"Why Nations Fail: The Origins of Power, Prosperity and Poverty" -- Daron Acemoglu, 2011

I'm Jordan Pettis chair of the department of economics and finance and it's a great pleasure and privilege for the University of Scranton to be able to welcome dr. Acemoglu the Elizabeth and James Killian professor of economics from MIT before we'd reduce our speaker tonight I would like to acknowledge the Robert Zuckerberg Foundation for the continuous financial support without this support would not be able to have this event also I'd like to recognize the dedicated team of faculty and staff in my department as well as our idrd officers and the moderator whose commitment continues to ensure a successful Hannah George event thank you all for your hard work and commitment all hanniger lecture series continues the tradition of attracting excellent speakers several of our past speakers have received a Nobel Prize in Economics shortly after the deliver an annual hanniger lecture here the University of Scranton this year's Nobel Prize in Economics was awarded to Thomas Arjun and Christopher Sims Thomas Sargent was our keynote speaker back in 2006 actually every I'm MIT professor who was invited and delivered a hero's lecture here at the University Robert Solow Paul Krugman and Peter diamond had to also make a trip to Sweden afterwards for receiving the Nobel Prize in Economics this is impressive 100 percent successful we are successfully predicting Nobel Prize winners for MIT professors professors and more glue thank you for joining us this evening and we hope you continue our tradition or you help us continue this tradition I would like now to invite my colleague dr. Christopher Jenna's to formally introduce our speaker tonight thanks Chris Thank You dr. Jordan patches professional Daron Acemoglu is the Elizabeth and James Killian professor of economics at MIT he received his PhD and master's degree at from the London School of Economics and his bachelor's degree from the University of York he was lecturer in the London School of Economics in 1992 and since 1993 he has held faculty positions and MIT professor Acemoglu is the co-editor of econometrics the review of economics and statistics and the National Bureau of Economic Research macroeconomic annual he is also member of the editorial board of several prestigious economic journals he has received numerous awards and prizes among them the John Bates Clark medal awarded by the American Economic Association to that American economist under the age of 40 who have made a significant contribution to economic thought and knowledge professor samogon was interested in political economy economic development economic growth economic theory labor economics technology income and weights inequality human capital in training and network economics he has published many papers in leading economic journals like econometrics the American Economic Review the quarterly Journal of economics and others he has written the book introduction of modern economic growth and he is the co-author of the forthcoming book Why nations fail origins of power prosperity and poverty his research is of great significance because it attempts to answer one of the most important questions in economics why some countries are rich while others are poor the answer that most conventional economic growth theories provide to this question is that rich countries are the countries that adopt growth enhancing economic policies but this answer in fact does not explain why some countries are growth enhancing economic policies while others do not political economy of growth is a relatively new area in economics that combines political economy theory and economic growth theory in order to explain among others white countries with good political institutions adopt good economic policies and therefore a rich while countries with poor political institutions do not adopt good for economic growth policies and their foreign are poor professor SEMO blue is the most influential researcher in this area of economics and has benefited many economists including myself it's a great pleasure to have him with us tonight we will have the opportunity at the end of this lecture for a Q&A session please help me welcome professor Daron Acemoglu thank you very much Christos and thank you very much Jordan for the nice introduction and it's a great honor to be here to deliver the Henry George lecture actually what I'm going to talk about is as Christos mentioned is based on my forthcoming book on with jointly written with Jim Robinson my longtime collaborator who is at the government department at Harvard it's actually quite intimately related to Henry George's contributions at some level it's almost George's you know what we're going to be talking about is what are the constraints in particular political constraints that prevent the forces of markets from being used for economic growth and at some level George was one of the early economists and social scientists to start thinking deeply about these sets of issues so it's a particularly telling in particular you know at some level you know if two names need to be mentioned in this context they would be Adam Smith and Henry George so I'm mentioning Henry George now and I'll mention Adam Smith in a few seconds but but both the the shadow of both will be cast all over what I'm going to talk about so as I mentioned this is going to be based on my work with Jim Robinson which will be which is the topic of our forthcoming book the book will come out in in in March and and I just got the cover the PDF of the cover from my publisher so I can't resist showing it so I'm pretty excited but but it's not out yet but we have the cover at least so that's how it will look like so why nations fail so why did we write this book and why am I here to talk about it I'm going to try to argue that the sets of issues that surround the question of why nations fail and why or why some nations fail and some nations succeed are among the most challenging but also more central ones for social science and despite a long tradition of great social scientists historians and philosophers having worked on this topic we're still far from a consensus and our intention is to bring a somewhat new perspective to these issues and try to push the debate in the in a direction that we think is fruitful so just to get us started here is the picture of how the world looks like the dark areas here are relatively poor countries they are the ones with income per capita in purchasing power parity adjusted dollars in 2008 there are have less than 2000 dollars and those that are lighter colors get gradually richer and richer so a couple of patterns are visible in this graph the first is that if you look at the numbers in the legend they're huge differences in income per capita across countries large swathes of the world are in white they have incomes over 20000 in many cases close to 40,000 and large parts of the of the globe is covered in dark color less than 2000 so those sorts of income differences across countries are quite striking for 34 to 40 fold differences in income per capita across countries in a globalised connected world the second point that's quite worth noteworthy here is that there is actually a distinct geographic pattern to this it's not like a checker box with the black next to white while there are areas where light and dark colors are next to each other there is quite a concentration of dark colors in certain parts sub-saharan Africa parts of Asia darker colors in South America the North America much lighter colors in Western Europe and much lighter colors in Australia and New Zealand so whatever Theory we have to offer to understand these patterns has to explain both these wide differences and also why they have they are distributed in this particular pattern that we see on this map there is a third important feature and that's about the timing of these differences as I said the second person I would like to emphasize here is Adam Smith and Adam Smith of course was not only a brilliant philosopher but is also the founder of our discipline of economics and Adam Smith's most important work The Wealth of Nations sounds very similar to why nations fail was actually motivated by the same question what makes some way to nations wealthy what is the origin of their wealth and he did actually talk about several of the same issues that I'm going to be discussing here so there were some parallels between him and Henry George too but the notable thing is that when Adam Smith was writing at the end of the 18th century the gap that appeared quite large to him between rich and poor countries was actually much smaller than what we see today we don't have national income accounts but our best guess estimates would suggest that the richest country was about four or perhaps at most five times as rich as the poorest part in the world while as I mentioned that their differences today are over 40 fold so since Adam Smith started theorizing about the origins of wealth of some nations and the poverty of others the problem the disparity has become much wider so here is a picture summarizing this not showing every country but subcontinent based on historical research by Ines Madison sort of projecting back and making estimates because as I said there are no national income accounts but still fairly accurate picture in terms of what's being going on and the remarkable thing is that this this graph is on is on exponential scale so what that means is that if countries were growing at the same rate or if the ratios in their incomes were remaining constant these lines would be parallel what you see is not only a fanning out so big inequality opening up but it's happening in a much much much faster rate starting around 1800 so it's really around 1800 