Sowell Applied Economics Thinking Beyond Stage One (revised and enlarged ed)

In the city of Tiflis in the Caucasus, it was cheaper to import kerosene from America, across 8,000 miles of water, than to get it over land from Baku, less than 400 miles away. Similarly huge disparities between land transport and water transport costs have been common in Africa, in Japan, and in England before the railroad era. In the Ottoman Empire, the estimated cost of shipping wheat just 100 kilometers exceeded the value of the wheat itself.

Even after the development of roads and of motorized transport, trains, and planes, water transport has generally remained much cheaper than land transport. For example, in the United States transporting oil by ship costs about one-fourth of the cost of transporting it by pipeline, less than 5 percent of the cost of transporting it by railroad and little more than one percent of the cost of shipping it by truck.

The vast amounts of food and other products needed continuously to supply a city’s population, and the vast amounts of raw material and finished merchandise to be moved in and out of a city to earn the money to pay for that population’s consumption, have all been carried more cheaply by water. It is therefore hardly surprising that so many cities are on rivers— London on the Thames, Cairo on the Nile, Paris on the Seine, New York on the Hudson. Many other cities like Singapore, Sydney, and Stockholm are on harbors and still others are on huge lakes like Chicago or on inland seas like Odessa or Sevastopol. Nor should it be surprising that Western Europe, heavily criss-crossed by rivers, is one of the most densely urbanized regions of the world, while tropical Africa— where navigable waterways are much more scarce— has long remained one of the least urbanized regions in the world.

The relatively few cities that have arisen independently of waterways have usually had other transportation advantages. In the great desert regions, for example, the distances between sources of drinking water— compared to the distance that a camel can travel without water— determine which routes across the trackless sands or dry steppes are feasible and which are not. In turn, these routes and their traffic determine which of the oases have enough economic activity passing through them to become permanent settlements. Settlements at the crossroads of several routes through the desert— Samarkand in Central Asia, for example — could grow to be large

much more like the standards of living in non-European countries than like those in the more advanced parts of the continent. The fossil fuels which were largely lacking in southern Europe, for example, often could not be brought into the interior by water— the only economically feasible way of delivering them.

Although urban growth was dramatic in much of nineteenth century Europe, few towns developed in the Balkans. As roads and railroads developed and were improved in the more developed parts of Europe, they remained virtually unknown in the Balkans, so that people living in Balkan villages were isolated from people in other villages less than 20 miles away. The Balkan mountains fractured the peninsula culturally as well as isolating it economically, thereby contributing to the tribalistic divisions and lethal hatreds which have long marked the region. Although the Balkans were rich in natural harbors, there were few rivers to connect these harbors to the hinterlands, which were often cut off by mountains. While much of nineteenth century Europe not only grew economically but became interconnected with other nations within the continent and overseas, much of Eastern and Southeastern Europe lived close to “self-sufficiency”— which is to say, it was isolated, poor, and backward.

To have a large economic or cultural universe, it is not enough that there be waterways. How navigable those waterways are is crucial. Africa has the Nile and other great rivers, but these other rivers have serious impediments to navigation, and have seldom produced either cities or civilizations comparable to those of Egypt. Because most of sub-Saharan Africa is more than a thousand feet above sea level, its rivers must come down from that altitude on their way to the sea. The resulting rapids, cascades, and waterfalls prevent even the greatest of sub-Saharan rivers from providing access to and from the sea, in the way that the Hudson, the Yangtze, the Danube, or other great commercial waterways of the world can. Although Africa’s Zaire River carries more water than any of these three other rivers just mentioned, its waterfalls alone are enough to preclude it from having the same significance as an artery of trade or as a site for cities. Even African rivers that are navigable may be navigable for some limited distances between cascades or waterfalls, or by boats of limited size, or for some

limited times during the rainy seasons. However, the dry season often severely reduces or eliminates their navigability.

