 
 
Alright. Thank you very much. So,
I'm the theorist here. So I'm the reason
why Yaw had to apologize on behalf of
the organizer for the equations. So I
think, I think it's not gonna be
particularly painful. There's gonna be a
couple of equations but it's not, it's
not gonna be too bad I hope, I hope. So,
but, so what I'm going to try and
do is I'm going to talk about, you know, a
kind of a relatively recent - last ten
years - field in economics which uses
some of the stuff we've been talking
about today. So the concepts of cultures
and institutions and try to put them
in a setup to think about
economic growth. Okay, and so I'm going to
do, I'm going to do, I'm going to talk a
little bit about my work, but I'm also
trying to - I'm also going to try to - you
know, introduce generally the kind of way
we think about this - by we I mean
economists - economists think about these
things and the way, and the kind of
data that they use. Okay? So let me start -
okay so I didn't know Paul was here, I was
congratulating the whole field. Now I'm
congratulating him. I'm very happy,
for his prize. So, the growth theory -
so of course growth theory is old in
economics - but the endogenous part of the
growth theory, the one for which Paul was
awarded the Nobel Prize. So,
I'm trying to start from there
and introducing what people have
been doing in the last 10 years. So this is a, sort of -
the fundamental papers
here are in the late 80s. Okay, so, the
questions are the fundamental questions,
you can argue between the most
fundamental question in economics, which is,
what accounts for economic growth? And
another way to ask the same question is,
what accounts for increment originality across countries?
Right, so there are
countries which are rich because
they've grown a lot and countries which
are not very rich or they're poor
because they haven't grown a lot, okay? So in this sense the two questions are the same.
And so the way this question
was - you know the fundamental question
that this literature, you know, solved or
pushed or made us think about is, you
know, of course I'm not gonna get
into the economics, but the standard
growth model that we had were thinking
about, you know, explaining growth of
income in terms of capital, growth of
capital, growth of labor of population.
Okay, and pretty quickly we
understood that those models were not
gonna do it. Okay, so that they could
 not explain
constant growth. And so we went into, you
know, in some sense this literature was
talking about a constant, fuchsia made-up
constant - total factor productivity - and
we're saying okay, that's the thing which
is growing, right. So we don't really know
what that is. So endogenous growth gets to the heart of what
is this total factor productivity that
is growing and is causing the growth
of income. Okay? And, you know, technological
growth, technological innovation, R&D,
human capital - there's all sorts of stuff
that people started, again in the late
80s, to think and to put into the models
to try and understand work. And one of
the things that, again, Paul did was to
think about, you know, what economists
call externalities. One example that
people looked at is, for instance,
urban agglomeration, okay? So this idea
that cities grow, cities are crucial for
the growth of countries, people in cities
meet and something happens when, you know,
they agglomerate into cities that
makes things grow better.
Okay, growth of ideas, the development of
ideas, and things of this sort.
Okay, so that's where, in some sense, we
were at some level in the 80's. Okay, so now
more recently - and late eighties, nineties,
of course these are still things that we
keep doing obviously - so the literature
in economics had a way to think about -
the way we think about - growth is a
little bit changed - and I mean not changed.
You know, in some sense, we're still
looking at what that A, what that total factor -
the A in the equation, the total
factor productivity.
But people have looked  at
the question in a completely different way
in a sense, in the last 10 years. Some
sort of fundamental names here are
Daron Acemoglu, James Robinson, and others.
So I'm just saying those names just to
make sure I'm not claiming
it's me, obviously.
Okay, so the questions are exactly the
same, but they look at this question in a
completely different way. So they look at
the question in terms of - they look at, if
you wish, I think they would claim or
we would claim - they look at a somewhat
deeper level in terms of factors, but
deeper also means more vague, less -
you know - less easy to identify, less easy
to think about, less easy to model. So in
fact there is very
modeling in this world in
this, you know, new - I call it New Economics
of Institutions, because that's typically
the way this is called. But we could call
it a new, new economic growth or whatever.
