1 00:00:00,040 --> 00:00:02,460 The following content is provided under a Creative 2 00:00:02,460 --> 00:00:03,970 Commons license. 3 00:00:03,970 --> 00:00:06,910 Your support will help MIT OpenCourseWare continue to 4 00:00:06,910 --> 00:00:08,700 offer high quality, educational 5 00:00:08,700 --> 00:00:10,660 resources for free. 6 00:00:10,660 --> 00:00:13,460 To make a donation, or view additional materials from 7 00:00:13,460 --> 00:00:17,390 hundreds of MIT courses, visit MIT OpenCourseWare at 8 00:00:17,390 --> 00:00:18,640 ocw.mit.edu. 9 00:00:25,780 --> 00:00:31,640 PROFESSOR: So as you might have noticed, much of for this 10 00:00:31,640 --> 00:00:36,090 class, and much of our work, in a sense, is about designing 11 00:00:36,090 --> 00:00:40,750 good policies, given the particular challenge and 12 00:00:40,750 --> 00:00:42,080 environment-- 13 00:00:42,080 --> 00:00:44,150 the policies functioning in it. 14 00:00:44,150 --> 00:00:47,890 So that's a lot of what we do. 15 00:00:50,750 --> 00:00:57,890 If you look at a lot of how policies are made in the 16 00:00:57,890 --> 00:01:02,260 world, it has less to do with the problem then to do with 17 00:01:02,260 --> 00:01:03,250 other priorities. 18 00:01:03,250 --> 00:01:06,810 So the example we give in the book is 19 00:01:06,810 --> 00:01:09,420 emphasized here, is Egypt. 20 00:01:09,420 --> 00:01:21,520 Egypt became a major recipient of US aid in 1979, when Egypt 21 00:01:21,520 --> 00:01:26,380 essentially broke ranks with the Arab countries, and signed 22 00:01:26,380 --> 00:01:29,120 the Camp David accord with Israel. 23 00:01:29,120 --> 00:01:33,780 And the Camp David accord was not quite a declaration of 24 00:01:33,780 --> 00:01:38,630 friendship, but it was enough of a change in the 25 00:01:38,630 --> 00:01:52,770 relationship that Egypt was then on seen as a major ally 26 00:01:52,770 --> 00:01:56,190 for US/Israeli interest in the Middle East. 27 00:01:56,190 --> 00:02:00,910 So it was a very substantial political change. 28 00:02:00,910 --> 00:02:07,650 As a reward, in a sense, for agreeing to that, Egypt was 29 00:02:07,650 --> 00:02:10,430 offered a lot of aid every year. 30 00:02:10,430 --> 00:02:16,330 So Egypt the biggest recipient, other than Israel, 31 00:02:16,330 --> 00:02:21,830 of US aid over this period. 32 00:02:21,830 --> 00:02:27,290 And that was not based on the idea that either that Egypt 33 00:02:27,290 --> 00:02:30,140 was a country that was particularly poor-- 34 00:02:30,140 --> 00:02:33,450 Egypt is one of the richest countries in Africa-- 35 00:02:33,450 --> 00:02:36,360 or on the idea that Egypt was going to do a lot of 36 00:02:36,360 --> 00:02:38,180 good with the money. 37 00:02:38,180 --> 00:02:42,535 There's no such presumption, no such idea was ever mutated. 38 00:02:42,535 --> 00:02:46,840 It was very clear that the money in Egypt was supposed to 39 00:02:46,840 --> 00:02:50,800 be a payoff for being friendly-- 40 00:02:50,800 --> 00:02:56,770 a payoff not necessarily to the President, but a payoff to 41 00:02:56,770 --> 00:02:59,520 maybe, to some extent, to the military 42 00:02:59,520 --> 00:03:00,770 establishment in Egypt. 43 00:03:00,770 --> 00:03:02,740 So a payoff nonetheless. 44 00:03:02,740 --> 00:03:05,520 So it was very much seen as a payoff. 45 00:03:05,520 --> 00:03:11,530 So as a result, when basically, if 46 00:03:11,530 --> 00:03:15,140 you take the amount-- 47 00:03:15,140 --> 00:03:19,610 enough aid was given to Egypt every year to pay $20 per 48 00:03:19,610 --> 00:03:22,025 African child under five. 49 00:03:22,025 --> 00:03:24,380 So just to get a magnitude of that-- 50 00:03:24,380 --> 00:03:27,130 Egypt is one of the richest countries in Africa. 51 00:03:27,130 --> 00:03:32,740 The aid given to Egypt was so large that if it was given to 52 00:03:32,740 --> 00:03:35,110 the rest of Africa, it would be $5 for 53 00:03:35,110 --> 00:03:37,546 every child under five. 54 00:03:37,546 --> 00:03:40,160 So that's a significant amount of money. 55 00:03:40,160 --> 00:03:43,580 It was not given based on the idea that Egypt was going to 56 00:03:43,580 --> 00:03:45,610 make very good use of this money. 57 00:03:45,610 --> 00:03:48,735 And it was not really development aid. 58 00:03:48,735 --> 00:03:54,730 It was just aid as a price for being our friends. 59 00:03:54,730 --> 00:04:00,340 And that's an important example, because it 60 00:04:00,340 --> 00:04:08,690 underscores the point that even though we may work very 61 00:04:08,690 --> 00:04:11,790 hard, and come up with policies that make sense, 62 00:04:11,790 --> 00:04:14,650 often money is spent for reasons which have nothing to 63 00:04:14,650 --> 00:04:16,670 do with sense-- 64 00:04:16,670 --> 00:04:20,124 or may have sense, but sense in some other calculus. 65 00:04:35,330 --> 00:04:38,660 And that's related to a separate point, which is-- so 66 00:04:38,660 --> 00:04:43,880 one point that comes up in that process is that, what's 67 00:04:43,880 --> 00:04:48,510 the point of knowing anything if money will not be given 68 00:04:48,510 --> 00:04:50,470 where the information is? 69 00:04:50,470 --> 00:04:53,520 So the information says that you should do this policy, but 70 00:04:53,520 --> 00:04:56,980 in fact, Egypt gets all the money because it happens to be 71 00:04:56,980 --> 00:05:00,830 the country that's willing to be nice to Israel. 72 00:05:00,830 --> 00:05:03,950 So that's one question. 73 00:05:03,950 --> 00:05:07,620 Related question is some countries just don't have a 74 00:05:07,620 --> 00:05:09,130 functioning state. 75 00:05:09,130 --> 00:05:12,370 Right now, prominent example is Cote d'Ivoire. 76 00:05:12,370 --> 00:05:17,710 Cote d'Ivoire, if you noticed, has an ongoing civil war where 77 00:05:17,710 --> 00:05:24,470 the president is supposed to have lost the election, but 78 00:05:24,470 --> 00:05:26,040 doesn't seem to want to leave. 79 00:05:26,040 --> 00:05:31,680 And there's a French army in there, which may or may not 80 00:05:31,680 --> 00:05:35,470 succeed in re-establishing order, et cetera. 81 00:05:35,470 --> 00:05:41,830 So at this point, we might discover a very efficient way 82 00:05:41,830 --> 00:05:45,630 to find people will get people to immunize their children, 83 00:05:45,630 --> 00:05:50,450 but that might be beside the point in Cote d'Ivoire. 84 00:05:50,450 --> 00:05:52,930 It's true that in Cote d'Ivoire right now, there is 85 00:05:52,930 --> 00:05:56,850 no state, and therefore, if you think of a policy that's 86 00:05:56,850 --> 00:05:59,540 going to be adopted by the state, who's going to do the 87 00:05:59,540 --> 00:06:02,940 state that adopts that? 88 00:06:02,940 --> 00:06:06,710 So a lot of people have made that point 89 00:06:06,710 --> 00:06:08,560 against us, if you like. 90 00:06:08,560 --> 00:06:14,466 And I think the most articulate version of that is 91 00:06:14,466 --> 00:06:19,110 this paragraph by Bill Easterly, who says, 92 00:06:19,110 --> 00:06:21,990 "Randomized controlled trials are infeasible for many of the 93 00:06:21,990 --> 00:06:26,550 big questions in development, like the economic-wide effects 94 00:06:26,550 --> 00:06:31,270 of good institutions or good macroeconomic policies. 95 00:06:31,270 --> 00:06:35,370 Embracing randomized control trials has led development 96 00:06:35,370 --> 00:06:42,430 researchers to lower their ambitions." So basically, the 97 00:06:42,430 --> 00:06:45,290 big issues are not being touched here. 98 00:06:45,290 --> 00:06:48,080 What we are doing is we're solving-- 99 00:06:48,080 --> 00:06:53,770 it's a small problem, and the implied argument is that if 100 00:06:53,770 --> 00:06:57,540 you don't solve the big problems, there's no reason to 101 00:06:57,540 --> 00:07:00,060 salve the small ones, that we should start by solving the 102 00:07:00,060 --> 00:07:03,680 big problems of state formation, of good 103 00:07:03,680 --> 00:07:06,230 macroeconomic policies, getting an effective 104 00:07:06,230 --> 00:07:09,732 functioning state, and then solve the other problems. 105 00:07:15,520 --> 00:07:20,310 So there's a lot of people who are, I think, are very fine 106 00:07:20,310 --> 00:07:23,590 economists who believe in this position, which is what I 107 00:07:23,590 --> 00:07:27,470 would call the institutionalist view. 108 00:07:27,470 --> 00:07:34,380 And really two separate, possibly independent claims. 109 00:07:34,380 --> 00:07:37,370 One is that without good politics, you cannot have good 110 00:07:37,370 --> 00:07:43,580 policies; and the second is that with good politics, good 111 00:07:43,580 --> 00:07:45,540 policies will follow. 112 00:07:45,540 --> 00:07:48,560 So their claims in two directions, right? 113 00:07:51,930 --> 00:07:55,240 One is a positive claim, the other's a negative claim. 114 00:07:55,240 --> 00:07:57,700 That is, it's hopeless to try to do anything if 115 00:07:57,700 --> 00:07:59,870 you have bad politics. 116 00:07:59,870 --> 00:08:05,640 And you here, what people really mean by politics is not 117 00:08:05,640 --> 00:08:10,070 just that you should have a good leader or something, but 118 00:08:10,070 --> 00:08:14,930 you need a whole package of what people think of as 119 00:08:14,930 --> 00:08:17,340 appropriate institutions. 120 00:08:17,340 --> 00:08:21,810 So the basic vision is that the appropriate institutions-- 121 00:08:25,270 --> 00:08:29,020 and the things like property rights. 122 00:08:29,020 --> 00:08:31,990 Basically, is it private property or not? 123 00:08:31,990 --> 00:08:34,400 Is private property well secured? 124 00:08:34,400 --> 00:08:37,000 That's one thing people focus on. 125 00:08:37,000 --> 00:08:44,320 The second thing people focus on is whether the political 126 00:08:44,320 --> 00:08:48,230 system is relatively open. 127 00:08:48,230 --> 00:08:51,740 There's some constraints on the executive, or whether 128 00:08:51,740 --> 00:08:54,990 there is basically absolutism, so the guy who's running in 129 00:08:54,990 --> 00:08:56,420 power can do whatever he wants. 130 00:08:56,420 --> 00:08:59,270 So those are the kinds of things. 131 00:08:59,270 --> 00:09:03,830 So I'm going to keep using institutions with 132 00:09:03,830 --> 00:09:06,240 capitals for awhile. 