What you notice about that is there seems to be some activity in China. That's China up there.
The theory is explained.
The scientific work we did is more nuanced, but this is the kind of categorization that we found very helpful. This, of course, is too simplistic, you know, the world is full of gray areas, but it's very useful for developing the argument, you know, why inclusive, you know, what's important about inclusive. I like to use this example of the light bulb, you know, this is Thomas Edison's patent of the light bulb, staying on the theme of light bulbs. This is Thomas Edison's patent of a light bulb, January 27, 1880. This is an innovation, you know, economists since the work of Robert Solow... What creates a patent is ask yourself the question: who was Edison? Who are these people who take out patents? Who are innovators? And the answer is they come from all over society, all over the social spectrum. Edison was homeschooled by his mother. His father was a roofing contractor. He wasn't an elite. He didn't go to Harvard or the Kyiv School of Economics. He was just a very talented, driven person. Okay? Like Elon Musk, we had to go to South Africa to find him.
People with talent, ideas, projects, creativity, ambition, they're spread out everywhere in society. If you look at the background of people who patent, that's what you see. You look at the social origins of those people, you see they come from everywhere in society. Okay? You don't know where those people are. You don't know who they are. So the point of inclusion is to have innovation, to have technological and economic dynamism, you need to create a set of institutions which is inclusive and allows all that latent talent and ability to come to the top. Okay, that's why inclusion is so important. North Korea, forget it. You can't get to the top in North Korea. Not unless you have the right connections to the military, to the president, to the president's family. So I think this is why inclusion is important for unleashing all that latent talent and ability in society. Okay. Whoops. But why? We already kind of know the answer to, you know, inclusive institutions sounds great. Creates prosperity, unlocks your talent. Sounds like everyone should have inclusive institutions. Why don't they? Well, you already kind of know the answer. Maybe it's more obvious in Ukraine than in other parts of the world where I speak. I'd like to stay on the theme of light bulbs. I was going to show you a picture. This is just driving home at night in Harare. This is a bit like North Korea. Actually, the military was trained in North Korea in Zimbabwe. This is the capital city of Zimbabwe, driving home in a taxi from a restaurant with some friends. You can see we turn the corner. Something's going on. What's happening? Who can spot the difference? Lights. So, I asked the taxi driver. I don't know where to point this. I asked the taxi driver, 'What's going on here?' He said, 'Oh, this is the street to President Mugabe's residence.' Okay. So, the president has light, but nobody else has light in Zimbabwe. Okay. So, you know, this is a regime which is less repressive than North Korea, but it's similar in spirit.
So I think we emphasize that's the politics of institutions that lie behind extractive institutions. Extractive institutions may create poverty, but lying behind that are what we call extractive political institutions, and we emphasize two dimensions of that. One is the capacity of the state to provide public goods, to regulate society, and the second is the distribution of power. So, you know, North Korea, they have a state which has some capacity to repress and control society, like in Russia, but it is based on a very narrow distribution of political power. So political power is concentrated in the hands of a political elite. So the distribution of power in society is critical because that's going to determine in whose interest does the state work.
Okay. All right. So I'm going to just jump straight to this figure here. This figure, we came up with this diagram and presented it to our editor, and he nearly had a heart attack and said, 'There's absolutely no way you're putting that diagram in the book.' So the diagram is not in the book, but I find the diagram useful for just summarizing the argument. Okay? So what I'm saying is North Korea is down in the bottom right. That's a poor country. Why is it poor? Because it has extractive economic institutions. That's on the horizontal axis. Okay. Why does it have extractive economic institutions? Because it has extractive political institutions. Okay. The political institutions are designed to further the project and the interests of the North Korean Communist Party. Rich countries up in the top left have inclusive economic institutions, and that's because they have inclusive political institutions. Okay. So then you have these dynamics coming to the United States. You have these, you know, mixes: extractive economic institutions, inclusive political institutions, you know, maybe South Africa, or inclusive... What do we say about this mix of inclusive, extractive, extractive, inclusive? What we say is you can't really combine inclusion and extraction. You can't combine extractive political institutions with inclusive economic institutions. You can't do the other thing. So let me illustrate that by talking about China.
