WEBVTT

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today we're going to take a brief look
at the importance of institutions

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this'll be brief and that we're not
going to look

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today

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at which institutions are important and
we're not going to try and explain

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the mechanisms by which institutions
work

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instead what we want to do is is off of
the big picture why do people study

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institutions why do people think that
institutions are important for economic

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growth let's take a look

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north and south korea provide almost
eight perfect natural experiment

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demonstrating the power of institutions

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in nineteen forty four north korea and
south korea were very similar they had

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the same people the same culture at the
same language the same history

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very similar connie's if anything more
career was a little bit more

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industrialized south korea a little bit
more agrarian

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then in nineteen forty-five the country
was split

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and north korea chose communism

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a totalitarian state

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centrally planned centrally directed no
private property rights very little room

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for private initiative

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no free press

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south korea broadly speaking chose
capitalism

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private property rights a free economy
much bigger scope or private initiative

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a free press not always honored of
course

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but probably speaking

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south korea chose capitalism north korea
chose communism

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now what were the results of these
choices

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will fifty years later the results are
so clear and alien could see them from

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outerspace fact this is a picture of
north and south korea

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taken from outer space

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and what you see this out korea as
lights bribed lights

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people going out the party is lighting
up their home what you see in south

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korea is a developed modern economy

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appear in north korea what you see is
darkness

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but the one exceptional pyongyang

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the central city where the ruling elite
lives

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massive differences created in just
fifty years

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today south korea has a g<u>d<u>p</u> per
capita</u>

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atleast ten times probably

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fifteen times

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higher than that in north korea

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south korea is a modern developed
economy the most wired economy in the

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world standard of living

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equal to that of most western countries
north korea isn't periodic starvation

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and militarized state

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for the people are regularly starving

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that is the difference which
institutions can make

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in just a matter a few generations

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here's another picture which could
suggest the power of institutions

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this is my dollins

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on the right isn't always mexico on the
left is ten dollars arizona

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now there's a lot here which is the same

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clearly for example the geography is the
same

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you might think the people of different
but actually the people in the culture

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also very similar

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so until the eighteen fifties both parts
of the dollars were parts of mexico

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so many of the people share on both
sides of the spence share the same

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ancestors

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may have a very similar culture

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so what differs

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well in the dollar is

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uh... arizona income is about three
times higher

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then in the dollar's mexico which is
actually one of the richer parts of

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mexico

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life expectancy is higher on the left

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the infrastructure the roads

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and other public infrastructure
hospitals and so forth

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is better in the united states

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it's easier to open a business in the
dollar's arizona than in the dollar's

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mexico

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democracy is more reliable on the left
of this picture that it is on the right

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crime is lower

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last than it is on the right

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well why well the difference here again
is institutions

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institutions make the difference

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these two examples i think the good
illustrations

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of the fact that institutions matter but
we haven't said which institutions

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matter and why did the matter

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in future elections will be talking more

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amounts on the possibilities

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about institutions like property rights
the rule of law free press

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on its government open markets will also
be talking about factors which made

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underlie

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something such as on its government like

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trust

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and then we'll be asking not only what
are the effects of institutions what are

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the causes of institutions

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why is it that some countries have
different institutions than others

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is this do to accident of history

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is is due to differences in geography or
in culture

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all of these questions are really
important and will be dealing with them

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more as we go on facts