This talk was the first in a series of public discussions of an idea that Paul Romer has been working on for two years.
His economic theory of history explains phenomena such as the constant improvement of the human standard of living by looking primarily at just two forms of innovative ideas: technology and rules.
Stewart Brand is co-founder and president of The Long Now Foundation and co-founder of Global Business Network. He created and edited the Whole Earth Catalog (National Book Award), and co-founded the Hackers Conference and The WELL. His books include The Clock of the Long Now; How Buildings Learn; and The Media Lab. His most recent book, titled Whole Earth Discipline, is published by Viking in the US and Atlantic in the UK.
Paul Romer is Professor of Economics at New York University's Stern School of Business and Director of its Urbanization Project. The Urbanization Project addresses a truly historic challenge and opportunity: welcoming an additional 3 - 5 billion people to urban life in less than a century. The Project's first initiative helps existing cities plan for expansion. Its second initiative fosters the creation of entirely new cities because history shows that a new city offers a uniquely important opportunity to implement systemic social reform and speed up progress.
Prior to joining Stern, Romer taught at Stanford's Graduate School of Business, where he took an entrepreneurial detour to start Aplia, an education technology company dedicated to increasing student effort and engagement. Romer is a Research Associate at the National Bureau of Economic Research and a Fellow of the American Academy of Arts and Sciences. In 2002, he received the Recktenwald Prize for his work on the role of ideas in sustaining economic growth.
Economist Paul Romer sites an example of how China pulled itself out of a thousand year slump in technological innovation by copying British controlled Hong Kong and adopting a new set of governing rules. Romer demonstrates how this method of entry can be used in rebuilding nations without the use of war.
Economist Paul Romer speculates how much land it would take to house 8 billion people or more. He says finding the land is easy, the challenge "will be to rethink things we've taken for granted, about rules and how rules change."
Good evening. I am Stewart Brand from the Long Now Foundation. Couple ofannouncements, as usual when we are here at the Cowell Theatre there is a receptionafterwards, it is down the street around the corner of the Long Now Museum shop officeand party pad. I am told that outside after the show as well as before you can save $5 ontickets for the Maker Fair which is coming up May 30th and 31st and the San MateoCounty Expo Center and one of the reasons that we are on cahoots on with them on this isÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ one is it is a wonderful event. Makers are people who as they say rip the back off oftechnology and put their hands in where they are not supposed to and make thingshappen, and I guess an example of that ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ Long Now is going to be exposing for the firsttime one of the mountain size parts of the 10,000 year clock that we have been workingon. Two thousand pounds of gear ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ it is a ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ Geneva Wheel for the clocks such as we goin the mountain, it is a working piece of apparatus that will work as you watch. If youput your hand in it, it will grind it probably flat. That will be the first exposure of thatpiece of gear and there is amazing things that the Maker Fair recommended.We had two talks in May, so we are going to skip June, everybody can take a vacationand at the end of July, the reply to part of Michael Pollan would be Pamela Ronald andRaoul Adamchak he is an organic farmer or some major repute in California. Teachesorganic farming at University of California Davis. His Wife is Pamela Ronald and she isa head of a genetics engineering lab ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ plant genetic engineering lab at UC Davis and theymake a very strong case, that combination is the right thing to do for the future of food,that will be on July 28th.Paul Romer is an economist who gets invoked a lot, and the reasons are ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ he is theprimary founder and formulator of what is called New Growth Theory, and New GrowthTheory was a formal and persuasive way to make sure that economic growth realizes ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“economic understanding realizes the power of ideas. So always talking about resourcesand various economic balances and so on. But ideas in their own right are a powerfulsource of the creation of wealth. For a while now, I guess a couple of years, he has beenworking up on a new formulation, which is modestly calling a theory of history and thisis the launch of that, there will be a series of presentations that he will be making, puttingthis idea forth and putting it into application.So please welcome the first look at that set of ideas from Paul Romer. [applause]I hope it was clear from the title that there is a certain amount of selfdeprecation in the immodesty of proposing a theory of history. When I was a physicsstudent, the typical exam question that we used to talk about ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ that would be post to us byour professors was ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ define universe and give two examples and I think accepting theassignment proposed a theory of history and given application is almost as difficult or asfull hearty as that. But I hope by the end of the evening I will have persuaded that thereis some value, the thinking about history