In any case, so, the idea here is that
typically people try and find the origin -
where growth or where economic
prosperity comes from. And they look for
a single origin. And typically a lot of
this question are is it culture or is
it institutions. Okay, so, somehow the last
ten years we've been doing or maybe even
more so, more than ten years, we've been
really playing on this question is it
culture or is it institutions? And of course, you
know, you first have to define what these
two things, and the definition is a
little, as I said, blurred and vague. Right?
So, some of the answers I say exclude institutions. People talk about history,
geography, and other issues. I'm going to
concentrate on the distinction between
culture and institution today, but, of course,
it could be - we could do more than that.
Okay, so how do you do this? So, which kind
of - even data if you wish - or which
kind of a mechanism you use to try -
methodological mechanism - you use to try
and identify is it culture is it
institution? Right, so typically what you
do is do things like historical natural
experiments. The idea here is you look in
history, and you try and see a situation
where institution changed. They have to
be - they have to change exogenously,
and then, you know, that's a thing that
economists are very careful about,
typically very careful, and this
literature is very careful about. So the
idea is, think about a situation where
institution changed for some exogenous
reason and the
situation has to be - the experiment,
the historical experiment - has to be one
where institution changed but culture
didn't and a bunch of other stuff didn't.
Okay, and so then if you see that example,
then you say it has been institutions. They
changed, culture didn't any way, right. So,
but what do we mean by institution
changed and culture didn't? We mean at the
moment when the shock is. Of course, so in
some sense we are looking at the origin
again, right? So institution changed in a
particular instance and in that
particular culture didn't.
But then of course, over years and
centuries this literature
typically look at historical data, very
long run historical data, then both
kinda change. Okay? So, there are many
examples that some, again, very famous in
economics which have to do - Acemoglu and
Robinson - which have to do with the,
you know, the change in institution due to
the arrival of colonial empires in the
world. Okay? And of course colonial
empires are not exogenous, and but, you
know, these people have been very careful.
Of course there's a lot of debate, but
they at least try to be very careful in
identifying exogenous change. Right? So
the idea here is, you know, so the story,
the standard story here - people who think
that institutions are crucial - the
standard story is in some instances
colonial empires or in general
for some other reason, institution which
are more inclusive, which are less
extractive of the population, you
know, come about and when this happens
great things happen. Okay, so the country start
growing and things are good.
So, of course this is a simplification of
the whole story, but that's kind of the
idea behind. Okay? So there are many
examples in different ways. Okay? Of
course, there are people who have done or
thought of doing the same kind of
argument with culture. So what the idea is -
okay culture changed but
institution didn't - and we see
wonderful things happen. Okay? So the
typical, at least intellectual experiment,
not that - so the literature on
institution has been very careful
statistically, the literature
which claims that it's all culture - it's
been a little bit less careful
statistically I would want to claim. But, so
but the standard example is of course
the Protestant ethic, right? So,
the idea there is - of course there's no
exogen - we're not really
claiming heterogeneity. We should. But
the idea here is, you know, there's a
cultural change,
you know, Christianity breaks 
into pieces and for some reason,
you know, intellectual cultural reason,
the Protestants are doing better. Okay?
And then countries which are Protestant
grow faster and wonderful things happen.
Of course, in the course of these
wonderful things happening, institution
changed too. But the idea if this, you know,
theory or hypothesis is correct, of course
here is the changes in culture first
and that's the causal mechanism.
Okay, so the crucial thing here; It's all causal. Now
I want to claim, I want to argue, in
both cases it's important that we are -
 what's happening here is we are
looking at, typically, statistically, at
two moments in time. We're looking at
something happening a long time ago and
we look at and we correlate that with
something now, which is the level of
prosperity, the level of income, and
things of this sort now. Okay. So we're
not really looking at the whole dynamics that
much, in part because there is no data, in part
because we might not want to. The idea
here is we want to identify a causal
effect from one to the other.
Okay? So I was just shown the ten minutes. 
I thought, okay, Raquel did too long an
introduction.
