WEBVTT

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Thank you very much. 
I am James Robinson.

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I am going to talk about why nations fail
and why nations succeed as well,

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which is really about
why some countries are poor

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and some countries are prosperous.

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It turns out you can tell a lot
about the answers to that question

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by looking at the Korean
peninsula at night.

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If you look at Korean peninsula at night,
you see some obvious things.

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That South Korea
has a lot of light, electricity.

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North Korea, on the other hand,

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is rather dark.

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There you can see a spot of light.

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That's probably the presidential
palace in Pyongyang.

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(Laughter)

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Now, there could be different reasons 
why North Korea is very dark at night.

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It could be that North Koreans 
have electricity and light bulbs,

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but they just think candles
are more romantic.

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(Laughter)

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It could be, on the other hand,

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that North Koreans
have electricity and light bulbs,

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but they are just trying 
to reduce their carbon footprint.

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I think, however,
the more plausible explanation

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is that actually North Koreans don't
have access to the types of technologies

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like electricity and power 
and light bulbs that South Koreans do.

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And that enormously restricts
their economic potential.

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So one thing we know about the difference 
between poor countries and rich countries

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is that poor countries, like North Korea,

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tend to have much worse technology 
than rich countries.

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Let me tell you about
some other things we know

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about the differences between
poor countries and rich countries.

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Poor countries have 
much less educated people.

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They tend to have
much less healthy people.

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They live shorter lives.

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They have much worse government
services, like infrastructure.

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So, here is an idyllic Congolese
driving scene in a part of the world

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where I do a lot of research,
the Democratic Republic of the Congo.

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This is what they call, somewhat
ironically in the Congo, Interstate No 1.

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And you can see that driving 
on Interstate No. 1,

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you spend a lot of time digging 
your car out of sand and mud.

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This is the dry season. 
If it was the rainy season, forget it.

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You are not going anywhere.

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So poor countries have much worse
infrastructure public services.

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So why is it that poor and rich countries 
differ in terms of their public services,

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their technologies, 
their levels of education?

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Well, some people think
that it's just that poor countries

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are too poor to afford to build roads,

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or too poor to use modern technologies
like electricity and light bulbs -

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not that modern, really,
if you think about it.

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But anyway, they're too poor to use it.

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But I didn't think that's right.

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Most of poor counties where I do research,

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lots of resources that could 
be used for these things are wasted.

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Now, here is an example of that.

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You may know this gentleman.
He is called Robert Mugabe.

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He is the president of Zimbabwe.

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He has been president for 34 years.

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You think, you probably known him
as a good politician.

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What you didn't know
is he's also a remarkably lucky man.

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In fact, he won the lottery.
So how about that?

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Someone who is a great politician 
and he also wins the lottery.

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I mean, come on. Does Greece
have politicians like that?

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I mean, Britain doesn't.

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So, he is a lucky guy, and I am thinking,
I am sort of trying to suggest

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that this may not be
completely coincidental

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that he happens to have been
president for 34 years

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and he also in his spare time
wins the lottery.

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(Laughter)

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That road, by the way,
I showed you in 2010 in the Congo,

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in 1960 that was a nice 
tarmaced surfaced road

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that has since deteriorated into the bush.

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So I don't think the real reason 
that poor countries are poor

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and prosperous countries are prosperous

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is that poor countries just cannot afford

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to do the sorts of things 
necessary to become rich.

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I think the explanation is,

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and that is what I am going to argue 
in the rest of my presentation,

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that poor countries and rich countries
are organized in very different ways.

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And that organization in rich countries

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creates incentives
and opportunities for people,

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and in poor countries, it doesn't.

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In fact, most poor countries 
are organized in ways

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which block people's incentives 
and block people's opportunities.

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And that's what creates poverty.

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So let me give you
a very specific example of that

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which I've realized
it is sort of the theme, you know,

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it's almost the motif of the whole event, 
which is the light bulb.