Okay, so you see China, the arrow here and the question mark. What does that mean? Well, think about Chinese economic growth since 1978. How did China start developing economically? By moving away from extractive economic institutions, by moving away from the kind of socialist economy, by deregulating agriculture, by creating incentives for people, by making people residual claimants on their own efforts. So they made economic institutions much more inclusive, and that's what explains this transition, this rapid transition to economic growth. Okay. So what do we say about that? We say great. Okay, but you can't have an inclusive economy with a dictatorship except in a transitory way. Okay, there's many examples in world history of 30 years, 40 years, 50 years of economic growth with this combination. Okay, Argentina in 1920 might have been one of the 10 richest countries in the world, but it never had the political institutions necessary to become a successful economy. It was in the right place at the right time. It was sitting on all these natural resources. World prices boomed for 50 years. They grew very rapidly, but it never had the political institutions necessary to really create inclusion. And that's the thing about China. So let me talk more about China. I don't know where to... okay. So in Why Nations Fail we call this extractive growth. So what China has had is a situation of extractive growth. It's got growth by moving to inclusive institutions, but it's transitory. Why is it transitory? Okay. Well, here's another example.
Paul Samuelson, the world's fellow Nobel laureate in economics, one of the greatest economists of the last century. Here's his 1961 prediction of the Soviet Union catching up the United States. 1961. Oh man, this is so annoying. Okay, here's 1967. It's still catching up in the year 2000. Okay, the Soviet Union is catching up in the year 2000. There's two very bad predictions here. One is about the economy and one is about the Soviet Union. But let me not dwell on that. 1970, okay, delayed catch-up, delayed from 2000 to 2010. So Paul Samuelson kept on updating his textbook, delaying when the Soviet Union was going to catch up until the Soviet Union disappeared. Then for about 20 years, this picture disappeared from his textbook, and then it reappeared with China on the axis rather than the Soviet Union. It saves on printing costs, I suppose. So I think you know when you tell this to a student in the United States, they sort of laugh at you, you know, but some of you are as old as I am, so you remember, you know, when the Soviet Union was a kind of economic miracle. Now, of course, there's many, many things that are different between China and the Soviet Union. But I think this example is interesting because it makes you think: how wrong can you get these things? How wrong can we be? 20, 30, even 40 years of economic growth. The Soviet economy grew very rapidly from the late 1920s into the 1970s, can fool everybody. Can fool one of the world's greatest economists, can fool the Soviet leadership, can fool the CIA.
Okay. So let me come back to why transitory. I have a very simple way of thinking about that. Here's President Xi. You know, this is an article from the BBC. 'G forever.' Okay. Power tends to corrupt. Absolute power corrupts absolutely. That's what Lord Acton said. I think that's sort of the right way to think about this. President Xi is creating a personalized regime. You have to learn his great words, his thought. At high school in China, he abolished the term limits that Deng Xiaoping tried to create. It's a personal dictatorship. How does that end badly? Okay. When does it end? How does it end? I don't know. But I think what we know from history is it ends badly. And badly means in many senses of the word, including economically.
Okay. All right. Now, you might say, okay, it's China. You talked about the Soviet Union. That's misleading. There's lots of differences with China. For example, as everyone knows, Chinese people are obsessed with merit. You know, meritorious. Confucius in the Analects said, 'Promote those who are worthy and talented.' Okay, that's two and a half thousand years ago. So, Chinese in China, talent just gets ahead. You know, it's inclusive in some sociological, cultural way that you don't need all these political institutions. H, I'm not quite sure about that. This is Jack Ma, you know, one of the great modern Chinese innovators. What happened to him when he criticized the government four years ago? He disappeared. He just appeared actually last month for the first time in four months. President Xi invited him to a meeting and he sort of groveled in front of him. Jack Ma groveled in front of President Xi. So my point is you can't have an innovative, inclusive economy in a totalitarian political system. Okay. So sure you can innovate in narrow domains. The Soviet Union innovated brilliantly in very narrow domains. Weapons, space, a few things they put a lot of effort into, like electric cars. Okay. Chinese are doing very well in electric cars. You can see there's Tesla up there, but the rest of the top sellers, you know, are all from China. So, China are doing very well in a few things where they put a lot of effort, but I think that's what our theory predicts.
