For background reading on the topic of IQ as an objection to immigration, see IQ deficit.

I recently learned from Arnold Kling’s blog post of a new book by Richard Lynn and Tatu Vanhanen titled Intelligence: A Unifying Construct for the Social Sciences (buy here). The book is an extension of earlier work by Lynn and Vanhanen, including IQ and the Wealth of Nations (Wikipedia page).

In IQ and the Wealth of Nations Lynn and Vanhanen introduce the concept of “national IQ” — the average IQ of a nation — and then attempt to demonstrate that national IQ is correlated with a number of measures of national per capita wealth. They then try to argue that at least part of the correlation is causal from IQ to per capita wealth. Controlling for IQ, they find that the extent to which an economy is a free market economy is the best predictor of national wealth. Roughly, they contend that national IQs explain about 1/3 of the variation in national wealth, market orientation explains another 1/3 of the variation, and the remaining 1/3 is explained by a host of other factors (which they don’t attempt to enumerate in full).

In Intelligence, Lynn and Vanhanen extend the analysis beyond wealth to various other measures of well being including health measures, water access, democratization, crime, and happiness. They argue that IQ can explain a significant portion of each of these (though in some cases it is not as significant) and conventional explanations such as market orientation and specific historical events can account for some of the residual. Their overall thesis is that intelligence should be treated as a unifying construct and explanatory variable across a wide range of social sciences, akin to the way that concepts from physics have explanatory power across all domains of the natural sciences.

While L&V’s thesis is new, I think that they make reasonable arguments and attempt to address all the prima facie objections one may have. How well they succeed, and whether their thesis withstands further empirical assault, is not something I feel confident to comment upon. However, I think that L&V sometimes draw the wrong conclusions from their data on the rare occasions that they try to discuss the implications for international development.

Although I don’t have any credentials in this area, I’ve relied, in addition to L&V, on the research of Garett Jones, who largely agrees with the L&V framework but tries to dig deeper into the mechanisms by which IQ might play a causal role in creating wealth. While the synthesis I present is largely my own, it relies on Jones’ work to quite an extent.

Also note: my critique of some of the conclusions that L&V (and others) draw from their work presupposes, for simplicity’s sake, that L&V’s overall framework is correct. Even if it isn’t, and IQ is not as powerful an explanatory variable as claimed, my arguments may still work in a modified sense (replacing IQ by whatever X factor is driving national differences).

National IQs versus individual IQs

Jones, L&V, and many other students of national IQs have argued that there is a relationship between national IQ and economic measures, and that this relationship is logarithmic: a one point increase in national IQ leads to a fixed proportional increase in productivity, hence also in per capita GDP and other measures. However, one of the remarkable findings is that the effects at the national level are much more salient than the effects at the individual level. Quoting from Jones’ article for Asian Development Review:

It is reasonable to be cautious about claims that IQ has a major influence on national productivity. After all, a large labor economics literature shows that IQ and other testable skills have only modest correlations with wages at the individual level. Whether we look in developing or
developed countries, the story is the same: a 1 standard deviation increase in cognitive skills (15 IQ points) within a country is associated with about a 15 percent increase in wages, perhaps less.
For instance, Alderman et al. (1996) found that in rural Pakistan, those who perform 1 standard deviation better on an abstract visual pattern-finding IQ test—the Raven’s matrices—earned 13 percent more. One should draw two lessons from this result. First, the intelligence tests widely derided in popular culture as being culturally biased nevertheless have the power to predict economic outcomes in one of the poorest regions in Asia. Second, this 13 percent effect is still far too small to explain poverty in South Asia. If differences in cognitive skill are important drivers of national economic outcomes, cognitive externalities must be large.Jones and Schneider (2006 and 2010) provide evidence for this. They found that across countries, the IQ–productivity relationship is much larger: 15 IQ points is associated with a 150 percent increase in productivity. Perhaps this strong relationship is epiphenomenal but the psychology, economic growth, and behavioral public choice literatures all give reason for thinking otherwise. There are good reasons for thinking that intelligence—the name used for the underlying trait measured by IQ tests—matters more for nations than for individuals. For instance:
1. Intelligent individuals tend to be more patient, and growth theory predicts that patient nations will save more, building up a larger capital stock in a closed-economy world.
2. Behavioral economics experiments show that high IQ players are more cooperative in repeated prisoner’s dilemma, trust, and public goods games. Since trust and trustworthiness are key to holding together wealth-creating institutions, intelligence will cause prosperity through public choice channels.
3. Skill complementarities may be important in producing “O-Ring” forms of fragile, delicate output. If so, then small differences in worker skill may cause massive differences in cross-country productivity.
4. According to Caplan and Miller (2010) high-IQ individuals appear more likely to support pro-market, pro-trade policies. Thus, more intelligent voters are more likely to see the invisible hand, supporting policies that create prosperity.

My view: creating versus sustaining technology

My interpretation of these findings is that IQ is very important in creating new technologies and institutions, but relatively less important for sustaining, using, and benefiting from these technologies and institutions. Designing and installing the first sewage system may require a high regional IQ. Implementing an existing and time-tested sewage system design probably is less IQ-intensive. Using a flush toilet or hand wash is not IQ-intensive at all and is in many ways easier than the more primitive alternatives.

