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Lotterman: Work ethic, circumstances are both important to personal financial success

Which is more important in determining a person's financial success, individual initiative or the economic environment? It's an old debate, but the performance of our cherry trees this year provides a good illustration.

We have two trees, both of the same variety, purchased at the same nursery and planted the same day. This year we got enough fruit for 71 jars of jelly and five large pies. However, both trees were not equally productive. The smaller tree produced enough cherries for perhaps one pie. All the rest came from the larger tree.

Why such a difference between two seemingly identical trees? Several factors are evident. The less productive tree is shaded most of the day. The bountiful one is espaliered against the house and gets sun all day. Heat from the house benefits it in the spring and the light-colored siding reflects sunlight back into its branches.

Moreover, the productive tree is rooted in the vegetable garden that gets regular manure applications and more frequent watering. The slacker tree stands in lawn that is seldom fertilized or watered.

Differences in environment certainly affect performance of cherry trees. Differing sunlight, heat, fertilizer and water cause two nearly identical trees to produce very differently.

The same is true for people. Educational systems, physical infrastructure, property rights, capital markets, legal systems, and political culture vary greatly between nations. Two individuals displaying similar initiative and effort may achieve vastly different incomes because of such variation in their economic environment.

Anyone born in the United States or Canada or the Netherlands is likely to have far higher lifetime income than someone born in Bangladesh or Burundi.

Initiative and effort do matter. On average hard-working, prudent individuals do better than slothful, imprudent ones in poor countries as well as rich. But the differences between Canada and Congo are not due to the fact that Canadians work hard, while the Congolese loaf.

Moreover, as anyone who has lived in a developing country can attest, the poor in such countries often work harder than most other people on Earth.

Some people manage to prosper in poor countries despite the bad government and inadequate institutions. But the odds are much greater against such individuals than they would be in the wealthy nations.

Indeed, we can see the same differences within our nation. Two high school graduates working equally hard are likely to have different incomes if one lives on Puget Sound and the other in the Mississippi Delta.

A capable schoolteacher in the Twin Cities earns more than a similarly capable one in a small town in western South Dakota. This is largely because alternative employment in the city pays so much more that school districts have to pony up, or they will not get the teachers they need.

Hard work and initiative matter in personal success. So does the economic environment.

Economist Edward Lotterman teaches and writes in St. Paul, Minnesota. Write him at ed@edlotterman.com

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