Okay, thanks a lot. This is working, okay, yeah, thanks very much. I'm really excited to be here. Thanks to Begzod for all his work on the book and hosting me here, inviting me here to Uzbekistan, first time I've ever been here. Very exciting. It's one of the great privileges to be a kind of academic today that, you know, you get so many opportunities to go around the world, just learn about other cultures, other societies, the challenges people face. It's just fascinating for me, and it's a real privilege, and I'm just excited to be here. Thank you very much. So I'm going to talk about my book. I was asking, you know, how long should I talk for, and they were like, well, you know, it was, you know, and it reminded me, many years ago I gave a lecture at the Chinese Academy of Social Sciences in Beijing, and the communication wasn't very good before the meeting, so I didn't know how long I had to talk. So I got there, had my notes and everything, and I asked this gentleman, this professor, how long should I talk for, and he said not more than three hours. So I think I can promise to be a little bit more concise than that.
Okay, and here we have, okay, great. So of course this is, you know, this is Daron and I have been working together for 30 years, and we still like each other, we're still friends, and so I just got his name up there as well as mine. Okay, so what's the book about? You know, if I could explain what the book is about with one photograph, it would be the Korean Peninsula at night. So you can see South Korea, very bright, lots of light bulbs, lots of electricity. You see Seoul, you know, up by the demilitarized zone. North Korea, black, almost completely black. You can see there's a bit of electricity, a bit of light up in Pyongyang. Could be the presidential compound, you know, they have a wave pool in the presidential compound. You probably need like flood lights. I've never been on a wave pool, but I can imagine, you know, you need light and electricity for having a wave pool. So there it is, you know, so this picture in some sense you can explain the entire book with this picture. And what's even nicer about the picture is you all know the answer. You all know the answer to why South Korea is economically successful. In fact, it's one of the great economic success stories of the last 70, 80 years. You know why South Korea is economically successful, and you know why North Korea is economically unsuccessful.
Okay, and what's interesting about this as a sort of social scientist is that if I went back to 1960, that difference wouldn't exist. In fact, if I went back even further than that, North Korea was probably more prosperous than South Korea. What became North Korea would be more prosperous than South Korea. Okay, so that difference only emerged after the Korean War was over. And what's interesting as a comparison is that that cannot be explained by Korean culture being different. No, Korea has common culture, common language, common history of the peninsula. So the culture was held constant, geography is very similar across North Korea and South Korea. But what we know is that very different types of institutions—that's a word I'm going to use a lot in the next 40 minutes or something—and by institutions I just mean the rules in society, the rules that create incentives and opportunities for people. The rules that were created in South Korea were dramatically different from those in North Korea. Today, income per capita in South Korea, it's in the $30,000 a year. North Korea is like a sub-Saharan African country. Life expectancy is about 10 years higher in South Korea than it is in North Korea. You know, and it's not just Samsung and microwaves and cars. South Korea is sexy. There's K-pop, you know, it's taking over Netflix. Many, many developing countries, you know, where I work, are always worried about, oh, we're going to be taken over by like the West and Western culture. I think the West should be worried about being taken over by Korean culture, honestly, at the moment. Okay, and that's going to be important for the discussion here today because for me that's a sign of creativity, it's a sign of innovation. You know, innovation is not just about microwave ovens and telephones, it's about art, it's about music, it's about film, it's about anything people want to do. Okay, and so that shows what an amazing place South Korea has become, and I'm going to argue that's because of these institutions, and the institutions are not determined by society's geography or culture, they're chosen by the people. Okay, so and they're chosen through a political process. So you know that North Korea is poor because it has this socialist economy where people don't have incentives, they don't have opportunities. South Korea developed this market, very dynamic market economy starting in the 1960s, exporting enormous amount of innovation and technological change. But the economics, and I'll talk more about the economics, the economics of course is important, but you have to ask yourself a deeper question, which is you can describe the economic system, the economic institutions in South Korea and North Korea, and you can understand their consequences for prosperity and economic development. But when you ask the deeper question, why do the economic institutions in North Korea do what they do? Why are they like what they are? Why are they so dramatically different from those in South Korea? You can see the answer to that is political. So that's one of the key themes in our book: economic institutions are critical for prosperity, but economic institutions are the outcome of a political process. Economic institutions in North Korea reflect the preferences of the North Korean Communist Party. Okay, South Korea has a very different political system, and that created very different economic institutions. Okay, so this comparison, it's what we call a natural experiment in social science, and it's an experiment because it's almost as if, you know, randomly, you know, one part of the Korean Peninsula got one set of institutions and another part of the Korean Peninsula got a different set of institutions, and we can look at the consequences today for economic development. You know, I'm interested in light, you're going to see light bulbs as a sort of theme in this talk, but I'm interested in that because it's somehow picking up in a very visceral way differences in economic development and prosperity. Now you could argue against that, you know, my wife, who's very skeptical of economists, she looked at that and said, well, you just jump to conclusions here. You know, it could be that North Koreans just think candles are much more romantic, no, or they could be just trying to reduce their carbon footprint in North Korea, quite probably quite successfully. Anyway, all right, so we use a series of examples like this in the book to sort of hold things constant and say, look, you know, the only thing that can be driving this is institutional