So, Why Actually is Australia Rich?

Added: 2026-05-20

[00:00:00]One of the most frustrating things about creating any sort of media in today's rather turbulent times is that we've reached a point where if you know how to prompt an AI correctly, you can get a possible, sanitized, surface level answer to most things. And because you, dear viewer, now have access to all of that information, if I want to provide something new or novel or just worth your time, I have a couple of options.

[00:00:23]The first option is I could just recite whatever you would be able to find for yourself on ChatGPT or Wikipedia and just hope that you would rather hear me say it than go and just find the answer yourself, which is fine. Or I can try and track down the spots where the AI is giving you answers that aren't quite hitting the mark, where the perceived bot-aggregated wisdom is not correct.

[00:00:45]And I think I might have found one of those. If you type "Why is Australia wealthy?" into Google, Gemini will give you something like this. "Australia's wealth stems primarily from its vast natural resources like iron ore, coal, and gas, fueling major export economic booms supported by strong sectors in agriculture, services, and education.

[00:01:04]Plus historical investment and immigration that built infrastructure and a skilled workforce, all managed by stable institutions." Now, it's not so much that this answer is completely wrong. The truth is buried in there somewhere, but it's still not a very good answer in my opinion. It is a common answer though. Everyone likes to point to the vast natural resources as a source of wealth and whether they're also causing too many emissions or whether they're generating enough tax, etc. But everyone agrees Australia is, among other things, a country with a lot of dirt and gold, uranium, diamonds, iron, lithium, lead, nickel, and heaps of coal. Over a thousand years worth of brown coal at current production rates.

[00:01:46]And this goes to the regularly cited dumb luck argument that the only reason that the standard of living for a reasonable number of people in Australia is any good is because Australia is a lucky country blessed by the material wealth it digs out of the ground. I don't agree with this. I think it's a bit wrong. Let's have a look right around our wonderful planet for a moment. Australia does have a lot of very valuable stuff in the ground, but so does the Congo and so does Angola and so does Venezuela. Would you want to be in charge of Venezuela's resource sector right now? The economics profession has actually coalesced around the idea that an inverse relationship exists between resource wealth and economic prosperity.

[00:02:28]That having more resources often leads to less growth and less prosperity.

[00:02:33]Let's take any one of those autocratic countries with an abundance of resources. Over there, economic growth can continue by just continuing to direct the population to keep on digging them up. You don't need well-educated people or lots of good infrastructure and green space or football matches on Thursday nights to keep your population working in the mines. You don't need to develop a service sector or build universities and schools to give the population the education they would need to do something else. There is essentially an entire planet's worth of evidence that having a lot of valuable things in the ground is not a precursor to prosperity. Conversely, some countries that don't have any natural resources at all like Singapore or Taiwan or South Korea, they've all become comparatively wealthy countries.

[00:03:18]And when you take that angle, it's probably more tempting to say that Australia is a wealthy country not because of its natural resources, but in spite of them. So, why is Australia a wealthy country?

[00:03:32]And to answer that question, let's go to America. It seems like a weird question, but why does the United States of America have the economic and military cachet to kidnap South American dictators rather than South America coming up and kidnapping US presidents?

[00:03:46]And why do American freedom fighters patrol the United States-Mexico border to keep the Mexicans out rather than the reverse. Why isn't Mexico working to stop a horde of illegal aliens fleeing from the murky depths of Oklahoma? The ultimate answer is that the US is a stronger, wealthier country. It's more prosperous. But, why is that the case?

[00:04:07]Fundamentally, why are some countries rich while other countries are poor? I think it's useful to look at that question in American context because that controls for a lot of external factors. If you're a resident of literally any country in either North or South America, it means that a couple of hundred years ago your country had just become part of a European colony. If you lived south of the US-Mexico border, then with a couple of small exceptions here, your colonial predecessors were either the Spanish or the Portuguese.

[00:04:38]Now, you really really didn't want to get colonized by the Spanish or the Portuguese. The Spanish and the Portuguese were what the British could have been if they'd started taking anabolic steroids. And they went over there with a single goal: ruthlessly and efficiently enslave as much of the native population as possible and extract as much wealth as possible to ship back to Europe. And if that's your one goal, you're going to set up camp in the parts of the Americas with the most natural resources to extract and the largest populations of native people to enslave. So, not here, here. The Spanish and the Portuguese set up societies in which a small European aristocracy oversaw millions of miserable disenfranchised peasants who were forced to extract as much gold, silver, sugar, and cotton from the land as possible.

