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