differences. So here's another example we use, which is the United States. So the first chapter of the book tells this story of another divergence. You know, there's a divergence in the Korean Peninsula, another divergence, which is the divergence in the Americas between North America and Latin America. And this is the town of Nogales. There's a fence running down the middle. This is a pre-Donald Trump fence, it's a very old fence in Nogales. And to the right of the fence is Nogales in the United States, and to the left of the fence is Nogales in Mexico. Okay, so the difference in economic development, in living standards, life expectancy between Nogales to the right of the fence and to the left of the fence is much smaller than the difference between North Korea and South Korea, but it's also significant. And this can't be explained by culture or geography either. The geography is identical, the culture is extremely similar. If you go to Nogales in the United States, actually it's an extremely Latin city, everyone is speaking Spanish, the music is Mexican, the food is Mexican. It's at that cultural level, it's almost indistinguishable from Nogales on the other side of the fence. But institutionally, it's dramatically different. Nogales on the left-hand side is run by drug cartels. On the right-hand side, there's much more order and a state able to control, imperfectly, of course, imperfectly, it's able to control migration, imperfectly, it's able to control shipments of drugs to the United States. But there's a dramatic difference in security, public security and order between those two sides of the fence. So at the end of the first chapter, we kind of, here's the, you know, we sort of say, okay, so we're doing these sort of comparisons between different parts of the Korean Peninsula, the border between the United States and Mexico, but we end the chapter by comparing not two different geographical areas, but two people. So when we wrote the book, the two richest people in the world were Bill Gates, here's Bill Gates, I'll come back to what he's doing, and Carlos Slim. So Carlos Slim was a Mexican entrepreneur. They were the two richest men, richest people in the world. Okay, and what's significant about this, their fortunes were about $50 billion at the time. What's significant about this is the difference in which they made their, the different strategies they used to make their money. So Bill Gates, everyone knows who Bill Gates is, he was an innovator in the computer software industry. He dropped out of Harvard, he started Microsoft with some friends, and he was an innovator, okay, entrepreneur. Now he became incredibly rich through his innovative activities, but he was part of an incredible computer revolution that sucked talent and people from all over the world into Silicon Valley, into Seattle, innovating, startups, new firms, entrepreneurship, you know, there's a part of an incredible flourishing of the computer world. Okay, so I think what's important about that is that while he made an enormous amount of wealth for himself, he also created a huge amount of wealth for other people. Okay, that's intrinsic to innovation. You know, if you have an idea, then, you know, innovation is about ideas, you have an idea, well, other people who didn't create that idea can borrow it and they can create wealth with that idea too. Okay, what did Carlos Slim do? How did Carlos Slim make so much money, as much money as Bill Gates? Not through innovation. He actually got his friends in the government to privatize the national telecom monopoly to himself, unregulated. He could charge whatever prices he wanted, no competition. Okay, the OECD did an extremely conservative calculation of the costs of his monopoly over a five-year period, and they calculated it was twice, the social costs for Mexicans were twice his personal fortune, $100 billion. So this wasn't just Carlos Slim's monopoly, wasn't just taking wealth from the average Mexican and giving it to him, it was making all the Mexicans poorer. That's dramatically different from what Bill Gates was doing. Bill Gates was making himself wealthier, sure, but he was making other people wealthy too. Carlos Slim, completely the opposite. Okay, so, and that difference, that difference between the way you make wealth says almost everything about the difference between Latin America and North America. People in Latin America who are very rich tend to be monopolists, crony capitalists, making money through government contracts, creating monopolies like Carlos Slim. Now let me come back to what Bill Gates is doing here. He's got his hand up, he's telling, he's swearing to tell the truth, the whole truth, and nothing but the truth. So he's actually in Washington, D.C., giving testimony to the antitrust authorities. So Microsoft was accused of trying to create monopolies, of using monopolistic, anti-competitive practices. So that comparison is interesting because it's not that Bill Gates was a good guy and Carlos Slim was a bad guy. No, they're human beings, they're trying to make money, they're business people. Of course, everybody wants to be a monopolist if they can get away with it. It's just more difficult to get away with it in the United States. And in fact, Microsoft was found guilty of violating the Sherman Antitrust Act, okay, in 1998. So that's interesting, right? And it's about institutions. Bill Gates and Carlos Slim, very talented, brilliant, energetic people, they want to make money, but the way you make money depends on the institutions that affect your opportunities and your incentives. In the United States, the way to make money is to innovate, to start businesses, to be an entrepreneur. Of course, you'd like to be a monopolist too, but the state tries to stop that. Okay, in Mexico, the way to make money is not innovate, but to get your friends in the government to create monopolies for you. Okay, and they're just responding to incentives, and that's created by institutions. So I think you see here the critical thing about institutions is how they push, what direction do they push people, and what are the social consequences of those different directions. The social consequences of the directions that institutions in the US push Gates are dramatically different from the social consequences of Mexican institutions. Now this is, this is not a new thing, okay? This is not a new thing. I talked about, I said Microsoft was found guilty of violating the Sherman Antitrust Act, okay? So let's go back to the 19th century. This is a contemporary cartoon from the 19th century, and it's an octopus, you can see, but look at the octopus's head. The octopus's head is an oil barrel, and on top of it, it says Standard Oil. So Standard Oil was a monopoly of Rockefeller, probably the richest person in the world in the late 19th century. Okay, Rockefeller, what was the octopus of the Standard Oil doing? Well, you can see it's got its tentacles wrapped around the politicians, wrapped around the