Cause of International Inequality

Arnold Kling is much puzzled by the inequality of nations. I don’t know why. The answer is pretty obvious.

Firstly, you require capitalism, which requires not mere formal laws recognizing private property, but a culture of respect for entrepreneurship, for property rights in productive capital and freedom to do business. With that respect, the laws are unnecessary, as in today’s China. Without that respect, the laws are useless, as in Argentina and Russia.

Secondly, given capitalism, you require people able to operate modern capitalism, able function in a business encompassing numerous people – you require people whose verbal IQ is higher than 105. By and large, the capitalist portion of the economy, the portion that produces wealth, will be proportional to number of people with an IQ higher than 105.

If we look at countries that are reasonable capitalist, and these days a large part of the countries of the world are reasonably capitalist, the GDP per head is fairly closely proportional to fraction of the population with a verbal IQ higher than 105, the smart fraction.

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