I think I'm doing worse. Okay. So, so, okay
so what am I going to argue in
the next ten minutes - unless the norm of
eating up time from the questions is
established - so what I'm going to
argue is that one way to - so that this
literature is very important and that
maybe we should not care too much about
the causation argument. Maybe, you know, in
the end, what started first? Did the
institution start the process or did
culture start the process? Maybe we
don't really care very much. These are
not policy variables in any case,
typically. It's not that you can actually
go down and - you can maybe but, you know,
of course it's not the direct policy - so
it's not very easy to change
institutions, not very easy to change
culture. Let's try and better understand
the mechanism. Okay, so if that's the case,
then you know what matters is really the
interaction between policy and
institution, I want to argue. Right? So then,
what we care about is looking
at how the institutions, you know, which
kind of - even if the changes started with
institution - which kind of effect did
the change in institution had on culture
and whether the effect, that the
institution had a change and that
effect on culture, whether this effect in
fact reinforces or goes in the opposite
way with respect to the effect of
institution. Okay, so, in some sense this
is the crucial argument. In economics speak,
we can think of a cultural
multiplier, and I'm gonna maybe not get to it
at the end. Right? So it's the idea that
you can think that institution are the
cause, but then culture multiplies the
effect of institution over time. Okay? If
that's the case then, you know, it's
important to understand the size of this
of this multiply. Okay? Of course it could
go the other way. It could be culture
starting and institution having a
multiplier. So, if these two things
multiplied in a positive way, that might
be a very important effect to try and
identify. Okay? If they go the other way,
if, you know, once you have a change in
institution
culture goes against you, then it's important,
because it means, you know, it's important
to try and understand that that means
that the effective institution, the
effective institution is actually smaller
then it would have been without the
effective culture. Okay, so this
interaction of culture and institution - I
have a bunch of quotes. Of course, 
the one I like is the one by the Italian,
Machiavelli. So, there's, you know, people
thought about this, of course. So it's in
Italian but - so translated in English as,
you know, "This was a good institutional
order when citizens were good but when
citizen became bad it turned into a
horrible order." Okay, so he was talking
about Florence but apart from this, the
whole idea here is, you know,
you need character, values, things - the
good culture that we were talking about
before, that Bill was talking about before -
you need that together with good
institution and, you know, then you need
to make them interact in a positive way.
Okay? So that's the idea, okay. So now I
have about five minutes. So, the point - so
there's two points - so what I have is a
paper where we write down - oh, by
the way, I haven't said this. This is with Thierry Verdier,
who's my coauthor for many, many
years from PSE France. So, what we
have here is - we have a theoretical model
where we, you know, identify and we
abstract from a lot of very interesting
stuff, possibly not all, and we identify a
way in - so we define clearly what we mean
by institution, we define clearly what we
mean by - I think clearly - what we mean by
culture and then, you know, we think
about how these two things change.
Institution can change over time, over
long run. We have in mind long run. So we
look at how institution and culture
change over time and how, you know, this
change interact. It's an
interaction. Okay? So, we write down a
mathematical model like economists like
to do, and then we look at the properties
of this model. Okay? So, of course I
already knew that I wasn't going to talk
about the model and rightly so,
people don't care here. But
let me try and give a sense of how we
model this and what are the
important points, I think, to take away. So
one point I already said; We want to - we
think we want to - shift the focus from
the causation question to the
interaction question. We think - we don't
have any, yet, any empirical work, so we
don't have a measure in any particular
instance of this cultural multiplier, but
we think that would be important. Okay? that
would be important in - That was 10
minutes ago five minutes ago.
Thank you, fantastic. Okay, so I got
five minutes. Thank you. So, okay, so I can
talk a little bit slower, and I can show
a couple of extra equations.That's all.
Okay, so, thee first thing we want
to say - we want to do here - is in some
sense methodologically, is to shift the
focus from causation to the interaction.
And this I already said many times. The
second point is we write down a dynamic
model which has prediction. I mean this
is very abstract so you'll have to - our
model is very abstract but - possibly, once
you, you know, put it into use in
specific historical instances, this
model will have prediction about the
whole dynamics of culture and institution,
not just the beginning and the end. Okay, and
so we think - and that's one of the reason
why we wrote this - we think that it'd be
important to try and fit data in
the middle. Okay, so there's all sorts of
stuff that the mechanism - so
it's really very, very important,
especially if you think about policy at
some level in some form, to understand
the mechanism that leads from
some change to... Okay, and so to understand
the mechanism, you know, we have a model
which implies some sort of a mechanism.