after Adam Smith's important book that this big inequality that we're seeing actually have opened up so again a successful theory should not only account for the two other patterns that I've suggested but also for why the timing of this great divergence across countries started in 1800 and took the form of some countries in Western Europe in the western offshoots becoming much richer while many others not growing as much as you can see from Africa Latin America and Asia and it's this difference is in the growth potential growth trajectory of these different nations or different continents as you can see in this picture is the one that accounts for the other patterns that we've seen on the world map so to develop our theory I'm going to go back to an historical episode the quote-unquote beginning in Latin America not that there wasn't anything before in Latin America as I will explain there was but this is the beginning of the societies that we see in today in Latin America the beginning of the colonization process so as everybody is aware Spaniards sailed to the Americas and quickly started conquering and colonizing many parts of the Americas in particular in the south the history of Pizarro and Cortez are well known but perhaps equally telling is that of quan diaz the solace and his man who colonized real rio de la plata in 1516 river of silver because they had encountered silver in this area in fact it turns out that the silver wasn't indigenous to that part but was coming from the inca empire so be it but they ferociously went went about their colonization and one of the solises men pedro de mendoza founded Buenos Aires now you would think when Osiris would be the sort of place that Europeans should like the climate is exactly like what the Spaniards were used to in in Spain it's today it's known for its great climate very fertile land and all the good things that we sort of associate with that sort of climate but actually their colonization of Buenos Aires and that entire Rio de peau de la Plata region was an entire failure what they tried to do was exactly what Cortez and Pizarro and all the other European colonialists tried to do they try to enslave the locals put them to work make them produce food for themselves and hopefully find the gold and the silver and so that they could extract it but no luck the people they encountered there the Cheras and the carrandi were very mobile very sparsely settled essentially hunter-gatherer level civilizations they try to enslave them no luck they run away when they capture them they fought back and in one of these they call they killed the soulless being clubbed to death by one of the Chihuahuas and Spanish soon decided this is not going to work we're not going to be able to enslave these people but in the meantime one of other the so this is meant the io las had moved up the river to piranha River and discovered what is today Paraguay there they encounter another band of Indians but a little different not so much it's not you know they didn't discover the Inca Empire or the or the Aztec empire or the old Maya civilizations just slightly different set of Indians but the big difference was that these Indians were a little more densely settled and they had already developed a hierarchy so the Guarani were thus easier target for the Spaniards they quickly conquer the lands of the Guarani they deposed their rulers they replace the rulers they put the Guarani to work and they started one of the long lasting colonies of the southern part southern cone of Latin America and in fact the entire colonization process of the Guarani has so many similar to the colonization of the Aztecs of the Incas it's very hard not to conclude that this was a sort of a well-rehearsed sort of strategy but it didn't work when they try to do the bonus iris because the conditions on the ground didn't work for them what about the North America well North America wasn't colonized by the Spaniards but by the British a little later at the early the very beginning of the 17th century the British sent their colonization force under the Jay under the Virginia Company the Jamestown was where they were going to do the colonization and this is the story of John Smithson and the Picanto so it's sort of well known but what I would like to remind you is what a colossal failure this was leave aside all of these nice stories Europeans essentially died almost to the last men because the Indians that they encountered there were just like the the chihuahuas and the carrandi they were very mobile not cooperative and very sparsely settled so the first strategy that the Europeans used in the north was exactly the same as the one that they tried to use in the south of the continent no matter that one was British the other one was Spaniard it was the same strategy capture the Indians get gold from them put them to work and slave them and take over the hierarchy but in the same way they didn't work in Buenos Aires it didn't work in Jamestown the weren't right for it but in Jamestown there was no piranha river that I could sail up to and find another more densely settled population so the Virginia Company started looking for another solution what else can they do the first strategy didn't work their second strategy was only slightly different they said okay we can't enslave the Indians let's bring our slaves back ourselves they brought in indentured servants who were supposed to work under very harsh condition for very low pay and produce money produce produce food and agricultural output for the elite of the Virginia Company but that didn't work either that didn't work either despite the draconian measures that the Virginia company was willing to go to so here I just quoted from the laws that were passed by the two leading directors or the governors of the Virginia Company in Jamestown Sir Thomas Gates and Sir Thomas Dale if you look at quickly at the text of this law a couple of things will strike you first of all pretty much anything you could do was punishable by death so this was not a lovely cuddly colony you know everybody going there for happiness and some of the religious freedom or anything like that this was a pretty harsh place but the second thing that should strike you is that these weren't just harshness there was a logic to this and the logic was that they were trying to stop these people from going and trading or living with the Indians because the same conditions that made the colonization of Jamestown just not very profitable when they try to capture the Indians also made it very difficult to exploit the intention servants and the other low-class people that they brought in because this was an open frontier country and anybody could run away and start their own settlements far from the from the authority of the Virginia Company so their solution to that was well we'll punish you by death if you ever attempt well whatever the threats that didn't work either so finally Virginia Company converge on a third strategy not willingly but kicking and screaming it was a something entirely different said we can't force gang labor there are no Indians to exploit well why don't we give incentives to people so a revolutionary idea so the egg they came out with the head right system they gave land to the settlers and they said if you produce you can keep it we'll just take some tax but that wasn't enough the settler said not the head right system is great but how do we know we can actually trust you you were just trying to kill us and force us and whip us and put us in going gang labor just a couple of years ago so if we're going to trust you we need not only economic incentives but we need political right so soon the head right system was followed by a General Assembly so an entirely different society started developing in Jamestown and later in other parts of North America where people were given economic incentives they could invest and produce and keep what they were producing and this was supported by the political power that they themselves had the political power no longer rested with Sir Thomas Kate and Sir Thomas Dale it rested with the people now if we want to make sure sense of the divergence that I showed you I think it's essential that we understand why the colonies in the north and the colonies in the south ended up on very different trajectories and the story that I told you albeit it's just a story it's just one in episode but it's actually has a lot of generality to it the patterns that hack occurred in other colonies had a lot of similarity to it and in all of these cases the differences that were already apparent in the 17th century as the head right system and General Assemblies developed in the north and a harsh colonization a harsh colonial empire based on forced labor a very hierarchical form of repression and a few making a lot of money at the expense of the rest developed in the south we could see that this had nothing to do with the identity of who the colonizers were yes sure in the north we had the protest and British in the South the Catholic Spaniards but it wasn't about being Catholic or Protestant they had exactly the same intense incentives their model was exactly the same the only difference was that in the South they had the Guarani and the Aztecs and the Incas to colonize in the north they couldn't find them so they had to come up with something else it had nothing to do with climate topography disease environment and so on of course there were differences in this in different parts of the continent Africa is of course very different than Asia Asia is very different than the Americas but what made witness IRAs not attractive and Paraguay attractive for the Spaniards wasn't that when Osiris was less healthy in fact when Osiris good air was all in all likelihood much much better