Capitol building, you know, it was corrupting politics, it was controlling politics, it was getting people elected. What happened to the Standard Oil Company? It was broken up in 1905 by antitrust authorities. Okay, so this battle against monopoly, the battle, you know, to kind of create a level playing field in society, I'm going to come back to that. That's a long battle. It's a long struggle in the United States. It goes back way into the 19th century, okay? And I'm going to emphasize a bit the nature of this struggle and the nature of the successes as we go on. So let me just introduce a few words now. I try not to put too many words on these slides, but some terminology is sort of useful for thinking about. Okay, so I said Bill Gates, Carlos Slim, you know, they respond to different sets of institutions. So let me put some terminology on that and kind of emphasize some aspects about that terminology. So we're going to say, what is it that pushed Bill Gates in this kind of socially productive direction? It was inclusive, I'm going to call that inclusive economic institutions. And you should think of inclusive economic institutions as rules that create broad-based patterns of incentives and opportunities in society. What about Mexico? What do they have in Mexico, or North Korea for that matter? Extractive economic institutions. So of course, you know, in reality, there's lots of gray areas, okay? But I think it's very useful to have this simple distinction in mind, okay? I'm a professor, you know, professors love gray areas, you know, we love balancing angels on pinheads, you know, to use a different metaphor. So if you want nuance and gray areas, bring it on, okay? But for now, let's just stick with this dichotomy. It's very useful for developing the argument. All right, so inclusive economic institutions, extractive economic institutions. Inclusive economic institutions create innovation, investment, economic growth, all the things that economists have known since the 1950s, create economic development. Extractive economic institutions do the opposite, okay? They block incentives, they create incentives for some people, for a few people, but not for most people. They create opportunities for Carlos Slim, but not for most Mexicans, okay? So I want to dwell a little on this word inclusive, and I'm going to do it with the following picture, which is in the book, which is Thomas Edison's patent of the light bulb, okay? So I emphasized when I started talking about Gates and innovation, I emphasized a sort of critical aspect of innovation, which is if you come up with an idea, new product, new way of raising human productivity, new goods, whatever it is, other people can copy that idea. You know, ideas are easy to copy. It's not like if I have an apple, I can eat the apple, and if I eat it, you can't eat it. An idea is not like that. I can use the idea, you can use the idea, right? So a patent, it's a very clever thing. The patent is meant to protect your intellectual property rights, okay? So it's meant to stop people copying your ideas, and if people can't copy your ideas, then you can benefit more from your idea, and that creates incentives for you to innovate, okay? So this is a very old idea. The US Constitution in the 18th century actually stipulated patents, and the first Congress wrote a patent law, and that patent board that was set up by the law was so important that Thomas Jefferson, who wrote one of the most important US politicians at the time, who wrote the Declaration of Independence, Jefferson sat on the patent board, deciding if people's innovations merited patents, okay? So here's a, this is a patent taken out in 1880 by Thomas Edison, okay? Edison was a brilliant man, he had over a thousand patents, he was an incredibly creative innovator, okay? And I want to emphasize a few things about this patent, okay? First of all, the patent law specified that everyone could pay the same fee and take out a patent, okay? And once you got a patent, the state protected your intellectual property rights, okay? And the capacity of the state or the power of the state to do that is very important in my discussion. So remember the Antitrust Act I was talking about, the Sherman Antitrust Act, it's not just the US has antitrust laws and the Mexicans don't. Actually, the Mexicans have great antitrust laws. I know who wrote them. It's just that the Mexican state cannot enforce antitrust laws on the richest person in the world, whereas the US can drag the richest person in the world into a court in Washington, D.C. and find them guilty of violating the law, okay? So that's about the strength or the capacity of the state, okay? So that's an important theme here, and the capacity of the state was used to enforce this patent law, to protect people's intellectual property rights. It wasn't just the law, it was the capacity to enforce the law, okay? But who was Edison? Who was Edison? So was he an elite? Was he connected to politicians? No, he was an ordinary person. His father was a roofing contractor, he was homeschooled, he was just a brilliant guy. And in fact, if you look at who took out patents in 19th century America, there's a brilliant analysis of this by the great economic historian, Ken Sokoloff. Sokoloff showed that these innovators, people who took out patents, came from everywhere in society: poor people, artisans, farmers, uneducated people. Yeah, there were some elites, there were some connected people, but ideas, talent, creativity is spread out everywhere in society. You know, if you want to have a prosperous country, what you have to do is tap into that talent, okay? You have to create inclusion. Why? Because everybody has to have incentives, everybody has to have opportunities, you have to have a level playing field. That's the way as a society you can harness all that talent and creativity. You know, people ask me, like, oh, you know, if you could give a one-sentence version of why countries are poor, what would that be? And actually, I can do something better than one sentence. I have two words, and the two words are wasted talent. That's the problem in poor countries. I work a lot in sub-Saharan Africa, and the tragedy for me is everywhere you meet people just like so clever, talented, whatever, with dreams, ambitions, they're stuck, they're stuck, they're stuck. It's wasted talent, okay? So this word inclusion is very important, and I want you to get, like, it's not just some buzzword, it sort of really communicates, I think, what we want to communicate about how to be successful, okay, as a society. All right, connected to innovation, okay? All right, that's the kind of easier bit in some sense about economics: inclusive economic institutions, extractive economic institutions. But as I said earlier, and as is completely obvious from the Korean example, and as I was sort of implying in this US-Mexico comparison, politics is lying behind this, okay? You don't get a state enforcing a Sherman Antitrust Act or enforcing