Okay. So let me... I'm worried about... I'm running out of time. Let me talk about... Okay. So that's just what we say. We can discuss China. I'm happy to talk about China. You know, that's our view. That's what the theory says about China. What about what's going on in the United States? Well, one thing we say very clearly in Why Nations Fail is there's always incentives to create extractive institutions everywhere. It's happened in the past. Any inclusive society, there's attempts to create extractive institutions. The leading example in the book is Venice. You know, Venice might have been the richest place in the world in the late Middle Ages, but the entire economy was driven into extinction by an oligarchization of the political system which then shut down innovation and it even banned the economic institutions which Venice had used to build its wealth. Okay. So, what's happening in the United States at the moment? An attempt to create extractive institutions. It's obvious. It's an attempt to create extractive political institutions and it's an attempt to create extractive economic institutions. I'm just putting some of the examples up there at the moment. You know, President Trump denied he lost the election. He tried to fix the election when it was clear he lost it. He's currently, you know, doing all sorts of illegal things. He's trying to undermine the checks and balances in the Constitution. I think it's just completely obvious in many ways. He's trying to patrimonialize the state. He's getting rid of anyone in the state who he thinks opposes him politically and appointing his own loyal people. It's a bit like the way Putin operates, I imagine. So, this is obvious. You don't need to be a Nobel laureate or have a PhD to know this is going on. Okay? So, it's obvious. All right?
So I think what's wrong? Why is it happening? What's wrong with the Why Nations Fail view, I think, about why this is happening, is I think there's a huge ideological component to this. Okay, so in Why Nations Fail we emphasize a lot too much material incentives. Okay, in North Korea, you know, it's like the highest importer of French brandy per capita in the world. The North Korean elites get drunk on cognac, fine, okay. But they may have other motivations too. Okay. And I think here there's clearly a large aspect of ideology involved in this. And I think there's two parts of that. One is far more scary than the other. One is, you know, if you thought about Elon Musk and President Trump, they're clearly libertarians. You know, they hate the government. They think that the private sector can do everything. That they want to just basically destroy the state, close the fiscal system down, stop taxation, stop the government regulating, and the private sector will do everything. Okay, that's a Ronald Reagan sort of thought, that, you know, that's a long theme in, you know, American political philosophy and society. We can live with that probably. Is it going to work? Absolutely not. But we can live with that. Okay.
I think the other aspect of this which I find more profound is what I would call this anti-liberalism. So I don't think this is just about libertarianism. There's also this component of anti-liberalism, you know, and what I mean by that, I mean an attack on the principles of kind of liberal democracy, not just liberal democracy but liberal society, liberal economics of a sort that's sort of unimaginable for the last century or century and a half, I think. Okay. And you know, where did that come from and how did that capture the US state? I think we're all trying to understand that. I think, you know, the obvious reason where it came from is that there's an enormous disillusionment with democracy in the United States at the moment. You know, this is some data from the Pew Trust about, you know, the percentage of people surveyed by the Pew Trust who say that elected officials don't care what people like me think. Okay, so the total 85% of people surveyed by the Pew Trust, so this is a representative survey, say that the government doesn't care what they think. Okay, that's a problem in a democracy. Okay, 85% of people say the government, as elected officials, do not care what people like me think. Okay. So I think part of the problem in the United States is that there's just a real loss of confidence in democracy as an institution, as a way of organizing political authority. Okay.