for the Europeans there were no mosquitoes there the climate was exactly that they were used to but they weren't after climate they weren't there for holidays they were there to actually find people and put to work and they couldn't do that in 1 Osiris so some of the theories that have received most attention throughout social science and philosophy emphasizing not much national cultural attitudes emphasizing religious attitudes emphasizing who was the colonizer don't get us very far another very popular set of theories emphasizing Geographic differences productivity differences in agriculture differences in disease environments they don't get us very far another set of theories which are the ones that are perhaps the most popular among economists which is about whether the leaders are adopting the right policies because they can work out exactly what problems to solve the sort of the perspective that you know it's the good leaders who find the right policies that make their countries rich that's not going to get us very far either the difference between the Virginia Company and the colonization the colonizers of Latin America wasn't that some of the the right model of which policies were going to enrich a place in which policies were and the other ones didn't understand which causes were going to enrich the country they weren't interested in in reaching the area they were colonizing they were interested in extracting as much resources as they could and in one place that was feasible in the other place it wasn't and because it wasn't feasible that led to a very different path of institutional development so really if we want to understand this particular source of the virgin's and I will argue if we want to understand all of that divergence that I showed you in that figure we really have to understand these divergent paths of institutions so we have to think about why institutions differ why they have taken divergent paths and what these the institutional differences do to incentives and economic outcomes so to do that let me introduce a few concepts these are essentially putting labels to the same concepts that I have already described in my discussion of what happened in north and the south of the Americas so what the Spaniards were trying to do was to set up extractive economic institutions these were institutions like the encomienda riparian Tomita that forced people to work on behalf of the elite at low wages and enable the elite to capture all of the spoils of economic activity those I'm going to call extractive institutions because they were designed to extract from the many for the benefit of the few but those extractive institutions didn't exist in a vacuum they were supported by extractive political institutions the first thing that the Spaniards did was to actually replace the hierarchy of the Guarani and the first thing they did in the Incas and the Aztecs is that replace the hierarchies of the Aztecs and the Incas so that they could control political power what use are economic institutions that tell you to work for low wages if I can't force you to work for low wages so those political institutions that concentrate power in the hands of a few without any sort of checks and enable them to use repression to get their way I'm going to call extractive political two shoes at the other extreme are the sorts of institutions that we saw in the context of Jamestown Colony I'm going to call those inclusive institutions rather than extract err trying to include more people under their umbrella in particular how did they work in Jamestown well first they provided secured property rights the headright system they gave land and they said you can use the land and if you produce you can keep it so secure property rights they allowed people to trade not trade slaves not trade you know in a way that created kind of a totally non-player level playing field but the people who Kerr who had their own land and produced on the on that land could actually go to the market so there was a market economy but it was a market economy in which a broad cross-section of society could participate on fairly level playing field they introduced courts adjust this system people could write contracts so those are the hallmarks of inclusive economic institutions but we also saw in the context of the Jamestown that is inclusive economic institutions didn't exist in a vacuum they had to be supported right away or they were supported right away and that I argued was for them to be credible by the General Assemblies and those I'm going to refer to as inclusive political institutions so there's polar opposite of the extractive political institutions they create a more equal distribution of power sometimes refer to as pluralism and they pray they don't let anybody have complete control absolute control of the political power that rests with the state so at some level the pluralism that inclusive political institutions embed is sort of the opposite of the idea of absolutism that had also developed around the same time strongly in many parts of Europe the absolutism nor control on the exercise of the power of Kings and monarchs in pluralism that political power being widely distributed and of course the neh the reason why I'm giving these sort of similar names extractive economic institutions extractive political institutions and inclusive economic institutions that includes our political institutions is that there are natural synergies between them so what I try to do here is I try to capture that in a very simple 2 by 2 matrix and those arrows are telling you that there is sort of a virtuous circle if you have inclusive institutions and inclusive political institutions it tends to keep you there there's no necessity history is not destiny but inclusive economic institutions support inclusive political institutions inclusive political institutions support inclusive economic institutions likewise for extractive economic institutions and extractive political institutions why well let's think about it let's take a country with extractive economic institutions 17th or 18th century Barbados so society in which a very few wealthy planter families owned everything and had the right to hire 90% of employer 90% of the population as slaves the slaves did the production the plant has got very rich very extractive economic institutions because they were designed to extract from the many for the benefit of the few they didn't give any rights even the right to go to a get education or not even the right to go and sell your labor to ever you want it for the vast majority of the population and ask yourself whether those extractive economic institutions would have been feasible together with inclusive political institutions that actually gave power to that 90% of the population that distributed power equally in this society and I think the answer is obviously no if that 90 percent had political power I doubt that they would have used their political power to support a system that was essentially designed to exploit them viciously so the only way that an extractive economic institutions such as slavery can survive is by also allocating political power to the people who are the beneficiaries of that slavery system so therefore the off-diagonals of that matrix are generally unstable if you have extractive economic institutions and inclusive political institutions there will be either some forces for those institutions to be reformed the equity for those economic institutions to be reformed in a more inclusive direction or the inclusive political institutions will be undermined and turned into something much more hierarchical at the benefit of the few who were benefitted from benefiting from the economic institutions and the same thing if you are at the other diagonal so what's distinctive about inclusive institutions the most important thing is that inclusive institutions just like the head right system create incentives for people to invest increase their productivity innovate trade and generate economic growth in particular inclusive institutions are pretty much the only way you can generate sustained economic growth and by sustained economic growth I don't mean just a surge of economic growth for a decade or two but sustained economic growth that goes on for decades or centuries or more and such economic growth here economics comes to our rescue has to rely on technological change it can't just happen by building more and more factories of the same sort you have to build better and better factories and technological change another major figure whose name I'll take I'll mention Joseph Schumpeter argued more than seventy years ago that kind of technological change cannot happen but with creative destruction it's not that it's the same people who are doing the agricultural production and then the textile and then the and then the chemicals and then they're going to do the software but it's going to be different people who do the agricultural production different people who do the textile different people who do the who do the chemicals and different ones doing the software and even in within a narrow sector it's going to be the new firms that come with a better technology and replace to old it's going to be some sectors drawing factors of production from another sector if you are a landowner and this is where we again connect with Henry George and you were making a large rents from employing workers the last thing you want is that creative destruction because that creative destruction is going to attract the workers away from you to the city or to the industry so the creative destruction is essential for sustained growth but already as this description suggests it is not a very natural phenomenon that will be welcomed by those who are the current elites