To understand if this works, you need to
put data in the middle. Okay? So beginning
and the end is not so, it's not necessary -
obviously it's the first thing and
and often we don't have that much data,
but there's a lot of effort these days -
that's the last point, the other point I
want to make - there's
a lot of effort these days to collect in
intelligent, statistically useable ways
historical data. Okay? So, in some sense,
what this paper... this paper, you know,
built on something which is happened in
economics which is a sort of a, you know,
some people of course - we overuse these
terms but this revolution - so at some
point historians have started to use
economic models. This is called
cliometric revolution, right. In 80s I guess, early 90s.
So, some economies would say
they started misusing economic models. So
what happens now is that the
economists are misusing historical
data. Okay? So there's a lot of historical
data out there. We are trying to
understand it. Very often economists
don't understand it so much, so well, but
again, it's progress. Okay? So, all right so
ten minutes... So there's a bunch
of - as I said I'm not an historian
and I don't have - I work with historians, but 
I'm not a historian and I don't have - I'm
not gonna talk about any specific
historical events or historical
phenomenon, but there's a
lot of... there's quite a few very
interesting, you know, historical
phenomena that historian's questions and
issues that historians think about
that to my reading, to other people's
reading, sound like interesting instances
of this interaction.
Okay, so I've listed some. Of course,
people thinking, you know, bourgeois
cultures or institution in terms of the
Industrial Revolution. Same kind of stuff
for, you know, the rise of Western Europe
after 1500. So the growth of the
countries which have access to Atlantic
Ocean - this is interesting right, there's
a fundamental, you know, can I say
identification question if you think
about causality in the sense that, you
know, the countries which grew - so okay, so
after 1500, some countries started
grow much more than
the world and the countries who grow
much more were the counters which had
access to the Atlantic Ocean for
obvious reasons. Now, between those
countries, five countries, basically:
Britain, France, the Netherlands, Portugal
and Spain, between those countries the
country which really grew were
Britain and the Netherlands. Okay? 
And, you know, the Protestant
countries. On the other on the others on
the other dimension these were also
countries which had in a measurable
relatively well measurable way better
institutions okay so now is it culture
is it institution my point is I don't
care I want to understand okay another
of course example that it's very I'm
very fond of is the is what Italians
called the question American ally the
issue of the North and the South the
enormous difference between the North
and the South very large differences in
the north and the south in terms of of
prosperity and you know the fact that
these two regions in the country have
very difficult very different historical
experiences okay so which kind of a I
have a just a few minutes which kind of
a model do we have what we can do with
it so no equation so what we can do with
this so we are we are thinking very
abstractly so this is just to give you a
sense of how economists do these things
or poor we or better Congress do these
things so so there's a society it's
populated by different groups of agents
let's think two groups to be to make
simple these agents have different
cultural traits okay so for some reason
there are different different
technologies and then you know there's a
government and the government plays a
game in the sense that the government
says the policy says policy variables
that are relevant for the agent in the
economy to make choices and how does the
government chooses well the government
is is good he's maximizing some social
welfare but the social welfare depends
on the social worker contains the
welfare of two different groups which
are different so the relative power
institutions to us the way we model
institution is the relative power that
of the different groups
in the social welfare which in turn
determines the policy of the government
okay so a government run by aristocrats
will only care about aristocrats or
mostly kerberion aristocrats the
government of the working class we care
about the working class and will hurt
the aristocrats okay so that's kind of
the idea so that's what we mean by
institution what we mean by culture is
the cultural traits of these groups in
the population and then we have you know
assumptions or theories about how these
things change and move and here the idea
is that the stuff on culture you know
theory and I have been worked for I've
been working on this for many years and
and I care a little bit less about but
culture in the sense that I am bored
culture moves so moves due to
socialization decisions so parents
decide to you'll push the culture of the
kids and this of course depends on how
you know you don't push the I don't push
the culture of my son if that culture
means that it's going to be killed
tomorrow ok so there are incentives that
parents take into account when they
decide how to socialize the kids and the
most important part may be because it's
a little bit newer is this is how
institution evolved and here the idea is