Nor is Africa’s geographic situation any better as regards harbors. Not only does the smooth African coastline provide few harbors, its coastal waters are often too shallow for large, ocean-going ships to approach closely to the land. The net result was that, even during centuries when much of the international trade of the world went around Africa on its way between Europe and Asia, relatively seldom did these ships attempt to stop and trade with Africans. They could stop in those relatively few places where there were harbors or they could anchor offshore and have cargo loaded onto smaller craft that were able to make their way to land through the shallow coastal waters. Still, the higher costs of taking much longer to unload a given amount of cargo meant that there were severe constraints against international trade with even the coastal peoples of Africa, much less those in the vast interior hinterlands or at higher elevations. Moreover, the coastal plains of Africa average only 20 miles in width, often with steep escarpments behind them.

In short, with harbors as with rivers, Africa seldom had the geographic essentials for developing cities. Where cities or large-scale political units did develop in tropical Africa, it was typically where these geographical hindrances were not as great.

Disparities between the costs of land transport and water transport translate into similar disparities in the reach of trade and in the range of goods which are feasible to trade by nations and peoples with and without navigable waterways. Huge transportation costs shrink the economic universe, severely limiting how far given goods can be carried, and severely limiting which goods have sufficient value condensed into a small size and weight (gold or diamonds, for example) to be feasible to transport over land for substantial distances. These same high transportation costs shrink the cultural universe as well, handicapping not only economic development but, more importantly, the development of the people themselves, who lack access to as wide a range of other people’s knowledge, skills, and

technologies as do people who are situated in port cities and other cultural crossroads.

The significance of particular geographic features— mountains, rivers, climate, soil, etc.— is even greater when these features are viewed in combination. For example, the effect of rainfall on agriculture depends not only on how much rainfall there is but also on the ability of the soil to hold it. Thus a modest amount of rainfall may be sufficient for a flourishing agriculture on the absorbent loess soils of northern China, while rain falling on the limestone soils of the Balkans may drain off rapidly underground. Similarly, the economic value of navigable waterways depends on the lands adjacent to them. Navigable rivers which go through land without the resources for either industry or agriculture— the Amazon for example— are of little economic value,3 even though navigable waterways in general have been crucial to the economic and cultural development of other regions more fully endowed with other resources.

In Russia as well, waterways isolated from the major natural resources of the country, as well as from each other, cannot match the economic role of rivers which flow into one another and then into the sea, after passing through agriculturally or industrially productive regions, as in Western Europe. The Volga is Russia’s premier river for shipping, even though there are other Russian rivers which have more than twice as much water flow, because the Volga passes through areas containing most of the resources and people of the country. Larger rivers in Siberia, which drain northward into the Arctic Ocean— when they are not frozen and cannot flow at all— have no such economic significance as the Volga.

Similarly, harbors that are not as deep, not as wide, nor as well-sheltered as other harbors, may nevertheless become busy ports if they represent the only outlets for productive regions in the vicinity, as has been the case of

3 The Amazon, for example, is by far the world’s greatest river but the soils in its region have been characterized as “startlingly poor” and it has led to no great cities being established along its banks. See Jonathan B. Tourtellot, “The Amazon: Sailing a Jungle Sea,” Great Rivers of the World, edited by Margaret Sedeen (Washington: National Geographic Society, 1984), p. 302.

Genoa in northwestern Italy or Mombasa in East Africa. Similarly, the port of Dubrovnik on the Dalmatian coast, strategically located for the international trade routes of the Middle Ages, flourished despite a harbor that was not particularly impressive in itself. While the historic role of London as a world port has depended on the Thames, this river is also not especially impressive in itself, but has simply provided an outlet for impressive industrial and commercial facilities nearby.