patents by chance or just because you have good economists. That state has to work as an institution to enforce those laws, okay? And what we emphasize a lot is that to have inclusive economic institutions, you need to have the right type of politics. In fact, you need to have the right type of political institutions, which we call inclusive political institutions. Inclusive political institutions generate inclusive economic institutions. Extractive political institutions generate extractive economic institutions. Think about North Korea again. What generates the poverty in North Korea is nothing intrinsic to the Korean people, the Korean Peninsula, we know that. It's the Korean Communist Party that creates that poverty by the way they structure society, okay? So that's Korea. You might think, Korea, well, okay, that's a special case, isn't it? No, it's not a special case. The point about the book is the forces that make Korea poor are everywhere in the world. They manifest themselves in different ways, but I think what's useful about this language of extractive and inclusive is it helps you to see that North Korea isn't some wacky case, actually it's just a specific case of a much more general phenomenon, okay? So I need to unpack this idea of inclusive political institutions, and it has two dimensions, which I've also been trying to allude to in the discussion. The first dimension is the capacity of the state. Remember the effectiveness of the state. The state can't enforce the law in Mexico on the richest person, but the US state can enforce the law on the richest person. So the state has, you know, you could say it's strong, it has capacity to control, to raise taxes, to regulate society, to provide basic public goods and order. So you need to have a state with strength. There's all these words in social science, but hopefully it's sort of clear what the point is here. But who is this state? What is the state doing? You know, to what ends is it doing anything? What's the objectives of the state? How do you know that the state is going to work in the interests of society? And that's where the other part of inclusive political institutions come in. We emphasize you need to have a broad distribution of political power in society for political institutions to be political. The problem in North Korea, you know, is not the capacity of the state or the strength of the state. Actually, the state is quite strong in North Korea in the sense that it controls people. The problem is it works in the interests of a very narrow elite, and most North Koreans get absolutely no say in what the state does. That's the problem, okay? That is the problem. So let me talk a little bit, I want to bring the theme back to light bulbs, and talk a little bit about extractive political institutions just so you get the idea. And I'm going to do it with a fun example from some of my fieldwork in Africa. I told you I work a lot in Africa. So in August 2017, I was doing fieldwork in Zimbabwe in southern Africa, and I'd just been out to dinner, and I was going back to the hotel in a taxi, and this is a kind of typical scene at night. It's a bit like Pyongyang, you know, there's not much electricity in Harare, which is the capital city. You can see there's very little light, no street lights, whatever. So we're driving along the street, and then we turn a corner, and something weird happens, and I was like, oh, you know, sometimes something weird happens, you can't put your finger on it, you don't quite know what's going on, and I said to like the taxi driver, like, what's what? And he pointed up. Can you spot the difference? Huh? There's light, light, there's light. I said, there's light, what's the deal here? And he said, ah, this is the road to President Mugabe's residence. It's a bit like the wave pool in Pyongyang.
No, here's a real example from my own research. Now, President Mugabe, you know, was a very interesting character. He stayed in power for 37 years. When he left power, forced out by the military, income per capita in Zimbabwe was 50%, half of the level it had been at the start of his 37 years in government. Okay, now why is that? Because of extractive economic institutions created by extractive political institutions. Now, what you probably don't know about President Mugabe is, apart from being a very successful politician in the sense of staying in power for a long time, if that's how you want to define being a successful politician, he was also a very lucky man. Okay, so here's a story from the BBC: Mugabe wins the jackpot. Okay, this guy was so lucky that he won the national lottery. How about that? I don't know if you have politicians that lucky in Uzbekistan.
The Zimbabwean President Robert Mugabe has won the top prize in a lottery organized by a partly state-owned bank. Just a coincidence? Probably. The president, who last year awarded himself and his cabinet salary hikes of up to 200%, hit the jackpot. Master of Ceremonies Phet Chihuahua could hardly believe his eyes when the ticket drawn was handed to him and he saw His Excellency Robert Mugabe written on it. Okay, so here's, you know, it's a fun example. It's not fun if you're a Zimbabwean citizen, actually. It's a sort of tragedy, but it just drives home the problem here. Okay, the problem in Zimbabwe, the reason national income has fallen by 50%, you know, this is the problem. Okay, and you know, you don't need to be a rocket scientist to figure out why it's the problem. All right, so I'm going to sort of... this looks very nerdy and academic, but I find it sort of useful as a way of just kind of summarizing what we have learned so far, hopefully, or what I've, you know, learned is a big word. You know, I used to call myself a teacher, but then I realized, you know, teaching implies that somebody's learning something from you. You know, so then I decided I should call myself like a lecturer, because if you say you're lecturing, it doesn't actually imply that anyone's learning anything, you know. But if you say you're a teacher, you're teaching people things, that sort of implicitly means, you know. Anyway, so okay, so here's what we learned so far, hopefully.