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I was only expecting to connect this
to North and South Korea,

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but there we had all these light bulbs 
and Shakespeare that started the day.

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So what is this?

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This is a patent.

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It was taken out by Thomas Edison in 1880,
who invented the light bulb.

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So Edison had an invention.

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And what did he do?
He took out a patent.

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The patent protected 
his intellectual property rights.

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It stopped people from copying his idea.

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And that created incentives
for people to innovate.

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So, that was a very important stimulus
for innovation in 19th century U.S.

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Let me tell you a few other things
about the patent system.

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The patent system was actually set up
by the US constitution.

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The first patent law's in 1790,

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and Thomas Jefferson, not Thomas Edison,

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one of the founding 
fathers of the United States,

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was actually on the first patent board
handing out patents.

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The system was open to everybody.

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So, it didn't matter who you were,
you could pay the same fee,

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you got a patent,

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and the government protected
your intellectual property rights, OK?

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Now, that's absolutely crucial
because we know as economists

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that one of the huge differences
between poor and rich countries

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is exactly innovation, 
exactly technological change.

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It's that new technologies
that don't spread

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from South Korea to North Korea.

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So, here's an example of would call
an economic institution,

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a kind of rule that creates incentives
and opportunities in society,

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and this institution
has a particular property

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which I'm going to call inclusive.

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It's inclusive in a particular
and important way

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because if you look at who are 
these people who are filing patents?

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You know, Thomas Edison. Who?

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What were their social backgrounds?

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Well, it turns out,
they came from all over society.

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Poor people, rich people, 
elite, non-elite,

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farmers, artists, professional people,
educated people, non-educated people.

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Talent, ideas, skill,
creativity, entrepreneurship

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are spread very broadly in society.

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And if you want to have
a prosperous society,

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you need to have a set of institutions

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that can harness all that
latent talent in society.

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That's what inclusive
institutions are about,

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and that's exactly how 
the patent system worked.

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Countries like Zimbabwe, 
or Democratic Republic of Kongo,

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or North Korea, which are poor,

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have economic institutions

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that create very different 
incentives and opportunities

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than inclusive economic institutions
like the patent system.

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To illustrate that in a richer way,

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let me bring time
from 1880 right up today,

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and talk about why the United States
is richer than Mexico,

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just across the border.

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I'm going to do that
in a very particular context.

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I'm going get you think about
the two richest men in the world,

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Bill Gates and Carlos Slim.

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Bill Gates from United States of America,
Carlos Slim from Mexico.

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What's really interesting 
about the comparison

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is the way those people made their money.

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Bill Gates was an entrepreneur.

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He set up a company when he was
a Harvard undergraduate.

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He made a fortune through innovation
in the computer software industry.

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Carlos Slim, on the other hand,

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made a fortune
through creating monopolies,

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and through owning a monopoly,
a telecommunications monopoly.

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According to the Organization
of Economic Cooperation and Development,

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Carlos Slim's monopoly created
an enormous amount of wealth for him,

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reduces national income in Mexico
by about 2% a year,

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for the period of 2005 to 2009
it actually reduced income in Mexico

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by 130 billion dollars.

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So, in the United States,

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Bill Gates responded
to the inclusive nature of institutions,

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creating incentives,
creating opportunities.

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What happened?

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He generated innovation,
he generated new ideas,

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and that created wealth for him,

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it created a vast amount
of wealth for society.

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What happened in Mexico
was something very different.

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The way to create wealth
was not through innovation,

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but through creating monopolies.

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Monopolies block 
other people's opportunities,

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and they block other people's incentives.

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Extractive institutions is what I'm
going to call the opposite of inclusive.

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I gave the patent system as an example
of an inclusive economic institution.

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Let me say that there is something else,

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and that's what's going on in Mexico,
in North Korea, and Zimbabwe.

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I'm going to call that
extractive economic institutions.

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Rules in society that impede 
incentives and opportunities.

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So, that's the difference between 
poor and rich countries, in a nutshell.

