#02: There's a reason it's called 'Cold Cash'
Why are cold countries richer than hot ones?
Issue 2 | 30th Jan, 2021
Hi, and welcome to the second issue of the Curiosity Catalogue. This week, I’m back to my nerdy-trivia best, and I’m going to try telling you why if you want to be get rich, you should pack your bags and head as far from the equator as you can.
This is an odd task, I’ll admit, but starts with a rather innocent observation. If you look at the world map, you might notice something interesting - almost all the poorest and developing countries in the world are located in the hottest parts of the world. Also, barring a few outliers like Singapore or the UAE, almost all rich and developed nations lie beyond the tropics in colder climates.
The people over at Economics Explained on YouTube made a nifty video about this and did find a negative correlation between temperature and GDP per capita. By their calculations, for every 1 degree Celsius increase in the average temperature of a country, the annual GDP per capita falls by $762.
There are many complicated and inter-connected factors that contribute to a country’s economic prosperity - Ruchir Sharma explains some of them in depth in The Ten Rules for Successful Nations - including political stability, concentration of state power, demography, etc. Geography is also a factor, though for him it’s more about natural resource wealth. Climate, though, does seem to be related to a country’s wealth, and the same EE video estimated that 9% of this wealth could be linked to a country’s temperature. The question is, why?
To answer that, it’s useful to start by looking at a different question - has it always been this way?
The short answer - no.
It’s been quite the opposite, in fact. Most ancient civilisations were located in warmer parts of the globe. Think of Egypt, Mesopotamia, the Aztecs or the Indus Valley. Even in Europe, the ancient empires were located in Greece and Rome, in the warm Mediterranean region. India’s economic history is especially testament to this - Angus Maddison showed that the Indian subcontinent contributed between 20% - 25% of global GDP until about the 1700s (today that figure is just above 7%). Admittedly, China, which is beyond the Tropics, contributed around the same, but the source of its wealth was similar to that of India in this period.
The reason these civilisations and their wealth was concentrated in the tropics was because the economy at this point was centred around agriculture. Agriculture needs fertile soil, and soil fertility builds up over millennia through the decomposition of organic material, which is sped up by heat and humidity (also why mold grows so easiy during the monsoons). In general, there’s much greater biodiversity to be found in the Tropics - this is why tropical rainforests are home to about half the world’s species, despite covering only 6% of its surface.
Elizabeth Kolbert, in her Pulitzer Prize-winning book The Sixth Extinction, wrote
“As a general rule, the variety of life is most impoverished at the poles and richest at low latitudes. This pattern is referred to in the scientific literature as the “latitudinal diversity gradient,” or LDG, and it was noted already by the German naturalist Alexander von Humboldt, who was amazed by the biological splendors of the tropics, which offer “a spectacle as varied as the azure vault of the heavens.””
This isn’t to say that heat and humidity directly create biodiversity, but they are an important part of the ecosystem. When translated to agriculture, this means that more crops grow in the warm tropics, and fewer in colder climates.
This has greatly impacted modern global history. Europe’s own agricultural poverty is highlighted by Ireland’s experiences in the 19th century. Since not a lot grew easily here, there was heavy dependence on the little that did. Potatoes, especially (a crop incidentally discovered and brought back to Europe from the Americas) were seen as a god-send because they were high in carbohydrates and other nutrition, and grew in the cold, hard soil of Ireland. Such became the dependence that the bottom third of Irish society relied solely on a single variety of potatoes for sustenance, with the average adult male consuming about 4-5 kilos a day! When a pest found its way here, it destroyed about 1/3rd of the crop, and for years together. As a result, millions either starved or fled.
Contrasted with this, the tropics were realms of fertility, diversity and abundance. This gave great impetus to European colonialism, and is why large swathes of fertile land, often pristine forests, were coverted to orderly plantations of sugar, cotton, bananas, coffee, tea and a lot more.
This doesn’t explain why European colonialism succeeded. That’s a complicated story of it’s own, better told by the likes of Jared Diamond in Guns, Germs and Steel or Kenneth Pommeranz in The Great Divergence. The fact is that colonialism did succeed, and as a consequence global power balance and wealth distribution changed. The colonies became the exploited source of raw material, and Northern Europe (also later the USA) became the keepers of wealth.
For their part, the colonists didn’t just take natural resources from colonies. As the industrial revolution kicked off, they became the factories of the world. Crucially, and here’s where I answer the question I started with - the output of factories was far less dependent on the weather than agriculture. These factories, fed by raw materials from colonies and whose workers were fueled by tea, coffee and sugar imported from colonial plantations, drove European wealth creation.
In the centuries since, the dependence of these economies on agriculture has only diminished. For the EU as a whole, agriculture contributed just 1.3% of the region’s GDP in 2019, while for the US that number was 0.9% in 2018. They’ve largely moved on from manufacturing as well, centering economic activity around services. Unlike countries whose economies are heavily dependent on agriculture, the weather outdoors doesn’t matter much.
