The recent article by Nigel Biggar in The Australian, providing context around Admiral Arthur Phillip’s settlement in Australia in 1788, was enlightening. The thrust of it being that colonisation by Europeans of unexplored lands, was one of global mass migration as opposed to colonialism for colonialism’s sake.
Around that time, the British, and others including the French, Spanish, and Portuguese, were active explorers in search of new lands. And Biggar made the argument that “intrusion” into Australia was inevitable, and that it was fortunate that the British arrived here first.
And while Biggar’s article covers the direct impact of British settlement on the Indigenous population here, it’s worth considering other impacts British colonisation may have had around the world, compared to alternative European explorers of the time.
Comparing the wealth of former European colonies
An area worth exploring is the wealth today of former European colonies, and what effect different colonising countries might have had on that. Consider the Americas.
North, Central, and South America are all former colonies. North American countries, the United States and Canada, were colonised by the British, and to some extent the French (in Canada, Quebec). Whereas Latin America, which is basically Mexico, Central and South America, characterised by Romance-speaking countries, was colonised by the Spanish predominantly, and also the Portuguese.
And there is a stark difference today in per capita wealth of the US and Canada which are wealthy, versus Latin America which by comparison is not.
In fact, the GDP per capita of the former, is approximately eight times that of the latter. According to worldometers.info, the combined US and Canada GDP per capita was $US72,600 in 2022, versus a combined $9,300 for Latin American countries. That difference is staggering. The population of Latin America being around 70% more than total US and Canada, at around 650 million.
The Latin American country with the highest GDP per capita was Uruguay at $21,000, with the biggest contributor being Mexico at about one fifth of the total population and a GDP per capita of just $11,000. Meanwhile, Canada’s GDP per capita was $55,000, with the US dominant at $74,500.
And it’s not as if North America is an outlier, because if you look at the GDP per capita of other Anglosphere countries, Australia comes in at $64,000, the UK $45,000, and New Zealand $48,000. With Australia the twelfth most prosperous nation worldwide in 2022.
What accounts for the differences?
So why is that measure of wealth so much less in Latin America? Why are former British colonies that much more wealthy? Could it be because of differing legal systems brought to the new founded shores by the Europeans?
In Nigel Biggar’s article, he made the point that Arthur Phillip sought to avoid conflict between white convicts, sailors and soldiers, and the Aboriginal people “by declaring the life of a native equal to that of a white man under the law; by punishing white abusers”. This is a reference to the rule of law under the Common Law legal system that the British brought to the Australian colony.
British law was rooted in Common Law, a system that is built on precedents, and allows the law to evolve. The Common Law legal system was installed in all British colonies, including those in North America. The main alternative to Common Law is Civil Law, predominant in continental Europe, the system of law that ruled in Spain and Portugal, and taken to Latin American colonies. Unlike Common Law, prior judicial decisions only play a minor role in shaping Civil Law. The primary difference between the two legal systems therefore being the role of past decisions and precedents.
A Common Law legal system is more conducive to a capitalist style economy, as it allows flexibility for economies to adapt and evolve with changing economic developments due to judicial interpretation. Common Law encourages private ownership with strong protection laws engendering confidence in markets. Regulation is market driven, with limited government intervention.
Meanwhile, a Civil Law system may be more attuned to a socialist economy with more rigidity in legal codes, and greater government control over rules and regulations covering resources and economic activities. This system provides more legal certainty which suits socialist structures requiring predictability in long term planning.
In reality, a country’s legal system does not strictly determine whether it pursues capitalism or socialism. Rather, it can be more favourable to one economic system over another. And a blend of economic systems is possible, and often implemented.
An economic system, be it capitalist or socialist, links to economic prosperity in complex ways. And even then, the nature of prosperity can differ under different economic systems.
If economic growth is the major focus in an economy, then a capitalist one seeking to maximise profit in a generally market driven private sector, should theoretically produce a better outcome.
If greater equality in the distribution of wealth is desired, then a socialist economy with government control over production and redistribution policies, might be better equipped to achieve that goal.
And both systems may claim to be maximising prosperity, each with a different focus.
The theory therefore dictates that capitalist economies should deliver higher economic growth when influenced by a Common Law legal system that facilitates flexibility in market regulation and corporate law, innovation, and market efficiencies. That is, a system that has delivered high GDP per capita measures in Anglosphere countries.
Meanwhile, socialism has been a dynamic force in Latin America with a complex history taking many forms across most of its countries under a Civil Law legal system, presenting alternatives to capitalist economic systems. And with wealth measured by GDP per capita comparatively low in those countries, the question as to the influence of a legal system on a nation’s wealth, at least historically, is a valid one.
Perhaps then it was just plain luck of the draw as to who colonised who around the globe at the time. And while Biggar concluded that it was fortunate for the Aboriginal people that the British got here first, that may be disputed by some.
But when it comes to economic prosperity, it might indeed be fortuitous that we don't today shout “olé” at the footy, or say “bon appétit” over a "plat du jour”.
Tony Dillon is a freelance writer and former actuary. This article is general information and does not consider the circumstances of any investor.