And you know, one of the reasons for that is that shared prosperity has collapsed in the United States. So this is data from David Autor, the economist at MIT. It needs updating, but the picture is the same. Let me just look at the left panel is men, the right panel is women. The red line at the bottom is average wages of high school dropouts. The orange line is people who just completed high school. So, you know, and the top line is people with a post-college education. So this is just breaking down people's wages by their educational level. And you can see, forgetting high school dropouts, if you just look at high school, people who finish high school, their real living standards are substantially lower than they were in the early 1970s. Okay? So over this period, there's been an enormous increase in economic development in the United States, but people with low levels of education are worse off now than they were 50 years ago. So where's the American dream? Okay. So democracy just hasn't been delivering for the majority of people in the United States. That's the majority of people. There's 30% of people in the United States with a college degree. So the average person has not benefited at all from this period. This is underpinning this enormous increase in inequality. Okay. So this is surely part of the story of this disillusionment with democracy and political institutions.
Okay. So I think, you know, this is something Professor Acemoglu and I are working a lot on at the moment, is to try to think about this aspect of how do we bring kind of ideas into this framework and how do we think about the kind of normative, you could say, underpinnings of institutions or the normative support for institutions. You know, I think part of that has to do with institutions have to work. Institutions have to deliver things for people. I just showed you that democracy in the United States has not been delivering improved living standards for most Americans in the last 40 or 50 years. Well, maybe democracy delivers other things. But on that front, it's completely failed. Okay. And I think, you know, many arguments in the United States at the moment are kind of surfacing as to how we should think about that. How should we think about this lack of confidence in democracy? How should we think about this collapse of shared prosperity? How should we think about what sort of institutions really do we need? You know, and I think in that process of questioning, many kind of counterarguments are coming to the surface. You know, so you may be familiar with Francis Fukuyama's famous end of history, that, you know, liberal democracy is the only game in town. What you see now in the United States is there's lots of arguments, it's not just the United States, it's Hungary, it's everywhere, it's Sweden, it's France, it's lots of arguments are surfacing that... So no, it's not true. Actually, it's not the only game in town. And here's the reason: it's too individualistic. Liberalism is about individuals, individual opportunity, individual rights. Peoples are not individuals. Peoples are part of collectivities. And individualism denies the fact that people are part of collectivities. Liberal notions of egalitarianism. What egalitarianism? There's no egalitarianism. There might be a rhetoric of equality of opportunity or meritocracy, but the reality is different. Okay. So Patrick Deneen, who's a philosopher, has a book, Why Liberalism Failed, is all about you put liberal economics together with this liberal egalitarianism, it's incoherent. Markets don't create egalitarianism. Markets create inequality. So there's arguments sort of surfacing as to why liberalism may be not right and how we need to rethink liberalism. And what we've been doing over the last few years is reading a lot of these kind of philosophical arguments, and we think it helps sort of understand what's going on at the moment in the United States. You know, and that's, you know, what does this Trump order look like? You know, what does it look like? What is he aspiring to? And I don't know the answer to that. I don't pretend to know the answer. I'd be happy to discuss it. But here's some ideas. Here's some ideas, you know.
And for me, when I see it, it's not just, it's not about individuals. It's a counter-individualistic kind of ideology. It's much about groups. And I don't just mean race, you know, it's about white people. Obviously, there's a big... it's about Americans. It's about nationalism. It's about xenophobia against foreign people, you know. It's also about other things. It's about men. It's about masculinity, you know. It's about other types of groups, you know. And it's a position that sees groups as antagonistic. You know, if you read many of the sort of philosophers who are kind of on the right in the United States, they emphasize a lot this idea of groups are antagonistic. Okay. What about this Canada, Greenland, Gulf of America? Well, you know, groups are antagonistic. You know, I think it's a view of the world which is much more hierarchical politically than liberal democracy, you know, and I think all of this is sort of coming together at the moment. And I think, you know, here's the big kind of takeaway for an economist: this is all going to be a disaster for economic performance in the United States. Okay.
