a vaccine that meets predetermined criteria (e.g., is effective, is safe for use in children, doesn’t need refrigeration, etc.). Brown’s plan was actually more sophisticated; he proposed that rich governments precommit to buying a certain number of doses of the “winning” vaccine at a certain price. Poor people would get lifesaving drugs. The pharmaceutical