because it will often come at the expense of the elite but in fact there is more to it that argument that I've just made says that when creative destruction takes place and when there is economic growth based on technological change in innovation that will create economic losers meaning there will be those who are previously economically benefiting from existing technologies from the existing system from the existing system of property rights and they will lose their rents because they will be driven out of business or their workers will go to other sectors and so on that is a threat it's an important threat but I will maintain that it's a trivial threat relative to the political one creative destruction not only reallocates economic rents but it also reallocates political power so it's not just that if you allowed free entry for industry into the Caribbean islands that would have made the slave plantations less profitable it would have entirely undermined the system that gave political power to those plantation owners and the fear of creative destruction mostly emanates from the fear of those who are currently holding political power and are afraid of losing that political power because of the winds of change that that created destruction and that technological change brings so that gives us a picture in which we have some concepts that help us understand when sustained economic growth is possible and more likely and when it is not it also already gives us very important clues about why is it that extractive economic and political institutions are not a mistake of history they're not an aberration they have their own logic they are stable and that was the point I was trying to make with a vicious circle because they enrich some people they empower some people it just happens to be the few who benefit from it but those few because they have the political power are not going to be willing to give it up and they're not going to be very welcoming to economic growth and technological change because of the fear of creative destruction so therefore we have a situation in which these extractive economic and political institutions will naturally emerge and once they emerge they will tend to persist again history is not destiny but it does create certain strong forces towards persistence but that by itself is not sufficient because what we see is not just persistence but also change and more importantly no society was born with inclusive institutions inclusive institutions developed over time so we also have to explain why is it that some societies remained within extractive institutions in fact deepen their extractive institutions at times while others broke away from extractive institutions towards inclusive institutions so therefore we need to augment the sort of beginning of the theory that I have already provided with a theory of institutional change so let me try to do that so at the root of the concepts I have already introduced you will recognize the role of conflict extractive economic and political institutions have their own logic they tend to persist but not everybody is happy about them the 90 percent who are exploited in the slave societies are not two beneficiaries of the extractive institutions the few percent who own everything are so that 90 percent is not always going to take these things lying down there will sometimes from time to time try to improve their position that may take the form of negotiations that may take the form of slave revolts which were very common in the Caribbean it may take the form of protests uprisings as we've seen during the Arab Spring it may take some sort of ability it some sort of attempts to improve their economic conditions through other means but there will be conflict that conflict will get resolved differently in different societies when it gets resolved in favor of those who already have power the extractive economic and political institutions will get strengthened but when it does get resolved in favor of those revolting or protesting against those extractive institutions there will be some movements away from these institutions as this conflict occurs and is resolved in different ways societies will embark on a path of change but as path of change will often be small and slow think of this as a slow drifting process and in particular I will refer to it as institutional drift the term is very clearly inspired by genetic or evolutionary drift the idea of genetic or revolutionary drift is take two otherwise identical population and put them in isolated places over time because of random mutations they will start drifting apart they're not communicating with each other they have their own trajectories so to the extent that societies have their own political economy trajectories the way that in the same way that the random mutations to push them slightly in different directions the how that conflict is resolved will push these societies in slightly different directions so England and France and Spain might start all similar more or less in the 13th century but over time some small differences will open up now if we had to just rely on these small differences to accumulate over time for an institutional change that would be a very very slow process indeed and in fact some some time one thing will happen and then it will get reversed and so on and so forth but really the more meaningful change happens not just because of this institutional drift but because institutional drift interplays with what we're going to call critical junctures so by critical junctures we refer to major events that disrupt the balance in society that create a shock either because of a political occurrence demographic occurrence of war or the opening up of new economic political or social opportunities so what we have then is that we have societies drifting apart and opening up small differences among them but then when these small differences are hit by critical junctures that leads to divergence so critical junctures are at a time when the small difference is created by institutional drift translate into more major institutional divergence before I illustrate what I mean by this in the context of a specific example let me emphasize that a lot of this is of course contingent or stochastic in the same way that it is very difficult near impossible to predict the outcome of evolutionary drift or genetic drift across different populations it's difficult to say which factors are going to lead one society to move a little bit this way versus a little bit that way and it's also difficult to say in advance although again we can say a little bit when a critical juncture happens which of these small differences that have emerged are going to be more meaningfully important for the subsequent divergence nevertheless there is quite a bit that we can say and to do that let's look at a key turning point towards the emergence of inclusive institutions and that took place in England in the 17th century during the period that's referred to as the Glorious Revolution when the English deposed their monarch James ii and replaced him by a constitutional monarchy led by William of Orange and together with greater checks on what the what the monarch could do and transfer of power away from the monarch towards the Parliament Glorious Revolution was a political event but it opened the way for a radical set of economic changes changes in economic institutions which ultimately culminated in the sorts of incentives that underpin the Industrial Revolution though it was no accident that the Industrial Revolution took started in England when in textiles and then in other areas new innovations were made and will quickly apply to production and led to major increases in output it was no accident that this took place at the end of the 18th century essentially about 100 years later than 101 172 between 50 and 100 years after the major changes in economic and political institutions unleashed by the Glorious Revolution but the question is why did the glorious revolution happen in England why not in Russia why not in Austria why not in Spain why not in France well again you know we're asking questions that are somewhat difficult to answer but the theory sort of helps us at least get some perspective the notable thing is that actually even though England looks quite different to us today than Spain and France there were many similarities in all of these places feudalism was already in decline so the system where people were tied to land and were working for as serfs as form of semi servile semi coercive labour was already in decline in all three places in Spain's England and France there were parliaments in England for example starting with the Magna Carta but in in in in France with the statue on a rail and in Spain with with the Cortes also having their roots going back to the medieval ages in all three places the state had already achieved some degree of centralization so all in all these places had a lot of parallels they shared a lot of commonalities but when a critical juncture arrived which was the opening of the sea routes to the new world and also through the Atlantic to the old world and there was a major surge in international trade and big profit opportunities not only from gold and silver not only from slavery but all from all of the trade England Spain and France reacted to this very differently why did they react differently well let me focus on Spain which was one of the early beneficiaries of the Atlantic trade and all of the changes that came with it Spain benefited from all of its colonies in Latin America from all of the gold and silver that came from it but the major beneficiary in the case of Spain was the crown and the parties associated with the crown and the reason was that all of the colonization expeditions