The presence or absence of draft animals can facilitate or limit the benefits of navigable waterways. Where large, ocean-going ships unloaded vast cargoes in port cities in centuries past, horses or oxen were crucial to the economical land transportation of those cargoes that needed to be dispersed to markets in those cities and in their hinterlands. In North Africa, camels could be used. But none of these draft animals existed in the Western Hemisphere before Europeans arrived, so there was no such economic payoff to building large ocean-going ships, and none were developed. This in turn limited the cultural universes of the indigenous Western Hemisphere peoples, even in places where there were rivers and harbors comparable to those in Europe. Much of sub-Saharan Africa lacked both the navigable waterways and the draft animals, and so had even smaller cultural universes.

Sometimes a variety of favorable geographical features exist in combination within a given region, as in northwestern Europe, and sometimes virtually all are lacking, as in much of tropical Africa, while still other parts of the world have some of these favorable features but not others. The consequences include not only large variations in economic wellbeing but, more fundamentally, large variations in the skills and experience— the human capital— of the people themselves. Given the enormous range of combinations of geographical features, the peoples from different regions of the earth have had highly disparate opportunities to develop particular skills and economic experience or to acquire them from others. International migrations then put these peoples with disparate skills, aptitudes, and outlooks in proximity to one another and in competition with one another

in other lands, often producing very different economic and social outcomes.

Among the more geographically fortunate parts of the world, in terms of having the natural resources needed for the development of a modern industrial economy, as well as the navigable waterways to carry both these resources and the products resulting from them, have been Northern and Western Europe. Iron ore and coal deposits, the key ingredients of steel manufacturing and the heavy industry dependent on it, are concentrated in the Ruhr valley, in Wales, and in the region so bitterly fought over by France and Germany, Alsace-Lorraine. In addition to the broad coastal plains which have provided the peoples of Western Europe with much prime agricultural land and with navigable rivers, Europe in general has many peninsulas, islands, and numerous harbors that give the continent excellent access to the sea— and therefore to the commerce and cultures of the world.

Climate

Favorable climate is also a factor. The Western European climate is greatly benefitted by the flow of the Gulf Stream, cutting through the North Atlantic, just as other streams flow through land. This stream of warm water, originating in the Gulf of Mexico, warms Western Europe to give it milder winters than places at similar latitudes in the Western Hemisphere or in Asia. London, for example, is farther north than any place in the 48 contiguous United States, yet it has milder winters than New York City, much less cities in Minnesota or Wisconsin.

Eastern, Central, and Mediterranean Europe do not share all these advantages. The Gulf Stream’s influence on the climate of European nations on the Atlantic coast becomes progressively less in the more distant central and eastern portions of the continent, where rivers are frozen for more days of the year and where winters are longer and more bitterly cold. The natural resources required for modern industry are also less abundant and, in many places, virtually non-existent in Central and Eastern Europe. The broad coastal plains of Northern Europe have no counterparts in the Balkans, where hills and mountains come down close to the sea and the

coastal harbors often have no navigable rivers to link them to the hinterlands. Spain has likewise been lacking in navigable rivers and Sicily lacking in both rivers and rainfall.

These sharp differences in geographical advantages have been reflected not only in great disparities in wealth among the different regions of Europe, but also in similarly large differences in skills, industrial experience, and whole ways of life among the peoples of these regions. Thus, when the peoples of the Mediterranean migrated to the United States or to Australia, for example, they did not bring with them the industrial skills or the whole modern way of life found among German or English immigrants. What they did bring with them was a frugality born of centuries of struggle for survival in the less productive lands and waters of the Mediterranean, and a power of endurance and persistence born of the same circumstances. The ability of Italian immigrants to endure poor and cramped living conditions and to save out of very low wages, which caused comment among those around them, whether in other European countries or in the Western Hemisphere or Australia, had both geographical and historical roots. Similar characteristics have marked various other Mediterranean peoples, but the Italians are a particularly revealing example, because they include not only the Mediterranean people of the south but also people from the industrial world of the Po River valley in the north, whose geographical, economic, and cultural characteristics are much more similar to those found among Northern and Western Europeans. Northern and southern Italians have long differed economically and socially, not only in Italy, but also in Australia, the United States, and Argentina.

