Re: Ch. 3: The Making of Prosperity and Poverty
THE MAKING OF PROSPERITY AND POVERTY
"How prosperity and poverty are determined by the incentives created by institutions, and how politics determines what institutions a nation has"
This chapter begins with a comparison between North and South Korea to explain how their economic fortunes diverged sharply due to institutional differences:
in the South, economic institutions encouraged investment and trade. South Korean politicians invested in education, achieving high rates of literacy and schooling. South Korean companies were quick to take advantage of the relatively educated population, the policies encouraging investment and industrialization, exports, and the transfer of technology. South Korea quickly became one of East Asia’s “Miracle Economies,” one of the most rapidly growing nations in the world.
By the late 1990s, in just about half a century, South Korean growth and North Korean stagnation led to a tenfold gap between the two halves of this once-united country— imagine what a difference a couple of centuries could make. The economic disaster of North Korea, which led to the starvation of millions, when placed against the South Korean economic success, is striking: neither culture nor geography nor ignorance can explain the divergent paths of North and South Korea. We have to look at institutions for an answer.