that went were sanctioned by the crown when essentially were officers of the crown they were the kings and queens men who went there and they brought money back for the for the for the monarchy so if anything as a result all of these all of these things in Spain the monarchy got very much strengthened much richer and in fact the Cortes is nowhere around to be seen it doesn't get called for 100 years and the hold of the monarchy increases if you look at how the British call in English colonization when it looks very different it's actually done by privateers and merchants not by the crown and as a result of this the people who actually make money are not the people aligned with the crown but these new merchants who are actually fighting against the crown and asking for greater privileges more security for their property rights and more political voice so the same critical juncture enriched the people fighting against the crown in one country and the crown in the other country so why the difference well that's where the initial drift institutional drift comes in while there were all these similarities between England and Spain there were also some small differences one that turned out to be quite consequential was that in England the Crown's monopoly did not get established over overseas trade so Elizabeth and then Charles our first and James the first couldn't James the first and Charles the first couldn't monopolize what was going on in the Atlantic and then after English Civil War the same thing was true for Charles the second and James the second whereas monopolies crowd the Crown's monopoly was quite absolute in Spain and as a result the crown could monopolize the entire international trade that was brought in by the Atlantic trade and the entire colonization so while we have these many many many similarities one small difference at the end turned out to be much bigger than all of those similarities it determined who was the who which were the groups that benefited most from the riches that were being brought by these economic opportunities and how that critical juncture cried out in one place the crown what stronger extractive institutions got stronger in the other place the parties fighting against extractive institutions got stronger and that ultimately led to the Glorious Revolution the same sort of ideas can also help us explain how feudalism started declining and why that happened in different parts of Europe differently so when I was talking about how the critical juncture of the Atlantic trade played out I didn't mention Russia Austria Russia Hungary or all of the areas in Central Europe they were already behind by 15th century they didn't access they didn't have access to the Atlantic but even if they had access to the Atlantic a trajectory like the one in the one in England the one in England during the 17th century would not have been think about because these places still had survived a burr forced labour doing agricultural production and very small cities and and and much less developed merchants and Industry so how did that particular difference occur well again I think the right perspective is one of thinking of the institutional drift into playing with critical juncture this time the critical juncture was the black death with a plague that killed perhaps half of the population in many parts of Europe and in killing that population created not only a demographic disaster but a very unbalanced economic situation when Black Death hit feudalism and serfdom were the norm throughout Europe and when feudalism when the Black Death hit and people started dying the first reaction of the lords was to actually try to get the remaining workers to work harder I had two workers to produce food for me now one of them is dead I want the other one to work harder but counteracting this the opportunities for the remaining workers were also much better because the Lords were now trying to compete for workers because they were they had a labor shortage the cities were trying to compete for labor because they had a labor shortage so the outside options of Labor's also improved so we had these two forces going against each other extractive institutions wanted to extract more and workers one see an opportunity perhaps for improving their lot again initial conditions were somewhat different in Europe so in Western Europe you already had the cities and somewhat more somewhat better conditions for workers to start with so on top of this the forces that improve the outside option of the workers turned out to be stronger and led to a rapid decline of feudalism in Eastern Europe the cities were not there or were much smaller and the conditions of serfdom were perhaps slightly more onerous and what happened was actually the intensification of serfdom this is very important at some level not only for understanding decline of feudalism but for emphasizing another point that a constant throughout this discussion what I'm talking about here is about economics what happens to labor scarcity and how this affects wages and production and how production is organized it's all about economics but as we can see we cannot abstract from the politics of it because the same labor scarcity leads to very different outcomes depending on the politics of it what was different between Eastern Europe and Western Europe was the politics and when the politics was in favor of the landlords and this again will chime well with Henry George's emphasis the outcome was actually very different now we don't quite have data for Eastern Europe during the black debt but we have something else we have a similar demographic disaster in Latin America when Europeans came they not only colonized the Spanish tech and the Inca empires but they also brought their diseases the demographic disaster that is created was arguably even larger than the black death perhaps killing up to 80 perhaps 90% of the population of many parts of the Spanish of the things that had already become the Spanish Empire so again a sort of an economic theory pure economic theory would suggest that just exactly like it happened in Western Europe in England and France during Black Death the decline in population should create labor scarcity and upward pressure on wages so here are what the data we have from Spanish records we see the population decline and we look at the wages no increase in wages if anything the wages are actually declining what's going on why are the laws of economics being violated well because the politics is very different the laws of economics the labor scarcity is for competitive markets these workers are not competitive their draft workers they're forced workers so what happens actually is that you know if you look at the record what the Spanish colonists start to do is that they start being much more coercive because now there is more greater pressure on wages but they can keep that pressure down by using coercion so we don't know that this is exactly what happened in Eastern Europe but this sort of suggested that's probably a good model for what went on in stern Europe during the Black Death and in the subsequent two centuries when the serfdom got intensified so now let's revisit the early Latin American experience why is it that when we look at that chart and we see Western Europe take off in 20 1910 20th century and we see the Western European offshoots like the United States Canada New Zealand Australia take off during the 1800s and 1900s we don't see that in America take off why is it that what is it that's making Europe these other places take off and not Latin America and I think they gain that goes to the heart of the question I've already mentioned the Industrial Revolution and the Industrial Revolution is of course key the 1910 to 20th centuries were a time of industrialization they were the age of Industry the countries that were growing rapidly were the ones that were industrializing and the industrial technology was spreading like wildfire in North America which would with the United States playing a major role in pushing the technological frontier and being at first as innovative and later more innovative than where the Industrial Revolution started in the first place the United Kingdom but Industrial Revolution which was embraced in the North was not welcomed in Latin America but in America by this time had already cemented is extractive economic and political institutions the elites that were controlling things at first didn't want industrialization so the first 80 years or so of the industrial of the of the of the 19th century there was no industrial activity in much of Latin America later on there was some attempt to industrialization but it happened very differently than in the United States in the United States industrialization was truly a democratic process if you look at the people who got the patents who started the factories they weren't the elite they weren't even the sons and daughters of the rich people they were just regular folks like people like Thomas who didn't come from any particularly advantageous background but when Mexico and later are places like Guatemala Argentina and so on finally jumped on the bandwagon of being integrated with the world economy and trying to invest in the industry it was a very different sort of affair it was highly monopolized it was the happening under addicted and the dictatorial regimes and it was the friends of the dictator who were who got the licenses to produce industrial goods and they saw that they could actually make a lot of money out of that and the sort of processes that led to the creative distraction were certainly kept under check what about in Europe we see Europe fairly light color in that first figure but that light color masks fairly large differences in Europe while Western