“Wade accepts the view that institutional differences explain wealth differences across countries. But, what causes institutional differences?”

The question that looms over all the social sciences, unanswered and largely unaddressed, is how to explain the paradox that people as individuals are so similar yet human societies differ so conspicuously in their cultural and economic attainments.

The argument presented in the pages above is that these differences do not spring from any great disparity between the individual members of the various races. Rather, they stem from the quite minor variations in human social behavior, whether of trust, conformity, aggressiveness or other traits, that have evolved within each race during its geographical and historical experience… It is because of their institutions—which are largely cultural edifices resting on the base of genetically shaped social behaviors—that the societies of the West and of East Asia are so different, that tribal societies are so unlike modern states, and that rich countries are rich and poor countries deprived.1

The question of why some countries are far wealthier than others is indeed one of the bigger issues in economics. Explanations have ranged from the highly materialistic to the intangible, with the materialistic explanations tending to be less morally favorable toward market economies than the intangible explanations.

The Marxist explanation is materialistic. The accumulation of capital is what creates wealth. Marxists argue that in the context of a free market, capital accumulation benefits only the few, leading to unwarranted concentrations of power.

Another materialistic explanation is found in Jared Diamond’s Guns, Germs, and Steel.2 Diamond asks why Western Europe colonized Africa and the Americas, rather than the other way around. His materialistic explanation centers on geographic and environmental factors. These in turn led to Western Europe holding the advantage in terms of guns, germs, and steel, which is hardly edifying from a moral perspective.

For more on these topics, see the EconTalk podcast episode

Acemoglu on Why Nations Fail.

See also

Economic Freedom by Robert A. Lawson


Marxism by David L. Prychitko in the Concise Encyclopedia of Economics.

Many economists point to institutions, including economic freedom, equality before the law, and the enforcement of property rights as key determinants of differences in wealth across countries. This view can be found in Why Nations Fail,3 by Daron Acemoglu and James Robinson, as well as in the work of Nobel laureate Douglass North. The difference between the economic conditions in North Korea and South Korea is frequently cited as an example that demonstrates the significance of institutional differences when other factors are seemingly equal.

Nicholas Wade’s book articulates the controversial hypothesis that institutional differences are often the result of small differences in the average genetic makeup of populations, and that these differences correspond to ordinary racial classifications. Obviously, this is not the explanation for the divergence between North and South Korea, but Wade argues that it does explain why Western Europe and its demographic offshoots have developed institutions conducive to economic growth and democracy while other regions have not.

Race and Genetics

In what ways are racial differences genetic? Wade discusses clusters of genes that differ by race in terms of probability:

These race-distinguishing DNA sites are known blandly as AIMs, or ancestry information markers… A set of 128 AIMs suffices to assign people to their continental race of origin, whether European, East Asian, American Indian, or African…

Most AIMs are alleles that are just somewhat more common in one race than in another. A single AIM that occurs in 45% of East Asians and 65% of Europeans says that the carrier is a little more likely to be European, but is hardly definitive. When the results of a string of AIMs are combined, however, an answer with high statistical probability can be obtained.

Wade says that these probabilistic differences have emerged because of “soft sweeps” in evolution. A “hard sweep” consists of a new mutation creating a trait that confers a decisive advantage that causes it to take over a population. In contrast, a soft sweep takes place when a trait has an advantage, and this trait is caused by many genes. People with more of the favorable genes for producing that trait will tend to have more surviving children. Says Wade,

The soft sweep process—a small increase in frequency in many genes—is a much easier way for natural selection to operate than through hard sweeps.

The practice of breeding plants and animals relies on soft sweeps rather than hard sweeps. The breeder of tame animals does not know which genes are at work. However, by selecting the tamest animals in each generation, the breeder eventually creates a breed that has a large share of the genes that favor tameness.

When do different gene clusters emerge through selection pressure and when do they emerge at random? This question occurred to me throughout my reading of Wade’s book, and I did not find it clearly addressed. Perhaps the answer is well known, and I simply lack the relevant background knowledge.

On the one hand, I can imagine differences that are due to selection pressure, which would work somewhat like deliberate breeding. Selection pressures that differ by location could cause humans to evolve different traits in different locations. Wade offers well-known examples, such as genes for lactose tolerance or genes that help fight malaria but otherwise have adverse consequences.

On the other hand, I also can imagine random variation in gene clusters. The random genetic characteristics of any two populations would tend to differ, on average, in proportion to the distance between those two populations. That is because people are less likely to marry the farther apart they live. It seems to me that this could give rise to distinct genetic markers of a particular continent or even of a particular town. However, such variation might have no significant impact on the traits of the people with those differences, because it does not reflect selection pressure.

Why Do Institutions Differ by Region?

Wade accepts the view that institutional differences explain wealth differences across countries. But, what causes institutional differences? Wade argues that current explanations of institutional differences leave important phenomena unexplained and that average genetic characteristics of populations must also play a role.

