Guano is the excrement produced by sea birds. For some reason, Peru was persuaded to remove the sea birds for the convenience of fishermen with whom the birds were competing.
Now, to my mind, it provides evidence that economists do not know what they are talking about. Even in retrospect their theories do not fit the facts.
Economic historians have long pondered the meaning of Peru’s experience with guano. While all agree it was a lost opportunity for development, explanations widely differ. Traditionally, guano is seen as an adverse enclave economy. In this view, export-sector revenues and demand filtered abroad to foreign capitalists, merchants, and luxury imports, leaving little impulse for the backward domestic economy. The quantitative studies of Shane Hunt overturned this view by showing how guano produced significant demand effects for the Peruvian economy and a potential for competent public investment. However, cost-price pressures still led to a dangerously overspecialized and productively stagnant rentier economy. Some historians stress, in the absence of wide-ranging social reforms, the limited ability of guano to strengthen national markets and promote cogent national consciousness among national elites; guano exemplifies a tragic “dependency” experience. Other historians explore Peru’s historical dynamics of integration with the world economy, which display a paradoxical blend of import liberalism and autocratic statism that stifled prospects for growth. Whatever the cause, the guano age left a legacy of superficial urban modernization and fragmented Andean society—persisting dilemmas for modern Peru.