similar income levels, but Colombia has very few
indigenous people today, while Ecuador and Peru have
many. Finally, cultural attitudes, which are in general slow to
change, are unlikely to account by themselves for the
growth miracles in East Asia and China. Though institutions
are persistent, too, in certain circumstances they do
change rapidly, as we’ll see.
T HE I GNORANCE H YPOTHESIS
The final popular theory for why some nations are poor and
some are rich is the ignorance hypothesis, which asserts
that world inequality exists because we or our rulers do not
know how to make poor countries rich. This idea is the one
held by most economists, who take their cue from the
famous definition proposed by the English economist
Lionel Robbins in 1935 that “economics is a science which
studies human behavior as a relationship between ends
and scarce means which have alternative uses.”
It is then a small step to conclude that the science of
economics should focus on the best use of scarce means
to satisfy social ends. Indeed, the most famous theoretical
result in economics, the so-called First Welfare Theorem,
identifies the circumstances under which the allocation of
resources in a “market economy” is socially desirable from
an economic point of view. A market economy is an
abstraction that is meant to capture a situation in which all
individuals and firms can freely produce, buy, and sell any
products or services that they wish. When these
circumstances are not present there is a “market failure.”
Such failures provide the basis for a theory of world
inequality, since the more that market failures go
unaddressed, the poorer a country is likely to be. The
ignorance hypothesis maintains that poor countries are
poor because they have a lot of market failures and
because economists and policymakers do not know how to
get rid of them and have heeded the wrong advice in the
past. Rich countries are rich because they have figured out
better policies and have successfully eliminated these
failures.
Could the ignorance hypothesis explain world inequality?
Could it be that African countries are poorer than the rest of