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But now, let's go
one layer back in the onion

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and ask, "OK, fine. So how come
the United States ended up like that?"

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or "How come Mexico is like that?"

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and "Why is Zimbabwe like that?"

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The example of president
Mugabe winning the lottary

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is perhaps meant to plant
a seed in your mind.

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And so now, I'd like the seed
to sort of grow a little.

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But I'm not going to grow it in Zimbabwe.

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Let me go back to the United States and
back to the patent system, back in 1790,

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when Thomas Jefferson 
was on the patent board,

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and get you to think, 


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"OK, so how come they ended up
with this patent system like this?

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What was the secret?"

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And I think there were two secrets,
and they are very political.

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So, ultimately, I think what matters
for economic prosperity,

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for success and failure, is inclusive
and extractive economic institutions.

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But lying behind that is politics.

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And I want to emphasize 
two dimensions of politics.

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One is, how did you end up
in the United States

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with this patent law 
that treated everybody equally,

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that gave everybody equal access
to patenting on the same terms.

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That was because in the United States
in the late 18th century,

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political power was sufficiently
broadly distributed in society,

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but you couldn't have some
oligarchive patent system.

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You couldn't have a patent system
where Thomas Jefferson could decide,

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"Mmm, maybe you get a patent,
and maybe you don't.

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Maybe I'll give you a patent,
but I don't like your face.

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You're not getting a patent."

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That wasn't possible, given how
democratic US society was at that time.

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So, one thing which is important about
creating these inclusive institutions

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was the distribution
of political power in society.

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The broad distribution of political power.

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The other thing was important,
was at that time,

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the United States had a strong state
that could enforce the patent.

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It wasn't just a matter
of passing the law,

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it was enforcing the law.

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The state would come, and they would
protect your intellectual property rights.

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So, these two things are very important.

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So let me bring that to the present

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and show you a photograph
of Bill Gates in Washington DC.

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Now, what is he doing here?

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He's giving testimony 
to the US anti-trust authority.

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Here's the strong US state in action.

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Both of these elements
that I talked about,

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the distribution of power
and the strength of the state

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are crucial for understanding

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the difference between 
Bill Gates and Carlos Slim.

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How did Carlos Slim
get his monopolies?

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It was a one-party state,
the PRI, the one-party state,

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which had been in power 
since the late 1920s,

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in the 1990s, privatized
a monopoly to Carlos Slim.

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Mexico has very nice anti-trust laws.

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But it's inconceivable that Carlos Slim
would have to do what Bill Gates did,

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which was to come and, you know,

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"I swear to tell the truth, the whole
truth and nothing but the truth,"

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in front of anti-trust authorities
in Washington DC.

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So, this is the power of the state.

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And if you think about
both of these examples,

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both of these elements come in.

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The fact that Carlos Slim
could create his monopolies

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because political power was not 
broadly distributed in Mexico,

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and the anti-trust laws that exist 
in Mexico cannot be enforced,

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because the state is too weak
to enforce them.

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In the United States it's inconceivable

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that you could have such 
a monopolization of industry,

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and the state is capable
of enforcing the law.

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And in fact, anti-trust laws
are a fascinating example.

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If you go back to a hundred
years before this.

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This is the octopus
of the Standard Oil Company.

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The Standard Oil Company
was run by John Rockefeller.

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It was an enormous attempt to build 
a monopoly in the United States.

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You can see here, it's got its tentacles
around the White House,

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it's got its tentacles
around the politicians, around Congress,

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it's enveloping the political system
with its wealth and connections.

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It was broken up
by federal anti-trust authority.

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So, there's a long battle
against monopolies,

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against extractive institutions
in an inclusive society.

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So, what about Greece?

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(Laughter)

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Let me say something about Greece.

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How does Greece fit into this?

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Well, of course, compared to Zimbabwe,
or the Democratic Republic of the Congo,

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or Haiti, or North Korea, 
Greece is an enormous success.

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Greece has been enormously successful,
economically, in the past 100 years.