And you can see the columns have it's inclusive, it's economic institutions at the top. So you have inclusive economic institutions, extractive economic institutions. So there's North Korea down at the bottom right. It has extractive economic institutions, but the reason it has extractive economic institutions is it has extractive political institutions. Up there on the left, at the top left, there's inclusive, there's rich countries in the world. You know, I could put lots of other ones. You know, we can talk about what's happening in the United States later on. I'm going to say a few things, but you know, the big picture I think still is, you know, the United States has inclusive economic institutions and that's created by this inclusive political system. Okay, so there's lots of other countries here. I'm going to talk about China very soon. Okay, and you know, the idea of the book is to sort of say, well, you know, rich countries are in the top left with inclusive, inclusive, poor countries are down bottom right. I talked about Mexico, extractive, extractive institutions. What about these weird combinations? You know, inclusive, extractive, extractive, inclusive. Like, what about a society which has, you know, inclusive political institutions and extractive economic institutions? What about China, which I'm going to argue in a minute has relatively inclusive economic institutions but extractive political institutions? What happens when you have that kind of inclusive-extractive combination? And what we say in the book is that that's unstable. You can't stay there. That can't last. Okay, and in fact, what's interesting about the Zimbabwean case is that you could say, you know, that in the 1980s there was a massive increase in political inclusion in Zimbabwe, but economic institutions never improved. They never became more inclusive. So that's that kind of lost. So what happened? Well, Zimbabwe turned around and they went back into extractive, extractive. Okay, they had a political transition, but the political transition just reversed itself. Okay, with new people at the top. In the 1970s, there were white people at the top in Zimbabwe exploiting the Africans and the black people. Now you have a different people at the top. You have Africans at the top exploiting the Africans. The white people have mostly left. So you have the same problem of extractive institutions. Okay, so I think this is useful, and I'm going to come back right at the end of the talk, unless you get too bored, and ask, you know, where's Uzbekistan on this diagram? You know, the million-dollar question, and I'm expecting you to tell me the answer. Okay, so let me talk about China, and I talk about this business of how you can't combine extractive and inclusive. All right, what do we say? Okay, well, what we point out in the book is that actually there's many experiences in world history, world economic history, of what we call extractive economic growth. So think of extractive economic growth as a situation where you have this unstable combination of inclusive economic institutions and extractive political institutions. Argentina is an example. In the 1920s, Argentina was one of the 10, probably one of the 10 wealthiest countries in the world. It had experienced 50 or 60 years of very rapid economic growth based on agricultural exports. Okay, but it never had a political system necessary to sustain inclusion. So starting in the 1920s, it just went into reverse, and it went from a situation a bit like where China is on that diagram back to extractive, extractive. Okay, so another great example, the Soviet Union. When I was an undergraduate at the London School of Economics, you know, it's quite a long time ago, but some of you are probably old enough to remember this. The Soviet Union was an economic miracle. In fact, in 1980, at the London School of Economics, I took a class on comparative economic systems, and we were taught... I went back and checked. I doubted my memory, so I went back and checked the textbook. We were taught that if you wanted to have really rapid economic growth, you had to have Soviet-style central planning. 1980, London School of Economics, I promise. Okay, the Soviet Union fooled everybody. Okay, this is from Paul Samuelson's textbook. Paul Samuelson, probably the greatest economist of the 20th century. Paul Samuelson, 1961, there was a diagram: in the year 2000, the Soviet Union catches up with the United States. All right, what happens in 1967? 1967, same diagram, 2000, catching up, no, 1970, oops, catching up was deferred until 2010. Okay, so if you go through the subsequent editions of the textbook, catching up got delayed to 2020, and then in the 1980s the diagram disappeared from Paul Samuelson's textbook. Subsequently, it reappeared with China replacing the Soviet Union. Okay, but I think the Soviet Union is a very interesting example. There's many differences between Chinese economic growth and Soviet economic growth and Argentine economic growth. Okay, but I think what I want to say is that, you know, Soviet economic growth was very rapid from the mid-late 1920s right the way through probably towards the end of the 1970s. It fooled everybody. It fooled, it fooled, you know, the Soviet Union, it fooled Khrushchev, it fooled the CIA, it fooled Paul Samuelson, the greatest economist in the world. You know, so I think that's worth pausing before I start talking about China and say, hmm, there's many periods of 50 years of economic growth that people extrapolate into the future without really asking hard questions about, you know, what is the nature of economic growth in that country and how does it work. Okay, so what we say in the book is, yeah, there's been economic growth in China, and it fits perfectly with my theme of inclusive economic institutions. Why has China grown since the late 1970s? It's exactly because economic institutions have been made more inclusive. In the 1970s, late 1970s, Deng Xiaoping started demolishing the extractive institutions, first in agriculture, the household responsibility system he introduced. What was that? That gave people incentives. You got to decide... I sound like a Chicago economist now, don't I? You got to decide what to do. People got to decide what to plant, what crops to plant. They deregulated prices. It created incentives for people. Agricultural productivity went through the roof. Okay, in the 1980s, it started spreading to the industrial sector. Okay, but what we say about that is great, but it's transitory. Okay, it can't last because you cannot have inclusive economic institutions at the whim of a dictatorship. Okay, that is the lesson from world history. Okay, and my view about this is very simple, you know, and here it is: Lord Acton, power tends to corrupt, and absolute power corrupts absolutely. So what you have at the moment in China is the construction of personalistic dictatorship unconstrained by institutions. You know, when I first started talking about Why Nations Fail 11 years ago, people would say, oh no, no, no, no, China is different, China is different. I'm going to come to that. China is different. You know, look, Deng Xiaoping institutionalized leadership succession, he institutionalized term limits. No, he didn't. No, he didn't. That just disappeared. Okay, look at Chinese history and ask yourself how is this going to end. I don't know how it's going to end, but it's not going to end with a prosperous China. Okay, now you could say, oh, it's different this time, it's different. Okay, why is it different? Well, give me an argument. So when people say that to me, I say, okay, give me an argument about why China is different. They say, well, you know, Chinese people respect merit. You can't mess about with merit in China. You know, Confucius in the Analects says, promote those who are