The Colonial Origins of Inequality in the Americas
By: Dusan Nedic
Tags: Humanity, Progress, Inequality, Macrohistory, American History

The city of Nogales is a divided city. It is divided into two parts by a metal wall. To make things look worse, it’s a barbed wire wall, similar to the ones used in concentration camps. The northern part of the city is located in Arizona, in the district of Santa Cruz. Apart from having the above-mentioned wall on its south side, everyday life in this part of the city is largely similar to the rest of the USA. Although there is obvious discontent with the American education, health, and security system, most young people attend school and have access to health care. A high level of personal security is provided, and most importantly, the protection of the personal property is guaranteed. All these services are provided by the local administration, which, even if it is not the best in the world, still tries to meet the needs of its residents. If it does not live up to its expectations, there is an established democratic mechanism that allows the population to change government representatives.

Life on the other side of the wall is completely different. Although bearing the same name, the city south of the fence belongs to the area of ​​Sonora, in Mexico. The area itself represents a more developed part of Mexico, yet still, the average household on this side of the wall earns only one-third of the income that families from the northern part of the city earn. The difference is not only monetary but also visible in other segments of life. In this part of the city, the life expectancy is shorter and the infant mortality rate is higher. A large number of young people do not go to school, robberies are frequent, and founding and running a company can turn into a real hell. Although all this is very obvious to the residents of Mexican Nogales, things in the city are not changing. Moreover, the city has had a change of government only once in history. In 2006, the Institutional Revolutionary Party was replaced by the National Action Party.

How is it possible for two settlements, that are practically one city, to be so different from each other? The geographical conditions are almost the same. There are no climatic differences, and there are no significant cultural differences among the population. They listen to the same music and eat the same food. Also, the story of different origins isn’t grounded, because the people there have been living together in that area for a long time, despite the changes in the borders.

What is obvious so far is that the key difference is in the state border that divides the city. The citizens of the north have access to the system of the United States of America, while the south shares the fate of the political and economic tradition of Mexico. Why have the rules that apply to northerners contributed so much to their quality of life, and how is it that the south lags behind in almost every way? The answer to that question should be sought several centuries ago when the colonization of both American continents began.

Beginning of colonization in the south

At the beginning of the 16th century, a few years after Columbus’ expedition, the first Spanish sailors arrived in South America. The territories to which they landed were soon declared the property of Spain. There they founded their first settlements. Rio de la Plata was first and then Buenos Aires. However, what they encountered was not the scenario they had hoped for. Local groups of hunter-gatherers managed to defend themselves, and thus did not allow the Spaniards to subdue them. This meant that the colonialists would have to work on their own to provide themselves with food and living conditions. However, thanks to the expeditions they sent further west, the Spanish settlers soon realized that the real wealth was exactly there, in the area that belonged to the Aztec Empire. The way in which they conquered the Aztecs, and very quickly and systematically exploited them, was a modus operandi according to which the Spanish conquerors very quickly took over the entire continent.

The conquest strategy devised by Hernan Cortes was as effective as it was simple. First, they would capture the leader of the native tribe. He would be forced, most often after cruel torture, to surrender his wealth, and then all members of the tribe would be required to pay tribute and procure food. This is how the encomienda came about. It is a name for a group of natives who were assigned to a Spaniard, called an encomendero. In addition to work, the natives were forced to pay tribute to the assigned Spaniard, and he in turn undertook the obligation to convert them to Christianity. Each new conquest meant the division of the conquered peoples according to this principle. Thus, the indigenous population across the continent fell into slavery. This cruel slave-owning system has been maintained and perfected for centuries, and its consequences are deeply felt even after it was officially abolished.

Things became even worse for the local population when large reserves of silver were discovered in the Midwest of the continent. This led to additional exploitation of the local population and to the introduction of the mita system. This system implied additional coercion in mining operations and represented the most difficult program of labor exploitation during the period of Spanish colonization. One-seventh of the population in the territory of the myth was forced to work very hard in the mines. The system was abolished only after three centuries. The situation of the natives was further aggravated by the introduction of a mandatory annual tax which was supposed to further force the population to participate in the labor market. In the end, the enslaved locals were forced to buy goods from the Spaniards at a price determined by the government.

