today we're going to take a brief look at the importance of institutions this'll be brief and that we're not going to look today at which institutions are important and we're not going to try and explain the mechanisms by which institutions work instead what we want to do is is off of the big picture why do people study institutions why do people think that institutions are important for economic growth let's take a look north and south korea provide almost eight perfect natural experiment demonstrating the power of institutions in nineteen forty four north korea and south korea were very similar they had the same people the same culture at the same language the same history very similar connie's if anything more career was a little bit more industrialized south korea a little bit more agrarian then in nineteen forty-five the country was split and north korea chose communism a totalitarian state centrally planned centrally directed no private property rights very little room for private initiative no free press south korea broadly speaking chose capitalism private property rights a free economy much bigger scope or private initiative a free press not always honored of course but probably speaking south korea chose capitalism north korea chose communism now what were the results of these choices will fifty years later the results are so clear and alien could see them from outerspace fact this is a picture of north and south korea taken from outer space and what you see this out korea as lights bribed lights people going out the party is lighting up their home what you see in south korea is a developed modern economy appear in north korea what you see is darkness but the one exceptional pyongyang the central city where the ruling elite lives massive differences created in just fifty years today south korea has a gdp per capita atleast ten times probably fifteen times higher than that in north korea south korea is a modern developed economy the most wired economy in the world standard of living equal to that of most western countries north korea isn't periodic starvation and militarized state for the people are regularly starving that is the difference which institutions can make in just a matter a few generations here's another picture which could suggest the power of institutions this is my dollins on the right isn't always mexico on the left is ten dollars arizona now there's a lot here which is the same clearly for example the geography is the same you might think the people of different but actually the people in the culture also very similar so until the eighteen fifties both parts of the dollars were parts of mexico so many of the people share on both sides of the spence share the same ancestors may have a very similar culture so what differs well in the dollar is uh... arizona income is about three times higher then in the dollar's mexico which is actually one of the richer parts of mexico life expectancy is higher on the left the infrastructure the roads and other public infrastructure hospitals and so forth is better in the united states it's easier to open a business in the dollar's arizona than in the dollar's mexico democracy is more reliable on the left of this picture that it is on the right crime is lower last than it is on the right well why well the difference here again is institutions institutions make the difference these two examples i think the good illustrations of the fact that institutions matter but we haven't said which institutions matter and why did the matter in future elections will be talking more amounts on the possibilities about institutions like property rights the rule of law free press on its government open markets will also be talking about factors which made underlie something such as on its government like trust and then we'll be asking not only what are the effects of institutions what are the causes of institutions why is it that some countries have different institutions than others is this do to accident of history is is due to differences in geography or in culture all of these questions are really important and will be dealing with them more as we go on facts