worthy and talented. And it's true that, you know, China was the one part of the pre-modern world that had an elite that was chosen through an examination system. That's a pretty, it's a pretty amazing thing. Okay, but yeah, what about merit? Here's merit. Jack Ma, amazing guy, amazing entrepreneur. Okay, what happened to Jack Ma when he mildly criticized the regulatory framework of the Chinese government? He disappeared. He disappeared completely for three months, and in fact, he really hasn't been seen for two years now. Okay, so there's many, many, many examples of this. Okay, this is a totalitarian state. This is not consistent with innovative, creative talent coming to the top. People, it's not, it's not consistent. You can't have an innovative modern economy when this goes on. All right, it's not possible. The Soviet Union, of course, managed to innovate in a few domains when they put a lot of resources and a lot of effort into it. Military technology, for example, the Soviet Union were very successful. Space technology, okay, they were able to do it, and the Chinese may be able to do the same thing in artificial intelligence if they put a lot of resources and effort into it. But that's very far from being what you need to have to be a very successful economy. Okay, so Jack Ma, cool sunglasses, no? Okay, all right. So a lot of the book is emphasizing this: extractive, extractive, inclusive, inclusive. You know, we go around the world sort of looking at these very different types of societies and saying all the details look different, but you know what they have in common is these patterns of extractive and inclusive institutions. But you know, this is not a sort of, it's not a hopeless situation. You know, in fact, one of the points in the book is to look at the history of the construction of inclusive institutions. Every country, my own country, England included, and I'm, I'm, I'm sort of an American as well, but it's, you know, let me, let me self-identify as British. The American ambassador's here, so I suddenly got anxious, you know, he'd be checking my papers or something. So, so, so, so let me identify as British for a minute and say, you know, Britain and every country today that had inclusive economic institutions historically had extractive institutions. The United States has many elements of extractive institutions. Talking about gray areas, after all, they had slavery until 1865, and black people couldn't vote in the US South until into the 1960s. Okay, so there's a bit of gray area. Okay, but, but so, so, so we talk about breaking the mold. You know, like there's transitions. You know, South Korea was not an inclusive society in the 1950s, but it became an inclusive, inclusive society. It made a transition from extractive institutions to inclusive institutions, just like Britain did historically. You know, it's always, there always a work in prog... it's always a work in progress being inclusive. So this element of transition is very important. So, so, and we have many examples in the book. You know, I mentioned the United States. You know, the, the, the, the, the sort of collapse of the discrimination of black people in the US South. We talk about Brazil. We start the book by talking about Arab Spring. Okay, but just thinking about the Arab Spring, of course, makes you see that this transition is hard. Okay, it's hard to go from an extractive society to an inclusive society. How does it happen? It happens because the people who suffer under extractive institutions organize to force change. Okay, so I don't believe, you know, what world history suggests is that inclusive societies are created by the benevolence of dictators or the benevolence of extractive political institutions. People have to fight to make the system more inclusive. That's the history of democracy in the United States. It's the history of how black people got to vote in the US South. That was the civil rights movement that organized in the 1950s and 1960s and forced the system to change through a lot of nonviolent opposition, through collective action. You know, so, so, so think about that example. All right, but of course the Arab Spring shows it's difficult. Think about my Zimbabwe example: one step forward, one step back, you know, or 999,999 steps back. So it's a difficult process. Okay, I was just in Egypt. The Arab Spring started in Tunisia, of course. It spread to Egypt. Egypt had a military dictator who was forced out of power in the Arab Spring. What does the government look like today in Egypt? Looks like this: a new military dictator with sunglasses and the pyramids in the background. It's a kind of Egyptian thing, you know, like the pyramids, the pharaoh. Everyone has to move the capital city, you know, like King Akhenaten moved the... he invented monotheistic religion and moved the capital city. Anyway, so it's an Egyptian thing, but just to say it's difficult to institutionalize these transitions. And what the one kind of generalization we have in the book is to, you know, under what circumstances do you expect these sort of transitions to lead to a more inclusive society? And the one thing we can kind of, we know we can see in these historical examples is what we call a broad coalition, that, that, that successful transitions from extractive to inclusive institutions take place when the people who are opposing the extractive institutions are a kind of very broad, broad cross-section of society. I think if you look at the English case, which we talk about a lot, you see that the broad coalition is many people opposed extractive institutions in agriculture, merchants, civil society, even in the church. You know, people came together, people with many different interests in many ways came together to kind of oppose extractive institutions. So when, when I look at transitions and I try to understand, it seems to depend a lot on who is contesting with who. And I think the important thing here is that to make a successful transition to inclusive institutions, society really needs to come together. Society needs a way of really identifying collectively what the problems in the society are, what are the extractive institutions, what will more inclusive institutions look like. And one of the striking things about the British case is how this transition led to the rule of law, to the real... it really led to the rule of law for the first time. And you know, if you think about it, it's quite kind of an intuitive thing. There was a King James II in power, and people were very upset with James II. And one of the reasons was whenever a judge ruled against him, he would get rid of the judge and put a new judge in, and that was, people were outraged at that. And you can imagine people conspiring against James II, you know, wanting to change the system and make institutions more inclusive. Now, one thing they could say is, well, you know, when we're in power, we'll get the legal decisions we like. Now he's getting the legal decisions he