133 00:09:06,240 --> 00:09:08,380 And you'll see why later. 134 00:09:08,380 --> 00:09:11,150 So I'm going to use it in capital for the time being. 135 00:09:11,150 --> 00:09:15,660 So let me say what I'm trying to get at. 136 00:09:15,660 --> 00:09:17,610 These are not only institutions-- 137 00:09:17,610 --> 00:09:20,810 MIT is an institution, too-- but it's not institution in 138 00:09:20,810 --> 00:09:24,200 the same sense as property rights is an institution. 139 00:09:27,320 --> 00:09:32,110 I'm sure, it might be as [? venerable ?], respected 140 00:09:32,110 --> 00:09:37,460 institution, but it would not count in the same sense as 141 00:09:37,460 --> 00:09:39,600 institutions in this sense. 142 00:09:39,600 --> 00:09:44,890 This is institutions meaning these big things that define 143 00:09:44,890 --> 00:09:48,090 how the economic and political system jointly functions. 144 00:09:48,090 --> 00:09:55,120 There are institutional, few kind of structural features of 145 00:09:55,120 --> 00:09:58,240 the economy, which drive everything else. 146 00:09:58,240 --> 00:10:01,160 And those are things like property rights, political 147 00:10:01,160 --> 00:10:02,630 system, et cetera. 148 00:10:02,630 --> 00:10:06,900 So I think one interesting place to start is to look at 149 00:10:06,900 --> 00:10:12,260 the work of Acemoglu, Johnson, and Robinson. 150 00:10:12,260 --> 00:10:15,920 Acemoglu and Johnson are both MIT professors. 151 00:10:15,920 --> 00:10:18,510 This is a really interesting book. 152 00:10:18,510 --> 00:10:22,650 And what I'm going to try to-- 153 00:10:22,650 --> 00:10:26,570 what they claim in their book is that countries succeed or 154 00:10:26,570 --> 00:10:40,450 fail based on institutions as defined by property rights-- 155 00:10:40,450 --> 00:10:43,570 few things like the nature of property rights, the nature of 156 00:10:43,570 --> 00:10:45,600 the political system, et cetera. 157 00:10:50,000 --> 00:10:53,410 And what they have done, I think, very compellingly is 158 00:10:53,410 --> 00:10:57,240 provide some very interesting evidence along these lines. 159 00:10:57,240 --> 00:11:00,470 So I'm going to start by presenting the evidence. 160 00:11:00,470 --> 00:11:05,770 And then, we'll think about what, given that evidence, how 161 00:11:05,770 --> 00:11:08,600 should we think about the world? 162 00:11:08,600 --> 00:11:11,620 Now the first reason why this evidence is difficult is 163 00:11:11,620 --> 00:11:14,180 because institutions are androgynous. 164 00:11:14,180 --> 00:11:17,040 What do I mean when I say institutions are androngynous? 165 00:11:20,356 --> 00:11:21,606 AUDIENCE: [INAUDIBLE] 166 00:11:27,646 --> 00:11:30,562 wanted a place that's very distractive, or had a very 167 00:11:30,562 --> 00:11:32,020 [INAUDIBLE] infrastructure. 168 00:11:32,020 --> 00:11:34,480 It would tend to stay the [INAUDIBLE] of time. 169 00:11:34,480 --> 00:11:36,646 PROFESSOR: So you're saying that it's the opposite, saying 170 00:11:36,646 --> 00:11:41,845 that institutions are not affected by local conditions. 171 00:11:41,845 --> 00:11:44,090 AUDIENCE: Well, they're initially [INAUDIBLE]. 172 00:11:44,090 --> 00:11:45,040 PROFESSOR: Sorry? 173 00:11:45,040 --> 00:11:47,252 AUDIENCE: They are initially [INAUDIBLE] by something. 174 00:11:47,252 --> 00:11:49,485 But once they're in place. 175 00:11:49,485 --> 00:11:50,916 PROFESSOR: They're formed by something. 176 00:11:50,916 --> 00:11:53,331 That's the key. 177 00:11:53,331 --> 00:11:54,581 AUDIENCE: [INAUDIBLE] 178 00:11:56,712 --> 00:11:58,644 instituations was created by [INAUDIBLE]. 179 00:12:05,619 --> 00:12:06,996 PROFESSOR: Do you want to add to that? 180 00:12:06,996 --> 00:12:07,455 AUDIENCE: Yeah. 181 00:12:07,455 --> 00:12:11,490 I wanted to say that the state of the society [INAUDIBLE] 182 00:12:11,490 --> 00:12:15,789 determines which institutions it [INAUDIBLE]. 183 00:12:15,789 --> 00:12:19,268 But at the same time, the institutions contribute to 184 00:12:19,268 --> 00:12:20,262 [INAUDIBLE] 185 00:12:20,262 --> 00:12:21,760 the state of the society. 186 00:12:21,760 --> 00:12:22,133 PROFESSOR: Right. 187 00:12:22,133 --> 00:12:28,020 So you might say that, for example, to have effective 188 00:12:28,020 --> 00:12:31,830 property rights, we need effective courts. 189 00:12:31,830 --> 00:12:35,150 To have effective courts, we need effective judges. 190 00:12:35,150 --> 00:12:37,210 To have effective judges, we need an 191 00:12:37,210 --> 00:12:39,050 effective education system. 192 00:12:39,050 --> 00:12:44,050 To have an effective education system, we might need good 193 00:12:44,050 --> 00:12:45,280 properties. 194 00:12:45,280 --> 00:12:47,715 So all of these things are related. 195 00:12:52,740 --> 00:12:55,090 The investment in the education system may not be 196 00:12:55,090 --> 00:12:57,780 effective without property rights, so all of these things 197 00:12:57,780 --> 00:12:58,550 are related. 198 00:12:58,550 --> 00:13:03,530 So basically, institutions are androgynous in the sense that 199 00:13:03,530 --> 00:13:08,180 lots of things that matter for other aspects of the economy 200 00:13:08,180 --> 00:13:12,000 also affect institutions. 201 00:13:12,000 --> 00:13:16,230 Institutions are a result of what else is happening in the 202 00:13:16,230 --> 00:13:18,240 economy they also cause. 203 00:13:18,240 --> 00:13:20,510 So that's what makes it difficult. 204 00:13:20,510 --> 00:13:22,750 So how do you study the effects? 205 00:13:22,750 --> 00:13:25,200 Problem with things that are androgynous is that, how do 206 00:13:25,200 --> 00:13:27,010 you study the effects of those? 207 00:13:27,010 --> 00:13:32,210 Because in some sense, the basic rule of us studying the 208 00:13:32,210 --> 00:13:35,920 effect of something is what we want to do is we want to say, 209 00:13:35,920 --> 00:13:37,260 here's two countries. 210 00:13:37,260 --> 00:13:40,010 One country has better institutions than the other 211 00:13:40,010 --> 00:13:44,280 entirely by chance, not because this country has some 212 00:13:44,280 --> 00:13:48,290 other aspect that makes it better, right? 213 00:13:48,290 --> 00:13:52,830 The problem is, we're worried that if I say that Spain has 214 00:13:52,830 --> 00:13:58,380 better institutions than Portugal, then I would need to 215 00:13:58,380 --> 00:14:03,420 argue that this is not a result of the fact that Spain 216 00:14:03,420 --> 00:14:07,220 was, to start with, a stronger economy, and that's why the 217 00:14:07,220 --> 00:14:08,550 institutions came out. 218 00:14:08,550 --> 00:14:10,920 We want to say there are two countries essentially 219 00:14:10,920 --> 00:14:14,860 identical, and by an act of chance, Portugal got worse 220 00:14:14,860 --> 00:14:16,490 institutions than Spain. 221 00:14:16,490 --> 00:14:18,940 And those acts of chance are difficult to find. 222 00:14:18,940 --> 00:14:22,400 That's basically the challenge. 223 00:14:22,400 --> 00:14:24,810 So how does anybody solve this problem? 224 00:14:24,810 --> 00:14:27,955 Well, here's a very nice insight. 225 00:14:30,520 --> 00:14:33,740 The very nice insight is that in former colonies-- 226 00:14:38,540 --> 00:14:42,850 so take the counties that were European colonies. 227 00:14:42,850 --> 00:14:44,900 It's a lot of countries-- 228 00:14:44,900 --> 00:14:48,290 pretty much all of Africa, and most of Asia, and most of 229 00:14:48,290 --> 00:14:49,810 Latin America. 230 00:14:49,810 --> 00:14:55,730 All of Latin America, most of Asia, and most of Africa were 231 00:14:55,730 --> 00:15:01,890 former colonies of either Britain, France, Holland, 232 00:15:01,890 --> 00:15:07,840 Portugal, Spain, or Belgium. 233 00:15:07,840 --> 00:15:15,390 So essentially, these six countries were between them-- 234 00:15:15,390 --> 00:15:17,660 Germany to a very small extent-- 235 00:15:17,660 --> 00:15:20,470 had most of the world carved up. 236 00:15:20,470 --> 00:15:27,800 So most countries were colonies of these countries. 237 00:15:27,800 --> 00:15:31,880 And it turns out, not surprisingly-- 238 00:15:31,880 --> 00:15:35,340 it's what was said a little while ago-- 239 00:15:35,340 --> 00:15:37,030 institutions are persistent. 240 00:15:37,030 --> 00:15:40,290 So if the institutions were good institutions were set up 241 00:15:40,290 --> 00:15:44,480 in this country a long time ago, they still remain 242 00:15:44,480 --> 00:15:46,110 relatively good. 243 00:15:46,110 --> 00:15:48,200 And if bad institutions were set up-- so 244 00:15:48,200 --> 00:15:50,180 good and bad here-- 245 00:15:50,180 --> 00:15:52,980 I'm not telling you what would good and bad are, yet I'll 246 00:15:52,980 --> 00:15:55,110 tell you what they mean in a minute. 247 00:15:55,110 --> 00:15:58,770 But the basic theory is that whatever institution was set 248 00:15:58,770 --> 00:16:01,910 up a long time ago, that's how they stay. 249 00:16:01,910 --> 00:16:03,250 So institutions are persistent. 250 00:16:03,250 --> 00:16:05,700 That's step one. 251 00:16:05,700 --> 00:16:11,920 Step two is to observe that when Europeans settled in a 252 00:16:11,920 --> 00:16:15,220 country, they were very clear about what kinds of 253 00:16:15,220 --> 00:16:17,900 institutions that wanted to set up, and that has a lot to 254 00:16:17,900 --> 00:16:21,540 do with whether they want to live in the country or not. 255 00:16:21,540 --> 00:16:23,930 If they didn't want to live in the country-- 256 00:16:23,930 --> 00:16:27,800 so they just wanted to go there, control the country, 257 00:16:27,800 --> 00:16:33,210 and make some money from it, then this institution they set 258 00:16:33,210 --> 00:16:38,210 up enabled making money quickly in the country. 259 00:16:38,210 --> 00:16:41,000 So they were not very protective of the local 260 00:16:41,000 --> 00:16:42,130 population. 261 00:16:42,130 --> 00:16:44,980 They were what are extractive institutions-- 262 00:16:44,980 --> 00:16:49,580 institutions which basically take the shape of-- 263 00:16:49,580 --> 00:17:00,920 it's easy to kind of bully people, not a lot of legal 264 00:17:00,920 --> 00:17:04,130 protection, so that you could extract whatever you wanted. 