Why are some countries poor and others rich?

Well, thank you. Any competitions to report?

Yeah, last weekend my parents took us up to Las Vegas to compete in the last ADCC Open where kids can score points for, or in order to qualify for the big Kids World Championships in August. That's right before the actual adults. Um, I only did one bracket because we messed up on the signups. Um, that's okay. So I, I got gold and then Logan got silver in the weight class above, which is pretty awesome. Um, so we're super proud of him.

Congrats to you both. Congrats to you both. Well, today I thought we'd, uh, attack kind of a different problem. I wonder, have you ever been to a place that was, uh, a, Have you traveled other countries outside the US?

Yes.

Which countries?

I've been, uh, right before the pandemic, um, we took a trip to Europe to see things. We went to Italy, Spain, France for a little bit, um, I think some other smaller countries, but I don't quite remember the names.

Got it. Have you ever been to a poorer country?

Not for very long, at least.

Got it. Um, well, I guess I was wondering, why do you think some countries are poor and other countries are rich? Do you have any idea?

Um, I think it's land, or maybe the amount of territory they take up. I think their ability to import and export goods if they don't have, or if they do have, the natural resources needed to make modern things. Um, I think their— what leadership they have is very important. Um, if it's like— or in my opinion, if a country isn't free and doesn't protect the citizens' rights, then I mean, I wouldn't want to live there because I like my rights. I live in the US and it's amazing. Um, I think the ability to— for people to create things and sustain and grow the market is another thing.

So that's a lot. Um, where do you think you had got all of those ideas?

Um, I mean, I listened to my dad's podcasts about history a lot. I— not that I know much about anything overall, but, um, I pick up a little bit.

Got it. So, um, no, you picked up a fair bit. I want to drill down into the size of the country. How would it be? How, if, if you're correct, it sounds like smaller, the smaller the country is, the poorer it should be, and the larger the country is, the richer it should be. Is that what you were thinking about size?

I think that could be the case sometimes, but I think it also depends. Like you could be a very small country but have a lot of natural resources, or you could be a very small country and not have a lot of natural resources, but be allied with other bigger countries and have them import things and you export smaller amount of things you have.

Got it. Because I was going to point out there are some countries that are very small that are, that are very rich. Do you know, have you ever heard of Singapore?

Yes.

So Singapore is a very small country, but it's very rich. Do you know about Switzerland?

Yes.

Switzerland is small but rich. Luxembourg is small and rich. So there are a lot of small, rich countries, and you're thinking that natural resources are part of it. So what if I told you that most of those small countries have no natural resources? How could a small country with no natural resources become rich?

They could have a strong military. I'm not quite sure how that would play into it though. Maybe like I was mentioning, a bigger exporting factor with other countries maybe. But other than that, I'm not sure.

Okay, well, you said a first— a whole lot in your first, um, uh, kind of overview. Just to dig into imports and exports, what role might importing and exporting play in becoming rich?

Uh, trading for other things, trading for money, selling and buying things that would benefit you, and then selling, um, to get money, or to ally with another country, maybe.

Okay. Um, and so there are two different things. One is the buying and the selling of things, and the other is an ally. When you say ally, um, what do you think when you say the word ally? And what, what, what do you think of countries when countries are allied? How does that impact a country?

I think the first thing I think of when I hear somebody say ally, it's like two countries. If one needs help, the other country who's allied helps it. Financially, maybe you're in a war, or with resources.

Okay, so what's tricky about that is, um, do you know what foreign aid is? Have you ever heard about foreign aid?

I have.

And how would you describe foreign aid?

Giving money to another country, I think, and probably an ally. That I'm interested.

Okay. No, there's, that's sometimes they, countries go to other countries that maybe are only a little bit allies, but they certainly tend to give a lot more to allies. So there's certainly a relationship like that. But what's tricky about that issue is there are some countries that have received trillions of dollars in foreign aid and are still poor. So how could you receive trillions of dollars in foreign aid and still be poor?

I'd assume spending it wrong or spending it less wisely than you could have, maybe not focusing on the benefit of the entire country and maybe just the benefit of the important people and the higher-ups. I could probably see that happening.

Yeah, you're right, that happens for sure. And it's actually been a big problem in Africa in particular. But if you say spending it wrong, then what is spending it right? So suppose a country receives foreign aid What is the right way to spend it?

I think helping— and I'm not quite sure, but the first thing that comes to mind is helping the poorer parts of the country become less poor. Because, I mean, I thought back to the quote— I'm not sure if I'll say it word for word— but you're only as strong as the weakest person on the team. So I thought that maybe that might maybe in the smallest sense refer to a country as well, especially if it's a bit smaller.

Okay. And then if they're— if the money is flowing to the poorest people, should it just be given them directly or should it be spent in some other way?

I don't think it should be given directly because you don't know what they'll do with it. I mean, they might have other influences. They might use it on things that won't necessarily help them. I think their living space and, you know, just the environment around them— maybe if it's super dirty or the buildings are super, super weak and not up to date— I think fixing the infrastructure is a big— it's a big factor, especially if you're poor. And you get foreign aid, I think necessities such as cleaner water, if they don't have it already, better food. I think those just, those would improve the lives of the people in the poor part of the country.

Okay. I want to go to a different example. All of that's plausible. What if there are countries that do not receive foreign aid and go from poor to rich? So small countries with no natural resources and no foreign aid. How would a small country with no natural resources and no foreign aid go from poor to rich?

