Why Do Economies Grow?

1. Why Do Economies Grow? Lesson 3

2. Colonial Economy Mystery North America offered no known gold or silver for the taking. There were no spices to trade. Eventually, however, the colonies were able to prosper. Why? Are increases in the quality and quantity of the four key resources needed for economic growth and prosperity?

3. Mystery Nations

4. Who is Wealthy? • Some nations of the world have become wealthy, while others have not. • Why is this so? • Do the quality and quantity of natural resources play a role? • Labor? • Capital? • Entrepreneurial talent? • Do economic systems and institutions matter? • What role does a stable and well-enforced set of private property rights play? • What about the freedom to trade goods, services and resources?

5. Visual 3.2. Who Has the Highest Income? • Country A Wealth Score = ___Give wealthiest 4, next wealthiest 3 next wealthiest 2 and poorest 1 • Under European colonial rule from early 1500s until 1816 • Benefits from rich natural resources including fertile plains, lead, zinc, iron ore, petroleum and uranium • Population of nearly 40 million people in 2004 (small for a nation of this size) • Land size about three-tenths the size of the United States • Country B Wealth Score = ___Give wealthiest 4, next wealthiest 3 next wealthiest 2 and poorest 1 • Under European colonial rule from early 1500s until 1822 • Benefits from rich natural resources including bauxite, gold, iron ore, nickel, phosphates, tin, uranium, petroleum, hydropower and timber • Population of over 184 million • Land area slightly smaller than the United States

6. Visual 3.2. Who Has the Highest Income? • Country C Wealth Score = ___Give wealthiest 4, next wealthiest 3 next wealthiest 2 and poorest 1 • Under European rule from the nineteenth century until 1947 • Benefits from rich natural resources including large coal reserves, iron ore, manganese, mica, titanium ore, chromite, natural gas, petroleum, limestone and agricultural land • Population of more than 1 billion • Land area slightly more than one-third of the United States • Country D Wealth Score = ___ Give wealthiest 4, next wealthiest 3 next wealthiest 2 and poorest 1 • Under European rule from 1841 to 1997 • Good harbor but no natural resources • Population of nearly 7 million • Land area six times larger than Washington D.C.

7. Mystery Nations Revealed

8. Country A Argentina • Population • 40.482 million (July 2008 est.) • GDP per capita • $14,500 (2008 est.) • Life Expectancy • 76.36 years • Literacy Rate • 97.2% • Infant Mortality • 11.78 deaths/1,000 live births

9. Country B Brazil • Population • 196,342,592 • GDP per capita • $10,300 (2008 est.) • Life expectancy • 71.71 years • Literacy rate • 88.6% • Infant mortality • 23.33 deaths/1,000 live births

10. Country C India • Population • 1,147,995,904 (July 2008 est.) • GDP per capita • $2,900 (2008 est.) • Life Expectancy • 69.25 years • Literacy Rate • 61% • Infant Mortality • 32.31 deaths/1,000 live births

11. Region D Hong Kong • Population • 7,018,636 (July 2008 est.) • GDP per capita • $45,300 (2008 est.) • Life Expectancy • 81.77 years • Literacy Rate • 93.5% • Infant Mortality • 2.93 deaths/1,000 live births

12. Two Additional Cases

13. United States United States • Population (07/08 est) • 303,824,640 • GDP per capita (2008 est.) • $48,000 • Life Expectancy • 78.14 years • Literacy Rate • 99% • Infant Mortality • 6.3 deaths/1,000 live births

14. Saudi Arabia Saudi Arabia • Population • 28,146,656 note: includes 5,576,076 non-nationals (July 2008 est.) • GDP per capita • $21,300 (2008 est.) • Life Expectancy • 76.09 years • Literacy Rate • 78.8% • Infant Mortality • 11.94 deaths/1,000 live births

15. Natural Resources Paradox • Natural resources have contributed to the economic success of some nations. • Yet, many nations with vast stocks of natural resources are poor.

16. Factors Associated with Economic Growth Lesson 3 Activity 3.1

17. Activity 3.1Factors Associated with Economic Growth • Private Property Rights Question A: Would you keep a savings account or want to own a farm in a nation that expropriated savings and farmland every few years? • Physical Capital Question B: What incentives might encourage the development of physical capital? • Human Capital • Question C: What incentives could a nation provide to encourage the development of human capital?

18. Activity 3.1Factors Associated with Economic Growth • Investment Question D: What incentives might encourage people to save and invest? • Infrastructure Question E: How is infrastructure similar to investment?

19. Be a Planet Planner Lesson 3 Activity 3.2

20. Activity 3.2Be A Planet Planner • The Spanish and the English had much in common. Both were powerful European colonial powers. But the results of colonial development led to different outcomes in North and South America. Why?

21. Be A Planet Planner • You have just been appointed by Dr. Julie Verne to the United Nations Intergalactic Development Administration (UNIDA) Task Force for Planet Z93. • Your job is to advise Dr. Verne on Z93 development plans by applying two rules: 1. People respond to incentives in predictable ways. Rewarding people for their work, for example, encourages them to be productive. 2. People create economic systems that influence individual choices and incentives. In order for an economy to grow, its rules must include a system of incentives that encourages people to produce.

22. English Development • England by the 17th century had transferred some power from the king to the parliament. Individual property rights were better defined and enforced. • The Pilgrims experimented with common land ownership but nearly starved. • In 1623, they replaced group land ownership with individual ownership. • “This had very good success for it made all hands very industrious, so as much more corn was planted than otherwise would have been by any means the Governor or any other could use.” • William Bradford • Of Plymouth Plantation, 1620-1647

23. Spanish Development • Spain in the 16th century was an absolute monarchy. Individual property rights were not well defined and enforced. • The plan for development was to seek gold and riches - - a transfer of wealth, not expansion.

24. Questions for Discussion Questions for Discussion • How did the political institutions differ between Spain and England? • Describe ways in which Spain influenced the economic development of South and Central America? • Describe ways in which the English developed the eastern coast of North America? Policy Recommendations • Who should be allowed to own property in Z93? Individuals? Government? Why?