265 00:17:04,130 --> 00:17:07,000 You want the mines to be very profitable. 266 00:17:07,000 --> 00:17:09,530 You don't really want legal rights for the workers, 267 00:17:09,530 --> 00:17:11,829 because if you have legal rights for the workers, then 268 00:17:11,829 --> 00:17:15,329 they will complain, and then you wouldn't get very 269 00:17:15,329 --> 00:17:16,410 profitable mines. 270 00:17:16,410 --> 00:17:19,280 So if you want mines to be profitable, the best way to do 271 00:17:19,280 --> 00:17:22,490 it is to not have very many legal rights for workers. 272 00:17:22,490 --> 00:17:26,410 If you want labor to be cheap, you don't want to educate the 273 00:17:26,410 --> 00:17:27,150 labor force. 274 00:17:27,150 --> 00:17:36,620 If you want people to be docile, you don't want to have 275 00:17:36,620 --> 00:17:37,870 a lot of democracy. 276 00:17:40,970 --> 00:17:44,190 On the other hand, if Europeans were going to stay 277 00:17:44,190 --> 00:17:47,340 there, then the vision for the country was very different. 278 00:17:47,340 --> 00:17:50,500 They wanted it to be livable, and kind of like 279 00:17:50,500 --> 00:17:52,070 their lives in Europe. 280 00:17:52,070 --> 00:17:54,350 And then the set of institutions, which were much 281 00:17:54,350 --> 00:18:00,600 less directly extractive. 282 00:18:00,600 --> 00:18:05,090 And that happens to be true, sadly enough. 283 00:18:05,090 --> 00:18:07,570 So what are countries where Europeans did settle? 284 00:18:07,570 --> 00:18:11,000 And what are countries where they didn't settle? 285 00:18:11,000 --> 00:18:13,716 Examples. 286 00:18:13,716 --> 00:18:19,205 AUDIENCE: The United States, Australia, Canada, Argentina, 287 00:18:19,205 --> 00:18:20,455 [INAUDIBLE]. 288 00:18:27,189 --> 00:18:28,700 PROFESSOR: Those are good examples. 289 00:18:28,700 --> 00:18:30,600 What are countries where they didn't settle? 290 00:18:30,600 --> 00:18:33,320 And you can start to see what the pattern is going to be. 291 00:18:33,320 --> 00:18:35,440 What are countries where they didn't settle? 292 00:18:35,440 --> 00:18:36,095 Yeah? 293 00:18:36,095 --> 00:18:37,730 AUDIENCE: [INAUDIBLE]. 294 00:18:37,730 --> 00:18:39,136 PROFESSOR: Sorry? 295 00:18:39,136 --> 00:18:41,626 AUDIENCE: Oh, sorry. 296 00:18:41,626 --> 00:18:43,120 Well, [INAUDIBLE] 297 00:18:49,594 --> 00:18:51,586 PROFESSOR: Where did Africa get their [INAUDIBLE]? 298 00:18:56,580 --> 00:18:58,360 South Africa. 299 00:18:58,360 --> 00:19:00,174 To some extent, Zimbabwe. 300 00:19:00,174 --> 00:19:02,270 To some extent, Kenya. 301 00:19:02,270 --> 00:19:06,390 Those were three countries where they settled, and most 302 00:19:06,390 --> 00:19:07,970 other countries, they didn't settle. 303 00:19:17,380 --> 00:19:18,980 Now one reason-- 304 00:19:18,980 --> 00:19:23,000 so here's what's nice about the paper. 305 00:19:23,000 --> 00:19:26,650 They claim that one reason this happened was because of 306 00:19:26,650 --> 00:19:29,050 settler mortality. 307 00:19:29,050 --> 00:19:38,040 So if you look at these early colonies in the first years of 308 00:19:38,040 --> 00:19:41,030 settlement, there are massive mortality rates. 309 00:19:41,030 --> 00:19:44,620 Really massive, like four out of five people died within 310 00:19:44,620 --> 00:19:45,650 five years. 311 00:19:45,650 --> 00:19:47,500 That kind of mortality rates. 312 00:19:47,500 --> 00:19:50,370 Because Europeans were encountering new diseases, 313 00:19:50,370 --> 00:19:50,930 basically-- 314 00:19:50,930 --> 00:19:54,250 new tropical diseases of all kinds-- so the mortality rates 315 00:19:54,250 --> 00:19:55,930 were massive. 316 00:19:55,930 --> 00:19:59,500 And so therefore, the places where they did agreed to 317 00:19:59,500 --> 00:20:11,960 settle were places where the mortality rates were 318 00:20:11,960 --> 00:20:15,020 relatively low. 319 00:20:15,020 --> 00:20:31,650 And so one good predictor of what happens whether you get 320 00:20:31,650 --> 00:20:35,740 one good predictor, or whether you get a European settlement 321 00:20:35,740 --> 00:20:40,110 or not, is settler mortality in the early days. 322 00:20:40,110 --> 00:20:44,860 And so, what they did, which is very creative, is to find a 323 00:20:44,860 --> 00:20:48,050 data set of settler mortality in these places. 324 00:20:50,640 --> 00:20:54,400 So basically, the idea is, let's look at what happens. 325 00:20:54,400 --> 00:20:58,230 Let's compare places where the settlers died in droves with 326 00:20:58,230 --> 00:20:59,480 places where they didn't. 327 00:21:07,400 --> 00:21:13,540 So here's a set of pictures that underpin their paper. 328 00:21:13,540 --> 00:21:15,230 So let's start with the first one. 329 00:21:20,740 --> 00:21:29,740 This is the picture of GDP per capita on expropriation risk. 330 00:21:29,740 --> 00:21:33,300 Expropriation risk is how secure are property. 331 00:21:33,300 --> 00:21:36,950 So expropriation is the opposite of property rights. 332 00:21:36,950 --> 00:21:41,600 So expropriation risk is just how likely is it that if you 333 00:21:41,600 --> 00:21:43,300 have a private property, it will just be 334 00:21:43,300 --> 00:21:45,120 taken away by the state. 335 00:21:48,930 --> 00:21:54,900 And you see that countries where it varies a lot is 336 00:21:54,900 --> 00:22:03,490 Haiti, in Mali, in Niger, Nigeria. 337 00:22:03,490 --> 00:22:07,710 It's low in the US, Singapore, Australia, New Zealand. 338 00:22:07,710 --> 00:22:19,870 So if you look at the colonies that do well, they tend to be 339 00:22:19,870 --> 00:22:21,976 relatively-- 340 00:22:21,976 --> 00:22:26,140 the richer colonies are also the ones which had lower 341 00:22:26,140 --> 00:22:27,970 expropriation risks. 342 00:22:27,970 --> 00:22:31,530 Now this is androgynous regression, because you could 343 00:22:31,530 --> 00:22:32,800 have almost shown this regressions 344 00:22:32,800 --> 00:22:33,820 the other way around. 345 00:22:33,820 --> 00:22:36,340 You could have asked, is it the case that rich countries 346 00:22:36,340 --> 00:22:39,400 have lower expropriation risks? 347 00:22:39,400 --> 00:22:42,730 This is not a regression that can be causally interpreted by 348 00:22:42,730 --> 00:22:47,660 itself, because it's exactly saying that expropriation risk 349 00:22:47,660 --> 00:22:49,210 is high in these countries. 350 00:22:49,210 --> 00:22:52,850 But is that because rich countries are safer, or is it 351 00:22:52,850 --> 00:22:54,320 because safe countries are richer? 352 00:22:54,320 --> 00:22:55,570 We don't know. 353 00:23:01,930 --> 00:23:06,120 Now before I come to a-- well, actually, let me skip these 354 00:23:06,120 --> 00:23:11,750 two pictures, come back to them later. 355 00:23:11,750 --> 00:23:16,660 Here's a more maybe revealing picture. 356 00:23:16,660 --> 00:23:19,620 So this picture says, what's the relationship between 357 00:23:19,620 --> 00:23:25,080 settler mortality and GDP per capita? 358 00:23:25,080 --> 00:23:28,380 Now this is kind of a dramatic fact, which is that if settler 359 00:23:28,380 --> 00:23:35,100 mortality was high, like in the Gambia, GMB, Nigeria, 360 00:23:35,100 --> 00:23:36,785 Mali, Togo-- 361 00:23:40,150 --> 00:23:41,400 those countries are poor. 362 00:23:44,470 --> 00:23:47,590 Countries which are rich tended to have 363 00:23:47,590 --> 00:23:50,480 had low settler mortality. 364 00:23:54,170 --> 00:23:57,660 So if we think that settler mortality has nothing to do 365 00:23:57,660 --> 00:24:02,370 with GDP today, then that's a surprising fact. 366 00:24:02,370 --> 00:24:05,640 Why was it that settlers, when they came to settle-- when did 367 00:24:05,640 --> 00:24:07,535 they come to settle in the Americas? 368 00:24:10,220 --> 00:24:11,470 When were the Americas settled? 369 00:24:14,160 --> 00:24:16,990 16th and 17th century. 370 00:24:16,990 --> 00:24:20,500 When was Africa settled? 371 00:24:20,500 --> 00:24:21,880 19th century. 372 00:24:21,880 --> 00:24:23,540 So these are all the long time. 373 00:24:23,540 --> 00:24:26,370 When was Asia settled? 374 00:24:26,370 --> 00:24:29,230 When was Asia conquered? 375 00:24:37,120 --> 00:24:38,370 18th and 19th, mostly. 376 00:24:41,910 --> 00:24:44,750 Everything that we are talking about is saying that, what 377 00:24:44,750 --> 00:24:50,770 happened before 1850 or 1880, basically, has a strong 378 00:24:50,770 --> 00:24:54,260 consequence on outcomes today. 379 00:24:54,260 --> 00:24:58,670 So if were in a country where Europeans died in droves in 380 00:24:58,670 --> 00:25:03,490 1870, like in Gambia or-- 381 00:25:03,490 --> 00:25:05,800 I don't know, whenever that was, 1860-- 382 00:25:05,800 --> 00:25:09,290 people died in droves in 1860. 383 00:25:09,290 --> 00:25:11,850 Then Gambia is still a poorer country. 384 00:25:11,850 --> 00:25:15,220 So that's sort of an interesting correlation. 385 00:25:15,220 --> 00:25:19,090 And here's why they think-- 386 00:25:21,620 --> 00:25:25,050 then ask the question, now that I told you that Gambia is 387 00:25:25,050 --> 00:25:30,330 poorer than the US, and even 120 years ago I could have 388 00:25:30,330 --> 00:25:33,712 predicted this, you say why? 389 00:25:33,712 --> 00:25:35,110 Why would that be the case? 390 00:25:35,110 --> 00:25:35,680 How could you? 391 00:25:35,680 --> 00:25:38,720 What's the link between 120 years and now? 392 00:25:38,720 --> 00:25:41,310 And their claim is that this is the persistence of 393 00:25:41,310 --> 00:25:42,030 institutions. 394 00:25:42,030 --> 00:25:45,860 So Gambia is a place where Europeans didn't settle. 395 00:25:45,860 --> 00:25:48,495 And as a result, they set up extractive institutions, and 396 00:25:48,495 --> 00:25:52,130 extractive institutions are very persistent. 397 00:25:52,130 --> 00:25:56,480 So the reason why we see this mapping from settler mortality 398 00:25:56,480 --> 00:26:04,800 to expropriation risk to GDP is the reason why we have the 399 00:26:04,800 --> 00:26:07,070 persistence. 400 00:26:07,070 --> 00:26:11,350 Settler mortality affected institutions when the country 401 00:26:11,350 --> 00:26:16,210 was set up, which affected institutions now. 402 00:26:16,210 --> 00:26:17,820 And it's very dramatic again. 