This system of repression, which was applied where the Spanish colonialists ruled, was a network whose sole purpose was to maximize the exploitation of the local population for the sake of resources. This meant reducing the natives to a level sufficient for mere survival and reproduction, while all the value that surpassed that ended up in the hands of a small number of Spanish colonial elites.

Beginning of colonization in the north

While Spain had been accumulating vast resources and mineral wealth throughout the New World for decades, there was no prospect that England could take over its primacy as the world’s leading power. Behind it was a series of traumatic and devastating civil conflicts called the Wars of the Two Roses, and it was far behind the mighty Spanish monarchy in discovering and conquering new territories. Moreover, a large naval invasion by the Spanish Armada soon began. However, thanks to great luck, and above all very favorable weather conditions at sea, England managed to repel the invasion of the Spaniard, whose losses were significantly increased while returning home. The battle itself, in its consequences, represents one of the most significant events of the new century, which gave England much-needed self-confidence, but also space for maritime expansion.

Still far behind, and without much available territory on the new American continents, in the colonial race, England could only opt for what was left. That was North America. The fact that it was relatively accessible to English colonizers meant that this part of the American continent from the perspective of earlier colonizers, primarily Spanish, seemed useless. The population density was very low. It was not known that there were any mineral resources and the agricultural potential looked much worse compared to the warmer parts of the south. The price of agricultural goods in the later established northern colonies was up to five times cheaper than in India, and three times cheaper than in the southern colonies, which further influenced their potential to look weak.

After several unsuccessful attempts, the English colonizers, in front of the Virginia Company, founded Jamestown, their first settlement. The initial model of colonization they aspired to did not differ at all from the Spanish. Capture the chief, take everything from him, and then use him to force the population to work for the needs of the settlers. The plan was simple and already proven successful. The results were completely unexpected and unfavorable for the first English settlers.

The first obstacle is that they met with the Powhattan confederation in the immediate neighborhood. It was big enough to defend itself from uninvited guests but also unprepared for any kind of cooperation. This meant that the new neighbors lived close to each other but without any contact, with the exception of a smaller volume of trade that would help them survive the winter. The English colonialists did not yet understand that the strategy applied by Cortes and Pizarro was not possible in the north. There was no gold, and no possibility for a small number of natives to be enslaved. The company had to look for a new way for its investment to succeed. The matter was aggravated by increasingly severe winters and a small amount of food. The colony was soon desecrated. The number of members decreased from several hundred to only sixty.

A new approach has been introduced. Since it was not possible to exploit the local population, then it was necessary to force the colonialists to work. Camp-like rules were soon introduced. Every escape was punishable by death, as well as every minor form of crime and possible trafficking. This actually only made the situation worse and led to an additional drop in the number of people and a miserable mood among the rest. The company will soon realize that there is a more efficient system that would bring their project to life.

As the strategy of forcing the local population and settlers experienced a complete fiasco, the company began to provide incentives. The settlers and their families were given land and houses in which they lived and were released from contractual obligations. A general assembly was formed which gave all adult men the opportunity to influence the work of the colony and the creation of laws. That is how democracy was born in the New World.

It took Virginia more than a decade to test the model of social organization to realize that life in the north would have to be organized differently. The coming decades will lead to the full realization that economically viable communities can only be formed if the population has incentives to work, save, and invest. For centuries, English and local elites will try to violate this principle and endanger the institutions that guaranteed economic and political freedoms. Fortunately, but also with the strength of the institutions, without much success. More than a hundred years after the founding of Jamestown, all thirteen American colonies, which will later form the United States, will have a very similar system of government. The process that began in Jamestown in 1619 will reach its peak in Philadelphia in 1787 when the still valid US constitution was proclaimed.

