Economics 201 Why rich countries are rich and poor countries are poor...

All economic activity is classified into four types: PRIMARY ACTIVITIES: taking and using natural resources directly (i.e. farming, mining, grazing) SECONDARY ACTIVITIES: using raw materials to produce something new and more valuable (i.e. auto manufacturing, auto- assembly)

All economic activity is classified into four types: TERTIARY ACTIVITIES: providing services to people (i.e. teachers, doctors, accountants) QUATERNARY ACTIVITIES: processing, managing, and distributing information (i.e. data processing, research)

So why are poor countries poor? The answer is generally tied directly to the type of activities that make up the country’s economy. Countries that do a lot of primary activities tend to be poorer. Countries that do a lot of quaternary activities tend to be richer.

A huge part of this is also due to something called ‘human capital A huge part of this is also due to something called ‘human capital.’ Basically, the more skills your people have, the more productive they can be. Think of it like this, the day will never be more than 24 hours long. The more you can produce in that time period, the more people will consume and the richer you will be. In 1870, a typical household required 1,800 hours of work to earn a year’s worth of food. Today, it takes a typical household on 260 hours because we are more productive. Human capital also matters on a microeconomic level. Why is Bill Gates so rich? Because his human capital is significantly higher than most people in the world in the field of computers. The same could be said about LeBron James and basketball.

What about the productivity of the world? As time goes on, every country in the world will become more productive. However, the most productive countries in the next 100 years will be the ones who can capitalize on renewable resources. Renewable Resources: Natural resources that are capable of being replenished by natural ecological processes or sound management practices. Non-Renewable Resources: Natural resources that are not capable of replenishment.