403 00:26:17,820 --> 00:26:23,045 The quality of institutions goes down very fast with 404 00:26:23,045 --> 00:26:24,295 settler mortality. 405 00:26:27,760 --> 00:26:29,045 So that's the basic argument. 406 00:26:29,045 --> 00:26:32,580 The basic argument in the paper is these two facts, 407 00:26:32,580 --> 00:26:37,190 which is that, look, countries with a high settler mortality 408 00:26:37,190 --> 00:26:42,980 are poorer, and they have poorer institutions. 409 00:26:42,980 --> 00:26:46,310 And there's no reason why something that happened so 410 00:26:46,310 --> 00:26:52,570 long ago would affect outcomes today, and therefore it must 411 00:26:52,570 --> 00:26:53,820 be institutions. 412 00:26:56,360 --> 00:26:58,840 Now, they do something else that's actually very 413 00:26:58,840 --> 00:27:00,100 interesting. 414 00:27:00,100 --> 00:27:01,960 In fact, they do more than this. 415 00:27:07,260 --> 00:27:12,040 One thing they do is to argue that in the world of like, 416 00:27:12,040 --> 00:27:20,650 let's say, 1500 or 1600, we don't know GDP in 1600. 417 00:27:20,650 --> 00:27:24,420 So what they are going to try to argue is not just that we 418 00:27:24,420 --> 00:27:29,820 see this pattern, but that this pattern doesn't reflect 419 00:27:29,820 --> 00:27:32,520 fixed geographical characteristics of these 420 00:27:32,520 --> 00:27:37,620 countries, because if you have fixed geographical 421 00:27:37,620 --> 00:27:41,130 characteristics of these countries, then the countries 422 00:27:41,130 --> 00:27:45,950 where you had low settler mortality would have been 423 00:27:45,950 --> 00:27:56,080 countries which were richer already in 1500. 424 00:27:56,080 --> 00:27:58,650 So one thing they wanted to show is that this is not the 425 00:27:58,650 --> 00:28:01,750 effect of some long-term, historical difference. 426 00:28:01,750 --> 00:28:05,890 It is not that the countries that have low settler 427 00:28:05,890 --> 00:28:09,180 mortality were rich countries already. 428 00:28:09,180 --> 00:28:12,350 So the US, which had low settler mortality, was 429 00:28:12,350 --> 00:28:15,030 actually a poor country in 1500. 430 00:28:15,030 --> 00:28:16,120 How do they show that? 431 00:28:16,120 --> 00:28:19,720 Well, they can't actually measure GDP in 1500 very well. 432 00:28:19,720 --> 00:28:22,400 But one thing they can do is they can use urbanization 433 00:28:22,400 --> 00:28:25,450 rates, or population density. 434 00:28:25,450 --> 00:28:28,255 Historically, richer countries had more population. 435 00:28:31,560 --> 00:28:33,310 So let's start with this. 436 00:28:40,660 --> 00:28:42,190 Start with this picture. 437 00:28:42,190 --> 00:28:46,620 This picture says that you look urbanization and GDP per 438 00:28:46,620 --> 00:28:55,380 capita, these are extremely correlated, right? 439 00:28:55,380 --> 00:28:57,370 Extremely, tightly correlated. 440 00:28:57,370 --> 00:29:01,080 So then they're making the point that therefore 441 00:29:01,080 --> 00:29:06,360 urbanization rates in 1500 are a reasonable 442 00:29:06,360 --> 00:29:09,696 proxy for GBP in 1500. 443 00:29:09,696 --> 00:29:12,030 OK, that's the second step in the argument. 444 00:29:19,360 --> 00:29:26,880 So this picture says organization rates in 1500-- 445 00:29:26,880 --> 00:29:31,290 if you assume that's a predictor of GDP in 1500, then 446 00:29:31,290 --> 00:29:32,860 look at that relationship. 447 00:29:32,860 --> 00:29:34,110 What does that say? 448 00:29:49,130 --> 00:29:49,620 Yeah? 449 00:29:49,620 --> 00:29:50,870 AUDIENCE: [INAUDIBLE]. 450 00:29:57,560 --> 00:30:00,330 PROFESSOR: The richer the country was in 1500, the 451 00:30:00,330 --> 00:30:02,330 poorer it is now. 452 00:30:02,330 --> 00:30:02,830 AUDIENCE: Sorry. 453 00:30:02,830 --> 00:30:06,330 I'm not sure I understand the niche. 454 00:30:06,330 --> 00:30:08,830 Wouldn't initial population density play a huge role? 455 00:30:08,830 --> 00:30:13,830 So maybe the populated areas were kind of [INAUDIBLE] 456 00:30:13,830 --> 00:30:17,830 the temperate zones that were colonized later, and then 457 00:30:17,830 --> 00:30:20,330 settlers set up their own settlements. 458 00:30:20,330 --> 00:30:23,330 And any one of those [INAUDIBLE] talked how not 459 00:30:23,330 --> 00:30:25,330 having a population in the first place was one of the 460 00:30:25,330 --> 00:30:26,830 reasons they settled there, as well. 461 00:30:26,830 --> 00:30:30,330 And also, if you're looking at urbanization rates, shouldn't 462 00:30:30,330 --> 00:30:34,406 you care the tropical colonies, before they were 463 00:30:34,406 --> 00:30:38,334 organized to European countries that did the 464 00:30:38,334 --> 00:30:41,034 colonization, and you see higher organization rates in 465 00:30:41,034 --> 00:30:44,717 the temperate zones that have a [? purple ?] 466 00:30:44,717 --> 00:30:46,190 population densities. 467 00:30:46,190 --> 00:30:47,470 PROFESSOR: OK, those are both good points. 468 00:30:47,470 --> 00:30:48,408 Hold them. 469 00:30:48,408 --> 00:30:49,815 We'll come back to them, OK? 470 00:30:49,815 --> 00:30:54,360 You're asking questions on whether this argument is-- 471 00:30:54,360 --> 00:30:56,330 you're trying to pick holes in this argument. 472 00:30:56,330 --> 00:30:57,130 Let's wait on that. 473 00:30:57,130 --> 00:30:59,775 I want to understand the argument before picking holes 474 00:30:59,775 --> 00:31:00,710 in it 475 00:31:00,710 --> 00:31:05,480 So I think both points you made are interesting. 476 00:31:05,480 --> 00:31:06,160 But hold them. 477 00:31:06,160 --> 00:31:09,570 We will repeat them in a minute, OK? 478 00:31:09,570 --> 00:31:11,480 So right now, they're making the case--- 479 00:31:11,480 --> 00:31:15,850 look, it's not that there's a persistence of poverty. 480 00:31:15,850 --> 00:31:19,510 It is not the case that the countries that were poor in 481 00:31:19,510 --> 00:31:21,520 1500 are poor now. 482 00:31:21,520 --> 00:31:27,900 If urbanization is a good measure poverty, of being 483 00:31:27,900 --> 00:31:31,050 wealthy, then those countries were rich countries then, and 484 00:31:31,050 --> 00:31:32,300 are poor countries now. 485 00:31:32,300 --> 00:31:35,300 And the US, for example, was a poor country then, and a rich 486 00:31:35,300 --> 00:31:37,710 country now. 487 00:31:37,710 --> 00:31:42,240 Indeed, famously, there's a claim that the reason why the 488 00:31:42,240 --> 00:31:47,780 British didn't manage to take back the US in 1776. 489 00:31:47,780 --> 00:31:53,320 The US was very weak, relative to Britain in 1776. 490 00:31:53,320 --> 00:31:55,620 How did the US colonies manage? 491 00:31:55,620 --> 00:32:00,570 Well, there was a threat of another attack to, I think, to 492 00:32:00,570 --> 00:32:04,260 Jamaica, which was a much wealthier area-- 493 00:32:04,260 --> 00:32:06,650 sugar-growing, much wealthier area. 494 00:32:06,650 --> 00:32:10,290 So that's why the British government had to decide 495 00:32:10,290 --> 00:32:13,620 whether to protect Jamaica, or to predict the US. 496 00:32:13,620 --> 00:32:15,850 And it decided that Jamaica was more worth than 497 00:32:15,850 --> 00:32:19,330 protecting the US. 498 00:32:19,330 --> 00:32:22,610 May have not been the right judgement historically. 499 00:32:22,610 --> 00:32:26,550 But nonetheless, so they made this call on it, based 500 00:32:26,550 --> 00:32:29,440 apparently on the fact that Jamaica was a wealthier area. 501 00:32:32,980 --> 00:32:34,510 This is another one. 502 00:32:34,510 --> 00:32:37,160 This is a [INAUDIBLE] population density, which is 503 00:32:37,160 --> 00:32:39,810 another classical measure of wealth. 504 00:32:39,810 --> 00:32:44,615 So typically, historically, more populated countries have 505 00:32:44,615 --> 00:32:46,940 been richer countries. 506 00:32:46,940 --> 00:32:57,910 Indeed, historically, people have suggested a very simple 507 00:32:57,910 --> 00:33:01,130 model, which is sometimes called the Malthusian model, 508 00:33:01,130 --> 00:33:03,650 which is that if countries are more productive, they can 509 00:33:03,650 --> 00:33:08,800 sustain a bigger population, because if you're not more 510 00:33:08,800 --> 00:33:11,140 productive, then you have a bigger population, 511 00:33:11,140 --> 00:33:12,780 you starve to death. 512 00:33:12,780 --> 00:33:15,790 So basically, the Malthusian model says that more 513 00:33:15,790 --> 00:33:18,650 productive countries had bigger populations. 514 00:33:18,650 --> 00:33:22,570 And you see that if you believe that, then once again, 515 00:33:22,570 --> 00:33:25,830 richer countries in 1500 are poorer countries now. 516 00:33:31,720 --> 00:33:38,300 Finally, population density in 1500, you can see, is a 517 00:33:38,300 --> 00:33:41,550 negative predictor of expropriation risks now. 518 00:33:41,550 --> 00:33:49,670 So more dense countries in 1500 was protected against 519 00:33:49,670 --> 00:33:52,230 risk expropriation. 520 00:33:52,230 --> 00:33:54,292 So they had less property rights. 521 00:33:56,890 --> 00:34:02,200 And what this is saying is that you look at the economic 522 00:34:02,200 --> 00:34:05,360 outcomes of the higher urbanization countries and the 523 00:34:05,360 --> 00:34:13,860 lower urbanization countries in 1500, you can see that the 524 00:34:13,860 --> 00:34:18,010 higher urbanization countries actually fall below the lower 525 00:34:18,010 --> 00:34:25,100 urbanization countries in the middle of the 19th century. 526 00:34:25,100 --> 00:34:26,350 This is GDP. 527 00:34:29,030 --> 00:34:32,530 So they call this the reversal of fortune. 528 00:34:32,530 --> 00:34:34,480 So two claims being made. 529 00:34:34,480 --> 00:34:38,830 One is that rich countries became poorer, and the reason 530 00:34:38,830 --> 00:34:41,290 why they became for poorer is because of the paternal 531 00:34:41,290 --> 00:34:44,449 settlement, which generated better institutions, which 532 00:34:44,449 --> 00:34:46,694 generated better economic outcomes. 533 00:34:58,910 --> 00:35:02,190 Then they go on to claim that if Zaire had the same 534 00:35:02,190 --> 00:35:05,650 institutions as the US today, it'd be five times richer. 