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It's diversified its economy,

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it's raised people's 
living standards enormously,

00:13:50.839 --> 00:13:53.901
it's broadened education, health, etc.

00:13:53.901 --> 00:13:56.826
But I think, the problems
of Greece in the last decade

00:13:56.826 --> 00:14:02.739
stem from the problems of reconciling
these two dimensions of politics

00:14:02.739 --> 00:14:05.456
that you need to create
an inclusive society.

00:14:05.456 --> 00:14:09.504
Reconciling, building
an effective strong modern state

00:14:09.504 --> 00:14:11.309
with having a democracy

00:14:11.309 --> 00:14:14.406
where political power
is broadly distributed.

00:14:14.406 --> 00:14:16.402
Now, when I talked about the United States

00:14:16.402 --> 00:14:20.859
you might have been thinking, "Gosh, 
these things smoothly come into place,

00:14:20.859 --> 00:14:23.326
you have one thing, you have the other.

00:14:23.326 --> 00:14:25.474
You want to have a broad
distribution of power

00:14:25.474 --> 00:14:27.054
that makes the state accountable.

00:14:27.054 --> 00:14:30.443
You want to have a strong state
because that makes democracy effective.

00:14:30.443 --> 00:14:31.833
You can enforce the rules,

00:14:31.833 --> 00:14:34.690
but I think the more you look,
and the more you think,

00:14:34.690 --> 00:14:36.515
you see that actually in many contexts

00:14:36.515 --> 00:14:39.306
these two dimensions
are difficult to reconcile.

00:14:39.306 --> 00:14:43.869
They sometimes have
an enormous contradictory feature.

00:14:43.869 --> 00:14:46.518
And I think that's part
of the problem in Greece,

00:14:46.518 --> 00:14:50.213
particularly since
the redemocratization in 1974,

00:14:50.213 --> 00:14:54.224
is that Greek society
has found it difficult to reconcile

00:14:54.224 --> 00:14:58.090
building an effective central
state based on rules.

00:14:58.090 --> 00:15:00.058
Remember my example of the patent system,

00:15:00.058 --> 00:15:04.343
how crucial it was that this was a rule,
the patent system applied to everyone,

00:15:04.343 --> 00:15:06.494
the same rules applied to everyone.

00:15:06.494 --> 00:15:09.191
That's what generated
these incentives and opportunities.

00:15:09.191 --> 00:15:14.342
If Thomas Jefferson had been handing out
patents to people on the basis,

00:15:14.342 --> 00:15:18.433
"Hey, I want to be president,
so if you support me,

00:15:18.433 --> 00:15:21.423
let's start building a coalition,
then you get your patent."

00:15:21.423 --> 00:15:24.991
"I don't like your face. You don't 
look like you're going to be on my team.

00:15:24.991 --> 00:15:26.614
You're not going to get a patent."

00:15:26.614 --> 00:15:28.946
If that had been how 
the US patent system worked,

00:15:28.946 --> 00:15:31.491
then it would not have
the incentive effects,

00:15:31.491 --> 00:15:35.934
the effects on innovation and economic
development, that it did have.

00:15:35.934 --> 00:15:37.958
And I think that once you think about it,


00:15:37.958 --> 00:15:41.522
you can see that when you
increase political power,

00:15:41.522 --> 00:15:44.373
when you create political power 
broadly in society,

00:15:44.373 --> 00:15:48.667
that can create pressures to undermine
the functionality of the state.

00:15:48.667 --> 00:15:50.338
To undermine the strong state.

00:15:50.338 --> 00:15:54.111
To make the state become a tool
of the political struggle

00:15:54.111 --> 00:15:59.439
rather than a neutral arbiter
of new rules and universal principles.

00:15:59.439 --> 00:16:02.658
And I would say, that's the root cause
of a lot of the problems,

00:16:02.658 --> 00:16:05.007
from my perspective, in Greece.

00:16:05.007 --> 00:16:08.782
Trying to make the state
work properly, to enforce rules,

00:16:08.782 --> 00:16:13.017
to not be clientalistic,
to enforce universal principles.

