The Importance of Institutions
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- เผยแพร่เมื่อ 1 ก.พ. 2016
- In today’s video, we discuss a topic critical to understanding economic growth: the power of institutions.
To better shed light on this, we're going to look at an example that's both tragic and extreme.
In 1945, North and South Korea were divided, ending 35 years of Japanese colonial rule over the Korean peninsula. From that point, the two Koreas took dramatically different paths. North Korea went the way of communism, and South Korea chose a relatively capitalistic, free market economy.
Now-what were the results of those choices?
In the ensuing decades after 1945, South Korea became a major car producer and exporter. The country also became a hub for music (any K-pop fans out there?), film, and consumer products. In stark contrast, North Korea's totalitarian path resulted in episodes of famine and starvation for its people.
In the end, South Korea became a thriving market economy, with the living standards of a developed country. North Korea on the other hand, essentially became a militarized state, where people lived in fear.
Why such an extreme divergence?
It all comes down to institutions.
When economists talk about institutions, they mean things like laws and regulations, such as property rights, dependable courts and political stability. Institutions also include cultural norms, such as the ones surrounding honesty, trust, and cooperation.
To put it another way, institutions guide a country's choices -- which paths to follow, which actions to take, which signals to listen to, and which ones to ignore.
More importantly, institutions define the incentives that affect all of our lives.
Going back to our example, in the years after 1945, North and South Korea took dramatically different institutional paths.
In South Korea, the institutions of capitalism and democracy, promoted cooperation and honest commercial dealing. People were incentivized to produce goods and services to meet market demand. Businesses that did not meet demand were allowed to go bankrupt, allowing the re-allocation of capital towards more valuable uses.
Against that grain, North Korea's institutions produced starkly different incentives. The totalitarian regime meant that the economy was centrally planned and directed. Most entrepreneurs didn't have the freedom to keep their own profits, resulting in few incentives to do business. Farmers also didn't have enough incentive to grow sufficient food to feed the population. This was due in part to price controls, and a lack of property rights.
As for capital, it was allocated by the state, mostly towards political and military uses. Instead of going towards science, or education, or industrial advancement, North Korea's capital went mostly towards outfitting its army, and making sure that the ruling party remained unopposed.
And now, look at how different the two countries are as a result of those differing institutions.
When it comes to economic growth, institutions are critically important. A country's institutions can have huge effects on long-term growth and prosperity. Good institutions can help turn a country into a growth miracle. Bad institutions can doom a country to economic disaster.
The key point remains: institutions are important.
They represent the choices that a country makes, and as the Korean peninsula shows you, choices on this scale can have staggering effects on a nation's present, and future.
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tyler cowen saying he listens to kpop never fails to make me laugh
Thank you for putting subtitles below, so that the hearing-impaired can also watch your videos. Please do so in the others as well.
02:40 Samsung: am I a joke to you?
K-pop better way better than Samsung (if you know what Im saying)
Thank u soo much of this explanation we should have more teachers like this😊
what a great video! Keep up the good work sir.
Institutions.
The London Silk Weavers Institute donated its library to some dignified establishment.
And that wasn't unusual ; many Trade Unions held lectures and had libraries :
education was hungered after.
The working men's institutions as well as providing social insurance for destitute
members acted as a source of education.
Library donation was in the early C19th (I think)
as were the lectures I referred to.
Sweet coincidence: I just started reviewing Douglass North's "Institutions" paper from the JEP in 1991 for class
Thank you this really helped alot for my assignment, how can I reference this in my work
I think this video it's complex, and fully of simplifications. I think turns institutional incentives in ideological perspectives, that isn't correct. Institutions in a free market can be highly centralized in some sectors, and that doesn't provoke this kind of development disruption.
I agree with your comment, it isn't as simple as stated in the video.
very helpful! to understand why economic development important.
The basic reference (of night light) is the convinient one. How would you explain the dark China & bright India with this theory of yours?
Pune UD really simple. Most Chinese live in the south/east, so there's going to be a lot more lights there. But in the West of China, there are much fewer people and a more inhospitable climate/terrain for economic activity.
