Undercover Economist

The hidden histories that shape the way we live now

The largest silver mines in the Spanish empire were the Potosí mines, discovered in 1545 in what is now Bolivia. Exploiting the mines was dangerous, and in the late 16th century, the Spanish introduced the mita system of forced labour. Villages near Potosí were obliged to provide one-seventh of their adult male population to work the mines, and the mita system continued until its abolition in 1812.

That is history. This is not: the former mita districts are 25 per cent poorer than apparently identical districts on the other side of a boundary that ceased to mean anything 198 years ago. A long-abolished colonial system has somehow shaped the modern world.

The discovery, by a young economist at MIT named Melissa Dell, is one of many made recently which show that economic development has a long memory. Here is another example, from Daniel Berger, a PhD student at New York University: the 7° 10’ line of latitude that runs through Nigeria is geographically unremarkable and has had no administrative significance for 96 years. Nevertheless, villages just to the north of this line on a map enjoy more competent government than those just to the south.

Economists became interested in the idea that history means something when three influential research papers were published, the first in 1997. Rafael La Porta and colleagues argued that British common law provided better protection for investors than the Roman civil law tradition, and showed that former British colonies seemed to have more advanced financial markets than former French colonies. Stanley Engerman and Kenneth Sokoloff argued that Latin America had underperformed relative to Canada and the US, because it had a climate better suited to growing plantation crops such as sugar, which in turn led to exploitative institutions. And Daron Acemoglu, Simon Johnson and James Robinson showed that the reason tropical diseases are strongly correlated with underdevelopment is less for the obvious reason – that malaria is bad for the economy – and more because such diseases killed large numbers of settlers, who lacked any resistance to them. This encouraged colonial powers to grab gold, ivory and slaves rather than settling the countries and establishing decent institutions. (The Pilgrim Fathers nearly went to Guyana before thinking better of it when they realised their chances of surviving the local diseases were very low.)

Nathan Nunn, an economist at Harvard, has recently summarised the new wave of economic history. He argues that work such as Dell’s and Berger’s helps us understand not just whether history matters, but, thanks to a better handle on the channels of causation, why it matters.

Dell shows that areas outside the mita system were more likely to have large farms; the owners of such haciendas were politically influential and were able to campaign for public goods such as better roads. Berger argues that the 7° 10’ line of latitude in Nigeria is important because different systems of taxation once prevailed on either side of it. To the south, officials relied on customs duties and other taxes on trade through Nigeria’s ports. North of the line, taxes were levied on people – which meant somebody had to arrange a census and keep proper accounts. The difference in bureaucratic capability has persisted for a century.

All this suggests a fatalistic conclusion about economic development: if today’s economic outcomes are influenced by institutions shaped centuries ago, there is reason to be pessimistic that we can do much to help now. That would be going too far, because history is not the only thing that matters. But matter it does.

Also published at ft.com.