535 00:35:05,650 --> 00:35:11,830 So that's a huge claim, right? 536 00:35:11,830 --> 00:35:12,550 It's huge. 537 00:35:12,550 --> 00:35:15,704 The magnitudes they're talking about are immense. 538 00:35:20,520 --> 00:35:22,670 So now coming back to the question. 539 00:35:22,670 --> 00:35:23,980 You were trying to start asking 540 00:35:23,980 --> 00:35:27,680 questions about this evidence. 541 00:35:27,680 --> 00:35:30,490 What are possible ways in which this evidence might be 542 00:35:30,490 --> 00:35:31,740 misleading? 543 00:35:34,190 --> 00:35:36,938 So let's go back to you. 544 00:35:36,938 --> 00:35:41,750 AUDIENCE: One was that I thought maybe they're 545 00:35:41,750 --> 00:35:47,020 dismissing the geography explanation if you compare 546 00:35:47,020 --> 00:35:51,430 tropical countries before they were colonized to European 547 00:35:51,430 --> 00:35:54,860 countries before they actually colonized the other countries, 548 00:35:54,860 --> 00:35:58,780 because it might be in North America and New Zealand and 549 00:35:58,780 --> 00:36:01,430 Australia, they had better institutions, didn't really 550 00:36:01,430 --> 00:36:05,240 have populations settled there in the first place. 551 00:36:05,240 --> 00:36:07,720 It's probably one of the reasons that European 552 00:36:07,720 --> 00:36:10,210 colonizers set up camp there. 553 00:36:10,210 --> 00:36:12,915 PROFESSOR: So you're saying empty may be different. 554 00:36:15,580 --> 00:36:19,280 The development patterns may be different for a variety of 555 00:36:19,280 --> 00:36:24,970 reasons, which may not have to do with institutions. 556 00:36:24,970 --> 00:36:27,360 It may well be that if you start with an empty place, you 557 00:36:27,360 --> 00:36:32,630 can have a different development pattern, even if 558 00:36:32,630 --> 00:36:34,390 you have the same institutions. 559 00:36:34,390 --> 00:36:35,170 That sort. 560 00:36:35,170 --> 00:36:36,010 One of the things. 561 00:36:36,010 --> 00:36:36,680 Is that you're saying? 562 00:36:36,680 --> 00:36:42,692 AUDIENCE: Kind of, but also that if you're trying to 563 00:36:42,692 --> 00:36:47,272 totally dismiss that the fact that climate may have played a 564 00:36:47,272 --> 00:36:50,930 role, you shouldn't compare places with similar population 565 00:36:50,930 --> 00:36:53,085 densities to start off with. 566 00:36:53,085 --> 00:36:55,460 So you should compare Europe to-- 567 00:36:55,460 --> 00:36:59,033 PROFESSOR: Why would that make sense? 568 00:36:59,033 --> 00:36:59,526 [INAUDIBLE]. 569 00:36:59,526 --> 00:37:07,907 AUDIENCE: Because in comparing Latin America and Saharan 570 00:37:07,907 --> 00:37:12,097 Africa, one of the papers talked about how there already 571 00:37:12,097 --> 00:37:15,302 were rich cultures thriving there, and that it was a 572 00:37:15,302 --> 00:37:16,288 reversal of fortune. 573 00:37:16,288 --> 00:37:21,464 But if you're comparing those places to, say, North America 574 00:37:21,464 --> 00:37:24,176 and New Zealand, the population of North America 575 00:37:24,176 --> 00:37:26,148 and New Zealand were small. 576 00:37:26,148 --> 00:37:27,627 There wasn't a lot going on. 577 00:37:27,627 --> 00:37:29,550 So maybe you should compare it to Europe. 578 00:37:29,550 --> 00:37:32,166 I think Europe would have been a lot more prosperous if you 579 00:37:32,166 --> 00:37:35,630 compare it to the Incas, Aztecs. 580 00:37:35,630 --> 00:37:35,950 PROFESSOR: I see. 581 00:37:35,950 --> 00:37:50,420 You're saying that maybe comparing with the empty place 582 00:37:50,420 --> 00:37:53,595 is misleading, because those places are-- 583 00:37:57,290 --> 00:38:00,510 but still, isn't the point that this is misleading 584 00:38:00,510 --> 00:38:04,640 because empty places, for some reason, would have a different 585 00:38:04,640 --> 00:38:07,960 development path. 586 00:38:07,960 --> 00:38:11,160 After all, the empty places across the [INAUDIBLE] 587 00:38:11,160 --> 00:38:11,940 become better. 588 00:38:11,940 --> 00:38:14,580 So you're saying that even without good institutions, 589 00:38:14,580 --> 00:38:20,890 empty places might have had a different path, because maybe 590 00:38:20,890 --> 00:38:26,820 it is the case that just the population 591 00:38:26,820 --> 00:38:29,320 composition is different. 592 00:38:29,320 --> 00:38:32,220 If there's no one else living there, and I go and settle, 593 00:38:32,220 --> 00:38:36,415 I'm 100% of the population, whereas if there's a lot of 594 00:38:36,415 --> 00:38:41,250 people living there, then if I go settle, I'm a different 595 00:38:41,250 --> 00:38:43,730 fraction of the population. 596 00:38:43,730 --> 00:38:46,230 OK, you were-- yes? 597 00:38:46,230 --> 00:38:50,200 AUDIENCE: Do you think the countries that actually 598 00:38:50,200 --> 00:38:51,550 colonized-- 599 00:38:51,550 --> 00:38:55,641 the ones who actually go and settle-- 600 00:38:55,641 --> 00:38:58,167 do you think [? depending ?] on the country, does that make 601 00:38:58,167 --> 00:39:01,790 a difference on how well the colony does? 602 00:39:01,790 --> 00:39:06,830 For example, all the colonies that ended up doing well were 603 00:39:06,830 --> 00:39:08,240 British colonies. 604 00:39:08,240 --> 00:39:10,950 And of course, you have India, which-- 605 00:39:10,950 --> 00:39:12,060 PROFESSOR: There's a lot of British colonies 606 00:39:12,060 --> 00:39:15,080 that didn't do well. 607 00:39:15,080 --> 00:39:27,810 Nigeria, Ghana, Uganda, Sierra Leone. 608 00:39:27,810 --> 00:39:29,620 Lots of British colonies. 609 00:39:29,620 --> 00:39:29,945 Burma. 610 00:39:29,945 --> 00:39:32,720 AUDIENCE: Right, but most of the other ones, those happened 611 00:39:32,720 --> 00:39:34,370 at different times, right? 612 00:39:34,370 --> 00:39:36,035 Like many of the-- 613 00:39:39,236 --> 00:39:42,080 a lot of the [INAUDIBLE] 614 00:39:42,080 --> 00:39:44,450 happened later on, and the love of 615 00:39:44,450 --> 00:39:45,440 exploration happened in Africa. 616 00:39:45,440 --> 00:39:49,320 Of course, there was already traffic in terms of slavery 617 00:39:49,320 --> 00:39:50,500 and things like that. 618 00:39:50,500 --> 00:39:52,660 I'm thinking into 1600 or so. 619 00:39:52,660 --> 00:39:59,070 But a lot of the colonies that have been in Africa were in a 620 00:39:59,070 --> 00:40:01,110 different time. 621 00:40:01,110 --> 00:40:02,150 [INAUDIBLE] history spectrum. 622 00:40:02,150 --> 00:40:08,240 So I just think that the big market was just different. 623 00:40:08,240 --> 00:40:13,210 The world was very different at the time. 624 00:40:13,210 --> 00:40:16,256 PROFESSOR: Yeah, but I don't see why that's 625 00:40:16,256 --> 00:40:19,480 another good point. 626 00:40:19,480 --> 00:40:21,065 I agree with everything you said-- 627 00:40:21,065 --> 00:40:22,315 whoops. 628 00:40:31,790 --> 00:40:32,590 You want to add to that? 629 00:40:32,590 --> 00:40:35,080 I don't understand exactly why that's a criticism what 630 00:40:35,080 --> 00:40:35,470 they're doing. 631 00:40:35,470 --> 00:40:36,780 I understood if you said-- 632 00:40:36,780 --> 00:40:37,266 AUDIENCE: [INAUDIBLE] 633 00:40:37,266 --> 00:40:39,453 I was just asking a question actually, because that's just 634 00:40:39,453 --> 00:40:42,470 something that comes up when I-- 635 00:40:42,470 --> 00:40:44,370 PROFESSOR: Well, that's absolutely true. 636 00:40:44,370 --> 00:40:45,830 I think everything you said is true. 637 00:40:45,830 --> 00:40:47,080 But I don't see why. 638 00:40:49,690 --> 00:40:53,665 So they were definitely colonized in different times, 639 00:40:53,665 --> 00:40:56,970 but still, two things they do. 640 00:40:56,970 --> 00:41:00,940 One is the compare within Africa. 641 00:41:00,940 --> 00:41:02,220 They can compare within Africa. 642 00:41:02,220 --> 00:41:06,050 It's not quite statistically as solid as it should be. 643 00:41:06,050 --> 00:41:07,600 But you can still do it. 644 00:41:07,600 --> 00:41:14,600 You can compare Zimbabwe, South Africa, Kenya with the 645 00:41:14,600 --> 00:41:17,290 rest of Africa-- the countries that have high settlement and 646 00:41:17,290 --> 00:41:19,810 low settlement, and you see some of the same difference. 647 00:41:19,810 --> 00:41:22,480 Mostly different by South Africa, unfortunately, which 648 00:41:22,480 --> 00:41:23,810 is rather special. 649 00:41:23,810 --> 00:41:29,060 But the second thing you can do is you can control for the 650 00:41:29,060 --> 00:41:31,790 identity of the colonizer, and that doesn't change anything. 651 00:41:31,790 --> 00:41:35,150 So you can compare only British colonies with British 652 00:41:35,150 --> 00:41:41,590 colonies, and that doesn't change anything. 653 00:41:41,590 --> 00:41:44,770 That's much more solid. 654 00:41:44,770 --> 00:41:48,125 So you could compare just French colonies with French 655 00:41:48,125 --> 00:41:49,460 colonies, and British colonies with British 656 00:41:49,460 --> 00:41:51,240 colonies, and average. 657 00:41:51,240 --> 00:41:54,180 AUDIENCE: So even within Africa-- 658 00:41:54,180 --> 00:41:56,020 PROFESSOR: I don't know whether you can do that 659 00:41:56,020 --> 00:41:58,310 [INAUDIBLE] that becomes two small a data set. 660 00:41:58,310 --> 00:42:02,380 So if you compare only Spanish colonies within Africa, there 661 00:42:02,380 --> 00:42:03,810 will be two. 662 00:42:03,810 --> 00:42:07,430 And that's not going to be a lot. 663 00:42:07,430 --> 00:42:08,140 AUDIENCE: I'm not saying within Africa. 664 00:42:08,140 --> 00:42:12,090 Would you say that British colonies are probably better 665 00:42:12,090 --> 00:42:14,820 off then, let's say, Portuguese colonies where you 666 00:42:14,820 --> 00:42:16,210 have Angola and [INAUDIBLE]? 667 00:42:16,210 --> 00:42:17,570 PROFESSOR: It's probably true, actually. 668 00:42:17,570 --> 00:42:20,076 AUDIENCE: Whereas you compare that to South Africa, South 669 00:42:20,076 --> 00:42:21,430 Africa's much better off. 670 00:42:21,430 --> 00:42:22,550 PROFESSOR: It's probably true. 671 00:42:22,550 --> 00:42:24,635 But that's not what they do. 672 00:42:27,280 --> 00:42:28,650 They're worried about-- 673 00:42:28,650 --> 00:42:33,270 that comparison is difficult, because British colonies are 674 00:42:33,270 --> 00:42:34,600 not randomly chosen. 