The enduring consequences of the different skills and experiences possessed by people from different parts of Europe can be seen in the fact that the average income of immigrants from Southern and Eastern Europe to the United States in the early twentieth century was equal to what was earned by the bottom 15 percent among immigrants from England, Scotland, Holland, or Norway. Illiteracy was higher among immigrants from Southern and Eastern Europe. In school, their children tended to lag behind the children of either native-born Americans or the children of immigrants from Northern and Western Europe, while their I.Q. scores

were often very similar to those of American blacks, and were sometimes lower.

Nor was all this peculiar to American society. In pre-World War II Australia, immigrants from southern Italy, Dalmatia, Macedonia, and the Greek countryside were typically illiterate and spoke primarily their local dialects, rather than the official languages of their respective home countries. More than three quarters of these Southern European immigrants to Australia were from the rugged hills or mountains, the steep coastlines or islands of the region, rather than from the urban areas or plains. Although these remote areas were eventually drawn into the modern world, the skills of their peoples continued to lag behind the skills of peoples in other parts of Europe that were more industrially advanced and this was reflected in their earnings in Australia, as in the United States. As late as the 1970s, the median earnings of immigrants to Australia from Greece, Italy, or Yugoslavia fell below the earnings of immigrants from West Germany or from English-speaking countries. Southern Europeans in Australia remained under-represented in professional and technical occupations, and from nearly half among the Italian immigrants to an absolute majority among the Greek and Yugoslavian immigrants were unskilled laborers. These patterns were not simply a result of such subjective factors as others’ stereotypes, perceptions, or racism, but in fact reflected historical realities, however much additional penumbra of prejudice may have developed around those realities, or remained resistant to change after the realities themselves began to change with the assimilation and rising skill levels of the newcomers.

In addition to the effect of climate on the flow of water— freezing rivers in Russia during the winter and the drying up of rivers in tropical Africa after the rainy season is over— it has long had a major direct effect on agriculture. Moreover, agriculture has been the place where the vast majority of the peoples of the world have worked throughout almost all of history. Even countries that are heavily industrial and commercial today were primarily agricultural until recent centuries. In the United States, for

example, it was 1920 before more than half the American population lived in cities.

Temperature and rainfall determine what crops can be grown where. In extreme cases, they determine that no crops at all can be grown, as in deserts and in places where the land is frozen year around, such as in parts of Siberia. In places where moisture-laden air blows across a mountain range, it is not uncommon for the rainfall on the side where the moisture originates to be several times as great as in the “rain shadow” on the other side of the mountains, where the air goes after it has lost most of its moisture while rising over the crests. On some western slopes of southern Italy’s Apennine Mountains, for example, the annual rainfall reaches 2,000 millimeters while parts of the eastern slopes get as little as 300-500 millimeters. Similarly, in the American Pacific Northwest, precipitation on parts of the west side of the Cascade Mountains averages up to ten times as much as on parts of the Columbia Plateau to the east. Obviously the agricultural possibilities presented to the people living on one side of the mountain range differ greatly from those presented to people living on the other side. They must grow different crops and acquire different skills and experiences while doing so.

Climate also affects the diffusion of knowledge and experience. Because climate tends to vary less from east to west than it does from north to south, knowledge of particular crops and animals that flourish in a particular climate likewise spread more readily from east to west than from north to south. Thus the cultivation of rice spread from China all the way across the Eurasian land mass into Europe, while the cultivation of bananas could not spread from Central America into Canada, even though that is a shorter distance, because the climate differs so much between Central America and Canada. The same goes for the domestication or hunting of animals peculiar to a particular climate. The knowledge of such things likewise spreads more readily from east to west, than it does from north to south. Nor could knowledge of the crops, flora and fauna in the temperate zone of South America diffuse smoothly to the temperate zone of North America, because many of the techniques and practices could not spread through the vast tropical regions between these two temperate zones. Very different