Easterly and Levine (2012) and the deathly hallows

William Easterly and Ross Levine show in a provocative new paper – The European Origins of Economic Development – that the proportion of Europeans during the early stages of colonisation exerts an enduring, positive impact on per capita GDP today. In short, societies where smaller numbers of Europeans settled are poorer today compared to societies where larger numbers of Europeans settled. This correlation is, of course, not surprising: the United States, Australia and New Zealand, some of the richest countries in the world,  were mostly settled by European immigrants, while countries where few Europeans settled, such as equatorial Africa or the Caribbean, are relatively poor. To establish causation rather than correlation, Easterly and Levine use two instruments – the population density in the year 1500, and the mortality rates of the indigenous populations. Both these show, roughly translated, that the greater the likelihood of European settlement, the higher that region’s economic prosperity today.

Elder Wand

Easterly and Levine is fighting a battle that has already been won. For more than a century, intellectuals from across the ideological spectrum have agreed that the arrival of European settlers was critical in boosting growth. There’s Hendrik Verwoerd, the mastermind of Apartheid, saying “We call ourselves European, but actually we represent the white men of Africa. They are the people not only in the Union but through major portions of Africa who brought civilisation here, who made the present developments of black nationalists possible. By bringing them education, by showing them this way of life, by bringing in industrial development, by bringing in the ideals which western civilisation has developed itself.” Or, on the other side of the spectrum, Jomo Kenyatta, father of Kenya, extolling the virtues of the European settlers: “We do not forget the assistance and guidance we have received through the years from people of British stock: administrators, businessmen, farmers, missionaries and many others. Our law, our system of government and many other aspects of our daily lives are founded on British principles and justice”. And then there are the several studies which Easterly and Levine cite that make the same point, although perhaps less explicitly: AJR, Engerman and Sokoloff, and Putterman and Weil. Yes, Easterly and Levine prove causation, but the ramblings of racists and researchers over the last century have also implied causality. In fact, regardless of their motives, no one opposes the view that European settlers matter for economic performance today – and the more, and the earlier they arrive, the better.

Resurrection Stone

But per capita income is not a welfare measure. (To be clear, Easterly and Levine acknowledges this several times in their paper.) In all the regions where large numbers of Europeans settled, large numbers of the indigenous populations died. This is especially true of the United States, Australia and New Zealand, but also in some parts of Latin America and in South Africa. The Cape Colony is a particularly interesting case, because of the existence of several different groups: the European settlers, the Bantu Xhosa and the pastoral and hunter-gatherer Khoesan. Several small pox epidemics – most notably one in 1713 – depleted the local Khoesan population, to the extent that some South African historians believe that close to 90% of Khoesan died, although this high proportion is contested by others. But these epidemics did not affect the Xhosa to the same degree. What was relatively inexpensive settler expansion east from Cape Town during most of the eighteenth century, stopped at the borders of the Fish River when the settlers met a society that had higher population numbers (because of agriculture), more advanced weapons (compared to the Khoesan) and were averse to the effects of disease. Easterly and Levine’s argument has two logical conclusions here: the wipe-out of the Khoesan was good for South African economic development today (as it encouraged greater numbers of European settlers). And the resistance of the Xhosa was bad for economic development today (arguably more settlers would have arrived if the fertile Eastern Cape was uninhabited). Had the Xhosa also perished, South Africa would be a richer, more prosperous society today. (This is of course not the kind of policy advice you’d take to the current ANC conference. And in truth, their paper is not meant as policy advice.)

But it does leave a sense of unease. If we could resurrect the Native Americans that died because of smallpox, or the Cape Khoesan, or the Aboriginal Australians, I’m pretty sure they would be less than thrilled to know that their countries are more prosperous today because they – living just above subsistence levels – perished very early  into the development process. Unfortunately, knowing that more Europeans cause higher level of incomes today – without acknowledging the huge losses (in lives, land and living standards) of the native populations – provides us with little more than support for the widely accepted truism that greater wealth today is as a result of greater wealth yesterday. The Europeans had more capital and higher incomes when they arrived. They killed (intentionally or not) the local, poorer natives. Therefore, these regions are rich today.

This adds little to our understanding of the process of economic development. Regardless of how strong the correlation between European settlers and current income levels is, we simply cannot ignore the immense welfare costs of the dead native populations.

Cloak of Invisibility

Easterly and Levine emphasise that though they prove a causal link from European settlers to income today, they don’t identify the specific mechanism which may explain this causality. While they do test for several possible explanations (for example, they do suggest that education may explain an important part of the story: ‘the results are more consistent with the … argument that Europeans brought human capital and human capital creating institutions’ that explains ‘the divergence of economies in the long-run’), they acknowledge that these results are ‘hardly definitive’ and the true mechanisms remain invisible. Over the last decade, economists and economic historians have grappled with identifying the true causes of long-run prosperity, and colonial settings have often provided a fertile field for investigation. AJR argues for political institutions, but education (broadly defined) seems to carry most weight: this is confirmed in several studies that goes to much greater lengths in identifying human capital as the causal mechanism, something which Easterly and Levine does not do. These include papers by Jutta Bolt and Dirk Bezemer, showing that precolonial African education explains economic performance today better than institutions. Or Nathan Nunn on missionary societies in Africa, showing that the impact of missionaries in Africa was to influence education, which still has a positive impact on African societies today. Or my and Dieter von Fintel’s work on Huguenot migrants to South Africa, showing that those Huguenots with wine-making skills were much more productive than their counterparts from non-wine making regions in France.

The message is clear: the benefits of education persist, often long into the future. (So, too, the costs of bad education. Consider the current South African education system.) Europeans happened to have better education when they arrived in the new territories. Where more of them settled (and more natives died), they could use their human capital to create better institutions, to build more productive societies, generating higher incomes. It’s called development. Moreover, Easterly and Levine also show that earlier settlers matter more than later settlers. Of course that’s true: the earlier settlers had more time to create better institutions, build more productive societies and generate higher incomes. The proportion of Europeans that settled early is simply a proxy for all the things we believe is important for development.

Easterly and Levine has played a clever trick on us: they’ve made us believe that what they say is novel and important. It’s neither. European settlers are not the answer to development. It’s the qualities these settlers possess that matters. Expert wizards like Easterly and Levine should know that.