WEBVTT 00:00:00.517 --> 00:00:03.517 ♪ [music] ♪ 00:00:14.000 --> 00:00:15.000 - [Alex] In our previous videos, we've covered 00:00:15.000 --> 00:00:17.850 how capital accumulation can spur catch-up growth, 00:00:17.850 --> 00:00:22.390 but capital accumulation becomes less potent 00:00:22.390 --> 00:00:24.430 as countries grow wealthier. 00:00:24.430 --> 00:00:25.430 Countries on the cutting edge grow 00:00:25.430 --> 00:00:27.430 by developing more and better ideas, but how? 00:00:27.430 --> 00:00:30.640 How do we get more and better ideas? 00:00:30.640 --> 00:00:33.640 Individually, a good idea - it might seem sort of random. 00:00:33.640 --> 00:00:38.120 Maybe it pops into your head while you're in the shower 00:00:38.120 --> 00:00:40.960 or just before you go to sleep at night. 00:00:40.960 --> 00:00:43.960 But when we step back and look 00:00:43.960 --> 00:00:46.380 at the creation of new ideas at a macro level, 00:00:46.380 --> 00:00:49.380 it's definitely not random. 00:00:49.380 --> 00:00:52.180 There are key ingredients that spur more ideas. 00:00:52.180 --> 00:00:55.180 Ideas don't fall from the sky like manna from heaven. 00:00:55.180 --> 00:01:02.070 They grow in the soil of good institutions. 00:01:02.070 --> 00:01:03.250 Let me give you a story to help illustrate this point. 00:01:03.250 --> 00:01:06.250 You might never have heard of the flying shuttle, 00:01:06.250 --> 00:01:08.260 but it was one of the most important inventions 00:01:08.260 --> 00:01:11.260 in the industrial revolution. 00:01:11.260 --> 00:01:15.320 The flying shuttle improved looms, 00:01:15.320 --> 00:01:16.910 making it easier to make fabric quickly and cheaply, 00:01:16.910 --> 00:01:19.910 and that made it possible 00:01:19.910 --> 00:01:23.310 for people around the world to have new clean clothes. 00:01:23.310 --> 00:01:26.310 For the very first time, fashion became something 00:01:26.310 --> 00:01:30.430 that wasn't just for the very, very rich. 00:01:30.430 --> 00:01:33.430 The flying shuttle was invented by John Kay. 00:01:33.430 --> 00:01:35.000 And what did Kay get for his efforts? 00:01:35.000 --> 00:01:36.000 Weavers who thought that Kay's invention 00:01:36.000 --> 00:01:38.000 would put them out of work, 00:01:38.000 --> 00:01:43.550 they smashed the new looms, 00:01:43.550 --> 00:01:46.180 and they burned Kay's house to the ground. 00:01:46.180 --> 00:01:49.180 Despite creating one of the most important inventions 00:01:49.180 --> 00:01:52.060 to launch the Industrial Revolution and improve the world, 00:01:52.060 --> 00:01:55.060 Kay, in fear for his life, fled to France, 00:01:55.060 --> 00:01:57.110 where he ultimately died a poor man. 00:01:57.110 --> 00:02:00.110 I don't know about you, 00:02:00.110 --> 00:02:02.570 but if I saw what happened to John Kay, 00:02:02.570 --> 00:02:05.570 I might not be too eager to pursue my invention. 00:02:05.570 --> 00:02:08.050 Let's contrast Kay’s story with a great innovator 00:02:08.050 --> 00:02:11.050 from recent times, Steve Jobs. 00:02:11.050 --> 00:02:13.880 For his Innovations, not only did he earn lots of money, 00:02:13.880 --> 00:02:16.880 but also cultural awards. 00:02:16.880 --> 00:02:20.030 Jobs became an icon that people want to emulate. 00:02:20.030 --> 00:02:23.030 This goes back to institutions and incentives. 00:02:23.030 --> 00:02:27.870 The institutions today in the United States have enabled 00:02:27.870 --> 00:02:31.230 an amazing environment 00:02:31.230 --> 00:02:34.230 for entrepreneurs to thrive and create new ideas. 00:02:34.230 --> 00:02:35.770 If you have a great idea in the United States, in America, 00:02:35.770 --> 00:02:38.770 American institutions create good incentives to pursue that idea. 00:02:38.770 --> 00:02:43.770 You'll find incubators and venture capitalists 00:02:43.770 --> 00:02:45.910 who can help you start your business, 00:02:45.910 --> 00:02:48.910 laws to protect your idea, a culture that idolizes innovators, 00:02:48.910 --> 00:02:55.660 and markets who will reward you handsomely 00:02:55.660 --> 00:02:58.240 should your idea be attractive to consumers. 00:02:58.240 --> 00:03:01.240 John Kay could only dream of the sort of world 00:03:01.240 --> 00:03:02.760 where he could profit from his work. 00:03:02.760 --> 00:03:05.760 In the United States and in most of the world today, 00:03:05.760 --> 00:03:08.160 ideas are produced for profit. 00:03:08.160 --> 00:03:11.160 Seventy percent of the research and development expenditures 00:03:11.160 --> 00:03:15.940 in the United States are funded by the private sector, 00:03:15.940 --> 00:03:17.930 and an even higher percentage are funded privately 00:03:17.930 --> 00:03:20.930 in places like Japan. 00:03:20.930 --> 00:03:24.250 So while an individual idea might seem 00:03:24.250 --> 00:03:25.250 sort of just like good luck, 00:03:25.250 --> 00:03:27.250 we see that ideas spring from places 00:03:27.250 --> 00:03:32.480 that have the right institutions in place to create new ideas 00:03:32.480 --> 00:03:35.710 and pursue those ideas. 00:03:35.710 --> 00:03:38.710 In the next video, we're gonna look 00:03:38.710 --> 00:03:39.710 at one particular institution which is important 00:03:39.710 --> 00:03:41.270 for the production of ideas, patents. 00:03:41.270 --> 00:03:44.270 We'll also discuss the trade-offs 00:03:44.270 --> 00:03:47.970 of protection versus the sharing of ideas, 00:03:47.970 --> 00:03:50.970 and what role can governments play in the production of new ideas? 00:03:54.000 --> 00:03:55.886 - [Narrator] If you want to test yourself 00:03:55.886 --> 00:03:58.886 click "Practice Questions." 00:03:58.886 --> 00:04:03.015 Or, if you're ready to move on, 00:04:03.015 --> 00:04:06.015 you can click "Go to the Next Video." 00:04:06.015 --> 00:04:10.682 You can also visit MRUniversity.com 99:59:59.999 --> 99:59:59.999 to see our entire library of videos and resources.