1 00:00:00,517 --> 00:00:03,517 ♪ [music] ♪ 2 00:00:14,000 --> 00:00:15,000 - [Alex] In our previous videos, we've covered 3 00:00:15,000 --> 00:00:17,850 how capital accumulation can spur catch-up growth, 4 00:00:17,850 --> 00:00:22,390 but capital accumulation becomes less potent 5 00:00:22,390 --> 00:00:24,430 as countries grow wealthier. 6 00:00:24,430 --> 00:00:25,430 Countries on the cutting edge grow 7 00:00:25,430 --> 00:00:27,430 by developing more and better ideas, but how? 8 00:00:27,430 --> 00:00:30,640 How do we get more and better ideas? 9 00:00:30,640 --> 00:00:33,640 Individually, a good idea - it might seem sort of random. 10 00:00:33,640 --> 00:00:38,120 Maybe it pops into your head while you're in the shower 11 00:00:38,120 --> 00:00:40,960 or just before you go to sleep at night. 12 00:00:40,960 --> 00:00:43,960 But when we step back and look 13 00:00:43,960 --> 00:00:46,380 at the creation of new ideas at a macro level, 14 00:00:46,380 --> 00:00:49,380 it's definitely not random. 15 00:00:49,380 --> 00:00:52,180 There are key ingredients that spur more ideas. 16 00:00:52,180 --> 00:00:55,180 Ideas don't fall from the sky like manna from heaven. 17 00:00:55,180 --> 00:01:02,070 They grow in the soil of good institutions. 18 00:01:02,070 --> 00:01:03,250 Let me give you a story to help illustrate this point. 19 00:01:03,250 --> 00:01:06,250 You might never have heard of the flying shuttle, 20 00:01:06,250 --> 00:01:08,260 but it was one of the most important inventions 21 00:01:08,260 --> 00:01:11,260 in the industrial revolution. 22 00:01:11,260 --> 00:01:15,320 The flying shuttle improved looms, 23 00:01:15,320 --> 00:01:16,910 making it easier to make fabric quickly and cheaply, 24 00:01:16,910 --> 00:01:19,910 and that made it possible 25 00:01:19,910 --> 00:01:23,310 for people around the world to have new clean clothes. 26 00:01:23,310 --> 00:01:26,310 For the very first time, fashion became something 27 00:01:26,310 --> 00:01:30,430 that wasn't just for the very, very rich. 28 00:01:30,430 --> 00:01:33,430 The flying shuttle was invented by John Kay. 29 00:01:33,430 --> 00:01:35,000 And what did Kay get for his efforts? 30 00:01:35,000 --> 00:01:36,000 Weavers who thought that Kay's invention 31 00:01:36,000 --> 00:01:38,000 would put them out of work, 32 00:01:38,000 --> 00:01:43,550 they smashed the new looms, 33 00:01:43,550 --> 00:01:46,180 and they burned Kay's house to the ground. 34 00:01:46,180 --> 00:01:49,180 Despite creating one of the most important inventions 35 00:01:49,180 --> 00:01:52,060 to launch the Industrial Revolution and improve the world, 36 00:01:52,060 --> 00:01:55,060 Kay, in fear for his life, fled to France, 37 00:01:55,060 --> 00:01:57,110 where he ultimately died a poor man. 38 00:01:57,110 --> 00:02:00,110 I don't know about you, 39 00:02:00,110 --> 00:02:02,570 but if I saw what happened to John Kay, 40 00:02:02,570 --> 00:02:05,570 I might not be too eager to pursue my invention. 41 00:02:05,570 --> 00:02:08,050 Let's contrast Kay’s story with a great innovator 42 00:02:08,050 --> 00:02:11,050 from recent times, Steve Jobs. 43 00:02:11,050 --> 00:02:13,880 For his Innovations, not only did he earn lots of money, 44 00:02:13,880 --> 00:02:16,880 but also cultural awards. 45 00:02:16,880 --> 00:02:20,030 Jobs became an icon that people want to emulate. 46 00:02:20,030 --> 00:02:23,030 This goes back to institutions and incentives. 47 00:02:23,030 --> 00:02:27,870 The institutions today in the United States have enabled 48 00:02:27,870 --> 00:02:31,230 an amazing environment 49 00:02:31,230 --> 00:02:34,230 for entrepreneurs to thrive and create new ideas. 50 00:02:34,230 --> 00:02:35,770 If you have a great idea in the United States, in America, 51 00:02:35,770 --> 00:02:38,770 American institutions create good incentives to pursue that idea. 52 00:02:38,770 --> 00:02:43,770 You'll find incubators and venture capitalists 53 00:02:43,770 --> 00:02:45,910 who can help you start your business, 54 00:02:45,910 --> 00:02:48,910 laws to protect your idea, a culture that idolizes innovators, 55 00:02:48,910 --> 00:02:55,660 and markets who will reward you handsomely 56 00:02:55,660 --> 00:02:58,240 should your idea be attractive to consumers. 57 00:02:58,240 --> 00:03:01,240 John Kay could only dream of the sort of world 58 00:03:01,240 --> 00:03:02,760 where he could profit from his work. 59 00:03:02,760 --> 00:03:05,760 In the United States and in most of the world today, 60 00:03:05,760 --> 00:03:08,160 ideas are produced for profit. 61 00:03:08,160 --> 00:03:11,160 Seventy percent of the research and development expenditures 62 00:03:11,160 --> 00:03:15,940 in the United States are funded by the private sector, 63 00:03:15,940 --> 00:03:17,930 and an even higher percentage are funded privately 64 00:03:17,930 --> 00:03:20,930 in places like Japan. 65 00:03:20,930 --> 00:03:24,250 So while an individual idea might seem 66 00:03:24,250 --> 00:03:25,250 sort of just like good luck, 67 00:03:25,250 --> 00:03:27,250 we see that ideas spring from places 68 00:03:27,250 --> 00:03:32,480 that have the right institutions in place to create new ideas 69 00:03:32,480 --> 00:03:35,710 and pursue those ideas. 70 00:03:35,710 --> 00:03:38,710 In the next video, we're gonna look 71 00:03:38,710 --> 00:03:39,710 at one particular institution which is important 72 00:03:39,710 --> 00:03:41,270 for the production of ideas, patents. 73 00:03:41,270 --> 00:03:44,270 We'll also discuss the trade-offs 74 00:03:44,270 --> 00:03:47,970 of protection versus the sharing of ideas, 75 00:03:47,970 --> 00:03:50,970 and what role can governments play in the production of new ideas? 76 00:03:54,000 --> 00:03:55,886 - [Narrator] If you want to test yourself 77 00:03:55,886 --> 00:03:58,886 click "Practice Questions." 78 00:03:58,886 --> 00:04:03,015 Or, if you're ready to move on, 79 00:04:03,015 --> 00:04:06,015 you can click "Go to the Next Video." 80 00:04:06,015 --> 00:04:10,682 You can also visit MRUniversity.com 81 99:59:59,999 --> 99:59:59,999 to see our entire library of videos and resources.