In such set-ups, working in cooler climates has real benefits - a study showed that hotter-than-average years led to a 3%-4% drop in performance in hot countries, but improved performance by similar margins in cooler ones where hotter-than-average ends up being rather pleasant.
Being in hot climates, on the other hand, can have literally fatal consequences. To quote David Wallace-Wells’ brilliant book, Uninhabitable Earth:
“Heat frays everything. It increases violent crime rates, swearing on social media…The hotter it gets, the longer drivers will honk their horns in frustration; and even in simulations, police officers are more likely to fire on intruders when the exercises are conducted in hotter weather. By 2099, one speculative paper tabulated, climate change in the United States would bring about an additional 22,000 murders, 180,000 rapes, 3.5 million assaults, and 3.76 million robberies, burglaries, and acts of larceny.”
Now countries can’t control the climate, but there’s a device they can use as a work-around - the air-conditioner. The AC was important enough for Tim Hartford to consider it one of the 50 things that made the modern economy, and I don’t think he’s exaggerating. An indicative statistic Hartford mentioned in his podcast - US government typists were able to do 24% more work in an air-conditioned environment. There’s debate about the optimal temperature for human productivity, but it’s likely somewhere between 18-24 degrees, a far cry from what an Indian summer day is like. Intuitively, I’m sure most of you reading this know how difficult work in these circumstances, and the boon that air-conditioning can be.
Lee Kwan Yew, the man that led Singapore’s miraculous growth into a global power recognised this early. He once said in an interview
“Air conditioning was a most important invention for us, perhaps one of the signal inventions of history. It changed the nature of civilization by making development possible in the tropics.
Without air conditioning you can work only in the cool early-morning hours or at dusk. The first thing I did upon becoming prime minister was to install air conditioners in buildings where the civil service worked. This was key to public efficiency.”
For him, the air-conditioner was the ticket to development for tropical nations, and evidence bears this out. Though other developed nations in the tropics like U.A.E depend on oil wealth, everyday life there would also be near impossible without air-conditioning. Qatar is testament to this; their plans to have air-conditioned football stadiums for the upcoming World Cup was considered ridiculous, but they’ve already gone a step further and have started air-conditioning outdoor markets as well.
For the modern economy, the importance of air-conditioning goes beyond human comfort. Computers and servers stop functioning if it gets too hot or damp, so if you don’t want the internet to crash, temperature regulation through air-conditioning is crucial. If factories weren’t temperature controlled, you wouldn’t be able to manufacture silicon chips for computers in the first place.
On the off chance that the leader of a tropical country is reading this and planning to order every AC they can, maybe think twice. For one, there’s a problem with this system, though. Though AC’s might cool things indoors, they warm the outdoors and consume a lot of energy, contributing to global warming in multiple ways. This increase in temperature leads to a further increase in AC usage, and the climate-warming-spiral continues. In the long-term, tropical countries will also be the worst affected by this.
Importantly, like I said in the beginning, this isn’t to say that all of global inequality comes down to a difference in temperature. There’s a lot more that contributes to a country’s wealth, and also better ways of cooling down our cities.
The Round-up
If you’re looking for other things to read, listen to or watch this weekend, here’s a small curation of recommendations:
Where Will Everyone Go? (article): Above, I briefly touched on what the future of life in extreme heat will be like. This Pro-Publica piece goes into depth on the subject, specifically looking at how climate changed-fueled migration will pan out.
Invisible Women (podcast): The world we live in is built for men, in little and big ways. This isn’t hyperbole - from car seats to office AC temperatures to the way we diagnose heart attacks, the perspectives of the ‘average man’ have been priveleged in our design and understanding (in the case of heart attack diagnoses, with literally fatal consequences for women). Recently, while reading about Marianne Eloise’s experiences, I discovered this is often the case with autism as well.
Fargo (Netflix series): Fargo is one of the few TV shows I’ve watched recently that’s really grabbed my attention (as well as my parents’, who’ve finished the series before I have). Inspired by the Coen Brothers’ movie by the same name, each season tells the story of crime sprees in the US Midwest. I’ve rarely come across stories narrated so well on screen (think Breaking Bad level writing). The seasons aren’t inter-connected, and are only ten episodes each, so it’s not a huge time commitment to start with. A warning, though, there is a lot of violence, often gruesome, in the show, so keep that in mind.
In case you want to check out any of the books I mentioned in the piece above, here are links for them: The Ten Rules for Successful Nations; The Sixth Extinction; Guns, Germs and Steel; The Great Divergence; Uninhabitable Earth.
About me: I'm Shantanu Kishwar, a history buff turned policy-wonk, travel fanatic, and hummus-maker extraordinaire. I currently work as a Teaching Assistant at FLAME University, Pune. You can follow my sporadic updates on Twitter and Instagram if you so desire.
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