00:16:13.017 --> 00:16:16.019
And a lot of the economics
stems from that.

00:16:16.019 --> 00:16:19.000
The way I'm talking now 
is sort of politics.

00:16:19.000 --> 00:16:21.612
Politics, it's about politics.
Economics is crucial.

00:16:21.612 --> 00:16:25.741
But economic institutions
and economic incentives and opportunities

00:16:25.741 --> 00:16:28.689
are embedded in a political society.

00:16:28.689 --> 00:16:31.307
And they stem from a political process.

00:16:31.307 --> 00:16:33.545
And I think that's being 
the problem in Greece.

00:16:33.545 --> 00:16:36.493
Think about the deficit 
or the fiscal problem.

00:16:36.493 --> 00:16:38.650
Why has that happened?

00:16:38.650 --> 00:16:40.942
That didn't happen 
for some technical reason.

00:16:40.942 --> 00:16:44.877
It didn't happen because Greek governments
had the wrong economic advisors.

00:16:44.877 --> 00:16:48.878
It happened because of this problem
of reconciling democracy

00:16:48.878 --> 00:16:50.996
with creating a strong state.

00:16:50.996 --> 00:16:55.392
If the state becomes a tool
for serving private interests

00:16:55.392 --> 00:16:57.326
and not public interests,

00:16:57.326 --> 00:17:02.760
serving individuals and not following
the collective welfare in society,

00:17:02.760 --> 00:17:05.542
then of course you're going 
to have terrible fiscal policy

00:17:05.542 --> 00:17:07.492
and unsustainable debt problems.

00:17:07.492 --> 00:17:10.492
Stable macroeconomic
policies are public good,

00:17:10.492 --> 00:17:14.286
but if the state become clientalized,
it's not about providing public good.

00:17:14.286 --> 00:17:16.310
It's about providing private goods.

00:17:16.310 --> 00:17:19.794
So who's internalizing the debt
or the deficit? Nobody.

00:17:19.794 --> 00:17:23.849
So, that's a natural context
to get unsustainable fiscal policy.

00:17:23.849 --> 00:17:25.746
So what's the solution to this?

00:17:25.746 --> 00:17:27.377
Not fiscal austerity.

00:17:27.377 --> 00:17:31.245
Fiscal austerity might be necessary
to keep the Germans happy,

00:17:31.245 --> 00:17:34.518
but you're treating the
symptoms, not the cause.

00:17:34.518 --> 00:17:35.917
The cause is political.

00:17:35.917 --> 00:17:39.341
The solution to the problem
is to find a way of reconciling

00:17:39.341 --> 00:17:43.244
these two elements to build
inclusive political institutions.

00:17:43.244 --> 00:17:45.380
And where does that come from?

00:17:45.380 --> 00:17:47.149
That's a political project.

00:17:47.149 --> 00:17:49.824
That'a about organizing
people collectively.

00:17:49.824 --> 00:17:52.651
Clientelism is always 
individually rational,

00:17:52.651 --> 00:17:55.392
it's just not collectively
rational for society.

00:17:55.392 --> 00:17:57.774
So, you have to build a project.

00:17:57.774 --> 00:18:00.980
Politicians have to build
a project to build the state,

00:18:00.980 --> 00:18:02.815
to build a non-clientelistic state,

00:18:02.815 --> 00:18:06.778
to reform the interface
between state and society in Greece.

00:18:06.778 --> 00:18:10.405
And if you ask me, am I optimistic
or pessimistic about Greece,

00:18:10.405 --> 00:18:14.102
then I'd start looking at the politics,
and I'd start looking at civil society

00:18:14.102 --> 00:18:16.865
and ask, "Who has
that project? Where is it?"

00:18:18.385 --> 00:18:22.427
(Applause)

00:18:22.427 --> 00:18:23.447
Thank you.

00:18:23.447 --> 00:18:25.243
(Applause)