Himalayan mountains and Tibetan plateau!
only 0.2 % of the population live in Tibetan areas. China occupied Tibet for the resources and the water. Where almost entire India is bright cayse its habitatable.
Well done!
Great video! very intresting
You're sus
Really Nice
2:45 same dude same
Please! make a series on 'Independent India Economic History'. Highly Demanded!!
korea was split into north and south by force, by U.S.
@Mustafa Küçükkürtül Soviets managed to help, without them, US would have taken the whole of Korea, as they later tried by provoking a war with the North..
@Mustafa Küçükkürtül serbistan :)
@Mustafa Küçükkürtül ok how is that?
@Mustafa Küçükkürtül well soviet actions were incomparably more beneficial for the good of mankind than those of USA; In yugoslavia life was 1000 times better than now...
Institutions yes...AND Freedom.
I certainly agree with the general point about the importance of intitutions of course, but i dont think its really fair to say north and south korea have been the same aside from their institutions. South korea was also a dictatorship up until fairly recently. Plus South Korea have been allowed to participate in trade and the global economy as essentially a protectorate of the world hegemon. Meanwhile, north korea has been a target of exactly that world hegemon who spent decades trying to eradicate anything socialist/ communist at all costs during the cold war. Im just saying, thats going to have some pretty major impacts as well.
Free trade is another institution
South Korea traded with capitalist countries. North Korea traded with socialist countries. Don't pretend like USSR didn't give them billions of dollars worth subsidies.
great video. The truth was never so easy to be seen and understood.
It's actually pretty inaccurate. Like North Korea went significantly downhill because of the fall of the Soviet union, a lack of an ally in China, and an embrace in a new political theory known as "juche". Similarly, America used their influence of open markets with politically corrupt presidents who brought auto work in South Korea, but would shut down plants without paying retirements, assassinate union leaders, and all sorts of other abuses.
Korea as a whole became extremes of their leaders. north Korea fell into cult like dictatorship, and South Korea fell in white washed capitalism.
@Mustafa Küçükkürtül You came back 3 years later to say tgat what you wrote was b.s. ? 😀
@@dylanthornsberry8778 You clearly read nothing that he said lmao
@@ZacharyBittner But America got its wealth via capitalism too, while Soviet Union fell apart due to their economic issues caused by their socialism system. As for corruptions, a communist country is usually worse than a democratic one because the gov has a lot more power with no check and balance, and it tends to control everything in a the country.
nice
👌🏻👌🏻
What of west and east Berlin? Another example of the same region and culture with vastly different results.
I am twelve and this helps me get an a
??? WTF im literally paying thousands of $ in college for this and a twelve year old is watching this too
@@yolkthosenuts Same bro. College is finessing us hard.
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Living in north Korea is clearly a nightmare but south Korea is not such a market paradise. Dont forget the dictatorship during the take-off. Dont forget the role of he Government to starrt the industrialization. An agricultural reform was done. South Korea is a mixed economy such as all developped countries. Describe ALL the institutions.
I think that compared to North Korea, South Korea is paradise. That doesn't mean that the latter is perfect, of course South Korea has issues to deal with, but still, you understand my point...
yes it was centrally planned until the early 90s but even then Korea had low tax barriers compared to the developed nations. So in a sense it was less of a free market but in another sense it was more of a free market than many western states
Exactly. The explanation given in this video is too simplistic by giving a false dichotomy of communism vs. capitalism. There are quite a few factors that caused the N. Korean famine, and it had more to do with the collapse of the U.S.S.R. than with economic incentives.
maybe oversimplistic about capitalism but not about communism lol every communist state is a fucking dystopia
@runcandy3 Why do you think the USSR collapsed in the first place? Maybe N. Korea initially collapsed because of the USSR collapsing, but the USSR collapsed because it was being run by the very same system the video is explaining is not feasible if you want a prosperous economy.
Meio maquineista mais ainda assim elucidador!!!
Question regarding the practice question1: why “redistributive Justice “ isn’t included in “promoting economic growth”?
Because redistribution is injustice and practically always destroys economic growth.
One thing in North Korea is that night, you can always see the stars clearly. Earth hour all year long in North Korea? haha, I am just trying to sympathise with North Korea and not having so much light at night isn't a bad thing. As always, thank you for your videos and keep posting more.