I'm not sure. Maybe they found a natural resource, or maybe they just— maybe they took over another part of it, and maybe they took over some other territory, which maybe doesn't seem too realistic if they're super poor.

Well, the premise is no natural resources. So how do they become rich with no natural resources and remaining small?

Maybe by allying with another super rich country. I'm not sure though.

Okay. But if by premise the ally is not sending foreign aid, that doesn't do it. So let me go in a different direction. You talked about some of these earlier. Would you say that the internet adds value to your life?

Definitely.

And how, how, what's involved in, there's certainly the computers, but what's involved in a lot of coding, software development?

Programs and hardware and technology that you could sell.

Okay, um, and do— does technology require a lot of resources?

I mean, if you're talking about the hardware, I think so, but if you're talking about just the plain coding, then maybe not.

And what, what resource creates the code?

The keyboard.

Okay, so the keyboard just spontaneously starts cranking out code?

Uh, not necessarily, but, um, I mean, the humans create the code, but the code goes into the computer.

There's actually a book called The Infinite Resource, and can you guess what resource they regard as infinite?

Humans?

There we go. So if humans are creating the code, and that's just one example, but do you see how humans can create something of value even with relatively modest resources?

Yeah.

So, you know, there are different ways and certainly, now I'm going to talk about manufacturing versus services. You know what manufacturing is?

Yes.

Then you build things, make things, you know, manufacture cars, computers, t-shirts, whatever. Services is another sector of the economy, and that includes financial services, it includes software development, it includes entertainment. And so you might think of how people create value separate from natural resources is usually they either make things, they manufacture things. Or they, I'll say, think things, you know, they, you know, create code or they create financial markets or they create media products. And there the human is a big part of it. So if most, so suppose we have 3 primary sources of value. There's, they're natural resources, which you were focused on. Then there's manufacturing. And then there are services. Let's go back to the question. Suppose a country is small, poor, and does not have natural resources. How could they earn money?

They could come up with ideas and manufacture things and spread their ideas and objects into other countries and make money.

Yeah, they basically create things, they make things and they can, you know, they don't necessarily always have to be the inventors of things, you know, and now there are people who work around the world together on different projects. But earlier you had talked about it, you talked about good leadership, you talked about, I think, did you mention property rights?

I'm not sure.

Okay. But I would say the ability to create things makes a big difference. Does that make sense?

Definitely.

So if you can create things, and there are a bunch of components we'd have to go into, how to create manufacturing, how to create things in service industries, how do we develop the humans? I mean, That's an interesting one. How do we get humans to the point where they can create things? You have any idea how, how we get humans to that point?

Well, you have to— I mean, I think that depends if they want to make things or not. I mean, if you're talking about like the humans just don't want to take part in anything in manufacturing or coming up with ideas and helping their country, then I mean, you're gonna have to want to I mean, you'd either make them do it or make them think of reasons why. And then if, I mean, if they can't, if they literally can't do it because of their living situation, then you have to do something about that first. But I'm not very sure.

And what I would say is almost all poor people want to become rich. People don't like being poor. And rich, even if it's rich, just middle-class US standards. So, you know, there are billions of people that would love to live as comfortably as you do. So by global standards, you're relatively rich. You know, many, many poor people don't have refrigerators, they don't have stoves, you know, they don't have very basic sorts of things. So if they want to reach, so let's assume they already have the motivation. So, You know, they want to become, let's call it middle class. They don't like being poor, so they're motivated. Now what do we need to do to get them to the point where they can create things?

I think you need to, or they need to be creative and have ideas and work and I think have the drive in order to make money and do the things for themselves in their country.

And do you think, um, is this the desire to create things or the ability— do you think it's random, just like 1 out of 100, 1 out of 1,000, 1 out of a million, or is it everybody? Or—

well, I don't think it's necessarily everybody. I think, um, I think like you said, almost everybody doesn't want to be poor. Um, so I think— I mean, most people, I'd assume, would take the chance to do it. But, um, I mean, there might be that one Negative Nancy that just doesn't want to do it. So you're good. I mean, the first thing that comes to mind is what you're doing with me and having me think about the good reasons and, you know, just talking, um, and giving them the creativity and drive in order to do that.

Got it. Have you ever thought about any of these issues before? Is this the first time you've thought about these things?

They've come across in my mind, but I haven't really, like, thought— I didn't really know much about foreign aid and then what smaller, poorer countries do.

And have you listened— when you listen to your dad's podcast, do you just sort of listen to them in the background, or do you kind of focus in and really try to understand?

I think depends on the podcast, but more recently I've been listening to it when we've been driving. It's really interesting.

Well, and I think you're kind of at an age where, you know, we've talked before about how in elementary school, you know, children are children, and then gradually you try and gradually become kind of an adolescent. And I think part of that is focusing on the world that is Kids focus on one thing. And is it fair to say you're headed towards adolescence?

Yeah, I think so.

And does it make sense that part of that might be wanting to understand the world in a different way?

Definitely.

So yeah, I would encourage you to try listening to podcasts, ask your dad questions. We didn't completely address all of this. This is a big topic, why some countries are poor and some are rich, but you do, you're mostly in the right direction. But I would say, yeah, it's surprising. A lot of people think it's natural resources or foreign aid or things like that. But it turns out that in general, natural resources and foreign aid are not as powerful as just having an economy where people can create value in manufacturing and services. Does that make sense?

Yes. Okay.

Well, I will let you think about this. Listen to those podcasts, talk to your dad, and gradually we'll help you understand how the world, world works. Okay.

All right. Thank you.

Have a good day. Bye-bye.