[00:05:25]This system was called the encomienda, and it took full advantage of the fact that when the Spanish and the Portuguese arrived, there were already autocratic, extractive societies in place in those areas. As the Europeans came over and encomienda'd the Aztecs, for example, they were being ruled by this interesting person, Montezuma, who was, among other things enough of a despot that the other Aztecs weren't allowed to look at him. That is a hierarchical society, and it's also exactly what you want to find if you're swooping in to try and set up your own hierarchical society. Because you can just co-opt the one that's already there. The colonists were able to simply take the existing system, get rid of the people at the top of it, and put themselves at the top of it instead. The only difference, instead of using their extracted wealth to build more stone pyramids and palaces, they just took all that wealth and shipped it back to the Iberian Peninsula.

[00:06:22]Encomienda, simple. And when the Spanish and the Portuguese were finally booted out of the New World by some of the settlers who decided to stay there, a new bunch of elites took power, and essentially just kept doing what their ancestors from Spain and Portugal had already been doing. They might have called themselves reformers or democratizers or Argentinian or Peronist or Brazilian or Colombian, but they continued to propagate highly unequal societies based on resource extraction and agriculture. And they did this because institutions persist. Just like the Americans, for example, learned in Iraq a little bit earlier this century, you can't just overthrow an autocratic regime and expect an inclusive democracy to magically rise up in its place.

[00:07:08]On reflection, it looks like some of this learning is still ongoing. Either way, largely thanks to those institutions which were co-opted and exploited by the Spanish and the Portuguese centuries ago, the nations of Latin America remain some of the least equal in the world. And that's because you can't just shrug off a few centuries of extractive rule overnight. Some of the best roads in Peru, even today, were built by the Spanish centuries ago to transport slave labor into the mines and silver back out. It's kind of ironic, but these formally enslaved parts of Peru now tend to be far wealthier because the farmers today can use those old roads to transport their goods to the market. Other parts of the country are poorer because there are still no [ __ ] roads at all. These things persist, right? Like Colombia is still named after the guy who colonized the place. Things panned out a little differently though, a little further north. Most of what is today the United States and Canada was colonized by everyone's favorite expansionist friends, the British. They didn't go up there because they saw something inherent in the United States and Canada landmass that made it a better place to set up a colony.

[00:08:17]No, they went there because they were too slow out of the gate. Like we've been through, the Spanish and the Portuguese set up camp in Central and South America because they had more natural resources to steal, more indigenous people to enslave to extract those resources, and pre-existing extractive institutions that they were able to co-opt. The Brits would have loved to do all of that as well. But because they were too slow, they had to settle for a comparatively sparse, inhospitable, useless backwater up here.

[00:08:49]And the sort of Spanish and Portuguese behavior that was going on further down south wasn't going to work up there.

[00:08:55]There wasn't a clear hierarchical condensed civilization with institutions to co-opt like there was further down south. And the local populations were small enough in number and spread out so thinly that they weren't able to be co-opted into a mass economy of resource extraction. We still shouldn't overlook the fact that, just like the Spanish and the Portuguese, the people who settled further north did some truly horrific things to the people that were already there. This should come as no surprise to any fan of history. But because the British couldn't get an extractive operation going on the same scale, they had to do something else with their colonial outpost. So, instead of using it for resource extraction, they decided to use it as a dumping ground for their domestic issues. First for convicts and then for whoever else they were able to get rid of as a consequence of religious descent and overcrowding. And you know, fair enough, 16th century England doesn't look like my idea of a party. But in order to convince a lot of those religious dissenters and troublemakers to make the journey over there, they had to convince them that it'd be at least a reasonable place to live. So, and this is perhaps the most important part of all, they set up institutions over there that mirrored those in Europe. English common law made the journey over to the colonies and political power was dispersed. Private property rights were established and so were educational facilities and medical facilities. Eventually, some of the people who had moved over there did find another separate opportunity to set up another horrendous extractive enterprise, this one using labor that had been stolen and imported from Africa. But the difference between this and what was going on further south is that this two-tiered society still did preserve some of those European institutions for at least the Europeans who had arrived there. The most important reason that makes North America a more prosperous region today than Central and South America is that it was a settler colony and that the people who settled there, at least the ones who weren't stolen and transported from Africa, wanted their rights. And eventually, they wanted so many rights that you wound up with skirmishes with the motherland over taxation, and then the Boston Tea Party, and then the American Revolutionary War, and then finally, the birth of the new United States of America. A lot has happened in the United States of America since all that, right? But that early groundwork that those first settlers laid in their settler colony, along with the comparatively hands-off approach of the British Empire compared with their Spanish and Portuguese friends, that is the foundational source for the economic and political divergence of North and South America. Those early colonial differences have persisted, and they're the reason now that the United States is a more prosperous country than Venezuela. And you can kind of map all of this onto another place or two, I'd think. Where else was comparatively sparsely populated, had comparatively few centralized institutions to co-opt, and eventually became a dumping ground for every convict and troublemaker floating around in London?