+tazmania Yes there's nothing that consoles your life in slavery as never having to deal with light pollution.
Hey man, keep living that capitalism slavery life where you can't afford healthcare in the United States and get paid minimum wage (say your latest comment about minimum wage video and I guess that aspect is important to you?) and your poor and can't save up money because of income tax and property tax and all these various government (being a corporation making you pay). You literally have to be become a criminal and inmate to get better healthcare than being a good citizen with a minimum paying job. I am saying minimum paying job, because All these Fast Food Chains, Walmart, and K-Mart pay you jack shit and with no benefits or those benefits that you have to pay part of the bill so they can pay the rest. GOOGLE CAPITALISM SLAVERY. I can't keep schooling you on this.
+tazmania you are just trolling right? :\
+Gonçalo Martins yes Ofcourse I'm trolling lol
tazmania in capitalism you are free to do whatever the fuck you want. If you want to be vegan go ahead you can and you will find good restaurants. Nobody forces you to eat McDonald’s. The educational system in America is an example on how slowly America is moving away from real capitalism aka free market and moving towards crony capitalism
if you want the most convoluted , reprehesible and confused apologisms for socialism and north korea please scroll down
One day, able to go to Pyongyang. .
Hopefully. Just as long as the south keeps away. The south will make it worse.
+The 4th International My English is not good
+The 4th International But if You speaking words wish for unification
+The 4th International Thanks very much.
Should not use the comparison institutions of South Korea and North Korea. It is easy to misunderstanding the true institution's impact on the economy.
amazing course
Doesn’t South Korea look down on people from North Korea because of their stunted growth? Doesn’t sound so pleasant to me
What could you say about China, where is not a democracy, free speech, and most properties are controlled by the government? In the Soviet Union were developing science, culture, sport and etc. Is it really a decisive factor to have democratic institutions? I have been asking for a long time this question. Thank you
Well, i think that depends on the country itself, not the institution and ideology. I mean, look at the the real reason of the splitting of Korea, who was behind the war, you may find the reason.
Just like Hobbes says, democracy is definitely important and even necessary but this does not mean being more and more democratic can solve all the problems. And, this does not mean capitalism is the only path to happiness and freedom. Also, setting up a democratic institution needs some basic requirements like the educational degree, national wealth, global situation... For some countries, a democratic institution and capitalism may not fit the countries from the beginning. Some countries just chose the most suitable way for themselves. So, the reason for poverty of North Korea is because socialism and communism are bad and evil? Can't agree. Political factors and outside interference are more to blame. And, one of the developing miracles in human history, happening on a socialist country, China.
China developed because it had special free trade zones. The government basically steals companies it really wants arbitrarily but there is enough of a chance that your business won't be stolen to try to build o e.
I'm amazed how many people there are in the comments trying to excuse and explain away North Korea so it isn't a problem for their collectivist economics. And saying that it is a good country?
However the like dislike bar shows that they are only a small minority. Thankfully.
thats because you didnt cant see the exact dislikes
i am frkm south korwa
첫글자는 대문자 from이고 korea 입니다. 오타가 많으시네요.
그리고 .이거 안넣으셨네요. 이거 안넣으면 외국인들이 문장 안끝난걸로 알아요.
+루기아 konichiwah
North Korea reminds me of American Indians. And does anyone can live like that without caring for each other. And nothing is worth more then genuine love. truth, emotion and empathy also realizing no one is better then the other. Do we care about our families or do we only care about money. did we create pollution that we can't even see the stars at night..
+Murphy Park I care about my family, therefore I care about money.
This guy is a lunatic. The American Indians killed and ate each other and lived in a state of constant warfare with each other until the Europeans arrived and brought peace. North Koreans eat each other too, but they do it because they are starving to death.
+42Ounces You are a joker. Your ancestors massacred the Native Americans in your greed for land and resources - that's just plain recorded fact - in case anyone out there naively reads this and takes this clown seriously. And yes I know, it's all old history now let it go.
The whole 'North Koreans eat each other' thing sounds farfetched but I don't know the truth of that.