Similarly, designing the first automobiles may have required people with high IQs (and many other qualities). Using an automobile does require some intelligence, but IQ plays a very small role — people across the intelligence spectrum and nations across the intelligence spectrum can make use of automobiles reasonably effectively to transport themselves.

More important than merely sustaining technology, I think it is also true that the significance of IQ in figuring out which of two systems is better is less than the significance of IQ in creating a new system from scratch. As an example, even a nation where it would be unlikely for flush toilets to be invented would probably come around to preferring flush toilets after comparing the experience of flush toilets with open defecation.

Thus, I contend that even if L&V are right in their assertion that nations with low average national IQs are unlikely to be major sources of new innovation, this does not mean that they will have to go through an extremely slow and tortuous path to achieving the benefits of these innovations. After all, they don’t have to reinvent the wheel.

While my assertion may seem tautological to the point of not even meriting any attention, I think it explains and is supported by two lines of evidence. The first is that national IQs play a more important role than individual IQs in determining individual productivity and per capita GDP. The reason, I believe, is that even low IQ individuals don’t have much trouble using and benefiting from the tools, technologies and institutions developed in their high IQ societies, and they are usually smart enough to discern what technologies would be more beneficial to them.

My second line of evidence is the dramatic secular trend of rising standard of living. While the Flynn effect suggests rising IQ, the rise in standard of living over the last 250 years in the developed world has been by a factor of 10-100, which is far more than the Flynn effect alone would predict (I think).

The role of national boundaries

Why do national IQs matter? What is so special about national boundaries? I think the answer lies not in some mysterious law of nature but in the fact that a number of policies discriminate based on national barriers.

The absence of free trade is one factor that creates national differences. Through trade restrictions, the pool of options that an individual has to choose from is artificially restricted to things produced within that individual’s country. If my thesis above is correct that IQ plays a much more important role in invention and creation than in selection and use of technology, then we see that national IQ (which determines what gets created) would play a more significant role than individual IQ (which only determines how well the given individual uses what’s available).

A testable prediction from this would be that in those areas where there is much freer trade and exchange, there is much more rapid convergence in style and standard across the world, large IQ differences notwithstanding. Another testable prediction would be that the creation of free trade zones leads to convergence in the quality and consumption experiences for those goods and services that are tradable.

The role of institutions

Differences in goods and services account for only a small part of the differences between nations. A lot of the differences are in the form of differences between institutions. The key reason for the place premium is believed to be differences in institutions.

Unfortunately, institutions present a much bigger problem than goods and services, because they’re non-tradable, and they are typically determined through political processes (whether democratic or through violence) rather than market processes. When it comes to political processes, moreover, a number of factors conspire to make people more irrational and hence IQ differences may play a larger role. (The argument would go something like this: people are irrational in politics because of the low stakes involved and the lack of incentive to learn about the issues. In the absence of incentives and feedback mechanisms, IQ differences play a more important role in determining people’s degree of irrationality). Thus, improvement of institutions in low IQ nations through purely political processes would be extremely slow, and there may even be occasional degradation.

However, even low IQ people are discerning enough to recognize better institutions when they see them — it’s just hard to actually chart a path to achieving those institutions. This points to an obvious solution: if you can’t build the institutions where the people are, let the people move to where the institutions are! The simplest, most literal solution is open borders: free migration that would let people move to places with better institutions and reap the benefits. Even partial open borders may have significant spillover effects as the world gets closer together and ideas for better institutions spread faster.

Given the political infeasibility of open borders, a second-best solution may be charter cities (more on immigration and charter cities). A charter city is a city that is part of one country but where the legal infrastructure of another country is used instead. The key principles of charter cities are outlined on the Charter Cities website. In a memo to the Gates Foundation citiquing the Foundation for not funding charter cities, Bryan Caplan makes a variant of the case I’m making here:

Another upside of charter cities is that there is virtually no downside. A charter city begins on empty land. It can only grow by voluntary migration of workers and investors. If no one chooses to relocate, they’re no worse off than they would have been if the charter city had never existed. If efforts to start charter cities fail, at least they won’t harm the very people they’re intended to help.

In contrast, the paths the Gates Foundation currently intends to pursue sound worse than doing nothing. “Build capacity of organizations working on-the-ground with the urban poor” and “Integrate the voice of the poor into the planning process” sound compassionate. But they could easily further retard the only poverty-reduction process that really works: economic growth. My first book, The Myth of the Rational Voter: Why Democracies Choose Bad Policies (Princeton University Press 2007) finds that economic illiteracy is especially pronounced among the least educated. They are especially likely to misperceive the economy as a zero-sum game, to fear economic interaction with foreigners, and to naively focus on employment rather than production. Frankly, voices like this need less influence on policy, not more.

If you really want to learn what benefits the world’s poor, don’t ask them to become amateur social scientists. See how they vote with their feet. Build charter cities, and the world’s poor will come.

UPDATE: A follow-up blog post with Garett Jones’ response and further thoughts from me.

Vipul Naik

Vipul Naik founded the Open Borders website in March 2012. See also:

Vipul Naik’s personal statement
Vipul Naik’s description of open borders on his personal site
Page about Vipul Naik on Open Borders