from a very abstract theoretical perspective andvalue particularly from this point of view of influencing what we do now. Sometimes,we look at theories we can create theories like cosmology, in part just because of theirelegance, really is works of arts. Some of the highest forms of human achievement, butthis talk tonight is not about a theory in that sense, it is really theory as a tool of a veryspecific application in mind and we will come to that at the end. So, when you judge thetheory, keep in mind that it is application that matters, not the elegance per se. But I willstill try and give you something which is tight, simple, has a few moving parts that I hope you will remember.Now what should the Theory of History be able to explain? At a minimum it should beable to describe data like this ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ this is a measure of the wage in terms of the amount oflight, you could earn if you took your efforts as a worker. Work for an hour then boughtfuel with the available technologies at a particular point in time and then use that fuel toproduce light. Notice that it is a ratio scale, so over this roughly 10,000 ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ 12,000 yearhorizon, we are seeing many orders of magnitude increase in the amount of light, theluminance of light you could get if you work for one hour to get fuel to produce light. Sothe most striking fact that a theory of history has to be able to account for is this kind ofimprovement. But it also has to explain the time pattern here. With this kind of plot withthe ratio scale on the vertical axis and time on the horizontal axis, slopes are growth rates.So the rate of growth of this kind of measure of wage has been accelerating, increasingover time. So, this is whatÃƒÂ¢Ã¢â€šÂ¬Ã‚Â¦ this is theÃƒÂ¢Ã¢â€šÂ¬Ã‚Â¦ the sort of the minimum that any Theory ofHistory has to account for, why is it possible for things to be getting so much better, andwhy are things been getting better faster as time has proceeded.Now, I have already said something about the available technologies of the time, youcannot think about a chart like this without thinking about technological change. I havecalled out here one data point which is the point where Edison invented the electric lightbulb. Notice this was not the beginning of this rapid upturn, even things like candleswere very important technologies that led to big improvements compared to sesame oiland a stone lamp. But the electric light bulb was clearly a very important part of thisgeneral process and we know that there is a series of technologies that lie behind thatlight bulb. But we have to stop and think about ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ what does it mean to say a technology?What do we mean by a technology here? And this is the theory part, the abstraction, howdo we strip away the essential and get to the heart of this, so what are technologies. Well,for electric light, there is a whole bunch of things that have to work together. There isgeneration, there is transmission, there is the light bulb, but let us just strip this down toone very simple part. A simple technology is a formula that says, if you take iron andmix a little bit of carbon in with it, you can make steel, and then with steel you can buildthings like the towers that are part of this grand technology that leads to light in peopleÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢shomes. So you can break this complicated technologies down in to very small parts andthey amount to formulas, recipes, instructions but they are all about how to use thephysical objects in the world differently. How to rearrange them in a way that is morevaluable to us a humans. Another example that pulls down even to a more simple kind ofapplication of this concept of this technology, one that many people have foundmemorable is the idea of a cups that you can get in any coffee shop these days. It used tobe that the cups and the lids, the three different sizes of cups that you can typically find ina coffee shop, all had their own size lid, and somebody made the insight that if we re-designed the paper cups, you could use a single type of lid on all three cups. So it is avery simple idea about re-arranging the physical objects in the universe around us. Thewood that then gets turn into paper, that then get turn into cups. But if we did it in aslightly different way, it would save time, and it was the cumulative effect of any largenumber of innovations, technologies, formulas like this that drives human progress andthis improvements and standards of living.Now, technologies have this remarkable feature that makes them very different fromphysical objects, they interact with people in exactly the opposite way that physicalobjects interact, as there were more people on earth, there was less land available perperson, that has been a fact all throughout human history. So, with physical objects themore people you have, in some sense the worse off each of us has to be. But what I amgoing to argue now is that with technologies the more people we have, the better off wecan be, because with technologies these ideas, these formulas, these recipes or things thatwe can share and all use at the same time. So you and I may not be able to both farm thesame square meter to raise organic food, but you and I can both use an insight about croprotation or fertilizers or a new type of seed. So what this means is, if you think abouthistorical dynamic where you have more people, there are more people to go out andmake discoveries which leads to more of this technologies, but because everybody canshare the technologies that means that you have more technologies per person, moretechnologies, more ideas per person, therefore leads to more people and then more peoplefurther spurs the