The differences will become obvious over time

It took some time to see the first differences between the Spanish and English models. Over the next few decades, the differences will only become more apparent. One of the key crossroads happened in 1812, when, due to political changes in the Spanish monarchy itself, a constitution was passed that was supposed to abolish privileges and make freedom at least declaratively accessible to everyone. The heirs of the conquistadors did not like that at all. Pressures from Spain to give up privileges forced them to start declaring independence and thus form states that will continue to protect long-acquired benefits. Unlike the United States, which formed institutions that significantly hindered the exercise of political force, Mexico quickly became a dictatorship.

The world was changing at an unprecedented rate in the 19th century. Both the United States and Mexico will soon go through a turbulent period. The internal crisis in the United States will still be much shorter although including five years of civil war, while Mexico will change fifty-two presidents in the period from 1824 to 1867 alone, many of whom came and went to power by violence and coups. Mexico will soon lose the Alamo, Texas, and later New Mexico and Arizona.

Although the loss of territory in itself meant disaster, the enormous political turbulences had an even more devastating internal effect. They instilled great insecurity among the local population and great distrust in the state. The people of Mexico could not protect their property and thus were left without a motive for progress, putting most people in a situation to think only of mere survival. This further meant that the state coffers were largely empty, weakening the government’s chances of enforcing the law, while the vast majority of wealth belonged to the hereditary elite, which had a monopoly on economic and political developments in the country.

The United States was entering the industrial revolution at full speed, while Mexico seemed increasingly hopeless. It is the industrial revolution that will further emphasize the systemic differences between the two new states. The rapid development of new technologies has enabled the enrichment of almost everyone. As never before in history, there was a possibility that, regardless of their origin, an individual would get the opportunity to get rich on the basis of his work. In this way, the meritocratic nature of American society was further strengthened. This was made possible, among other things, by the introduction of patents, which, unlike attempts in England, were not a means of monopolization. For the first time, such a rapid rise on the knowledge-based social ladder has been made possible. Many have become very rich. The best example is Thomas Edison, who had over fifteen hundred registered patents, a significant number of which he managed to sell. More importantly, he cashed in on his talent, work and knowledge not only by selling patents but also by raising companies based on innovation. The whole process was accelerated by strong competition among banks which provided cheap funds to finance development.

In Mexico, meanwhile, everything was different. The number of banks was negligible and the money to borrow was very expensive. Property rights were violated by the expropriation and division of huge areas of land to the first-legged elite close to the president. It has significantly discouraged individuals from working to develop innovation.

With the advent of globalization in the mid-nineteenth century, unexplored areas of South and North America became more accessible than ever. Although the process of discovering new areas has led to a brutal confrontation with the local population, both in the south and in the north, the already established differences have been seen in relation to the new territories. While in the north the settlement of new territories went hand in hand with the establishment of a law that sought to protect the rights of new citizens, on the other side the conquered land, now by tradition, was granted to privileged individuals. In this way, economic growth in Mexico remained concentrated in a very small number of people without affecting standards of living.

Institutional differences continued throughout the twentieth century. Constant political unrest, crimes against the population, violent expropriations, corruption, and an unstable economic environment have become a constant for the south of the continent. In the north, the meteoric rise continued, which in just over two centuries since the establishment of institutions, led the continent to the most developed part of the world, to which people from all sides migrate.

It is obvious from this story that we continue to live in a world ruled by inequality. This fact often leads to the conclusion that this problem should be solved by redistributing the outcome of one’s work. However, if something should be concluded from this text, it is that people everywhere are more or less the same and that circumstances are something to consider in order for everyone to have the opportunity to fulfill their potential. What will always make a difference is the nature of the system in which individuals operate. What are the system’s incentives and penalties, and how equally are they applied. Small but important differences in the system over time can lead entire nations to greater wealth and a better quality of life, or they can trap them in a negative spiral of poverty, misery, and conflict.

This text is inspired by the book “Why nations fail”, from which a large part of the material was taken. I recommend the book to everyone who is interested in the origin of prosperity, but also in the way we should think if we want to eradicate poverty and all its consequences.