Why Some Nations Thrive

The American Phenomenon

Between America’s founding and 1914, the United States experienced unprecedented innovation and growth. Within 100 years, it became the richest and most powerful nation in the world. Why?

Common Explanations (and Their Problems)

• Natural Resources?
  While America is resource-rich, so are Russia, China, and others. Resources like oil and iron aren’t valuable until human ingenuity transforms them. Oil was once seen as a nuisance—entrepreneurs made it valuable.
• Size and Land?
  America is large, but so is Russia, China, and Canada. The difference is in how effectively land and resources are used.
• Exploitation?
  While tragic events (e.g., injustices toward Native Americans) occurred, they do not explain the creation of widespread wealth.
• War?
  Wars are destructive, not wealth-producing. America’s massive 19th-century growth occurred during a period of relative peace.

The Real Reason: Capitalism

Capitalism unleashed the human mind. America was the most capitalist country in the world. It protected individual rights and allowed people to think independently and innovate without needing permission.

Humans survive by transforming their environment. Capitalism provides the freedom to do that.

Innovators thought outside the box and created the infrastructure and technologies that shaped the modern world. Even during this “golden age,” some sectors were regulated and corrupted (e.g., railroads), but overall, capitalism drove the growth.

The Shift Toward Statism

Post-1914, America began to shift:

• 1914: Two Major Interventions
• Creation of the Federal Reserve
• Introduction of the Federal Income Tax
• Progressive Era Policies
• Expansion of government regulations
• Rise of central planning and economic control
• Examples
• 1887: Interstate Commerce Commission (railroads)
• 1890: Sherman Antitrust Act
• 1913–14: Income tax + central bank creation

Over time, regulations, controls, and government programs grew. America moved from near-pure capitalism toward a mixed economy (capitalism + statism).

Case Study: China’s Growth

Mao’s China

• Collectivization and forced industrialization led to mass famine.
• The Great Leap Forward (1958–62): 50+ million people died.
• Cultural Revolution (1966–76): Intellectuals persecuted, millions killed or sent to rural reeducation camps.

The Turning Point: Deng Xiaoping

• Post-Mao, Deng introduced economic reforms starting in 1978.
• Special Economic Zones like Shenzhen were opened.
• Wherever freedom increased, wealth followed.

GDP per capita rose from $228 in 1978 to $12,000+ by 2022.

But China remains a dictatorship, and under Xi Jinping, it’s now reversing economic liberalization. Entrepreneurs like Jack Ma have been silenced, and censorship is rising. China is retreating from capitalism.

Success Stories: Asia

• Japan
• Adopted Western-style constitution post-WWII (written by General MacArthur).
• Became a global industrial powerhouse despite being bombed into ruins.
• South Korea vs. North Korea
• In the 1950s, North Korea was richer. Today, South Korea thrives due to free markets, while North Korea remains in darkness and famine.
• Hong Kong
• Once a beacon of capitalism (minimal regulation, rule of law, contract enforcement).
• Grew from 600,000 to over 7.5 million.
• Now in decline as China cracks down on freedom.

Socialism’s Track Record

USSR

• From the start, a complete disaster.
• Famines, stagnation, and mass death (especially under Stalin).
• Dependence on Western capital and expertise to build infrastructure.
• Collapse of Berlin Wall revealed extreme poverty in Eastern Europe.

Venezuela vs. Chile

• Venezuela: Once richest country in Latin America, now poorest under socialism.
• Chile: Once the poorest, now richest due to market liberalization, even under an authoritarian regime (Pinochet).

Yet many Latin American countries continue to elect socialist leaders—a major puzzle explored in later lectures.

The Myth of Swedish Socialism

• Sweden today is a capitalist country with some welfare features.
• 1870–1930: Grew rapidly due to free markets.
• 1970s–90s: Experimented with socialism → stagnation, high taxes, emigration.
• Post-1991: Returned to capitalism → growth resumed.

Swedish Americans are richer than Swedes in Sweden, proving the role of environment over ethnicity.

Key Principle

The more a country embraces capitalism and individual rights, the more it thrives.

Capitalism = Flourishing

• Respect for property rights
• Freedom to innovate and trade
• Protection of individual liberty

Statism = Decline

• Controls, planning, redistribution
• Slower growth or stagnation
• Erosion of both economic and political freedom

Resurgence of Fascism?

While often associated with racism, fascism in Mussolini’s Italy was about:

• Control of businesses (without outright nationalization)
• Restriction of political rights and speech
• Illusion of private ownership under government direction

The U.S. is trending toward this economic model through industrial planning, subsidies, and increasing regulation.

Final Reflection

Despite overwhelming evidence of capitalism’s success, many nations still turn to statism. The reasons for this paradox—why people reject freedom despite its benefits—will be explored in the final lectures.

“If capitalism works so well, why do we keep turning away from it?”