675 00:42:34,600 --> 00:42:36,830 Britain was one of the leaders. 676 00:42:36,830 --> 00:42:39,090 In African colonization, Britain 677 00:42:39,090 --> 00:42:40,200 was one of the leaders. 678 00:42:40,200 --> 00:42:44,080 Britain got all of the most productive countries. 679 00:42:44,080 --> 00:42:47,136 So if you look at-- 680 00:42:47,136 --> 00:42:47,582 sorry? 681 00:42:47,582 --> 00:42:49,020 AUDIENCE: What about France? 682 00:42:49,020 --> 00:42:51,780 PROFESSOR: France was a follower. 683 00:42:51,780 --> 00:42:55,420 And so, France ended up with the less productive countries. 684 00:42:55,420 --> 00:42:58,260 So Britain targeted some countries, and then grabbed 685 00:42:58,260 --> 00:43:00,590 the best ones. 686 00:43:00,590 --> 00:43:04,020 So this is not an accident. 687 00:43:04,020 --> 00:43:05,270 Yeah? 688 00:43:07,690 --> 00:43:11,265 AUDIENCE: So to follow on the earlier point that emptier 689 00:43:11,265 --> 00:43:14,223 places versus more heavily populated places that 690 00:43:14,223 --> 00:43:16,195 [INAUDIBLE] 691 00:43:16,195 --> 00:43:19,892 if a place is more populated, then it already has some kind 692 00:43:19,892 --> 00:43:20,632 of institutions. 693 00:43:20,632 --> 00:43:23,590 And if some institutions already exist, whether they're 694 00:43:23,590 --> 00:43:27,041 equitable or not equitable, I think it would be much easier 695 00:43:27,041 --> 00:43:31,971 to establish institutions would not be equitable, 696 00:43:31,971 --> 00:43:35,160 because the system is already set up. 697 00:43:35,160 --> 00:43:38,140 PROFESSOR: That's a point, but that they won't 698 00:43:38,140 --> 00:43:39,390 disagree with, obviously. 699 00:43:42,080 --> 00:43:46,320 Imagine that they said that places which have no one 700 00:43:46,320 --> 00:43:50,670 there, or very low population density in the beginning, it 701 00:43:50,670 --> 00:43:54,090 was easier to set up fresh institutions, and fresh 702 00:43:54,090 --> 00:43:55,400 institutions persists. 703 00:43:55,400 --> 00:43:57,600 Would you say that's not a version of the 704 00:43:57,600 --> 00:43:59,440 institutionalist argument? 705 00:43:59,440 --> 00:44:01,800 That's just a slight variant of their argument. 706 00:44:01,800 --> 00:44:03,460 I don't think it's that different. 707 00:44:03,460 --> 00:44:05,420 AUDIENCE: Well, I don't think that if it's an empty place, 708 00:44:05,420 --> 00:44:09,830 then the probability that you could settle and then 709 00:44:09,830 --> 00:44:13,260 procreating an institution would be lower. 710 00:44:13,260 --> 00:44:15,780 PROFESSOR: That's absolutely true. 711 00:44:15,780 --> 00:44:18,750 I think they would say that that's still an argument for 712 00:44:18,750 --> 00:44:21,380 expropriating institutions are bad. 713 00:44:21,380 --> 00:44:24,250 You're just making a slightly different argument of why 714 00:44:24,250 --> 00:44:27,811 expropriation institutions are bad. 715 00:44:27,811 --> 00:44:32,020 AUDIENCE: Yeah, just getting back to the point [INAUDIBLE]. 716 00:44:32,020 --> 00:44:37,036 So when you say, yeah, that's correct, the British empire 717 00:44:37,036 --> 00:44:39,900 was sort of the leader of political lines in Africa. 718 00:44:39,900 --> 00:44:43,120 However, that's not the case when you're talking about the 719 00:44:43,120 --> 00:44:45,150 Americas, right? 720 00:44:45,150 --> 00:44:47,910 Right, so even though Spain and Portugal were the leaders 721 00:44:47,910 --> 00:44:51,697 in this case, it's not like they did invite a 722 00:44:51,697 --> 00:44:52,860 colonization. 723 00:44:52,860 --> 00:44:58,370 And when you even referenced the paper, if British empire 724 00:44:58,370 --> 00:45:03,300 chose the regular countries in Africa [INAUDIBLE], wouldn't 725 00:45:03,300 --> 00:45:06,520 that imply that they would have a [INAUDIBLE] more 726 00:45:06,520 --> 00:45:10,705 aspiration-based, and therefore maybe South Africa 727 00:45:10,705 --> 00:45:14,220 would be in a worse position? 728 00:45:14,220 --> 00:45:15,470 Does that make sense? 729 00:45:15,470 --> 00:45:17,640 Or does it show that-- 730 00:45:17,640 --> 00:45:19,220 PROFESSOR: It's not so clear. 731 00:45:19,220 --> 00:45:21,180 They might have chosen-- we're getting off point. 732 00:45:21,180 --> 00:45:26,640 Let's say just to comment, the British might have picked 733 00:45:26,640 --> 00:45:29,180 better places, and better places might be more 734 00:45:29,180 --> 00:45:29,780 productive. 735 00:45:29,780 --> 00:45:33,020 It might also be more attractive to be 736 00:45:33,020 --> 00:45:35,940 expropriating, but those two factors are going in opposite 737 00:45:35,940 --> 00:45:36,460 directions. 738 00:45:36,460 --> 00:45:39,480 So if you started with better places, that 739 00:45:39,480 --> 00:45:40,790 already helps you a lot. 740 00:45:40,790 --> 00:45:44,530 And maybe they knew exploit a bit more, instead of slavery 741 00:45:44,530 --> 00:45:45,860 or something. 742 00:45:45,860 --> 00:45:48,910 But still, it might well be on balance that you do less 743 00:45:48,910 --> 00:45:50,050 damage there. 744 00:45:50,050 --> 00:45:53,660 It's not clear, because you start with a better place, 745 00:45:53,660 --> 00:45:55,040 then you do a little more damage. 746 00:45:55,040 --> 00:45:57,530 I don't know which way it goes. 747 00:45:57,530 --> 00:45:58,780 But you're right. 748 00:46:01,780 --> 00:46:05,480 That's a certainly good point. 749 00:46:05,480 --> 00:46:06,760 Any other concerns? 750 00:46:09,622 --> 00:46:10,872 AUDIENCE: [INAUDIBLE] 751 00:46:12,961 --> 00:46:15,346 if you could just [INAUDIBLE] 752 00:46:15,346 --> 00:46:19,892 geographical argument, because it's [INAUDIBLE]. 753 00:46:19,892 --> 00:46:21,142 [INAUDIBLE]. 754 00:46:24,910 --> 00:46:29,830 PROFESSOR: Well, to be honest, I think if you look the world 755 00:46:29,830 --> 00:46:32,930 in 1800s, the United States doesn't look like a more 756 00:46:32,930 --> 00:46:34,050 valuable economy. 757 00:46:34,050 --> 00:46:38,470 It looks like a less valuable economy, because the idea was 758 00:46:38,470 --> 00:46:41,220 that places that could grow sugar were the 759 00:46:41,220 --> 00:46:42,480 most valuable places. 760 00:46:42,480 --> 00:46:46,860 So when you compare places to the Americas, they typically 761 00:46:46,860 --> 00:46:49,380 compare Jamaica with the US. 762 00:46:49,380 --> 00:46:53,350 And Jamaica was a place which looked more valuable then. 763 00:46:53,350 --> 00:46:58,660 US was actually a good place to settle, because no one was 764 00:46:58,660 --> 00:47:01,860 empty, and no one wanted to come there. 765 00:47:01,860 --> 00:47:06,120 So it was empty, and no, not much competition. 766 00:47:06,120 --> 00:47:08,190 The British were very worried that the 767 00:47:08,190 --> 00:47:11,136 Spanish would take Jamaica. 768 00:47:11,136 --> 00:47:12,040 Yeah, keep going. 769 00:47:12,040 --> 00:47:14,440 AUDIENCE: [INAUDIBLE] 770 00:47:14,440 --> 00:47:15,834 America [INAUDIBLE] 771 00:47:15,834 --> 00:47:17,770 South America [INAUDIBLE]. 772 00:47:17,770 --> 00:47:21,642 And North America [INAUDIBLE]. 773 00:47:21,642 --> 00:47:25,514 I mean, it is or Asia, [INAUDIBLE] 774 00:47:25,514 --> 00:47:27,934 but it's [INAUDIBLE] in Africa [INAUDIBLE] 775 00:47:31,715 --> 00:47:34,685 least favorable, in terms of the land. 776 00:47:34,685 --> 00:47:36,170 [INAUDIBLE] 777 00:47:36,170 --> 00:47:40,130 is a very poor [INAUDIBLE]. 778 00:47:40,130 --> 00:47:43,100 The institutions point [INAUDIBLE]. 779 00:47:43,100 --> 00:47:46,370 PROFESSOR: But that's the point about the reversal of 780 00:47:46,370 --> 00:47:49,470 fortune, in the sense that the reversal of fortune is exactly 781 00:47:49,470 --> 00:47:52,720 point that these were richer places. 782 00:47:52,720 --> 00:48:01,640 In 1500, the places which are poor now were rich places. 783 00:48:01,640 --> 00:48:06,560 So somehow, you need to argue that geography has a different 784 00:48:06,560 --> 00:48:09,790 effect then than it does now. 785 00:48:09,790 --> 00:48:17,730 It's not implausible, so one point you could make is that 786 00:48:17,730 --> 00:48:21,690 geography is not some fixed thing. 787 00:48:21,690 --> 00:48:26,250 These countries were richer then, because this was a 788 00:48:26,250 --> 00:48:31,650 period when it turned out that agriculture mattered. 789 00:48:31,650 --> 00:48:37,010 And then, they invested a lot in agriculture. 790 00:48:37,010 --> 00:48:41,440 Turned out that by some accident, industry became the 791 00:48:41,440 --> 00:48:46,850 big thing later, and so places that started later were more 792 00:48:46,850 --> 00:48:52,090 able to jump on the industry bandwagon than the places 793 00:48:52,090 --> 00:48:56,320 that-- so geography that helped you originally might 794 00:48:56,320 --> 00:48:57,310 hurt you later. 795 00:48:57,310 --> 00:49:01,440 Because Jamaica specialized in sugar. 796 00:49:01,440 --> 00:49:05,460 Sugar was great in 1800, but not so great now, because 797 00:49:05,460 --> 00:49:07,030 something better was discovered. 798 00:49:07,030 --> 00:49:10,865 So maybe what happened was that these places that were-- 799 00:49:10,865 --> 00:49:12,290 it was not the institutions. 800 00:49:12,290 --> 00:49:16,980 It was just the specialization in certain products that 801 00:49:16,980 --> 00:49:18,900 really mattered. 802 00:49:18,900 --> 00:49:19,760 You want to continue? 803 00:49:19,760 --> 00:49:21,010 AUDIENCE: [INAUDIBLE] 804 00:49:24,251 --> 00:49:27,245 Africa [INAUDIBLE] more resources [INAUDIBLE] 805 00:49:27,245 --> 00:49:29,740 just going to pick [INAUDIBLE] 806 00:49:35,480 --> 00:49:37,066 agricultural countries. 807 00:49:37,066 --> 00:49:40,770 PROFESSOR: But in some sense, why is that-- 808 00:49:40,770 --> 00:49:41,810 find. 809 00:49:41,810 --> 00:49:46,150 But isn't that just a version of the institutional argument, 810 00:49:46,150 --> 00:49:50,430 that where you want to extract diamonds, you don't create any 811 00:49:50,430 --> 00:49:52,480 institutions, you just extract? 812 00:49:52,480 --> 00:49:54,940 And that's exactly their point, in a sense, is that you 813 00:49:54,940 --> 00:49:56,370 create extractive institutions. 