Liberalism. Where is liberalism in the United States? Universities. Okay. Where are the ideologues of... So you go after the university. Why is Trump going after the universities? Because that's where the liberal intellectuals are. But hey, you know, the universities play a pivotal role in the United States culture and in its economic dynamism. Don't care. We want to go after the liberals. Anti-immigrant, pro-nativist US. What does that mean for the economy? It means that the United States risks losing, you know, what took me and Timothy to the United States. I grew up in Britain. The United States is this sort of magnet for talent. You put that into reverse. You throw away one of the major assets, economic assets that the United States has. Think about this patrimonialization of the state, you know, the withdrawal from the US economy. And what really makes me anxious also is this model of, you know, loyalty is important above anything else. The destruction of a lot of the capacity of the state, you don't have the capacity to respond to shocks anymore. So when a crisis comes, you don't know how to deal with it. You don't have the people to deal with it. You don't have the capacity to deal with it. You don't have the experience to deal with it. So I would say this model of the US, this post-liberal, what I'm calling the post-liberal order that I see sort of emerging, I don't know if it will really come to fruition. Maybe a miracle will happen. But I think if you thought about the economic consequences of this, we're really moving into a new period where the United States is going to lose its economic leadership. It's happened before. It's happened with Venice. It's happened with my own country, Britain. You know, Britain didn't go into ludicrous decline, but it lost its economic dynamism and it lost its economic leadership. And I think this is, you know, this is some of the bits that I've been talking about. Okay. I was going to start talking about Ukraine now. Am I... Okay. All right. Okay. Sorry. This is driving me potty, this thing. And I still don't have the knack. Huh.
Okay. All right. Where does this leave Ukraine? Okay. First, the bad news. You knew this already. You've been watching the news. I think this model of the post-liberal America, it leaves you out in the cold. I'll say, and I think one thing which I...
I think what is very important to understand is that, you know, Trump is not the problem. He is a problem, but Trump is a symptom of the problem. You know, the problems are much deeper, I think. And it's not just about Donald Trump. And there's all sorts of people buying into the project as we speak, okay? Including all of the oligarchs, the business oligarchs, and everybody else. Okay? So, so, so I think, you know, he's able to put this coalition together, but I think the coalition will outlast him. That means don't do what the Democratic Party in the United States are doing, which is just waiting and hoping Trump is going to go away. They're still doing it. It's pathetic. Don't do that. Don't do it. It's not going to happen. Okay, he will go away, but there will be somebody else coming after him. Okay, and I don't see at the moment any counter project which is powerful enough to stop that. And I don't see the institutional strength, astonishing though that is, which is likely to stop it. Just this week, you know, they shut down the United States Institute for Peace, completely illegal. And how was that enforced? The police enforced it. So, you know, I used to say, well, you can't turn a country into North Korea or Venezuela or Zimbabwe without the military being on your side. But I think the military can sit this out and the police will implement it for him. So, okay, but there's good news. That's the bad news. The bad news is you're out in the cold. You've been there before and it's not likely to get warmer. The good news is the Europeans are all out there in the cold. The French are in the cold. The British are in the cold. The Germans, the Swedes, the Norwegians, the Italians, they're all in the cold. Okay? And they're your friends for now at the moment. I think a lot of solidarity, but there's plenty of anti-liberal models in Western Europe. Also, I would mention them: Hungary, France, Sweden, not too much traction in Sweden compared to Hungary or France. So, so what does that mean? That means there's enormous urgency in getting closer to Western Europe in terms of building institutions, in terms of converging to European institutional norms. Enormous urgency, okay? Because you have a moment where it can still happen, but there's still a lot of problems. I downloaded this from the European Bank of Reconstruction and Development. It's a little old. It's the most recent things I could find. And it's a summary index of their governance indicators. So, you know, the European Bank for Reconstruction and Development is sort of interesting. This was set up to help Eastern Europe converge to the European Union after the collapse of the Soviet Union. I think it must be unfair. It must be unfair to Ukraine to put you down with Belarus. But the bottom line is there's a lot of problems with institutions in Ukraine. Okay, there's a window to do something, but there's work to do. Okay, now you might think I'm not going to talk about that. Let me just jump that. You might think, "But we're fighting a war. You know, we have to, there's a war going on. There's a peace agreement. We have to reconstruct. We have to rebuild. There's the Russians. Are the Russians ever going away? We can't get rid of the Russians. How can you develop this project with the Russian shadow hanging over you?" Okay. But you can, you know, and in fact, there's many examples of that. Think about South Korea. Back to South Korea. I talked about the South Korean model. Here's an aspect of the South Korean model that I didn't talk about. Starbucks with a bomb shelter. Okay? When you build a house in Seoul, if you're wealthy enough, you build a bomb shelter in the basement. There's never been a peace agreement between North Korea and South Korea. South Korea has lived and they've lived for 60 years while this enormous economic transformation has gone on. They've lived with the threat of North Korean invasion. Think about Taiwan. Taiwan lives with an even worse threat, which is the threat of Chinese invasion. Did that stop them transforming their society or building their institutions or creating like one of the most amazing economic miracles in world history? No, it didn't stop them. Okay? So, I don't, I'm not belittling the problems you face here. But I think these lessons are salutary. This says yes, you can do it. You can do it in the shadow. And the shadow may be an impetus to change. It may be an incentive to do things and get things moving. But whatever the case, you need to get things moving. Thank you.