discovery process which spursÃƒÂ¢Ã¢â€šÂ¬Ã‚Â¦ makes it possible for more and morepeople to live on a give piece of land so that you can think about the broad sweep ofhuman history up until relatively recent times, as being a positive feedback loop betweenpeople and technologies that comes from this special characteristic of shareability of thetechnologies. Now, it would not have to be the case that new technologies alone woulddominate the scarcity effects of less land. It could have been the case that as we hadmore and more people having less land per person, led to less food per person and noamount of discovery could overturn that result. So we might have lived in a very harshworld like that where there just wasnÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢t enough to discover that could offset the effects ofscarcity. But judging from human history, that is not the kind of world we have lived in,we have much more food per capita even with much less land per capita than we havebefore and it is because of all the discoveries that we have been able to make.So the simple story about this acceleration over time in the standards of living comesfrom positive feedback between discovery and more people and then combined in themost recent period with a switch from patterns of fertility where up until very recently,new technologies led to more food which led to more people, which did not lead to moreÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ to higher standards of living. But in the last several centuries, humans have gonethrough the demographic transition which meant that at some point, the number of peopledid not keep up with the new technologies that were being discovered. Income perperson started to go up, that set off another kind of explosive dynamic which was ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ asincome per person starts to go up, for reasons that I think are still not clear, humans endup deciding to limit fertility. So population growth could not keep up with thisaccelerating process of technological change, standards of living eventually start to rise,that led in to a fall in fertility and that makes standards of living grow even faster.So that gives you a kind of a simple technologic determinism theory of history that canexplain the broad pattern of accelerating progress over time. But now what we need todo is bring another critical element in to this story. I want to tell that as follows. There isa scholar who has looked at books about manners during the Middle Ages, and the kindof things that this manners books would teach people who wanted to learn how to behaveappropriately in modern society were in junctions like this, that if you are at a table eatingdinner and you need to spit, do not spit across the table over the food of the people eatingacross from you, but turn over your shoulder and spit behind you.So these things, seemed like things that we would ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ how could anybody not know that,but if you go back in time to hunter gatherer societies, you did not really have to worryvery much about where you could spit. So, as we went through this process of moretechnology leading to more people leading to more technology, and increasing density ofpeople. All of a sudden we started to have interactions with each other which called forrules for managing potential negative spillovers between people.I will give you another example, we have a number of technological innovations infishing, better ships, better lines, better nets, ways to catch fish much more efficiently.So a given number of people, or a given amount of capital investment can catch manymore fish. Without the right kinds of rules, those technological advances can do anenormous amount of harm to the worldÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s fisheries and in fact in many case unfortunatelythey have. In a few cases we have actually been able to supplement those technologicaladvances with appropriate rules with limit the catch to the sustainable yield, andthen you get the benefits of technology, it takes less human effort to catch the sustainableyield of fish without any of the harm. So, for both of these reasons, spillovers associatedwith density and potential side effects, negative side effects associated with technology.We need to think about rules, as well as technologies.So the Theory of History that I want to propose here is one that involves two differenttypes of ideas, that when we contrast the properties of scarce physical objects that cannotbe shared with ideas which can be shared and can be reused, we want to think abouttechnological ideas, but also rules. So we have spoken about the technologies,technologies are just ways to re-arrange physical objects to make them more valuable tous. Let us think about what rules are ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ what rules are just ways to structure theinteractions that people have with each other. So technologies are just structuringphysical objects, just structuring matter in ways that are more valuable. Rules arestructuring are interactions to make sure that we get the most value out of thoseinteractions. It could be as simple as drive on the right, or drive on the left, does notreally matter which one you pick. But you better pick one, as density of road traffic starts to increase.Just notice for reference that we will come back to in a minute, that once you picked oneof these conventions, it becomes hard to change. So if you end up in an area where yourrules are drive on the left where everybody else around you is drive on the right, it mightbe efficient for you to switch your system, but it maybe very hard to do. So rules can beas simple as driving on the left or on the right. Another very important rule in humanhistory was