Nogales, US vs Nogales, MEX

Why Is Latin America Poorer Than North America?

Nogales Case Study

  • Interesting case study: two towns, Nogales, with the same culture, but in two different countries.
  • One is 5 times wealthier than the other.
  • Differences include:
    • Infant mortality
    • Crime
    • Education
  • U.S. citizens generally do not live in constant fear that:
    • Their homes or businesses will be taken from them
    • Their safety will be jeopardized
  • Opening a business in many Latin American countries can be risky because entrepreneurs may need to maneuver around bribing corrupt politicians in order to stay open.

Broader Question

  • Why is Latin America so much poorer than North America?

Historical Context

Latin America Was Not Always Expected to Be Poor

  • This was not always the case.
  • Land in Latin America was highly valued by indigenous peoples and early colonizers.
  • North America was more sparsely populated by nomadic tribes.
  • Huge and complex civilizations existed in what is now Latin America.

Expectations of Greatness

Even in more recent times, countries such as:

  • Argentina
  • Brazil
  • Venezuela
  • Mexico

were expected to become global powers.

Venezuela Example

  • Venezuela experienced an economic boom in the 1950s.
  • It became the third richest country in the world in terms of income per person.
  • This wealth came largely from massive oil reserves.

Venezuela Today

  • Venezuela is now considered an economic disaster.
  • Hyperinflation became so severe that the currency was considered less valuable than toilet paper.
  • Millions of people fled the country.

The Broader Pattern

  • Venezuela is not unique.
  • Most Latin American countries failed to live up to their potential.
  • Geographically, South America is arguably better positioned economically than North America.
  • Cultural differences do not fully explain the economic gap.

Key Questions

  • Why is Nogales, Arizona so much wealthier than Nogales, Sonora?
  • Why is North America richer than Latin America?

Spanish Colonization

Argentina and the Search for Wealth

  • In 1516, Spanish explorers sailed into modern-day Argentina near the Río de la Plata.
  • Spanish explorers were searching for:
    • Treasure
    • Human labor

Early Problems

  • Nomadic peoples refused to cooperate.
  • The Spanish wanted silver, but the labor force was unwilling.

Shift Toward Sedentary Societies

The Spanish moved north to find sedentary agricultural societies because:

  • They already had hierarchical systems.
  • They had ruling elites.
  • The Spanish could insert themselves into the top of existing power structures.

Key Idea

  • The Spanish specifically sought places with established social hierarchies.
  • This allowed them to exploit existing systems for their own benefit.
  • The more advanced and organized a society was, the more attractive it became to Spanish conquerors.

The Aztec Empire

  • A similar conquest occurred farther north and was even bloodier.

Montezuma and Cortés

  • King Montezuma ignored the warnings of his advisors and welcomed Hernán Cortés and the Spanish explorers.
  • The Aztec capital city, Tenochtitlán, was quickly seized.
  • Montezuma was captured and used as a hostage to extract treasures from the city.

Collapse of the Aztec Empire

  • The Aztec Empire soon fell to the Spanish.
  • One by one, large and advanced civilizations were conquered, drained of resources, and destroyed.

The Inca Empire

  • In 1533, the Spanish massacred a massive Inca army.
  • The Spanish replaced Inca elites with their own people.

Silver Extraction

  • The Spanish discovered mountains rich in silver.
  • Massive amounts of silver were mined using slave labor.

English Colonization in North America

Initial Strategy

  • The English also initially tried to conquer indigenous peoples and exploit their labor.
  • This strategy failed, just as it eventually did elsewhere.

Why It Failed

  • North America was too vast.
  • Colonists could simply leave rather than submit to forced labor.

Shift Toward Incentives

As a result, the English changed strategies.

Incentives Included

  • Giving land to colonists
  • Granting voting rights
  • Allowing economic participation

Long-Term Consequences

This became the foundation for:

  • Democracy
  • Capitalism
  • The future United States

Distributed Power and Institutions

Why Distribution of Power Mattered

  • Because power became distributed among many people, it became harder for individuals or groups to exploit others for personal gain.

Political Evolution

This process eventually led to:

  • The Declaration of Independence
  • Constraints on those in power
  • Broader distribution of political authority

Protections Introduced

  • Property rights
  • Patent protections

Result

People became incentivized to invest:

  • Time
  • Energy
  • Resources
  • Creativity

into productive work and innovation.