Yeah, I mean, I don't think China has a sustainable model of economic growth, as I said, that's still my view. You know, I think there's still uncertainty about what's going on in the United States. I just tried to paint a picture which I find useful for kind of helping me think about many of the things that are going on. You know, it's not inevitable that that model will kind of implement itself, you know, but we're certainly going in that direction. I think other parts of the world, you know, I would say India, no, you know, I mean, Indian society is so kind of fundamentally non-inclusive, you know, the way that society is divided into these castes, you know, that system is even probably more entrenched than it was historically because what you see in India now is this kind of reaffirmation of, you know, the traditional culture and the traditional religion, and the caste system is like absolutely at the heart of that religion and notions of rebirth and, you know, virtue. And so I don't see India as having that ability to thrive. I mean, what I find interesting is, you know, what parts of the world are doing extremely well. The United Arab Emirates, you know, the United Arab Emirates is an extraordinary place, you know, which Saudi Arabia is now trying to model itself on the United Arab Emirates. It's produced enormous kind of ambition and dynamism. You could say, well, that's all based on oil wealth and whatever. And you could say it's a small place. Yeah, it's a small place, you know, but Britain was a small, insignificant little place that ended up, you know, with an empire covering most of the world, you know. So, so, so, so small, insignificant little places can have a big impact on world history, you know, and so I think it could be surprising. I think if you look at the history of economic growth, you see it's a sort of history of surprises in some sense, you know, it's very difficult to kind of predict where that's going to come from. I don't think there's anything inevitable about, you know, any of what I'm talking about, you know. But I do think, yeah, I don't know where, you know, if I was going to think about where could I see something really interesting happen, I always say, you know, if there's one country in the world that I could see growing at 10% a year for the next 50 years, it would be Nigeria in West Africa. That's a very big country, probably a population of 250 million people, you know, it's a crazy place, Nigeria. The institutions don't work well, but it's full of energy and talent. So, how you get that moving in the right direction, I don't know. The Nigerians don't know. But if it happened, the place would explode economically and it's big enough to make a difference. I think the European Union is, you know, if you go back 20 years, GDP per capita in the European Union was very close to the United States, but it's stagnated. You think about all this digital technology, it's like nothing in Europe. All of this stuff, this Google, you know, Amazon, whatever it is, like nothing in Europe. Nothing. Nothing. Nothing. So, so innovation ran out of steam in the European Union. And I don't know why that is or what the explanation for that is. Like in Britain, you know, income per capita in Britain has hardly changed for 15 years. It's absolutely incredible the relative decline of Britain. So, what is holding that back? And I don't really have a, you know, I don't study that part of the world. I should. So, I'm not sure I have a good, I'm not sure anyone has a good diagnosis of that. You know, of course, Britain, you know, Europe, Western Europe is a sort of fabulous place to live, public goods, the standard of living, whatever. But it's lost a lot of its economic dynamism. What will get that to come back? I don't know if that's about the European Union, too much regulation. That's a sort of cliché. I don't know if that's right, you know.