the concept of ownership. Think back again to hunter gatherer societies,ownership was not an important concept or convention there, but as we developed, weestablished this new convention that we would assign to certain people the concept ofownership over a particular piece of property which meant that no one else could takeadvantage of that property without the approval of the person who had this ownershipright, and then associated with this ownership right, were conventions about what do youdo when those rules are violated. Any rule like this amongst humans will end up withviolations. Early in human history, violations of rules like challenges to oneÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s owner, ortheft of property like animals. Most societies led to overwhelming retribution andvengeance in response. Over time, we evolved a notion of the right way to respond to aviolation of this convention about ownership with a notion of damages rather than violentretribution. Damages which were proportional to the harm and which rather thandestroying value, just shifted value from the person who caused the harm to the person who suffered.So ownership carries with it, lots of conventions, lots of rules about what does it meanwhen we stick to these rules and how do we respond when people do not stick with it.More recent forms of rules are the rules that support open science. In science, we rewardsomeone who makes a discovery not by giving them an ownership right, but by givingthem recognition and the key to getting recognition for a discovery is to be the first one topublish it, so priority is the critical determinant of who gets the recognition, the prize, therewards in the scientific community. That of course creates strong incentives for peopleto get information out as soon as they discovered it, that turns out to be a very good rulefor taking what is known in science, getting it widely shared, so others can then take whatyou have discovered and build on it to make a subsequent discovery. So, these rules caninteract with the technologies that we described a minute ago.The discovery of the potential for cultivating wheat led almost inevitably to the evolutionof rules about ownership of land. That if you are cultivating a piece of land, you need toable to capture the returns from that. You cannot let others come in, under theconventions of say hunter gatherer societies and just take whatever they want whenever they want.So this is a case where a technological development almost surely spurred the new sets ofrules, there are other cases where it goes the other direction. The patent system in theUnited States was a very important collection of rules, which where different from therules of open science but which gave Thomas Edison the potential for monetary gain if hecould come up with a better incandescent light bulb, and that was critical for spurring himto make the discovery that led to the first practical light bulb. But in parallel we have theinstitutions of science which were developing MaxwellÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s equations and all theunderstanding of electricity and magnetism which were acquired for building up thetransmission systems for developing the dynamos, so it took both the institutions ofproperty and patents and the institutions of science to get those kinds of discoveries thatlet to the light that we saw on the first slide.Now, the discussion so far makes it sound as if good rules will be forthcoming wheneverwe need them and whenever we want them. But if you look around the world we see thatthe story about the evolution of this rules is actually much more complicated. A goodindication of that is just to take the map of the world at night and look at the varioussources of light and then zoom in on one particular area, the Korean peninsula ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ theKorean peninsula there is literally a black hole where there is no light but we know manypeople live there, the same technologies that generate light for people everywhere else inthe world could be used in North Korea but something clearly prevents those fromactually being put to use there. So there is something very extreme about the rules inNorth Korea which mean that existing technologies do not get used there and certainlyimportant new technologies do not get discovered there.So there is a potential for rules to turn harmful to slow us down and sadly for those topersist for very long periods of time. Again think back to the story about driving on theleft versus driving on the right. From the broad historical perspective China is the casethat most calls out for this amendment to the simple story of a feedback between peopleand technologies, because China was in the Middle Ages as that story would predict wellahead of the rest of the world. There is a whole list of important technologies that weredeveloped first in China, like steel, like gunpowder, decimals, the wheelbarrow, the listgoes on and on. But around a thousandÃƒÂ¢Ã¢â€šÂ¬Ã‚Â¦ 1200 with the Ming Dynasty a new set of ruleswere imposed in China that brought progress there to a halt ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ technological progress thereand which kept them from centuries from even being able to take advantage oftechnologies that were developed in other parts of the world.To show this in a graph, the scale now is a linear scale of income per capita in 1990dollars so if we convert it in todayÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s dollars the numbers would look a little bit bigger.These are estimates of ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ and these are very crude estimates, but estimates of income percapita going back to the year 1,000 in China and whoever was the world leader at variouspoints in time. If you look ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ if we zoom way in on that point 1,000 the historicalestimates are at that point China was ahead, but China then entered into almost athousand years of stagnation, as the leading countries in the world went zooming farahead. So there is a potential for new rules like the patent system, like open science tospeed up the rate of technological change and speed up discovery ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ speed upimprovements and standards of living. So that acceleration we saw in the leadingcountries is not just the function of more people leading to more discoveries but in recentperiods it has been more people discovering because there are rules that give them betterincentives to discover and better ways to work with each other as they all engage in thediscovery process, so rules can amplify this exhilarating process that was first driven justby population growth, but rules can also stifle and slow progress down and can do so formany centuries. So the theory of history that we have to work out here is one where weallow for this dynamic of technology, but we think about what is the underlying dynamicof the rules. Why the rules sometimes get better in a way that makes everyone better off,why the rules sometimes trap us in a way that seems so harmful to all and so wasteful.Now to think about what the dynamic is, I want to invoke an analogy at this point. I wantyou to think not about countries, but think about companies for a minute and zoom in to amuch narrower piece of history. Think about the recent IT revolution in the UnitedStates. Go back to innovations that started at IBM, with the 360 line of mainframes andthe emergence of centralized computing in important commercial applications, then thinkabout the emergence of a company like Wang which was one of the companiespioneering the development of computing that was closer to the user and applications likeword processing which became available to users when the computing power was closer.Wang emerged, competed with IBM, developed an important niche, but was sooneclipsed. Apple came in; was one of the first companies, others had tried but one of thefirst companies to move computing all the way to the end-user. IBM then responded withits own personal computer. Personal computers took off. Word processing becameavailable on personal computers. Wang completely lost the word processing business butthroughout this process, the applications and the functionality we could achieve all gotbetter. Critical elements in this dynamic were things like new entry. At one point therewas no Wang Computing, at one point there was no Apple, but those companies couldenter, do things differently. When they enter, there was a process of copying so Applepushes the PC, IBM copies with its own version of the PC. There are also cases like atWang where there is really no future for that organization and workers and costumers getreallocated to other companies selling other products, developing other products, andWang shrinks but progressed for the system as a whole and moves ahead. So imaginewhat would happen if we could not have any new companies? Your first reaction mightbe, well MooreÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s Law should still operate, technology should still keep improving, but ifyou look at the history, these social organizations, these people working together underparticular rule sets were critical drivers of technological change and the kind of rule setthat was operating at IBM was very powerfully productive for some period of time, but itbecame less effective in a later period. New organizations emerged where a wholecollection of people operated according to a different set of rules. We are able tocompete with IBM, take some of its business away, IBM changed some of its rules inresponse to this competition but other organizations like Wang did not. If we couldnÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢thave that process of competition that drives IBM to change, that brings in the ideas ofWang or brings in the ideas at Apple, it is very likely that we would have had muchslower progress in the IT industry and this is a kind of a warning to ourselves that therules really do matter here, that we cannot just think of the technologies is operatingaccording to their own inherent time clock, and we can arrange things so that there arenew countries or new companies that had merged or not and it is very important in oureconomy that we can in fact have new companies. Now, let me tell this story again aboutcountries instead of companies. So think about the process of world leadership inproductivity. The Netherlands in the 16th and early 17th century was the world leader incommercial establishments that developed stock markets. They pioneered the financialcrisis with the tool of bubble. It was a country which attracted many migrants fromthroughout Europe grew very rapidly because of that migration and for a period was theworld leader, but then over time, leadership moved to the United Kingdom. We saw theearly applications of engineering, applied science, the harnessing of power to the textileindustry for a hundred years or more with the early stages of the industrial revolution; theUK was the world leader, then the United States came in, at first well behind the UK,copied the technologies that were available in the UK but changed some of its rules aboutthings like our patent system compared to the British patent system, ours was much moredemocratic, much easier for small inventors to get access to. We pioneered a verydifferent form of universities and a very different commitment to education and becauseof those different kinds of rules, we became the world leader. So in this chart that Ishowed you before about world leadership, this