Europe not only was the first one to throw away feudalism and servile labor it was also the one to industrialize what happened in the East was very different industrialization happened first in England which had already thrown away the extractive institutions with the Glorious Revolution and then quickly or not quickly but gradually democratized in the nineteenth 19th century and in France with the French Revolution and its subsequent changes the absolutist regimes survived and in fact became very strong in much of Central and Eastern Europe for example austria-hungarian empire which was one of the strong dominant powers had a very very different attitude towards industrialization than England or France so France is the first and his right-hand men metre neck for example steadfastly refused all sorts of industry they steadfastly refused railways because they thought these things would actually destabilize their power so this was really fear of creative destruction in action so for instance metallic said we don't desire any at all that great Massa's shall become well often independent how can we otherwise rule over them so that was the attitude because the main thing they were afraid of wasn't becoming poor or becoming backward but the main thing they were afraid of was losing their control over the country and they saw industrialization and all of the things associated windows relations like railways as harbor ingress of these instability so Nicholas the first in Russia had the same attitude railways were viewed as potential bringers of revolution and unrest and there was no natural reason for them the same sort of thing happened in other empires that kept their absolutist bent the Ottoman Empire also when it's a witness it's absolutism survived and became stronger and they're not only industrialization but all sorts of change was very strongly resisted so for example when the printing press was discovered or was invented in the 15th century it quickly spread in Europe because in most parts of Europe there weren't strong enough authorities that could stop the spread of the printing press at least to the cities in Europe the printing press and any sort of human capital that would be for the masses was viewed with great suspicion and the Sultan's and and and and their the elites passed legislation after legislation banning all sorts of use of the printing press well into the 19th century the only experience with the first printing press in 1727 was only allowed to print a half handful of religious texts and then was shut down so this all may appear like a relic from a forgotten age except that it's not if we want to understand extract if one to understand poverty today we really have to again think about extractive institutions and of course we live in a civilized world today you will say you know we have the internet we have all these wireless technology we are we have kind of lived and went through all of these different phases of history but extractive institutions are still present and in fact in many parts of the world when you look at it there they have a very similar Rajic and when they can be they are as vicious as before so today in Uzbekistan the most important produce cotton still relies on forced labor but perhaps more ironically it's not the forced labor of P N and women is forced labor of children but you the the dictatorship of Karimov has created has destroyed all sorts of incentives in agriculture so people let their agricultural capital depreciate and a trophy so at the end they face the crisis that the cotton harvest fell so they came up with a great solution increase the labor supply and in Korean you do that by using schoolchildren so now at the cotton pickin season all schoolchildren are shipped to cotton field to work for for free as cotton pickers so you know that doesn't look so different from the forced labor systems that we saw in the 16th century and the 17th century if we want to understand why Africa is poor we again have to think about extractive institutions of course these extractive institutions have historical origins we have to think about European colonization of Africa we have to think about the slave trade and so on but all of these are relevant today because they have been a mechanism to cement extractive institutions today there are few places in sub-saharan Africa today where property rights are secure the elites created allow a level playing field the courts work in an unbiased fashion and it's no surprise that productivity is low and people are discouraged from investing and since I want to leave time for for for questions let me just let me skip the discussion of the slave trade but but let me sort of mention two other examples because they sort of show how extractive institutions with a very similar logic still continue today and one of them you know is not with us right now but it was with us until 1994 is the apartheid regime in South Africa so if you think about the logic of the apartheid regime it was no different than the the the plantation economies in Barbados or Jamaica or or Cuba in Haiti it was a society where a small fraction owned the property and the remainder had to do the production the remainder didn't have any political power the African majority did not have the rights to participate in politics and they were heavily repressed but if you actually think of the structure of the apartheid economy and society it really makes it clear that the whole design of it was to cement these extractive institutions so for example were word who was the architect of the apartheid sort of summarized the logic of it the bomb to must be guided to serve his own community in all respects there is no place for him in the European community above the level of a certain forms of labour which actually in practice meant that they were barred from almost all skilled occupations so they could just work as unskilled labour in agriculture and mining for that reason it is no avail to him to receive a training they didn't receive any education which has its aim absorption into the European community so the whole design of this was that they were actually kept away from the European community so that was the dual society in which the location of people was also regulated and what that actually meant is that not only they were coerced but they also had so little Economic Opportunity outside the mining and the iron labor that they were forced to supply their labor for very cheap so sort of logic that's very similar to what applied during slavery in the south the u.s. south or in Jamaica and Barbados and in all of this actually the fact that these extractive institutions are building on the origins of other extractive institutions through a sort of a process like the vicious circle that I described earlier on is worth noting these extractive institutions oftentimes are not created out of thin air they are a continuation of processes that have started much earlier and when I talk of persistence here it's actually important to emphasize that I don't mean an unchanging form in which the same institution is visible day in and day out actually the form of the institutions the way that they do the extraction changes we've already seen that for example in the context of Mexico first we had the coerced labor and then we had industrialization but the industrialization was very unequal during industrialization it was the elite that was making the money and that was the same thing in Guatemala that was the same thing in El Salvador you see the same sort of persistence in in other places so for instance in Sierra Leone you see an independence government that throws out a the colonial power but then it recreates more or less the same tool that the colonial power was using in order to extract from its own people so the government by of Jacques Stevens for example in in Sierra Leone used exactly the same sort of marketing board that the British had used for extracting resources from agriculture they use the same sort of monopolization of the diamond mines in order to extract resources they even did the same thing than the winner in the way of trying to politically isolate certain parts of the population by getting rid of certain railway rinds and and and and so that so at the parts of the country that were opposed to circa Stevens's rule could not actually develop and economically and become a real threat so I can add to these examples because I think in many cases where you see these most extreme forms of economic failure you do also see the sorts of extractive institutions that I've been talking about but I want to end in the last few minutes by arguing a point that I have already mentioned a few times that when I talk of a vicious circle and when my when the theory that Jim and I have been trying to develop emphasizes vicious circles this not is not a form of persistence in which history is destiny or there is some sort of predetermination in the same way that it's a theory based on Geographic characteristics or cultural characteristics would emphasize and to do that let me mention two examples and where a pattern of extractive institutions was broken and was replaced by more inclusive economic institutions the first is how the southern equilibrium in the United States came to an end where by the southern equilibrium what I mean is the low wage structure based on agriculture and low education black labor force that survived even after the Civil War through the redemption and a period well into the 20th century and the way that that came to an end actually has a lot in common with the way in which the glorious revolution took place in in in the United sin in England in the way that General Assemblies were fought for and won in the United States in the way that in which the French Revolution