814 00:49:56,370 --> 00:49:58,850 That doesn't seem any different from-- 815 00:49:58,850 --> 00:50:04,670 seems like a variant on the argument, that where you set 816 00:50:04,670 --> 00:50:07,652 up extractive institutions, you get bad outcomes. 817 00:50:07,652 --> 00:50:08,572 Yeah? 818 00:50:08,572 --> 00:50:11,404 AUDIENCE: [INAUDIBLE]. 819 00:50:11,404 --> 00:50:13,292 So could it be the case-- 820 00:50:13,292 --> 00:50:15,652 [INAUDIBLE] 821 00:50:15,652 --> 00:50:18,806 because they had invested a lot in agriculture and that 822 00:50:18,806 --> 00:50:20,525 was the thing back then. 823 00:50:20,525 --> 00:50:23,962 They were well off, and as times changed, there became 824 00:50:23,962 --> 00:50:26,417 less of an emphasis that other countries would invest 825 00:50:26,417 --> 00:50:27,399 [INAUDIBLE]. 826 00:50:27,399 --> 00:50:31,327 It could also be the case that other countries, the ones in 827 00:50:31,327 --> 00:50:34,273 temperate environments, were forced to look at other things 828 00:50:34,273 --> 00:50:36,728 early on because they knew that agriculture wasn't there 829 00:50:36,728 --> 00:50:40,152 [INAUDIBLE] and that was a bet they made not knowing how the 830 00:50:40,152 --> 00:50:43,784 future would be [INAUDIBLE]. 831 00:50:43,784 --> 00:50:45,780 PROFESSOR: That's an excellent point. 832 00:50:45,780 --> 00:50:50,160 So it could be that just if you have very easy access to 833 00:50:50,160 --> 00:50:52,696 the very productive agriculture, then you'd be in 834 00:50:52,696 --> 00:50:56,330 a society which is not looking forward to solving certain 835 00:50:56,330 --> 00:50:57,790 types of problems. 836 00:50:57,790 --> 00:50:59,360 So that's an excellent point. 837 00:50:59,360 --> 00:51:02,110 I don't know if it's true or not, but it's an extremely 838 00:51:02,110 --> 00:51:06,120 interesting observation, and part of that. 839 00:51:06,120 --> 00:51:09,850 And more generally, one concern with this kind of 840 00:51:09,850 --> 00:51:17,520 evidence is, that, as you might imagine, the most 841 00:51:17,520 --> 00:51:22,150 compelling examples turn out to be Hong Kong, Singapore, 842 00:51:22,150 --> 00:51:28,530 South Africa, plus US, Canada, New Zealand, Australia. 843 00:51:33,350 --> 00:51:40,870 The regression's driven by very few countries, though I 844 00:51:40,870 --> 00:51:45,560 think if you look at this picture, it's less true than 845 00:51:45,560 --> 00:51:46,810 you might imagine. 846 00:51:50,270 --> 00:51:52,010 Yeah, we can do this one. 847 00:51:52,010 --> 00:51:53,000 So we look at this picture. 848 00:51:53,000 --> 00:51:55,610 It's not entirely driven by-- 849 00:51:55,610 --> 00:52:00,600 so if we look at that square in the middle, even there, 850 00:52:00,600 --> 00:52:03,260 there's a slight downward slope. 851 00:52:03,260 --> 00:52:06,180 So leave out US, New Zealand, Canada, 852 00:52:06,180 --> 00:52:08,540 Singapore, Hong Kong, Malaysia-- 853 00:52:08,540 --> 00:52:10,930 those are on the left-- 854 00:52:10,930 --> 00:52:16,260 and just South Africa and whatever, one other country. 855 00:52:16,260 --> 00:52:17,830 I don't know what it is. 856 00:52:17,830 --> 00:52:20,780 And look at the block in the middle where India is the top 857 00:52:20,780 --> 00:52:27,000 left-hand point, and whatever-- 858 00:52:27,000 --> 00:52:28,320 MLI is Mali-- 859 00:52:28,320 --> 00:52:31,690 is the bottom right point. 860 00:52:31,690 --> 00:52:33,450 Even within this square, there's clear 861 00:52:33,450 --> 00:52:36,130 downward slope, I think. 862 00:52:36,130 --> 00:52:41,280 So even if you left out the very rich countries, you do 863 00:52:41,280 --> 00:52:45,770 get a weaker but significant relationship. 864 00:52:45,770 --> 00:52:48,710 And that still tells you, if you just took that 865 00:52:48,710 --> 00:52:52,880 relationship, you still will get a big effect of settler 866 00:52:52,880 --> 00:52:57,870 mortality, even if you left out the few really 867 00:52:57,870 --> 00:53:02,600 exceptionally rich countries, or something. 868 00:53:02,600 --> 00:53:06,666 You still get reasonable good fit. 869 00:53:09,790 --> 00:53:14,810 I guess one concern I have is whether or not expropriation 870 00:53:14,810 --> 00:53:17,890 risk is something that we have assign to 871 00:53:17,890 --> 00:53:20,790 countries based on success. 872 00:53:20,790 --> 00:53:30,400 So one worry I have is that it may well be that the countries 873 00:53:30,400 --> 00:53:33,220 that have high settler mortality are 874 00:53:33,220 --> 00:53:35,180 poor whatever reason. 875 00:53:35,180 --> 00:53:37,660 And then we think it's because of expropriation risk, but 876 00:53:37,660 --> 00:53:42,820 expropriation risk is just based on our perception of 877 00:53:42,820 --> 00:53:44,300 economic success. 878 00:53:44,300 --> 00:53:51,180 So India and Pakistan saw very different expropriation risk. 879 00:53:51,180 --> 00:53:54,610 One is at eight and the other is at six. 880 00:53:54,610 --> 00:53:57,030 I'm not sure that those are based on anything in 881 00:53:57,030 --> 00:53:57,530 particular. 882 00:53:57,530 --> 00:54:01,050 I think there might well be a legitimation of success. 883 00:54:01,050 --> 00:54:03,150 So countries which are successful 884 00:54:03,150 --> 00:54:05,320 are assigned better-- 885 00:54:05,320 --> 00:54:08,740 with these numbers, who knows what expropriation risk is. 886 00:54:08,740 --> 00:54:11,950 It's some number somebody made up. 887 00:54:11,950 --> 00:54:17,570 And we may worry that this number isn't quite right. 888 00:54:17,570 --> 00:54:20,530 And maybe all it does is it just reflects the fact that 889 00:54:20,530 --> 00:54:22,370 richer countries are richer. 890 00:54:22,370 --> 00:54:28,890 So people assign them higher-- 891 00:54:28,890 --> 00:54:31,160 these countries are richer, they must have 892 00:54:31,160 --> 00:54:32,210 good property rights. 893 00:54:32,210 --> 00:54:36,380 I don't know how much of that's what's going on. 894 00:54:36,380 --> 00:54:44,280 But I still think that, in some sense, I guess I'm more 895 00:54:44,280 --> 00:54:51,660 inclined to take this evidence as telling us something 896 00:54:51,660 --> 00:54:52,910 interesting. 897 00:54:57,410 --> 00:55:00,120 But I think one should take it really seriously. 898 00:55:00,120 --> 00:55:03,570 So first point it's making-- if you take it seriously, it's 899 00:55:03,570 --> 00:55:07,090 not just the institutions that are important. 900 00:55:07,090 --> 00:55:10,140 It's not saying just that institutions are important. 901 00:55:10,140 --> 00:55:12,370 It's saying something much more specific than that. 902 00:55:12,370 --> 00:55:15,150 It's saying that institutions that were set up a long time 903 00:55:15,150 --> 00:55:21,340 ago, and evolved slowly over time in countries where there 904 00:55:21,340 --> 00:55:24,860 was low settler mortality are very different from 905 00:55:24,860 --> 00:55:28,250 institutions that were set up a long time ago, and evolved 906 00:55:28,250 --> 00:55:31,370 for a long time in high settler mortality countries. 907 00:55:31,370 --> 00:55:35,590 So it's not saying that if I suddenly took Mali, and gave 908 00:55:35,590 --> 00:55:38,790 it the institutions of the US, the institutions will 909 00:55:38,790 --> 00:55:40,460 automatically start functioning. 910 00:55:40,460 --> 00:55:42,460 That's not in this data. 911 00:55:42,460 --> 00:55:45,780 It's not saying anything about whether or not we can be 912 00:55:45,780 --> 00:55:48,630 replace institutions in one place or the other, right? 913 00:55:48,630 --> 00:55:50,175 It's in fact saying quite the opposite. 914 00:55:50,175 --> 00:55:56,170 It's saying that all we can tell is that places that good 915 00:55:56,170 --> 00:56:00,060 institutions because of a lucky accident 200 years ago 916 00:56:00,060 --> 00:56:03,410 or 400 years ago are better off now. 917 00:56:03,410 --> 00:56:08,760 That's not necessarily a big helpful policy. 918 00:56:08,760 --> 00:56:11,880 It's not that it says that we could change institutions 919 00:56:11,880 --> 00:56:13,490 today successfully. 920 00:56:13,490 --> 00:56:15,480 That's not what it implies. 921 00:56:15,480 --> 00:56:18,450 It could be true that we could change it, but that's not what 922 00:56:18,450 --> 00:56:19,590 we learn from this evidence. 923 00:56:19,590 --> 00:56:22,020 What we learn from this evidence is if we happen to 924 00:56:22,020 --> 00:56:25,590 have been lucky 400 years ago, then we are lucky today. 925 00:56:25,590 --> 00:56:30,480 But that's a very different point from saying that we are 926 00:56:30,480 --> 00:56:35,440 able to fix institutions today, and if we give Mali the 927 00:56:35,440 --> 00:56:37,770 same institutions the US had. 928 00:56:37,770 --> 00:56:41,840 And I'm not just making a debating point. 929 00:56:41,840 --> 00:56:44,440 Think about what the US constitution means. 930 00:56:44,440 --> 00:56:48,600 The US constitution means a lot of things, but it also 931 00:56:48,600 --> 00:56:55,100 means every school who goes to school in the US learns about 932 00:56:55,100 --> 00:56:56,320 the constitution. 933 00:56:56,320 --> 00:56:58,995 It creates a certain set of loyalties to the constitution 934 00:56:58,995 --> 00:57:00,500 that are very important. 935 00:57:00,500 --> 00:57:02,700 It is emphasized that this 936 00:57:02,700 --> 00:57:04,750 constitution has a long history. 937 00:57:04,750 --> 00:57:08,100 there were lots of battles about this constitution in the 938 00:57:08,100 --> 00:57:10,130 Supreme Court and other courts. 939 00:57:10,130 --> 00:57:13,370 All of these things are part of the effectiveness of the 940 00:57:13,370 --> 00:57:14,060 constitution. 941 00:57:14,060 --> 00:57:16,560 It's not just the constitution that is effective. 942 00:57:16,560 --> 00:57:23,330 The US constitution is given content by all the judgments 943 00:57:23,330 --> 00:57:24,440 of the Supreme Court. 944 00:57:24,440 --> 00:57:27,500 The famous judgments of the Supreme Court is what makes 945 00:57:27,500 --> 00:57:29,580 the constitution what it is today. 