is the point where the Netherlands takesover as the world leader. This was the point where the UK takes over, and then this mostrecently is the spot for the United States. The same kind of dynamic that we talked aboutin terms of companies operates amongst these countries as well. There was new entry.The United States in particular was a brand new country with new rules, very differentfrom the rules that others had used. We saw cases of copying. The United States copiedtechnologies and rules that worked well in Britain. Britain after World War II copiedthings that had worked well in the United States. We have also had cases of large-scalemigration. I mentioned the migration into the Netherlands, in the period when they weresurging ahead. The United States as a new nation of course attracted many migrants aswell and continues to attract migrants in those areas with those sets of skills that will letthem come in. So entry, migration, and copying all operate at the same scale betweencountries just as they do between companies and to just illustrate that process, let me justtell you a little bit more of the story of Pennsylvania as a new set of rules, its own countryuntil it became part of the new United States. Pennsylvania was a dominion that wasgiven to William Penn by King Charles II. Penn set out the charter, wrote out a charterfor Pennsylvania and innovated in terms of the rules and certain things like legallyprotected guarantee of religion. Penn said this is the way Pennsylvania will be run thenpeople who are interested in living under those kinds of rules were attracted toPennsylvania. Penn actually went to the Netherlands in 1670 and tried to recruit peoplefrom there as well as from Germany to come live in his new country, and ultimately,other colonies in the United States copied this innovation of a legally guaranteed right tofreedom of religion and it became a part of our constitution. Notice that in this process,the dynamic that we usually think about is the one that drives innovations and rules.People vote to have a change in the rules or they vote to have some representatives whothen go change the rules. This was not the dynamic that got us a legal protection of thefreedom of religion in this period. So the question that we need to ask ourselves is whatif there were no new countries? What if because of the conventions that we have nowestablished about protecting boundaries, what if because of those conventions that nocountry can invade another country, we stop this process of the introduction of newnational rule sets that can compete with the existing ones that can innovate in ways thatthe existing ones find hard to innovate with? So think about how did we create a newcountry in the United States? We actually did it through military conquest. I mean, Pennwas given ÃƒÂ¢Ã¢â€šÂ¬Ã…â€œthe landsÃƒÂ¢Ã¢â€šÂ¬ by King Charles II, but there were people living here and Penn wasactually relatively humane about this and tried to pay the Indians who were living there toleave, but in a sense we were able to create a new country in the United States because ofviolent military conquest of a piece of land that was occupied by some other people andsaid we are going to take whatever rule system was there and been placed before and putin place a new one. So should we rethink this convention about giving war a chance?Should we try this again? Unfortunately, this was basically the logic behind thinkingabout the invasion in Iraq and the invasion in Afghanistan. There are many conflictingand complicating factors in the invasion in Iraq, but the invasion in Afghanistan wassomething where there was broad international consensus that this was the right thing todo, to go in militarily and try and change the rule system that was in place there, and itstill turned out very badly. So for better or for worse, it is almost certain going ahead thatwe are not going to see the kind of conquest of territory that lead to the introduction ofPennsylvania as a new colony or the United States as a new country, and then thequestion is does this mean that this dynamic of competition and entry and reallocationwhich drove improvement in the rules which in turn drove improvement in thetechnologies and standards of living. Are we about to enter a phase where this process isshutting down? So what I want to get you to think about the application now, if thetheory of history here is it is the co-evolution of rules and technology which have drivenprogress and that rules have progressed in the same way that industries progress throughcompetition, entry, reallocation, copying. What if we could continue that entry processwithout some form of conquest? Could we as humans come up with rules about how wechange rules so that we create this potential for ongoing innovation even at the level ofnational rule sets? Now, to try and build the case that that application of this theory ispossible, that we can keep co-evolution of rules and technology moving ahead and wecan do it through entry, competition, reallocation, migration. Let me talk about howChina got out of the trap that it was stuck in for a thousand years. Because of a historicalaccident that did involve conquest, so this part does not generalize, but because of ahistorical accident, a very small piece of China was under a different system ofadministrative control from the rest of China. It was under the control of the British. Itwas a place like Pennsylvania that people could come to if they wanted to live under adifferent set of rules then say the rules that were operating on the mainland. The rulesthat the British brought in to Hong Kong were the modern rules that we take for grantedof a modern economy. Hong Kong especially in the post World War II era grew veryrapidly as commercial, initially commercial manufacturing center later as a financial hub.Hong