If North and South Korea are the classic illustration of the power of institutions, then the American attempt at nation-building in Iraq is the classic illustration of the difficulty of transplanting institutions. Wade writes,

… if institutions were purely cultural, it should be easy to transfer an institution from one society to another. But American institutions do not transplant so easily to tribal societies like Iraq or Afghanistan.

The argument implicit in that paragraph can be re-stated as:

  1. 1. America attempted to transplant its institutions to Iraq and Afghanistan.
  2. 2. Those institutions failed to “take.”
  3. 3. Therefore, the explanation is likely due to the genetic makeup of the populations.

I think it is possible to object that America did not really transplant its institutions to these other countries. Democratic elections were conspicuously transplanted. However, democratic elections are only one of many institutions that differentiate America from Iraq or Afghanistan. Many important principles of official conduct, social norms, customs, and practices were never transplanted, yet some of these are almost certainly crucial for maintaining a free society.

Douglass North and other institutional economists do not assign importance to racial or genetic differences. Instead, they think in terms of self-reinforcing equilibria.

In Violence and Social Orders,4 North and co-authors Barry Weingast and John Wallis argue that there are two different self-reinforcing systems of government. One is what they term a limited-access order, in which a few organized groups hold power. The other self-reinforcing system is an open-access order, in which power is dispersed and the rule of law prevails. In a limited-access order, the oligarchs maintain peace among themselves by sharing wealth that they extract from the rest of the population. The victims of this exploitation are kept at bay through repression. In an open-access order, society is governed by general rules, not by repressive elites. Anyone is able to own property with secure rights.

North, Weingast, and Wallis refer to the limited-access order as “the natural state.” It is natural because the evolved instincts of humans make it easy to achieve loyalty within tribal groups. Tribal or quasi-tribal groups readily compete with one another and are willing to engage in violence. The limited-access order serves to stabilize a society and maintain peace.

The transition to an open-access order only takes place when certain preconditions are met. North, Weingast, and Wallis argue that before an open-access order can be established, a nation must undergo a period in which the military is subservient to civilian control and in which the elites deal with one another through formal legal processes.5


Wade argues that those who deny the significance of race must engage in intellectual contortions in order to do so. I did not feel that this was the case. On the contrary, for me, two intellectual contortions are needed in order to believe Wade’s thesis.

The first contortion involves believing that differences in average genetic clusters reflect selection effects with respect to traits, when it seems to me that they could be largely random. The claim that there are genetically-driven differences in traits across races strikes me as having scanty evidence as of now.

The second contortion involves comparing the average-genetic-traits hypothesis with the self-reinforcing equilibrium hypothesis in explaining the difficulty that some countries have in making the transition to market economies and democratic governments. Wade writes as if institutional and cultural change ought to be achievable swiftly, and when that fails we have no choice but to fall back on genetics. My own view is that the processes of institutional and cultural change are certainly poorly understood, and not necessarily rapid.6

For more on these topics, see the EconTalk podcast episodes

Manzi on Knowledge, Policy, and Uncontrolled

Weingast on the Violence Trap.

Depending on how research proceeds, in the coming decades it may not require a contortion to believe that there is a reliable relationship between genetic clusters and personality traits. However, the issue of what leads different countries to have different institutions suffers from what Jim Manzi terms “causal density,” meaning that there are many plausible explanations and relatively little data with which to sort these out.7 Thus, I doubt that we will ever definitively be able to say that differences in average social traits of a population are a major factor.


Nicholas Wade. A Troublesome Inheritance: Genes, Race, and Human History. Penguin Press, 2014.

Jared M. Diamond. Guns, Germs, and Steel: The Fates of Human Societies. W. W. Norton and Company, 1999.

Daron Acemoglu and James Robinson. Why Nations Fail: The Origins of Power, Poverty, and Prosperity. Crown Business, 2013.

Douglass C. North, John Joseph Wallis, and Barry Weingast. Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History. Cambridge University Press, 2012.

For more elaboration, see my essay in The American, “The Challenge of Achieving a Liberal Order.” Also, readers of my essay “State, Clan, and Liberty” (Library of Economics and Liberty, May 6, 2013) will note some similarity between the idea of the “natural state” and Mark Weinberg’s “rule of the clan.”

James Bennett and Michael Lotus see Anglo-American culture as having distinctive features that are nearly 1000 years old. See my essay “America’s Past and America’s Future”. Library of Economics and Liberty, Sept. 2, 2013.

See Jim Manzi, Uncontrolled: The Surprising Payoff of Trial-and-Error for Business, Politics, and Society. Basic Books, 2012.


*Arnold Kling has a Ph.D. in economics from the Massachusetts Institute of Technology. He is the author of five books, including Crisis of Abundance: Rethinking How We Pay for Health Care; Invisible Wealth: The Hidden Story of How Markets Work; and Unchecked and Unbalanced: How the Discrepancy Between Knowledge and Power Caused the Financial Crisis and Threatens Democracy. He contributed to EconLog from January 2003 through August 2012.

For more articles by Arnold Kling, see the Archive.