likes, but if we're in power, we can get the legal decisions we like. Won't that be cool? You know, but the thing is, the more people are involved in that, the more and more difficult that becomes. You know, what happens if we're in power? You know, and you, you and I are, we're coming together, we're going to get rid of James II, but you two are in a legal dispute. You know, you, we can't, can't everybody, everybody can't get what they want. Okay, so the rule of law emerges from a situation where people realize, is we can't all get what we want, so why don't we just try to level the playing field so that nobody's advantaged? Okay, so broad-based incentives, the rule of law. Okay, so I talked about that too much. General, okay, and the pharaohs. All right, okay, so, so I, you know, I, I recently, I got to give a, I gave a, the International Monetary Fund invited me to Washington to, to give a talk about, you know, 10 years after the publication of Why Nations Fail, what did you learn? Okay, you know, what did you get wrong? Well, academics never admit to getting anything wrong, you know, so that, that was a waste of time straight away, you know, there was just no chance I was going to admit to getting anything wrong. I could say it was more complicated than we thought. That's about as far as I'm willing to go. Okay, here's a few things, you know, I think we got right, you know, I'm not going to go into all of them. Term limits would not be institutionalized in China, okay? It was, they weren't. All right, what about the BRICS? You know, I like making fun of the BRICS, and I'm going to make fun of the BRICS, you know, with the cover of the Ukrainian translation of Why Nations Fail, which has been terrifically successful, by the way. I went to Kiev, and before the, before the conflict started, and, and, and, you know, I remember the BRICS, the BRICS people told me when Why Nations Fail came out, oh no, the BRICS is the future, the BRICS, Brazil not doing so well, Russia not doing so well, India not doing so well, China kind of hanging on in there, but my prediction is won't be doing so well soon. Okay, so I'm making fun of, who remembers the BRICS? Of course, our theory says, you know, you don't expect these societies to do well, especially not Russia and China, but, you know, India, Brazil, we could talk about, but, but anyway, so this is, you know, this is a, I'm making fun of Jim O'Neill, but I shouldn't do, yeah, okay, and let me not talk about that, and let me just talk about this last point about the United States, and I'll try to shut up soon, which is, you know, I think one thing I said, you know, I think one thing we underestimated that we need to study more and understand better is these, these transitions. These transitions are very complicated, and they set off all sorts of mechanisms and forces that are very difficult to manage. And I think we underestimated how complicated that is. I think we also underestimated the strength of institutions in the United States. I think what we've seen since President Trump came to power is that there's much less commitment to the institutions in the United States than we thought there was. But in some sense, the way I think about, you know, President Trump and trying to fix the election is that was a triumph of institutions. You know, if you read James Madison, who was the sort of the founder, like the intellectual genius of the US Constitution, Madison knew that you had to design constitutions for bad people, for people who are going to subvert, to try to subvert and take over power. That's why institutions are there. He says in Federalist 47, his, one of his famous essays, you know, if men were angels, there'd be no need for a government. If there was a society of men ruled by angels, you wouldn't need a constitution. The problem is a society of men. It's a bit sexist, sorry. It's a society of men ruled by men. Then you have a problem. Then you need a constitution. Okay, and the Constitution is not designed for good people. It's not designed for Barack Obama, well-meaning, well-intentioned people who want to change the world. Who be, you know, no, that's not why you have a constitution. Okay, you have, have a constitution for people like Donald Trump who want to undermine institutions. So we were saved by the institutions, but I think, you know, that sort of, I would interpret that as a theme, you know, which we talk a lot about in the book, which is even in inclusive societies, there's always incentives to try to create more extractive institutions. You know, I always say like Donald Trump's ideal society is like Guatemala in Central America. I don't know if anyone knows much about Guatemala, but in Guatemala there's no income taxation. You know, the government doesn't regulate. You can do whatever you like if you're a business person. There's 11 families that are incredibly rich. My favorite statistic about Guatemala: it has the highest ratio of helicopters to people of any country in the world. There's no public goods or roads. That doesn't matter. You just go on a helicopter to your farm, you know. But it has income per capita of $3,000, not $70,000. Now those 11 families are extremely rich, and President Trump no doubt sees himself as one of those 11 families. But this is not a recipe for prosperity of the society or for most people. Okay, but, but I do think like when you read the book, we're too over-optimistic about the United States, and I think we were not conscious enough about that. And, you know, you have to struggle to keep your inclusive institutions. Okay, so I said that. All right, so let me finish by talking about, you know, Uzbekistan. Okay, so how would I think about Uzbekistan? I'm not an expert in Uzbekistan. I'm not an expert in this region. I've never done serious research in this region. So anything I say, I'm willing to be contradicted, to be told I don't know what I'm talking about. But let me interpret the, you know, it's a, it's a poor country, Uzbekistan. How would I go about thinking about why Uzbekistan was poor? Is it because it's landlocked? Is it because its people have a culture which is inconsistent with prosperity? No, it's not because it's landlocked. It's not because of the culture or the geography. It's because institutions have been extractive. Think about the history of Uzbekistan. It suffered like Zimbabwe suffered through a long history of colonialism. Colonialism, British colonialism, Spanish colonialism, French colonialism, Russian colonialism set up extractive institutions all over the world. Okay, they took a different form as extractive institutions do, but that's the primary reason why today Uzbekistan is poor. Okay, it had extractive political institutions, it had extractive economic institutions, just like colonies created by Britain and everywhere else. Okay, I would say, you know, in the period since 1990, what I know about the history is, is it's been struggling to exit from that. It's been struggling to build a more inclusive