Kong grew very rapidly. The Chinese watching this demonstration effect close bystarted to take advantage of it by creating four special economic zones along the coastlinein China where rules that had been developed in Hong Kong could be brought in one at atime in small measure within the special zones. So the Chinese did not try to changeeverything in the whole nation all at once, but when the leadership was persuaded thatthey really did have to move forward as a nation instead of continuing to lag farther andfarther behind, they were able to take advantage of the close experience of Hong Kongand then replicate it in other special small zones where the rules and then thetechnologies of the modern world were brought in to China. That was then followed by aseries of cities along the coast in China. So this gradual evolution from one very smallspot to several others and the upshot was that whereas the last craft that I showed youstopped in 1950 now with a slightly different scale because it is $2,000; dollars inpurchasing power of the year 2000, you can see how starting in the 1970s income percapita finally starts to grow in China and then takes off and goes through this surge, thisunprecedented increase in standards of living. This increased at rates that we have neverseen before in human history. If you want to see this in ratio terms relative to the UnitedStates, this shows you income per capita in China as a percentage of income per capita inthe United States and you can see that there is no catch up at all through the 1970s andthen this astonishing process of convergence that has taken place since the late 1970s. Sothe changes in the rules that the Chinese were able to implement by starting with smallareas, by experimenting with those areas, by using those areas as places where you couldcopy not just the technologies that are idea-like and copyable but even copy theinstitutions by bringing them in first to Hong Kong then to the rest of China. Thisprocess of copying rules and technologies enabled this astonishing improvement instandards of living and the force which is just turning the corner for the world so thatworldwide income and quality is now finally starting to shrink rather than grow partlybecause of that continuing divergence that we saw for almost a thousand years betweenthe west and China. So what would it take to generalize from this Chinese experienceand create the potential for new entry at the level of national rule systems? The firstthing we will have to do is rethink sovereignty. Sovereignty has many components.There are two that I want to distinguish here. One is sovereignty in the sense ofinternationally recognized borders and we have come worldwide to a new consensus thatinternationally recognized borders cannot be violated and that is an extremely importantdevelopment in human history. It will mean that we will no longer have wars of conquestof territory or for that matter, conquests like the ones that lead to the Pennsylvania but wewill not have wars like World War I and II either. That needs to be preserved and almostsurely will be preserved going forward, but you can distinguish sovereignty in the senseof the ultimate say over what happens within a kind of a predefined set of borders. Youcan distinguish that from a notion of administrative control that on paper, what the Britishhad in Hong Kong was a delegated responsibility for administrative control within apiece of sovereign Chinese territory and if we think with open minds, there are manyplaces around the world where the administrative responsibility for that piece of territorycould be granted to other nations or consortiums of nations, to partnerships, to other kindsof groups who could facilitate the transfer not just of technologies, but even systems ofrules and there is no reason why this could not be negotiated voluntarily. Looking back,Hong Kong was probably the most successful economic development program in humanhistory. There is no reason why something like that could not be done intentionallyvoluntarily as part of mutually beneficial agreement rather than by the kind of force thatset up Hong Kong. So if we distinguish the borders from who is in control and arewilling to think flexibly about who is in control, there are many more options which willopen up here and this is particularly powerful if you think about setting up new systemsof control in areas where almost no one lives, because then you could replicate somethinglike the dynamic in Pennsylvania where you could propose new rules, different rulesfrom those applying locally, perhaps even different rules that apply anywhere in theworld and people can choose to opt in and operate under those new kinds of rules, so youcan have much more experimentation, much more freedom for people to move into newplaces, and continued progress in the sense of competition between systems of rules. Theplaces, and continued progress in the sense of competition between systems of rules. Theother piece that we would probably need to make this work is to rethink citizenship thatyou can think about citizenship as partly being about residency. You can be grantedresidency rights in a particular place but citizenship typically involves some notion ofvoices well, some ability to vote or to have some control over the political system, but weare already used to distinguishing between these two notions. There are people who canmove into one country as residence but who were not nationalized citizens and whotherefore do not have voice. So you could imagine in this new administrative units,people who might move there who might retain their citizenship rights in the sense ofvoice retain that in their country of origin, but not necessarily have the same kinds ofvoice in the place that they move to and some other group of citizens might be the oneswho