0:00:00.227,0:00:03.847
♪ [music] ♪

0:00:13.760,0:00:15.600
- [Alex] In our previous videos,[br]we've covered

0:00:15.600,0:00:19.102
how capital accumulation[br]can spur catch-up growth,

0:00:19.102,0:00:21.556
but capital accumulation[br]becomes less potent

0:00:21.556,0:00:23.331
as countries grow wealthier.

0:00:23.331,0:00:25.280
Countries on the cutting edge grow

0:00:25.280,0:00:29.100
by developing more[br]and better ideas, but how?

0:00:29.100,0:00:31.800
How do we get more[br]and better ideas?

0:00:31.800,0:00:35.260
Individually, a good idea -[br]it might seem sort of random.

0:00:35.260,0:00:37.550
Maybe it pops into your head[br]while you're in the shower

0:00:37.550,0:00:40.108
or just before[br]you go to sleep at night.

0:00:40.790,0:00:44.780
But when we step back and look[br]at the creation of new ideas

0:00:44.780,0:00:48.690
at a macro level,[br]it's definitely not random.

0:00:48.690,0:00:51.980
There are key ingredients[br]that spur more ideas.

0:00:52.440,0:00:56.060
Ideas don't fall from the sky[br]like manna from heaven.

0:00:56.060,0:00:59.701
They grow in the soil[br]of good institutions.

0:01:00.926,0:01:03.970
Let me give you a story[br]to help illustrate this point.

0:01:03.970,0:01:06.730
You might never have heard[br]of the flying shuttle,

0:01:06.730,0:01:08.880
but it was one of[br]the most important inventions

0:01:08.880,0:01:11.200
in the industrial revolution.

0:01:11.200,0:01:13.600
The flying shuttle improved looms,

0:01:13.600,0:01:17.170
making it easier to make fabric[br]quickly and cheaply,

0:01:17.170,0:01:18.440
and that made it possible

0:01:18.440,0:01:22.570
for people around the world[br]to have new clean clothes.

0:01:22.570,0:01:25.670
For the very first time,[br]fashion became something

0:01:25.670,0:01:28.420
that wasn't just[br]for the very, very rich.

0:01:28.420,0:01:32.070
The flying shuttle[br]was invented by John Kay.

0:01:32.930,0:01:35.350
And what did Kay get[br]for his efforts?

0:01:35.350,0:01:37.500
Weavers who thought[br]that Kay's invention

0:01:37.500,0:01:39.200
would put them out of work,

0:01:39.200,0:01:41.240
they smashed the new looms,

0:01:41.240,0:01:45.270
and they burned[br]Kay's house to the ground.

0:01:45.270,0:01:48.440
Despite creating one[br]of the most important inventions

0:01:48.440,0:01:52.260
to launch the Industrial Revolution[br]and improve the world,

0:01:52.260,0:01:55.840
Kay, in fear for his life,[br]fled to France,

0:01:55.840,0:01:57.990
where he ultimately died[br]a poor man.

0:01:57.990,0:01:59.290
I don't know about you,

0:01:59.290,0:02:01.940
but if I saw[br]what happened to John Kay,

0:02:01.940,0:02:05.310
I might not be too eager[br]to pursue my invention.

0:02:05.310,0:02:07.750
Let's contrast Kay’s story[br]with a great innovator

0:02:07.750,0:02:10.430
from recent times, Steve Jobs.

0:02:10.430,0:02:14.040
For his Innovations, not only[br]did he earn lots of money,

0:02:14.040,0:02:16.330
but also cultural awards.

0:02:16.330,0:02:21.050
Jobs became an icon[br]that people want to emulate.

0:02:21.050,0:02:24.500
This goes back to institutions[br]and incentives.

0:02:24.500,0:02:27.020
The institutions today[br]in the United States have enabled

0:02:27.020,0:02:29.950
an amazing environment[br]for entrepreneurs

0:02:29.950,0:02:32.436
to thrive and create new ideas.

0:02:33.350,0:02:36.570
If you have a great idea[br]in the United States, in America,

0:02:36.570,0:02:41.090
American institutions create good[br]incentives to pursue that idea.

0:02:41.090,0:02:43.770
You'll find incubators[br]and venture capitalists

0:02:43.770,0:02:45.670
who can help you[br]start your business,

0:02:45.670,0:02:47.960
laws to protect your idea,

0:02:47.960,0:02:51.410
a culture that idolizes innovators,

0:02:51.410,0:02:54.640
and markets who will[br]reward you handsomely

0:02:54.640,0:02:57.470
should your idea be[br]attractive to consumers.

0:02:57.470,0:03:00.890
John Kay could only dream[br]of the sort of world

0:03:00.890,0:03:03.120
where he could profit[br]from his work.

0:03:03.120,0:03:05.760
In the United States[br]and in most of the world today,

0:03:05.760,0:03:09.060
ideas are produced for profit.

0:03:09.060,0:03:11.800
Seventy percent of the research[br]and development expenditures

0:03:11.800,0:03:15.330
in the United States are funded[br]by the private sector,

0:03:15.330,0:03:17.480
and an even higher percentage[br]are funded privately

0:03:17.480,0:03:19.500
in places like Japan.

0:03:19.500,0:03:21.810
So while an individual idea[br]might seem

0:03:21.810,0:03:24.170
sort of just like good luck,

0:03:24.170,0:03:27.170
we see that ideas[br]spring from places

0:03:27.170,0:03:31.390
that have the right institutions[br]in place to create new ideas

0:03:31.390,0:03:33.566
and pursue those ideas.

0:03:34.670,0:03:35.769
In the next video,

0:03:35.769,0:03:38.380
we're gonna look[br]at one particular institution

0:03:38.380,0:03:41.952
which is important[br]for the production of ideas, patents.

0:03:42.510,0:03:44.340
We'll also discuss the trade-offs

0:03:44.340,0:03:48.250
of protection[br]versus the sharing of ideas,

0:03:48.250,0:03:52.790
and what role can governments play[br]in the production of new ideas?

0:03:54.430,0:03:56.066
- [Narrator] If you want[br]to test yourself

0:03:56.066,0:03:58.036
click "Practice Questions."

0:03:58.036,0:03:59.805
Or, if you're ready to move on,

0:03:59.805,0:04:02.154
you can click[br]"Go to the Next Video."

0:04:04.945,0:04:07.543
You can also visit MRUniversity.com

0:04:07.543,0:04:10.733
to see our entire library[br]of videos and resources.