took place is that there was actually pressure from the people who were the majority and did not have any rights so when you think of many of these cases of breaking the mold the commonality is that the conflict that exists as an integral part of these extractive institutions finally gets resolved in favor of the people who are the majority and that happens often times because they are able to solve their collective action problem and pose a more concerted resistance to the forces of the extractive institutions so for example in the u.s. south that happen through the civil rights movement that mounted a major challenge to the equilibrium that existed in the u.s. south in the Arab Spring today it's happening exactly through the same sort of protests and uprisings that we have seen in Tahrir Square or in in Tunisia I also want to emphasize but without going into the detail that there is also no historical determinism that says that sub-saharan Africa because it had a colonial history was somehow is somehow totally unable to escape from extractive institutions and they and the best example for that is Botswana so what's one I had started independence as one of the poorest countries in the world with literally no educated people and almost no roads developed the democratic system and became one of the fastest growing countries probably the fastest growing country of the last 50 years and again that sort of took place because there was a major political change and that political change brought it made a significant move away from extractive towards inclusive institutions so let me then try to wrap up and take some questions but what I want to sort of emphasize and wrapping up is that the set of issues that we've been trying to grapple with I think are central ones for social science they're central ones for us as humanity to understand the conditions in which we live in and why the conditions in which we live in are so unequal around the globe these are weighty questions but I think social science holds the promise of making progress and improving our understanding and perhaps ultimately our policy and choices on these topics and what I've been trying to emphasize is that there is a coherent theory that has a lot of explanatory power that emphasizes institutions the development of institutions and the incentives that they create and I think that's a very promising alternative relative to the somewhat more common theories that emphasize culture geography or the mistakes or the smartness or the brains or the ideology of leaders and I think of course time will show how effective these different theories will be in helping us develop a deeper understanding so I'll take some questions thank you very much professor Acemoglu so we have time for questions so don't hesitate bus I don't necessarily want to take you someplace you're not comfortable go Mars that it says on it does seem to be having earlier remarks that it's equally possible for an inclusive institution to terrific by way of public policy choices through agriculture that renders it that renders it an exclusive or an extractive institution what are your thoughts on that absolutely and you're 100% right and that's something we do address quite a bit at length in the book and and I just didn't have time to talk about it and it's exactly sort of the mirror image in some sense that the same sort of conflict that exists that sometimes chipset extractive institutions also exist when you have inclusive institutions so one of the examples we give in the book for example is the Venetian Republic so the Venetian Republic became very prosperous on a fairly democratic and inclusive set of political institutions and very developed economic institutions but because these economic institutions were very much based on trade and monopolizing trade was much more profitable than competing in trade after a while some groups were able to increase their political powers they started using their political power to block out others from trade and that increased their economic profits increased conflict in society they started being more dominant led to some instability in which they sort of almost like a civil war and ultimately leading to the sort of unraveling of these Venetian institutions and Venice stopped growing in fact probably regressed after these periods some people argue Rome went through a similar process although I think there is one should not over exaggerate overemphasize the extent to which Rome had inclusive institutions because at every stage it was based on slavery and quite a lot of coercion although there was a lot of trade and some parts of had fairly well-developed blows so of course one question that people then ask is what about the United States are we at the cusp of having our inclusive institutions Europe being eroded and I think the answer is I don't know but one thing is that you know I think the United States does face some unique set of challenges today but it did face some unique set of challenges in the past too and it was able to pull through one episode that I have in mind here is that the end of the 19th century and the beginning of the 20th century where the concentration of wealth and political power in the hands of a few had reached pretty high proportions with the robber barons and their political dominance but again as sort of a political revolution of source people becoming mobilized through media the populist movement and the progressive movements and so on they were able to push back and actually start a process of failure major reforms that are still the basis of our antitrust laws and limits on monopolies and so on and so forth so I'm not willing to give up hope but we do live in pretty interesting times let's put it that way Oh invasion our democratic processes been able to regulate us I afterwards in equality knowledge Eric above one percent the bottom increasing in holidays politics and cases like resistance United versus FDC to says corporations are people too okay well excellent question but you really are asking in my opinion two different questions the second question you're asking is about you know I think has a lot of parallels with the first question which is about the sort of inclusive comparatively inclusive institutions political institutions that we have in the United States being eroded by a very unequal distribution of wealth much more unequal distribution of wealth in the United States today than any time in the last seventy years probably put as unequal as during at the beginning of the 20th century and also an associated to increase in the lobbying activity that is made possible and I think my answer to that is it's exactly the same and I think those are alarming trends but I think there also I do also have some hope in some trust in the flexibility and resilience of the u.s. institutions and I think the fact that a lot of people a lot more people are talking about these issues and about this 99 percent versus 1 percent is the same sort of issues that mobilize people during the era of the robber barons I have no ability to say how it will resolve but I think there are lots of reasons for to be alarmed but there are also some some some source for being at least cautiously optimistic that this is not the end the first part of your story is about globalization which does perhaps intersect with it that you know globalization may have had some role to do some something to do with the increase in inequality between the top and the bottom of the US income distribution but I think globalization is is much more much more much more of a complex phenomenon and I think my take on it would be the following that I don't think that it's possible to make a blanket statement that globalization is good or bad once you take the politics into account it really depends on how globalization is happening and within what context and let me try to illustrate that let me first try to give an example of the globalization that really was extremely transformative in the positive direction that's the Atlantic trade that actually led to the changes in the balance of power in Europe and as I argued was the central factor leading to the Glorious Revolution I think in the same way there are several other examples in which globalization by creating economic opportunities and creating more dynamism for certain parts of the of the society does act like a force towards change on the other hand there are also several examples in which globalization has been a force toward cementing or strengthening the extractive institutions I've also given some examples of that one of them is again the Atlantic trade with Spain in Spain because globalization happened in the context of it in the context of a political situation in which the crown controlled everything it actually made the crown richer and politically more powerful other examples of globalization again fit that pattern so when finally what Tamala in Argentina became part of the world economy that was a huge globalization move but at the end what it did is that it enriched the very few people who were the land owners and exporters of natural resources and didn't do anything else for the rest of the economy another example of globalization that probably was quite destructive for the political equilibrium is a game one of from one of the examples I use our plantation colonies what made the plantation colony is possible it was the export of sugar if they weren't exporting sugar in an open fairly open economy they wouldn't have been able to have a plantation system because what you would you do with all of that sugar produced through through slavery and so on if you weren't able to trade them so in other words I think globalization I think this debate about globalization is good globalization is bad I don't