Simon Johnson: preference

Transcript context

…We’ve had him on. A general question: what institutional arrangements protect a country from the middle-income trap? Well, if you think about countries that have really done well but not entirely broken free of being middle income — South Korea is one of my favorites because my wife’s parents were born in South Korea, and I spent a lot of time talking with them and thinking about the country and talking with Korean economists. I think that you need to spread an education system that really encourages creativity and really helps you break from some of the strictures of the past. I think you need more entrepreneurship. You need a lot of integration with the world economy, a lot of exchange of ideas. Ireland, Tyler, is one of my favorite countries, and a country that I would say has definitely broken free of the middle-income trap. They did it with a lot of direct foreign investment. You don’t have to have that, but they did it with an amazingly globalized people and obviously a lot of integration into American society and other European societies. It’s probably at the human capital and probably about language, and probably about being able to be productive in multiple different kinds of organizational settings and cultural settings. You find fantastic Irish leadership all over the place. In fact, I believe the chairman of UBS — we were talking about UBS few moments ago — is Irish origin. If institutions are the key to economic growth, as many people have argued — Daron and yourself to varying degrees — why, then, is prospective economic growth so hard to predict? In 1960, few people thought South Korea would be the big winner. It looked like their institutions were not that good. It was a common view: oh, Philippines, Sri Lanka — then Ceylon — would do quite well. They had English language to some extent. They seemed to have okay education. And those two nations have more or less flopped. South Korea took off. It’s now, per capita income roughly equal to France or Japan. Doesn’t that mean it’s not about institutions? Because institutions are pretty sticky.…

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