What we did to the Indians wasn't 1/10th of what they did to each other. They were vicious when they attacked us, and we dealt with them in a civilized manner. The land and resources are certainly good, and we have made a much better use of them than the Indians did. And they are better off for it. There are more of them today than there were back then, and they lives better lives.
Great video. Proof while capitalism isn't perfect it's the best system man kind has developed for advancing society and living standards. By contrast simply put communism kills.
northcorea dont have pollution. congrats!
isnt south korea like super conservative and criminalizes being a communist? doesn't sound like a very pleasant place to me.
why your putting north corea a dark perfil of vie, like a divison of good guys(capitalism) and bad guys (comunism)?
You mention South Korea... But not Samsung?
Also K-pop and Korean content are taking the world by storm. BTS, Blackpink, Squid Game, Parasite, Minari etc.
South Korea is still rocking. Their real GDP per Capita has become high than Japan's a few years back.
Also the only country in the world (so far) that has gone from being a recipient to a major donor of aid.
I hate those who dislike this this video
They are commies
ㅋㅋㅋㅋㅋㅋ
Well this video isn't biased. 😐
This is an example how communism is confused with totalitarian regime. Totalitarian administration is a form of government. Communism is a form of economy, coming from social science. This is nothing but to confuse people about socialism and communism with authoritarian form of governance.
Well you know how Americans are, painting communism as the most evil thing on earth and painting capitalism as sunshine and rainbows.
Soham Sinha Was thinking the same. Well put.
Lagina,Deadly, you are very correct. Communism means whatever you
intend it to mean. If you are talking economics fair enough.
But most people take it to mean a corrupt ,single-party, authoritarian
inefficient means of government.
With the most distinguishing feature bring the Command economy.
Where goods are produced by government dictate and NOT
by consumer choice.
Communism is inherently totalitarian.
42Ounces you are inherently a moron. Change my mind!
Nicely ilistrated stories, and half of them are just half true... Like south KOREA, read more details from Ha Joon Chang...
en.wikiquote.org/wiki/Ha-Joon_Chang
btowtfl
Isn't north Korea poor due to the sanctions let them trade then compare. this comparison isn't accurate. the problem is giving examples of countries that are fighting for sovereignty. whats next Venezuela's inflation is the fault of the institutions? the funny thing is that is the US start causing inflation then its a monetary policy keep in mind the main reason the U.S print money is a corruption, for example, overpriced drugs, weapons, medical care. now country like North Korea, Venezuela, Iran aren't saints but their economic problem is mainly due to sanctions.
Sanctions? They were given heavy subsidies by USSR. If they didn't mess with US, they wouldn't have gotten sanctions.
បកប្រែជាភាសាខ្មែរ
En español porfavor!
sanctions and embargo imposed on north korea after it experienced a genocide but continue to talk about how the healthy k-pop work culutre is something to strive for. truely ridiculous. just ask walmart how centralization is working for them. Great way of describing how there was initially one Korea, I wonder what happend?🤔🤔🤔
do all economists have their heads in the sand or are they taking happy pills?
This a tad short of capitalist propaganda. One pitfall of economists that I keep seeing time and time again stems from the very genesis of the discipline. It's the study of money rather than the study of 'what matters'.
Another issue with the example of the North/South Korea cannot be pinned down on a communist/capitalist divide, the political one is the most significant. Had North Korea not been shut out of the rest of the world by severe sanctions it would have faired pretty well. In fact, you could argue that eventually it would have opened up and became less of a threat to the South as standards of living improve everywhere.
The rich Arab countries are not exactly democracies, but they because they are trading oil worldwide they amassed large amounts of wealth, Iran on the other hand had sanctions placed and suffered extensively as a result.
The way I see it, it's politics first, economics second when it comes to what matters most.
Sanctions? Why would North Koreans want to trade with evil greedy capitalist pigs anyway?
And did you forget the massive subsidies received from USSR?
This could also have been applied to Cuba and most recently, Venezuela. Embargos and sanctions don't just occur naturally.
Prof. Clearly you don't know economics if you fail to recognize economic & technological titans Samsung and LG.
Love ❤️ from India