find that particularly instructive because I think it needs to be in the context of what in what institutional setting that globalization is happening and which sorts of economic gains is producing and what sorts of pressures is putting on the political system and I think when we look at it that way there are also more constructive steps that we can take for example I think it is generally good for the United States to be part of a global economy but when that happens in the context of the labor market institutions that protected the low paying people being dismantled and a very kind of a distorted system that does create a lot of hardship at the bottom and lots of people losing their jobs so I think that's the sort of discussion that I find more relevant in this context so whether WTO is giving the right advice no I don't think it is because the WTO's advice is very much devoid of the institutional setting it is exactly this sort of thing globalization is good globalization is bad and I don't think that's very useful great Greece how many hours we have I guess my question is that you know what what type of changes you know institution teens you know we can follow in order not to another fail I'm not saying you know they're failing and economic systems getting political system is not functioning so any spectrums changes may take place they happen other they imposed increased so what should we expect well tough question I really don't know the answer you know let me just say two sentences just to understand their lie that I don't know the answer you know I've been I've been working on this topic for almost twelve years so this is this is so 13 years thirteen years this is a and I've been giving talks like this of this forum more academic less academic broad audience and so on and so forth and until about two years ago when people asked me examples of successful institutional changes one of them that I would mention is the European Union how the being part of the European Union and the prospect of being part of the European Union led to fairly important improvements in the institution's in many countries now I know that's not true for Greece at least so I think the problem is it's a very difficult problem because you know I think the way that Greece got integrated into the European Union just strengthened the more dysfunctional part of the Greek political system and now the question is how can that be fixed without Greece going out of the European Union which is a tough problem and probably Greece does not want to go out of the European Union and it's not you know likely or feasible so so we have a tough economic problem and tough political problem have the solution while scholar problem pain Ya Allah - what I say is that if it Pattaya for one of 30 years China has been Joy's are constant and the steady economic Johnson and a console modules could have you leaking for the nation easy if you don't know like the riddle I the exact thing happen yeah so I think that's another major question it's a major question of which we spend a chapter and a half in the book I didn't have time to talk about it in the talk so thank you for raising it and and I will give a two-layered answer the first layer is that there's one part of the Chinese experience that's very much consistent with what I've talked about which is that China languished under Mao's communist economic policies and then the major changes came when Deng Xiaoping started liberalizing the economic system so it's one level how you have a very very radical change in economic institutions going from essentially no property rights no incentives to first incentives in agriculture and then industry and then that leading to economic growth is very much consistent with the emphasis here on the other hand there's a second part which is very much at odds with or at least appears with very much at odds with what I have emphasized here which is that China has made major has taken major steps towards inclusive economic institutions but it is under very extractive political institutions in which political power is concentrated in the hands of a narrow elite in the form of the Communist Party so how is it that China is having 30 years of very very rapid economic growth for so long and I think the answer there is related to what I talked about at the beginning in some sort of a implicit way that I emphasized a destructive institutions are not inconsistent with growth surges but they're inconsistent with sustained growth so I would claim that China is still in the midst of a catch-up growth which doesn't really come with major creative destruction and in fact China is not the only example of this there was another country that went through 30 years of very very rapid economic growth there was the most rapid at the time and many people on the basis of this became totally enamored with the system of that country and started writing books in fact most of our principals economics textbook have sections on that about how there was an alternative that was perhaps superior and that was Soviet Russia so Soviet Russia started a very rapid process of industrialization reached breakneck economic speed break neck rates of economic growth throughout the 30s 40s 50s 60s and then totally petered out and that happened in Soviet Russia for almost 40 years under no market incentives whatsoever so in some sense China is clearly doing things much better than the Soviet Union because it has fairly good market incentives in the economic sphere even if the party still interferes a lot with the allocation of resources both in finance and industry but I think that you know Russian experience is a warning warning sign and I think you know China is still in the midst of catch-up growth you know after 30 years of very very rapid economic growth is still around 15 percent of the GDP per capita of the United States so there is still some more room for catch-up economic growth but after a while this catch-up economic growth is going to get rid get run out of steam and then the question is is China going to follow the Soviet Russia trajectory or the South Korea trajectory South Korea started with extractive political institutions liberalized its markets gave incentives and after a while there was a strong democracy movement that they tried to put down for a while but then the democracy movement was strong enough and the extractive political institutions collapsed or the Soviet path where the extractive institutions are going the political institutions are going to be slow and now as strong enough and essentially SAP all of the economic energy out of it before they collapse so I think that's another question mark why are they sure because we have to start somewhere and if you look at it income per capita is fairly highly correlated with lots of other things that I personally think it's good and economists in general pink it's good it's correlated with low poverty is correlated with high life expectancy it's correlated with better living conditions it's correlated with access to lots of basic necessities so to a first approximation I think if we can lift the income per capita of the poorest billion people in the world today that would be the most positive thing that can be done in the world this is not to deny all of these philosophical issues but I think poverty Trump's philosophy one more question please as an economist I found you're very useful in explaining a lot of phenomena putting forward to thinking about other historical examples as I try to apply it to the recent economic crises it occurred to me that trust perhaps is a critical factor within the distinction between extractive and inclusive institutions and perhaps transparency is a related could you comment on that relation to the events yeah I think Trust is important I think more generally social norms are important but I would like to think about these social norms and again we try to do this a little bit in the book but not sufficient you know at the end we had to draw the line at five hundred and subpages and not become two thousand pages so trust and Trust and social norms are important without the social norms maintaining these institutions they can't function it's very central that people believe that the courts are going to be unbiased in the United States otherwise they wouldn't be meaningful if people stopped trusting the media then the media couldn't inform the people although in the United States we have some risk of that happening and Trust is very central but all of these things I think I don't think they are religious or national characteristics they are also shaped by the same historical institutional processes so for example when you look at the world value survey and look at sub-saharan Africa you see much lower levels of trust in sub-saharan Africa than in any other part of the world and when you actually look at the origins of it it seems that it's very strongly related to the slavery experience so sub-saharan Africa went through a slavery period where for about three hundred years people were raiding their own families and and their neighbours children we were selling them into slavery so I think it's likely that a process like that arose the trust relationships in society so at some level Trust is important but Trust itself has sort of the same sort of political and social roots that we've been trying to sort of develop and emphasize okay I would like to thank thank everyone for attending this lecture will this concludes the 26th annual Henry George Spears good night you

Channel: The University of Scranton

Views: 147,682

Keywords: Henry George Lecture, The University of Scranton, Daron Acemoglu, Robert Schalkenbach Foundation, MIT, Economics

Id: IRAkz13cpsk

Length: 96min 20sec (5780 seconds)

Published: Fri Nov 11 2011