1 00:00:00,227 --> 00:00:03,847 ♪ [music] ♪ 2 00:00:13,730 --> 00:00:15,600 - [Alex] In our previous videos, we've covered 3 00:00:15,600 --> 00:00:19,102 how capital accumulation can spur catch-up growth, 4 00:00:19,102 --> 00:00:21,556 but capital accumulation becomes less potent 5 00:00:21,556 --> 00:00:23,331 as countries grow wealthier. 6 00:00:23,331 --> 00:00:25,280 Countries on the cutting edge grow 7 00:00:25,280 --> 00:00:29,100 by developing more and better ideas, but how? 8 00:00:29,100 --> 00:00:31,800 How do we get more and better ideas? 9 00:00:31,800 --> 00:00:35,260 Individually, a good idea -- it might seem sort of random. 10 00:00:35,260 --> 00:00:37,550 Maybe it pops into your head while you're in the shower 11 00:00:37,550 --> 00:00:40,108 or just before you go to sleep at night. 12 00:00:40,790 --> 00:00:44,780 But when we step back and look at the creation of new ideas 13 00:00:44,780 --> 00:00:48,690 at a macro level, it's definitely not random. 14 00:00:48,690 --> 00:00:51,980 There are key ingredients that spur more ideas. 15 00:00:52,440 --> 00:00:56,060 Ideas don't fall from the sky like manna from heaven. 16 00:00:56,060 --> 00:00:59,701 They grow in the soil of good institutions. 17 00:01:00,926 --> 00:01:03,970 Let me give you a story to help illustrate this point. 18 00:01:03,970 --> 00:01:06,730 You might never have heard of the flying shuttle, 19 00:01:06,730 --> 00:01:08,880 but it was one of the most important inventions 20 00:01:08,880 --> 00:01:11,200 in the industrial revolution. 21 00:01:11,200 --> 00:01:13,600 The flying shuttle improved looms, 22 00:01:13,600 --> 00:01:17,170 making it easier to make fabric quickly and cheaply, 23 00:01:17,170 --> 00:01:18,440 and that made it possible 24 00:01:18,440 --> 00:01:21,889 for people around the world to have new clean clothes. 25 00:01:22,570 --> 00:01:25,670 For the very first time, fashion became something 26 00:01:25,670 --> 00:01:28,420 that wasn't just for the very, very rich. 27 00:01:28,420 --> 00:01:32,070 The flying shuttle was invented by John Kay. 28 00:01:32,930 --> 00:01:35,350 And what did Kay get for his efforts? 29 00:01:35,350 --> 00:01:37,500 Weavers who thought that Kay's invention 30 00:01:37,500 --> 00:01:39,200 would put them out of work -- 31 00:01:39,200 --> 00:01:41,240 they smashed the new looms, 32 00:01:41,240 --> 00:01:44,502 and they burned Kay's house to the ground. 33 00:01:45,270 --> 00:01:48,440 Despite creating one of the most important inventions 34 00:01:48,440 --> 00:01:52,260 to launch the Industrial Revolution and improve the world, 35 00:01:52,260 --> 00:01:55,840 Kay, in fear for his life, fled to France, 36 00:01:55,840 --> 00:01:57,990 where he ultimately died a poor man. 37 00:01:57,990 --> 00:01:59,290 I don't know about you, 38 00:01:59,290 --> 00:02:01,940 but if I saw what happened to John Kay, 39 00:02:01,940 --> 00:02:04,656 I might not be too eager to pursue my invention. 40 00:02:05,310 --> 00:02:07,750 Let's contrast Kay’s story with a great innovator 41 00:02:07,750 --> 00:02:10,430 from recent times, Steve Jobs. 42 00:02:10,430 --> 00:02:14,040 For his innovations, not only did he earn lots of money, 43 00:02:14,040 --> 00:02:16,330 but also cultural awards. 44 00:02:16,330 --> 00:02:21,050 Jobs became an icon that people want to emulate. 45 00:02:21,050 --> 00:02:24,500 This goes back to institutions and incentives. 46 00:02:24,500 --> 00:02:27,020 The institutions today in the United States have enabled 47 00:02:27,020 --> 00:02:29,950 an amazing environment for entrepreneurs 48 00:02:29,950 --> 00:02:32,436 to thrive and create new ideas. 49 00:02:33,350 --> 00:02:36,570 If you have a great idea in the United States, in America, 50 00:02:36,570 --> 00:02:41,090 American institutions create good incentives to pursue that idea. 51 00:02:41,090 --> 00:02:43,770 You'll find incubators and venture capitalists 52 00:02:43,770 --> 00:02:45,670 who can help you start your business, 53 00:02:45,670 --> 00:02:47,960 laws to protect your idea, 54 00:02:47,960 --> 00:02:51,410 a culture that idolizes innovators, 55 00:02:51,410 --> 00:02:54,640 and markets who will reward you handsomely 56 00:02:54,640 --> 00:02:57,470 should your idea be attractive to consumers. 57 00:02:57,470 --> 00:03:00,890 John Kay could only dream of the sort of world 58 00:03:00,890 --> 00:03:03,120 where he could profit from his work. 59 00:03:03,120 --> 00:03:05,760 In the United States and in most of the world today, 60 00:03:05,760 --> 00:03:09,060 ideas are produced for profit. 61 00:03:09,060 --> 00:03:11,800 Seventy percent of the research and development expenditures 62 00:03:11,800 --> 00:03:15,330 in the United States are funded by the private sector, 63 00:03:15,330 --> 00:03:17,480 and an even higher percentage are funded privately 64 00:03:17,480 --> 00:03:19,500 in places like Japan. 65 00:03:19,500 --> 00:03:21,810 So while an individual idea might seem 66 00:03:21,810 --> 00:03:24,170 sort of just like good luck, 67 00:03:24,170 --> 00:03:27,170 we see that ideas spring from places 68 00:03:27,170 --> 00:03:31,390 that have the right institutions in place to create new ideas 69 00:03:31,390 --> 00:03:33,566 and pursue those ideas. 70 00:03:34,670 --> 00:03:35,769 In the next video, 71 00:03:35,769 --> 00:03:38,380 we're gonna look at one particular institution 72 00:03:38,380 --> 00:03:41,952 which is important for the production of ideas, patents. 73 00:03:42,510 --> 00:03:44,340 We'll also discuss the trade-offs 74 00:03:44,340 --> 00:03:48,250 of protection versus the sharing of ideas. 75 00:03:48,250 --> 00:03:52,790 And, what role can governments play in the production of new ideas? 76 00:03:54,430 --> 00:03:56,066 - [Narrator] If you want to test yourself 77 00:03:56,066 --> 00:03:58,036 click "Practice Questions." 78 00:03:58,036 --> 00:03:59,805 Or, if you're ready to move on, 79 00:03:59,805 --> 00:04:02,154 you can click "Go to the Next Video." 80 00:04:04,945 --> 00:04:07,543 You can also visit MRUniversity.com 81 00:04:07,543 --> 00:04:10,733 to see our entire library of videos and resources.