society, to find a model of prosperity. Okay, and there's been some, there's been some successes. Okay, and here's, let me use an example. I don't know how controversial this example would be, but it's in the book. You've got copies of the book, so, you know, you can run, but you can't hide. So here it is. Okay, so when we talk about extractive institutions in Uzbekistan in the book, we point to the coerced labor to pick cotton. Okay, so in fact, you know, if you think about the modern world and you think about the distribution of prosperity in the modern world, actually, it's closely related to the history of forced labor. The US South much poorer than the north of the United States because of the history of coerced labor. You know, parts of the world that suffered from slavery and coerced labor tend to be much poorer than parts of the world that did not suffer. You know, if you just look at like Eurasia, there's this enormous break between Western Europe, West Europe, west of the Elbe and east of the Elbe. Why is there a big break there? Because serfdom lasted much longer east of the Elbe than west of the Elbe. So there's, there's many facts connected to this. So here is a sort of, it's a classic extractive institution. Okay, forced labor picking cotton. This is a great, this is a very recent article from just last year of the current government's attempt to basically, successful attempt as I understand it, to actually exit from that, okay, to abolish this coerced labor in cotton. So this is a movement away from extractive institutions to much more, much more inclusive institutions. But what everything I know is a long, there's a long way to go. Okay, it takes time to change your institutions. Here's a great example, I think, of a transition from extractive to inclusive institutions. But from my perspective, you know, the issue in Uzbekistan is just to try to think through, you know, where are the extractive institutions? How do we create incentives? How do we create broad-based opportunities in this country to unlock all the talent that undoubtedly is here? Okay, and I'm going to just end, you know, with, you know, something I always like, you know, I'm kind of, I'm very obsessed with history, you know, so I tend to like when, when I start thinking about a society, I always start learning about the history and thinking about the history. You know, I was just in Kyrgyzstan and I got obsessed with the Manas epic, you know, the Epic of Manas and how this kind of unites the Kyrgyz people, you know, on the, on the national flag, you know, there's the sun and the sun has like this 40 rays and each ray represents the tribes, one of the 40 tribes that Manas united, you know, in this epic. It's a beautiful thing, but it kind of unites people in an extremely interesting way. You know, of course, Uzbek society is completely different, the history is completely different, but, you know, many things are very rooted in history. Like what's incredible, you know, about Uzbek society is just, ah, is just this incredible depth of urbanization, of civilization, that's a kind of outmoded word, you know, of innovation, innovation in ideas, innovation in technology, trade. Okay, and this was just, they, that my guests, my hosts were showing me at the library this morning, where this famous ancient, very old copy of the Quran is. We were walking around and we saw in the, in the, you know, here's, this is not so old as a copy of the Quran, but it's, you know, it's what it's written, it's a, it's, it's a kind of study of the Hadith, you know, of Muhammad by, you know, one of the great Islamic intellectuals, Al-Bukhari. It's a thousand years old, you know, a thousand years old, thousand years ago, you know, this part of the world was far more economically developed than Britain was, you know, or Western Europe, you know, this was a world, this was a part of the world with immense innovation in technology, in philosophy, in science, in ideas, you know, there's, there's, there's, who can doubt, you know, the potential, okay, who can doubt the potential? And I, I always tend to think of these things as very historically rooted also. So, so I enjoyed that, was, that gave me a big thrill seeing that this morning. Okay, so if I, you know, so I'm going to end with this picture here just to say, you know, I showed you this before, now I added Uzbekistan. Of course, Uzbekistan is a poor country according to me. If it's a poor country, it must have extractive institutions. Okay, so, so, but here's the thing, you know, as I said, every inclusive society historically had extractive institutions. People just had to build different institutions there. Nothing inevitable about the poverty of Uzbekistan. In fact, you know, the, one of the implications of this theory is that any country in any part of the world can have the same living standards as the United States or North America or Western Europe. That's a, that's a, that's a choice. There's nothing inevitable about it. Okay, that's a choice for citizens in the society. You know, so I emphasize a lot, you know, the persistence of poverty and things like that in the book, but in our mind, in Daron and my mind, this is always, this was meant to be an optimistic book because it's meant to say, yeah, of course, there's incentives behind extractive institutions. You know, people benefit from extractive institutions. Extractive institutions created enormous amount of wealth for Carlos Slim. Okay, so, so that's, that's a problem. You know, that's a problem. There are incentives, you know, but, but I think, you know, what we try to show in the book is that there's always a path, you know, there's always a path. It takes politics, it takes strategy, it takes vision, it takes dreaming, but, you know, there's always a path to inclusive institutions. And of course, the big picture is everybody is way, way better off under inclusive institutions. And I, you know, so I think I'd like to end on that optimistic note. I don't know how to do that in Uzbekistan. As I said, I'm kind of ignorant of the, of the context and the society. You know, I kind of sense all the energy and the potential, and, and, but how to unlock that, what that's going to take practically, I don't have the answer to that. You know, I'm sure you have the answer to it. And if you think about it, you know, hopefully the book is meant to inspire you to think about it and figure out how do we do that. Every country is different. Every country has its own culture, its own institutions, has its own kind of reality. You know, there's no one-size-fits-all. I don't have a model of this is how we did it in England and this is how you do it in... No, no, you have to find your own path. That's the only legitimate way to build institutions, build your own institutions, you know, and, and, and that's, that's the important message, I think. And which way, where next? I don't know. That's, that's, I, I don't know the answer to that. That's for you to decide. Okay, thank you.