[00:12:01]I know, Australia's early years aren't actually that different from the early years of the United States. A combination of convicts and free settlers who transplanted British parliamentary structures and social institutions and laws and customs into a new part of the world, punctuated again by unspeakable atrocities directed at the indigenous people.

[00:12:21]A lot of similarities there. Australia is also different in a lot of ways, obviously. One of the main ones being that it is still more quintessentially British, you might say, than the United States.

[00:12:33]Partly because the US fought a revolutionary war to become their own country, while Australia kind of just sat back and let it happen, and let them stay involved, and just kind of thought, "Yeah, they're fine as long as they just mostly leave us alone." And the British did, for the most part, leave them well enough alone, in part because of what they'd just learned about precisely how not to provoke a revolutionary war against the Americans. And all this was a good first step on the road to becoming a country with inclusive, broad-based, participatory political institutions. That doesn't mean that from there it was a foregone conclusion.

[00:13:07]There was still opportunities for things to go wrong, and for Australia to become a far less prosperous, more extractive place. It was around the 1850s, so about 50 years before federation even, that a very important argument took place between the majority of the Australian population and the new elite that was starting to form at the time. Very quickly, Australia had developed a new class of elite land owners, the squatters, who didn't want democracy or inclusivity or the rule of law or any of that important foundational stuff that leads to a country becoming wealthy.

[00:13:41]Because they were scared of all of those things. They were scared that inviting democracy would also invite the confiscation of their land by the unwashed masses. On the other hand, the rest of Australian society, most of the free settlers and almost all of the former convicts, the masses, the liberals, the radicals, the workers, they did want Australia to adopt its own democracy along the lines of what had already been forming in Britain.

[00:14:06]Unfortunately, they won. The liberals and the radicals and the workers won that argument against the new elites, and responsible government and rule of law and parliamentary democracy came to most parts of Australia in the 1850s.

[00:14:20]And ultimately, very similar to the United States, these institutions were given the space to develop and to be adopted because Australia had been populated as a settler colony. It had been settled by a critical enough mass of people to advocate for their rights against the new land-owning elites who had wanted to co-opt Australia for their own benefit. Since all that time ago, since the 1850s, we've seen a lot of things happen. We've seen federation, we've seen a lot of referenda, we've seen a lot of goods being dug up out of the ground, we've seen a lot of cars being made, and then we've seen a lot of car plants being closed. We've then seen the export of a lot of services and university degrees, and we've seen the Australian cricket team perform reasonably well from time to time. We've seen a lot of Collingwood premierships, but ever since the 1850s, Australia has, in a global sense, always been a comparatively wealthy country.

[00:15:14]The word comparatively does do a lot of heavy lifting there, right? There's still a long way to go. There's still a lot to complain about, but most countries across the world have far more to complain about. And even though some people still and always will like to say that Australia's prosperity is a product of natural resources and dumb luck, resource wealth won't get you anywhere if your institutions are no good. If resources were enough and the institutions didn't matter, the Congo would be a wealthier country than Singapore. Australia has much more than its natural resources. It has lots of things that we take for granted but that we probably shouldn't. You can get a loan and start a business in Australia.

[00:15:54]If you steal someone's things in Australia, they can go to the police.

[00:15:58]There are professional technocrats tinkering with interest rates to control inflation and free education and access to health care. And all of that happened because a long time ago, not long after the British started dumping convicts in Australia, they hit a critical juncture where they chose to adopt broad-based participatory institutions rather than institutions that have been controlled by a small group of elites and would rely on simply digging stuff out of the ground. The things that matter are the institutions, the legal frameworks, the property rights. As a very brief side note, you can go a lot deeper on all of this. Australia got a lot of these institutions from Europe, but it's another question entirely of how Europe got them in the first place.

[00:16:42]Maybe I'll go into that one another time when I'm feeling particularly prepared to suffer. All I've tried to illustrate here though, and hopefully I've made a strong enough case, is that even though the resources under the right settings can be a generator of wealth, it's the institutions that ultimately matter. They're the things that people should be seeking to value and protect.

[00:17:03]And if we can do that, and if we can leave people to operate under those settings in a way that's resourceful and creative and lateral, maybe we won't need to lean in so much to this ridiculous fantasy that it's all just about the coal.

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