Looking for stable bets in overseas markets? First, check the rainfall totals

Looking for stable bets in overseas markets? First, check the rainfall totals
New research shows that too little rain -- or way too much -- leads to social unrest; irrigation doesn't help
JAN 20, 2012
Why is Libya exploding? Why are Iraq and Egypt always, even after many millennia, undemocratic? Why was there scarcely any looting or rioting in Japan even after the triple calamity of tsunami, earthquake and nuclear accident? Blame the rain. Or rather, the lack of it. Egypt and Libya boil over because precipitation levels there are among the lowest in the world. Japan has received enough rain over the centuries to learn how to govern itself. The idea that rainfall amounts might start wars or foster democracy is consistent with new research by Stephen Haber, a professor at Stanford University, and Victor Menaldo, a professor at the University of Washington. In their paper, Haber and Menaldo sort nations into three categories: those that are persistently authoritarian (Egypt) or democratic (the U.K.) and ones that cycle between the two. Next, the authors ranked nations by annual precipitation. The authors are talking about rainfall, not water from, say, a river. Haber and Menaldo found that countries where rainfall averages between 50 and 100 centimeters (39.4 inches) a year are more likely to be democratic. In places with less than 50 centimeters annually, dictatorship predominates. What does rain do that rivers don't? For one thing, politicians can't control the rain. Their efforts to turn the skies on and off like a faucet -- using cloud seeding or other measures -- were humiliating failures. Middle-Class Values In short, rain meant independence. Countries in the rainy midrange are ones whose inhabitants could grow and store grains, legumes and other crops. This meant farmers in temperate regions experienced less starvation than those in other places. They could accumulate enough to invest in more property or education. Farmers working in Japan after World War II, in New England during the 18th century or in the Netherlands several centuries ago all fostered what we today consider middle-class values. Long after they abandoned agriculture and moved to the city, the farm-borne respect for the rule of law and property rights sustains a society stable. Of course, crops thrive in high rainfall areas. The sugar of the moist Caribbean is one example. However, what's grown in tropical climates often can't be stored long. This was especially true in the days before refrigeration. Ruling a Swamp Big institutional farmers -- whether colonial governments or wealthy foreign companies -- were the only ones with the resources to make cultivation in such places profitable. Individuals in these regions tended to be laborers, not owners. No middle class arose, and citizens, with less to lose, were more willing to back regime change. That's why swampy, high- precipitation territories (like the Philippines) tend to change direction -- heading now toward democracy, then toward dictatorship -- like lightning in a rainstorm. Can irrigation create democracy where rainfall is infrequent? No, because the ruler's hand is always ready to divert the river or close the dam. All the wealth a farmer has built up is in jeopardy if his water supply can be cut off. There is one example of a heavily irrigated democracy: Israel. However, the authors argue, the immigrants who settled Israel -- whether Germans, Poles or Russians -- came from agricultural countries, and therefore had amassed the human capital necessary for democracy. In other words, Israel's democracy was created before Israel itself. Controlling the Flow Here's a current example of the Haber-Menaldo theory: Ethiopia wants to dam the Nile, diverting water from Egypt and Sudan to the benefit of Ethiopia, Kenya or Uganda, which may provoke yet another round of conflict in Africa. You can see this idea at work even in movies: the parched town of Dirt in the animated film “Rango” is held hostage by a corrupt mayor who diverts the precious gallons to Las Vegas, driving Dirt's townsfolk to pick up their pitchforks. In the Biblical story, Joseph stored grain and created wealth for the pharaoh, but that helped neither Jews nor non- royal Egyptians in the long run because “there came a new king, which knew not Joseph,” and didn't build on Joseph's contribution. Haber says studying the relationship between rainfall and regimes is useful because it reminds us of our (military) limits: “Societies are an outcome of nature's constraints,” Haber wrote in an e-mail to me. “Iraq is highly unlikely to ever look like Ohio, no matter how much money we pour into it.” Another valuable takeaway: It is more important for a farmer to own a farm than to get subsidies for it. This paper should spur doubt among those who emphasize radical Islam at the expense of other forces at work in the Mideast. “Egypt was a dictatorship long before Islam even existed,” Haber said. “Overall, rain is a better predictor of stable democracy than the percentage of Muslims in a country.” (Amity Shlaes, a senior fellow in economic history at the Council on Foreign Relations and author of “The Forgotten Man: A New History of the Great Depression,” is a Bloomberg News columnist. The opinions expressed are her own.)

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