institution here are evolving to
internalize distortions in the policy
game right so this does not mean that in
equilibrium we are going to have
efficient stuff but institutions are
trying to internalize inefficiencies in
the economy and so and and so an
institution the institutional change
looks like again at the legation
mechanism many instances the idea the
the example that it's clear is again
think of aristocrats and workers and
think of a world where you know the
aristocrats can are in charge and they
can tax workers okay so the aristocrats
can tax workers at a very high rate and
this means effectively that the workers
are not working because they're going to
be taxed like crazy
and supposedly any source cannot make
them work can only tax them so the
aristocrats will touch worker like crazy
the workers don't work the aristocrats
don't make any money and the workers
starve this is a very inefficient word
so in this environment maybe the
aristocrat would like to give the work
as a parliament a sort of a commitment
device where in the Parliament you know
the workers will be able to limit the
amount of taxes is this happening might
be better for both the aristocrats and
the worker the worker I'll work a little
bit more but they get more money because
they're not taxed too much and the
aristocrats get money because they can
tax the work so that's the story this is
the dynamic okay so we put together this
today of course of course the dynamics
of institution depends on the
distribution of culture depends on how
many worker and how many aristocrats
there are in this society right so and
how much the aristocrats and the worker
want to socialize their case their
culture depends on whether you know the
kids are going to be taxed like crazy so
they're there they're starving or not so
the whole DC saw the whole interaction
QA I guess this means I'm done so so
okay so that's the story so look at the
equation that's the baby
that's the dynamics so this is it's
completely irrelevant of course as you
understand here in this talk I would
like to think it's not in in general but
in the stock it is I'm closing it's just
it's just a way of saying just a way of
you know conveying this idea that you
can build all these things that I talked
about in two relatively simple
mathematical equations that you can you
can study and if I had ten more minutes
I will tell you what happens so of
course what okay so let me finish let me
tell you what we can do okay so a couple
of so let me say just two things the so
if I write down that equation I studied
and I don't have time to say what can
what I get out and I'm happy because
that's not that much think about but
what's important here is something that
I try to convey before which is
everything about everything that I can
say about this equation in an
interesting way depends on whether
culture institution or complements of
substitutes okay so by complements as I
as I met as I said before is when
suppose institution goes up whatever up
means suppose the situation changes up
then then what happens to culture does
it go up and if culture goes up what
happens took two institution it goes up
two if up up up that's complement okay
if when institution goes up culture goes
down or the other way around then you
can have substitution okay so then
culture and and and and
institutional work against each other
okay so so it's not just the size of the
effect of course any effect any change
its bigger if the if cultural
institution are complements then it's
substitutes but it's not just that
everything interesting about the
dynamics for instance the possibilities
of having cycles okay situation where
the aristocrats are in power and then go
down and then go up and then go down so
six of these cycles of this would all be
pans can they can only happen in case of
substitution so all depends on this
cultural complementarity versus
substitutability
okay so it's some sense that that's the
way that's how we want to finish so the
way we know that I want to finish it I
have to finish so the way of a bunch of
examples so the way these models look
like at the end you write down things
like that you see those errors they'll
tell you where things go on the beta's
institution Q is culture whatever this
means when you change one you change the
other here in this example I wanted to
talk about this example because there
are two final steady states to final
endpoints of the dynamics and depending
on where you start you where you start
you get to either one on the other
okay back to history thank you
I know there's lunch and oh by the way
and I know you can ask me that can swear
that the question you want to ask like
and I'll answer them but so about when
we first agree and this is really a
comment about all the papers that this
is I think where the action is I'm
agreeing with your kind of
interpretation of you know our thinking
on these big issues I think that's
exactly right
um the other thing I want to do is just
make some plugs for some books of
history that I found useful one is
freedom and fairness by Hackett Fischer
who looks at basically kind of the
effects of different founding
populations and then political discourse
in New Zealand versus the United States
but I think that really interesting one
is the chosen few by Buddha Cheney and
as V Eckstein because it and your
language is actually helping me rethink