946 00:57:29,580 --> 00:57:33,570 So it's not clear that you can just transplant a constitution 947 00:57:33,570 --> 00:57:35,680 without the history that goes with it. 948 00:57:35,680 --> 00:57:40,436 So that says that if you believe this point of view, 949 00:57:40,436 --> 00:57:43,450 you should be very pessimistic, because it's not 950 00:57:43,450 --> 00:57:46,490 actually saying that we just have to fake good 951 00:57:46,490 --> 00:57:48,060 institutions. 952 00:57:48,060 --> 00:57:49,790 This is where I think it still is wrong. 953 00:57:54,130 --> 00:57:56,870 Even if you believe this point of view, it doesn't say much 954 00:57:56,870 --> 00:57:59,370 about development policy, because it actually doesn't 955 00:57:59,370 --> 00:58:02,840 tell you that you can fix institutions today in Mali, 956 00:58:02,840 --> 00:58:05,840 and you'll get good outcomes. 957 00:58:05,840 --> 00:58:12,160 And as Acemoglu and Robinson are very consistent in their 958 00:58:12,160 --> 00:58:16,170 book, they basically explicitly state this 959 00:58:16,170 --> 00:58:17,240 pessimistic position. 960 00:58:17,240 --> 00:58:20,520 They say, God knows how to fix countries, 961 00:58:20,520 --> 00:58:21,940 let's not even bother. 962 00:58:21,940 --> 00:58:24,500 Mostly that's their the position, and that's a very 963 00:58:24,500 --> 00:58:26,480 internally consistent position. 964 00:58:26,480 --> 00:58:29,040 Now there are other people who take a less consistent 965 00:58:29,040 --> 00:58:31,280 position, who want to say that the 966 00:58:31,280 --> 00:58:32,930 institution is an important. 967 00:58:32,930 --> 00:58:36,580 This is the evidence from Acemoglu and Robinson, and now 968 00:58:36,580 --> 00:58:39,410 we're going to go fix countries, which is a very 969 00:58:39,410 --> 00:58:43,840 different plan, that we're going to fix institutions, 970 00:58:43,840 --> 00:58:46,610 evidence doesn't say that you can fix institutions. 971 00:58:46,610 --> 00:58:49,800 It says if you had the right institutions 400 years ago, 972 00:58:49,800 --> 00:58:50,940 then it would be good. 973 00:58:50,940 --> 00:58:52,950 That's very different from saying we can fix 974 00:58:52,950 --> 00:58:54,220 institutions. 975 00:58:54,220 --> 00:58:55,774 You see that? 976 00:58:55,774 --> 00:58:56,748 Yeah? 977 00:58:56,748 --> 00:58:59,183 AUDIENCE: [INAUDIBLE] 978 00:58:59,183 --> 00:59:02,105 appropriate it would be with history, time changes going on 979 00:59:02,105 --> 00:59:06,488 in the world, but can you kind of take this as if we could 980 00:59:06,488 --> 00:59:08,923 transition towards better institutions in some 981 00:59:08,923 --> 00:59:11,350 countries, then maybe in 400 years those, countries would 982 00:59:11,350 --> 00:59:12,250 be better 983 00:59:12,250 --> 00:59:14,640 PROFESSOR: Maybe, but not tomorrow. 984 00:59:14,640 --> 00:59:18,536 So I have nothing useful to say about 400 years from now, 985 00:59:18,536 --> 00:59:21,440 but if we can. 986 00:59:21,440 --> 00:59:25,000 But what it clearly doesn't say is if a fixed institution 987 00:59:25,000 --> 00:59:27,010 thing would be better today. 988 00:59:27,010 --> 00:59:29,566 That's it does not say. 989 00:59:29,566 --> 00:59:31,498 AUDIENCE: [INAUDIBLE] 990 00:59:31,498 --> 00:59:32,947 Africa, [INAUDIBLE] 991 00:59:32,947 --> 00:59:34,396 nations [INAUDIBLE] 992 00:59:40,192 --> 00:59:43,110 can't really have institutions [INAUDIBLE]. 993 00:59:43,110 --> 00:59:43,370 PROFESSOR: Right. 994 00:59:43,370 --> 00:59:48,190 So that's also true. 995 00:59:48,190 --> 00:59:51,780 I think the point that you're making is also important, and 996 00:59:51,780 --> 00:59:53,630 we don't know how to [INAUDIBLE] institutions. 997 00:59:57,610 --> 00:59:59,710 It's not that people don't live in [INAUDIBLE]. 998 01:00:03,210 --> 01:00:06,980 So here's a fact that I know isn't in [INAUDIBLE]. 999 01:00:06,980 --> 01:00:14,026 Whoever owns any country, take a taxi-- 1000 01:00:14,026 --> 01:00:16,466 I'm talking about in many countries. 1001 01:00:16,466 --> 01:00:20,278 Get off from the taxi. 1002 01:00:20,278 --> 01:00:24,530 You either agreed an amount when you got on the taxi, or 1003 01:00:24,530 --> 01:00:25,661 there's a meter. 1004 01:00:25,661 --> 01:00:29,831 You read the meter, you give the person the amount. 1005 01:00:29,831 --> 01:00:38,520 And at that point, the person takes the money. 1006 01:00:38,520 --> 01:00:45,666 He shuts the meter off, and he says, here's your change. 1007 01:00:45,666 --> 01:00:48,080 This happens in many, many countries. 1008 01:00:48,080 --> 01:00:49,350 Now what's remarkable about that? 1009 01:00:49,350 --> 01:00:54,226 What's remarkable is why did I pay him? 1010 01:00:54,226 --> 01:00:59,210 I could have said no. 1011 01:00:59,210 --> 01:01:00,570 So what if it says $20? 1012 01:01:00,570 --> 01:01:01,820 I'm going to give you $5. 1013 01:01:04,250 --> 01:01:05,220 What's to stop me? 1014 01:01:05,220 --> 01:01:07,120 There's nobody else was that's there. 1015 01:01:07,120 --> 01:01:09,280 Usually when I get off in front of a house, there's no 1016 01:01:09,280 --> 01:01:10,340 one else there. 1017 01:01:10,340 --> 01:01:11,320 I can walk off. 1018 01:01:11,320 --> 01:01:13,180 By the time the taxi driver can find the 1019 01:01:13,180 --> 01:01:16,280 policeman, I'll be gone-- 1020 01:01:16,280 --> 01:01:17,490 on one side. 1021 01:01:17,490 --> 01:01:21,900 So the response has to be that I'm afraid of the taxi driver 1022 01:01:21,900 --> 01:01:26,120 beating me up, which may be true. 1023 01:01:26,120 --> 01:01:28,850 But if the taxi driver can beat me up, why isn't the 1024 01:01:28,850 --> 01:01:30,100 reverse true? 1025 01:01:32,420 --> 01:01:35,000 As soon as the taxi stopped, why isn't he trying to beat me 1026 01:01:35,000 --> 01:01:38,110 up, and saying you have to give me $40 instead of $20, or 1027 01:01:38,110 --> 01:01:42,130 I'll beat you up, and claim that you owe me $40. 1028 01:01:42,130 --> 01:01:47,290 How is it that we manage to negotiate this space in many, 1029 01:01:47,290 --> 01:01:48,540 many countries successfully? 1030 01:01:51,740 --> 01:01:53,840 If I'm paying the taxi driver who's a taxi driver who beat 1031 01:01:53,840 --> 01:01:57,640 me up, then he should beat me up in any case. 1032 01:02:04,180 --> 01:02:06,580 And otherwise, if he can't beat me up, then I shouldn't 1033 01:02:06,580 --> 01:02:08,010 pay him in any case. 1034 01:02:08,010 --> 01:02:09,580 So why do I pay him? 1035 01:02:09,580 --> 01:02:11,000 And why do these transactions-- 1036 01:02:11,000 --> 01:02:13,100 thousands of millions of these transactions-- 1037 01:02:13,100 --> 01:02:15,020 always happens? 1038 01:02:15,020 --> 01:02:17,980 So it must be that even societies 1039 01:02:17,980 --> 01:02:21,310 that don't have good property rights distribution enforced 1040 01:02:21,310 --> 01:02:26,140 up top have figured out ways to enforce lots of contracts 1041 01:02:26,140 --> 01:02:27,400 on the ground. 1042 01:02:27,400 --> 01:02:28,950 That has to be true. 1043 01:02:28,950 --> 01:02:34,130 That a lot of what we call property rights must live in 1044 01:02:34,130 --> 01:02:37,120 other forms than the form that we think of as 1045 01:02:37,120 --> 01:02:37,930 the official form. 1046 01:02:37,930 --> 01:02:39,269 Yeah, you had a comment? 1047 01:02:39,269 --> 01:02:40,519 AUDIENCE: [INAUDIBLE] 1048 01:02:42,762 --> 01:02:46,255 if there's no policeman standing there, you sort of 1049 01:02:46,255 --> 01:02:48,251 assume [INAUDIBLE] 1050 01:02:48,251 --> 01:02:50,746 there's a certain trust that you have [INAUDIBLE]. 1051 01:02:50,746 --> 01:02:51,260 PROFESSOR: Absolutely. 1052 01:02:51,260 --> 01:02:53,960 Trust, or something like that is important. 1053 01:02:53,960 --> 01:02:55,400 The only point I'm making here, that's 1054 01:02:55,400 --> 01:02:56,530 not a property right. 1055 01:02:56,530 --> 01:02:59,080 That's something else that is important. 1056 01:02:59,080 --> 01:03:00,262 So there's lots of substitutes. 1057 01:03:00,262 --> 01:03:00,485 Yeah? 1058 01:03:00,485 --> 01:03:02,412 AUDIENCE: [INAUDIBLE] 1059 01:03:02,412 --> 01:03:05,129 in terms of game theory, if you play this game just one 1060 01:03:05,129 --> 01:03:07,352 time, of course you can say that, oh, either way 1061 01:03:07,352 --> 01:03:07,846 you can have it. 1062 01:03:07,846 --> 01:03:10,810 But if you think of it as playing a game over and over, 1063 01:03:10,810 --> 01:03:11,798 you could sustain-- 1064 01:03:11,798 --> 01:03:12,950 PROFESSOR: Well, I don't want to play with 1065 01:03:12,950 --> 01:03:15,256 the same taxi driver. 1066 01:03:15,256 --> 01:03:18,714 Next time, I'm going to cheat the next taxi driver. 1067 01:03:18,714 --> 01:03:19,702 AUDIENCE: [INAUDIBLE] 1068 01:03:19,702 --> 01:03:22,666 for every taxi driver to beat you up that one time, then all 1069 01:03:22,666 --> 01:03:25,710 the taxi drivers are going to start beating people up, and 1070 01:03:25,710 --> 01:03:28,470 people will stop using taxis. 1071 01:03:28,470 --> 01:03:31,020 PROFESSOR: That's a bad outcome, but that is the 1072 01:03:31,020 --> 01:03:34,190 outcome predicted by the game, that there will be no taxis. 1073 01:03:34,190 --> 01:03:39,380 In fact, taxis exist because we have trust, we have norms. 1074 01:03:39,380 --> 01:03:41,650 We have all kinds of things which live outside this 1075 01:03:41,650 --> 01:03:43,290 institution frame. 1076 01:03:43,290 --> 01:03:47,150 So one point that I think is important is to think of, if 1077 01:03:47,150 --> 01:03:49,960 you want to transplant institutions, you have to 1078 01:03:49,960 --> 01:03:51,520 realize that institutions already 1079 01:03:51,520 --> 01:03:53,000 exist in these countries. 1080 01:03:53,000 --> 01:03:55,410 Even the ones which you think don't have institutions have 1081 01:03:55,410 --> 01:03:57,010 tons and tons of them. 1082 01:03:57,010 --> 01:04:00,810 And you're always trying to turn existing institutions to 1083 01:04:00,810 --> 01:04:01,780 other institutions. 1084 01:04:01,780 --> 01:04:06,320 You're not creating issues in a void ever, anywhere, ever. 1085 01:04:06,320 --> 01:04:07,570 So we'll pick that up next time.