Economic Accessibility in the United States

  • Access to patents, loans, and business creation became relatively widespread.

Innovation Statistics

Between 1820 and 1845:

  • Only 18% of patentees came from wealthy or connected families.
  • Around 40% had only primary schooling.

Example

  • Thomas Edison came from a modest educational background.

Outcome

  • The United States successfully tapped into the innovation and creativity of ordinary citizens.
  • This contributed heavily to the U.S. becoming the wealthiest country in the world.

Latin America After Independence

Colonial Exploitation Continued

  • While the U.S. moved toward distributed political power, Latin America remained under colonial-style exploitation.

Conditions

  • Locals had little say in government.
  • Ordinary people did not gain the same freedoms or rights as northern populations.
  • Colonial elites were generally satisfied with Spanish rule.

Napoleon Invades Spain (1808)

  • French forces invaded Spain in 1808.
  • This weakened Spain’s control over its colonies.

Independence Movements

  • Colonial elites across Latin America declared independence largely because they feared losing their own power.

Consequence

Instead of creating strong and fair institutions:

  • Many governments became even more tyrannical.
  • Political instability increased.
  • Corruption spread.
  • Dictatorships emerged.

Mexico as an Example

Extreme Political Instability

  • Mexico gained independence in 1821.
  • Between 1824 and 1867, Mexico had 52 presidents.

Characteristics

  • Most leaders came to power through force.
  • Property rights became insecure.
  • Governments struggled to:
    • Collect taxes
    • Provide services
    • Maintain order

Territorial Losses

  • Mexico lost large territories to the United States because it was unable to defend itself effectively.

Weak Economic Institutions

Innovation Was Not Rewarded

  • Inventors and entrepreneurs had little confidence they could profit from their ideas.

Banking Problems

  • Mexico had very few banks.
  • A small number controlled most of the market.
  • Interest rates were extremely high.

Consequences

  • Loans mainly benefited the wealthy.
  • Elites used capital to strengthen monopolies.

Why the U.S. Was Different

  • American elites also had incentives to create monopolies.
  • However, democratic elections created accountability.

Elections and Competition

  • Politicians supporting monopolies could be voted out.
  • Candidates opposing monopoly practices often gained popular support.

Land and Economic Opportunity

United States

  • Land was often distributed freely to those willing to cultivate it.

Latin America

  • Massive amounts of land remained concentrated in elite hands.
  • Elites captured most benefits from global trade.

Venezuela and Resource Dependency

Oil Wealth Problems

Venezuela failed to fully capitalize on its oil wealth.

Effects of Oil Dependence

  • Oil exports strengthened the currency.
  • Other industries became less competitive and weakened.

Government Spending

  • Large social spending programs contributed to hyperinflation.

Broader Pattern

This pattern occurred across Latin America with resources such as:

  • Precious metals
  • Cattle
  • Oil

Outcome

  • Wealth concentrated among elites.
  • Broader economic development stagnated.

Democracy and Corruption

Democratic Institutions Developed Late

  • Democracy arrived relatively late in much of Latin America.
  • In many places it remained weak or incomplete.

Continuing Problems

  • Politicians often remained corrupt and unaccountable.
  • Economic institutions stayed closely tied to political elites.

Why Nogales, Arizona Is Richer Than Nogales, Sonora

Institutional Differences

In the United States:

  • People can more easily:
    • Start businesses
    • Buy homes
    • Invest confidently

Why?

  • Governments are constrained by democratic accountability.
  • Politicians depend on votes for reelection.

Protection of Rights

  • Property rights are more consistently protected.
  • Economic participation is more accessible.

Latin America’s Colonial Legacy

  • Many Latin American governments still reflect colonial institutions originally designed to exploit ordinary people.

Political Instability

  • Chronic instability weakened central governments.
  • Governments struggled to establish law and order nationwide.

Economic Consequences

For ordinary people:

  • Starting a business is risky.
  • Investment is difficult.
  • Monopolies reduce competition.
  • Incomes remain stagnant.

Final Argument

Core Thesis

  • Latin America was colonized through systems based on exploitation.
  • North America increasingly developed through systems based on individual incentives and broader participation.

Key Point

  • The differences were not primarily caused by:
    • Culture
    • Geography
    • Spanish vs. English identity alone

Instead

The main difference was the development of:

  • Political institutions
  • Economic institutions
  • Incentive structures
  • Distribution of power