Why is Latin America Poorer than the United States?

The Rest of the Iceberg

It is hard to believe how much richer the United States is than Latin America. Each year, the US economy generates more than three times as much wealth as the twenty countries of Latin America combined. Before Columbus arrived in 1492, the largest, wealthiest, and most technologically advanced societies were in South America and modern-day Mexico. What changed? Why are garages in the US larger than many homes in Latin America?

If you ask people this question, you are likely to hear one of two answers. The first is that the United States is the greatest country in the world—unparalleled in the inventiveness of its people and the genius of its system of government. The US is one of the wonders of the world, the story goes, so its economic success is no surprise.

The second possible answer is very different: on this view, the United States is great because it is great at exploiting others. The charge is that in their rush to make money, the government and people of the US have regularly trampled on others—including native Americans, slaves, and other countries in the Americas.

There is truth in both explanations, but they are too simplistic. To get a full picture of why the average US citizen wealthier than their counterpart in Mexico, Argentina, or Brazil, you need to look at more than what makes the US different. You need a panorama that takes in all the Americas.

Our best clue for why some American countries are rich and others poor comes from history. A key factor in determining the prosperity of any part of the Americas is who conquered it back in the 1500’s and 1600’s. Numerous European countries staked claims in the western hemisphere, but by 1770 two countries were dominant: Spain in the South and Britain in the North. They made colonies in their own image—with enormous consequences right up to the present day.

The most important difference between Spain and Britain was their governments. Spain had kings with absolute power, while Britain had an elected parliament. Thus, in the Americas the Spanish king claimed the land and gave it out to loyal noblemen. The result was a society just as hierarchical and unequal as Spain’s, with nobles acting like kings. By contrast, Britain created colonies in which settlers had a say in how they were governed.

These differences determined the sort of people who came from Spain and Britain to the Americas. The Spaniards tended to be noblemen (and their servants), sent by their king to conquer and rule. They usually came without their wives and daughters, which made it hard to establish normal life. The British travelled as families, looking for a new start and new land in the New World. They still fought with their native American neighbours but the societies they created were more stable and more equal than those in Spanish America.

These differences were accentuated by the different ways that Spanish and British colonies generated wealth. Spain controlled all the big silver mines, which made it easy to get rich quick. The British came to the Americas hoping to strike gold or at least silver, too. When they didn’t they began the hard work of setting up farms. Over time, however, agriculture would prove more profitable than mining, and more suitable for the development of strong communities.

By the late 1700’s, Britain’s colonies were benefitting enormously from their links to the most powerful country in Europe. Britain was in the process of becoming the world’s first industrial society, and that would make lots of money for English speakers on both sides of the Atlantic. Spain, by contrast, had been falling behind for 200 years and had little to offer its colonies in terms of trade or technology.

Even when Latin America won its freedom from Spain in the 1820’s, it remained stagnant. Powerful Spanish landowners declared their independence when the Spanish king threatened their dominant position in the New World. They had no interest in sharing their power or wealth and so led revolutions that cemented their position—and the poverty of everyone else.

Britain’s colonies in what became the United States claimed their independence on the basis that the mother country was not living up to its ideals of liberty and representative government. The US enshrined these in its constitution and strived to embody them more perfectly. The US also committed itself to the rule of law—a vital precondition for commercial success.

After independence, the United States benefitted from its willingness to welcome immigrants. Much of the country’s economic dynamism came from people attracted to its free and open society. Many were fleeing persecution or corrupt states where their success would be thwarted or extorted.

However, there were other migrants just as central to the economic success of the USA, whose stories were ones of horror, not hope: slaves. Hundreds of thousands were bought in Africa and brought to North America.

Their importance for the economy of the United States rested largely on their work on cotton plantations. Cotton production was at the heart of the economic success of both Britain and the States in the 1800’s. In Britain, more efficient machines required more cotton to spin and weave. Entrepreneurs in the US spotted an opportunity. Slave labour allowed them to produce cotton more cheaply than rivals in India and the Middle East. So did cheap land cleared of its native inhabitants.

Britain became the world’s wealthiest country in the 1800’s. The USA took that position in the 1900’s. Both profited from representative government, the rule of law, and the ingenuity and hard work of their people. But both also profited from the hard work of millions of slaves. Cotton made up more than half of the value of US exports in the mid-1800’s.

Slavery and Native American land were crucial for the growth of the US economy, but they can’t be the most important explanation for why the US is so much richer than Latin America, for one simple reason. Latin Americans imported even more slaves and took others’ land—but they weren’t able to exploit these resources as effectively.

Over time, the US industrialized and combined with its enormous size that was enough to overtake Britain’s economy by the 1900’s. The First and Second World Wars devastated Europe but created huge demand for industrial goods produced in the USA. After World War II, America often used its economic dominance generously, by encouraging trade and economic development. Its record wasn’t perfect—on occasion, the US used its strength to squeeze economies in Latin America—but the US tried to spread liberty and justice to many. Today, its society is still marred by discrimination, but it is more open and just than most. The majority of American citizens have benefitted from living in the richest country in the world.

Meanwhile, industrialization and economic growth proved frustratingly slow in Latin America. Too often, governments failed to give their people a vote or their children the sort of education that would foster economic development.

Thankfully, Latin America has been doing better in recent years. There has been significant economic growth in places like Mexico, Brazil, and Uruguay. But it’s unlikely that South America will ever catch up with the US. The gap between them grew steadily for 200 years, and shows no sign of disappearing.