how I describe that book so it's an
instance of a cultural shock that leads
to higher literacy amongst the Jews so
it's similarly the kind of the shock
model that Raquel was talking about as
well but then what they capture really
nicely is this interaction between
education and institutions where in this
case it's cleaner because the
institutions are determined outside of
the control of the small group of the of
the Jews so you have institutions that
facilitate trade you get urbanization
then the human capital turns out to be
very valuable but then you know the
institutional regime collapses cities
collapse its is not so valuable to be to
be literate so it's I think a great
historical account that you don't kind
of illustrates the things you're talking
about
I I've done some research and I think
you mentioned urban centers being an
issue but it's the competition and
cooperation between the two major urban
centers New York and Chicago I think it
defined what America is in its progress
using some examples FDR wanted to defeat
the improve the depression he had the
Buffalo plan which was originally the
Chicago plan which was to use barter and
different flexible means of moving
merchandise the defeated depression he
of course was nominated in Chicago at
the convention but then you have
skyscrapers start in Chicago they come
to New York you get Chicago University
educational policy Hutchins Milton
Friedman economics this is what it is
so I think that that's that's a dynamic
working competitive and cooperation that
makes for a great nation
the problem with Canada is it has no
Chicago Montreal is great by itself
Toronto is great by itself one has a
different tradition for intranet
yeah they don't work together and that's
why America's American I don't know
enough about New York to Chicago but but
a lot of the history that you know I've
been reading for this is actually it's
actually about cities in the middle age
and the Renaissance in Italy okay so the
free free city states and the whole
there the whole so so I'm not sure if
the so the interaction between them is
crucial now I'm not really sure whether
its cooperation or competition depends
on you know whatever they are doing
depending on in some sense on the
environment the kind of economic system
that they are in sometimes competition
between them works rather than than
cooperation and in some instances in
Italy certainly there
was happening but but but I completely
agree that you know this this so it goes
back to endogenous growth so cities are
crucial in this one of the I was saying
before that there's a lot of work in
terms of collecting historical data some
of this actually some of the people are
in this room doing it in Italy are
actually really collecting data on
cities on politics so those
institutional structures of cities in
Italy in Europe more generally but Italy
you know it's kind of crucial it's a
perfect lab for this kind of stuff so
yeah I completely sympathize with the
comment though I don't know how much I
love Chicago but I would like to ask
question on a specific timeframe from
1990 and into the future to 2030 and as
you were making your lecture I was
thinking the fact that northern Europe
has had solid economic growth since 1990
to the present whereas Italy since the
1990s it has almost zero economic growth
and what explains is how much of this is
culture and how much of this is
institutions okay so a very good
question and you can imagine it's a
question that been thinking about a lot
though you know what with the not with
the instrument in the context of these
models but so the simple answer is a
total factor productivity in Italy and
even labor productivity has been
completely flat for 30 years where it's
grown every essentially everywhere else
in the in the West okay so if you look
at Italy in Germany in terms of total
factor productivity I mean it's scary
okay so as we started this this reaction
in this sense what is it
what's a okay so in this short you know
in 50 years
I don't think culture okay so it's not
obvious that cultural institution are an
obvious they are for
but as a as you know as a legacy of the
past okay so there is no in terms of
factors driving the low growth of total
factor productivity in Italy okay so
Italy is yeah I mean I don't know that
Italy is a country which is which is
called all sorts of problems there's a
policy a political institution
culturally again it goes back to the
north and south culturally very divided
this implies very complicated you know
the government now is essentially
handing out different things and the
northern in the soffit is still handing
out stuff and of course this impacts on
the efficiency of growth so yeah I don't
know that I would I don't know that I
would want to go into is it cultural
institution in this case I don't know
that I want to do that maybe over lunch
I mean the way it's very Amin I'll as I
think many economists we don't like to
make prediction at least not tradition
that can be falsified so I'm not gonna
make any prediction that can be sassy
falsified
I am very pessimistic I mean the
situation in the country now is crazy I
mean now by now I mean 20 minutes ago it
was crazy
okay so they're talking about financial
repression very openly so I mean yeah so
they're talking about going out of the
euro zone
yeah I'm not you know I can't be so for
the next 40 minutes very pessimistic if
the last 10 years I'm finished
you
