Return to Video

Importance of Institutions Brief

  • 0:01 - 0:05
    Today we're going to take a brief look at
    the importance of institutions
  • 0:05 - 0:08
    this'll be brief and that we're not going
    to look today
  • 0:08 - 0:12
    at which institution are important, and
    we're not going to try and explain
  • 0:12 - 0:15
    the mechanisms by which institutions work
  • 0:15 - 0:17
    instead what we want to do is offer
    the big picture:
  • 0:17 - 0:19
    Why do people study institutions?
  • 0:20 - 0:24
    Why do people think that institutions are
    important for economic growth?
  • 0:24 - 0:25
    Let's take a look
  • 0:27 - 0:30
    North and South Korea provide almost a
    perfect natural experiment
  • 0:30 - 0:33
    demonstrating the power of institutions
  • 0:33 - 0:37
    In 1944, North Korea and South Korea were
    very similar
  • 0:37 - 0:38
    they had the same people
  • 0:38 - 0:42
    the same culture, the same language,
    the same history
  • 0:42 - 0:44
    very similar economies
  • 0:44 - 0:47
    If anything, North Korea was a little bit
    more industrialized
  • 0:47 - 0:50
    South Korea, a little bit more agrarian
  • 0:50 - 0:54
    Then in 1945, the country was split
  • 0:54 - 0:58
    and North Korea chose communism, a
    totalitarian state
  • 0:58 - 1:01
    centrally planned, centrally directed
  • 1:01 - 1:03
    no private property rights
  • 1:03 - 1:06
    very little room for private initiative,
    no free press
  • 1:06 - 1:10
    South Korea, broadly speaking, chose
    capitalism
  • 1:10 - 1:12
    private property rights, a free economy,
  • 1:13 - 1:16
    much bigger scope of private initiative,
    a free press
  • 1:16 - 1:18
    not always honored, of course
  • 1:18 - 1:24
    but broadly speaking, South Korea chose
    capitalism, North Korea chose communism
  • 1:24 - 1:27
    Now,
    what were the results of these choices?
  • 1:27 - 1:33
    50 years later, the results are so clear:
    an alien could see them from outer space;
  • 1:33 - 1:37
    that this is a picture of North and South
    Korea, taken from outer space
  • 1:38 - 1:42
    and what you see is South Korea has lights,
    broad lights
  • 1:42 - 1:45
    people going out to parties, lighting
    up their home
  • 1:45 - 1:49
    what you see in South Korea is a developed
    modern economy
  • 1:49 - 1:53
    Up here, in North Korea,
    what you see is darkness
  • 1:53 - 2:00
    With the one exception of Pyongyang, the
    central city where the ruling elite lives
  • 2:00 - 2:04
    Massive differences created in just
    50 years
  • 2:04 - 2:11
    Today South Korea has a GDP per capita at
    least 10 times, probably 15 times higher
  • 2:11 - 2:13
    than that in North Korea
  • 2:13 - 2:18
    South Korea is a modern developed economy,
    the most wired economy in the world
  • 2:18 - 2:22
    the standard of living, equal to that of
    most western countries
  • 2:22 - 2:28
    North Korea is in periodic starvation,
    a militarized state
  • 2:28 - 2:30
    where the people are regularly starving
  • 2:31 - 2:33
    That is the difference which institutions
    can make
  • 2:33 - 2:36
    in just a matter of a few generations
  • 2:39 - 2:43
    Here's another picture which could suggest
    the power of institutions
  • 2:43 - 2:45
    This is Nogales
  • 2:45 - 2:47
    On the right is Nogales, Mexico
  • 2:47 - 2:49
    On the left is Nogales, Arizona
  • 2:50 - 2:52
    Now there's a lot here which is the same
  • 2:52 - 2:54
    clearly, for example, the geography is
    the same
  • 2:55 - 2:58
    you might think the people are different,
    but actually the people and the culture
  • 2:58 - 3:00
    are also very similar
  • 3:00 - 3:04
    So until the 1850s, both parts of Nogales
    were parts of Mexico
  • 3:04 - 3:10
    so many of the people share, on both sides
    of this fence, share the same ancestors
  • 3:11 - 3:13
    they have a very similar culture
  • 3:13 - 3:14
    So what differs?
  • 3:14 - 3:22
    In Nogales, Arizona, income is about three
    times higher than in Nogales, Mexico
  • 3:22 - 3:24
    which is actually one of the richer parts
    of Mexico
  • 3:24 - 3:28
    Life expectancy is higher on the left
  • 3:29 - 3:34
    the infrastructure, the roads, the other
    public infrastructure, the hospitals
  • 3:34 - 3:36
    and so forth, is better in
    the United States
  • 3:36 - 3:41
    It's easier to open a business in Nogales,
    Arizona than in Nogales, Mexico
  • 3:42 - 3:47
    democracy is more reliable on the left of
    this picture than it is on the right
  • 3:47 - 3:53
    crime is lower on the left than it is
    on the right
  • 3:53 - 3:58
    Well, why?
    The difference here again, is institutions
  • 3:58 - 4:00
    Institutions make the difference
  • 4:01 - 4:07
    These two examples, I think, are good
    illustrations of the fact that
  • 4:07 - 4:08
    institutions matter
  • 4:08 - 4:12
    but we haven't said which institutions
    matter and why do they matter
  • 4:12 - 4:16
    in future lectures we'll be talking more
    about some of the possibilities
  • 4:16 - 4:19
    about institutions like property rights,
    the rule of laws, free press,
  • 4:19 - 4:24
    honest government, open markets
    We'll also be talking about facts which
  • 4:24 - 4:28
    may underlie something such as
    honest government, like trust
  • 4:28 - 4:32
    and then we'll be asking not only what
    are the effects of institutions,
  • 4:32 - 4:35
    but what are the causes of institutions?
  • 4:35 - 4:38
    Why is it, that some countries have
    different institutions than others?
  • 4:38 - 4:41
    Is this due to accidents of history?
  • 4:41 - 4:44
    Is this due to differences in geography or
    in culture?
  • 4:44 - 4:46
    All of these questions are really
    important,
  • 4:46 - 4:49
    and we'll be dealing with them more as
    we go on
  • 4:49 - 4:50
    Thanks
Title:
Importance of Institutions Brief
Description:

more » « less
Video Language:
English
Team:
Marginal Revolution University
Project:
Other videos
Duration:
04:51
Euclides Portes Warden approved English subtitles for Importance of Institutions Brief
Euclides Portes Warden edited English subtitles for Importance of Institutions Brief
Euclides Portes Warden edited English subtitles for Importance of Institutions Brief
cqbarit edited English subtitles for Importance of Institutions Brief
Retired user declined English subtitles for Importance of Institutions Brief
Retired user edited English subtitles for Importance of Institutions Brief
Vivian Zhong edited English subtitles for Importance of Institutions Brief

English subtitles

Revisions