actually have voice and voting over the rules in one of these administrative zones.Hong Kong had that characteristic. Hong Kong was under democratic control in the postWorld War II era. There were voters in the UK who elected a prime minister whoappointed an administrator for Hong Kong. So it was not a case of authoritarian rule butin fact, it was a case of democratic rule. It just turned out not to be a democracy thatinvolved the local residence. Everyone in Hong Kong lived there in the same way thatsomeone with a green card might come and live in the United States and if we are willingto allow for that kind of possibility, again, it could free up our notions about exactlywhere in the world and under what circumstances and what kinds of terms new kinds ofeconomic and political arrangements could be put in place. The last thing that we have todo to deliver on this program is to rethink scale. If you think about economicdevelopment which is the application that most concerns me, we typically think of eitherthe village or the nation will do something that will change things to level with the villagewith the nation, but go back to that discussion we had earlier about the power of morepeople leading to more ideas, leading to economic benefits. The modern representationsof that power of ideas that we gain access to from immediate access to people are urbanareas. We cluster in urban areas because we want those benefits being around manyother people and we suffer the costs of having a lot less land per person because the ideasper person that we can have are so much greater in a city. So the scale to think about thiskind of new development and for changing the prospects for all poor countries in theworld right now is the same kind of scale that the Chinese were thinking about when theylooked at Hong Kong then had the special economic zones, then the open cities. We needto think about city states as the unit where we could undertake this kind of innovation andcreate the opportunities for very different kinds of systems of rules and very rapidtranslation of the benefits from the rest of the world to those new cities. This is going tobe an extremely important challenge for the world to face in the coming century.Something on the order of five or more, potentially as many as 8 billion people willÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ ifeconomic growth takes place at any kind of reasonable rate, 5 to 8 billion people willwant to move to cities, will be able to move to cities. A very small fraction in the worldpopulation will be left in rural areas producing all the food we need and almost everyonewill want to live in cities and it will be an enormous challenge for us to provide the kindsof well-run cities that can lead to real economic benefits, real improvement and standardsof living rather than the kinds of dysfunctional cities we see in some parts of thedeveloping world where the existing rules are not able to keep up, cannot improve,cannot cope with the challenges that they face.So what if we really needed places for billions of people, 5 billion people or more? Howmuch land on earth would it actually take? If you take the world surface area representedas dots, compress it to a rectangle like this, and then asks suppose people could move intoplaces like Hong Kong, so Hong Kong-like densities, how much land would it take tocreate urban areas for 8 billion people? It turns out it is a tiny fraction of the surface areaon the earth and there is an enormous amount of land on earth which is right now veryunder utilized, not suitable for agriculture, but could easily be used to create these newurban spots. So finding the land would really be no challenge in carrying out a programlike this even at scale. The challenge will be for us to rethink things that we have takenfor granted, about rules, and how rules change, how people opt into them and opt out,how they control them, what options they have, and what kinds of arrangements countriescan enter into about what to do within their own borders, what ways existing countriescan work together to create new kinds of arrangements that transfer rule systems as wellas technologies across borders. So there is really nothing but certain kinds ofpresumptions and emotional reactions that hold us back from doing something that couldbe terribly important for helping people throughout the world catch up and potentiallyeven keeping technology going at the frontier. There is a law that is referred to asCardwellÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s Law that says that no nation remains technologically innovative for long. Wehave been able to enjoy continued exhilarating economic growth and technologicalinnovation, but only because that process of innovation has been able to move to differentplaces across the globe and we would like to believe that the United States will remainthe worldwide leader forever into the far future but if you take the long now timeframeseriously of the next 10,000 years, history does not give you a lot of confidence that anynation even the United States can remain the technological leader, but if there is stillsome potential for new places to emerge, new systems to be tried, places where newpeople can go, often young innovative people, the ambitious people who moved intoHolland; these may be important not just in helping the rest of the world catch up buteven keeping innovation going at faster and faster rates out at the cutting edge.So there is a big challenge in just getting ourselves to rethink what is possible, what we could do,This map zeros in on Africa which is the other part of the world which right now stands out as being very devoid oflight. There is very limited GDP, very limited opportunities for people to consume lightthere and if you want to picture to remember about what that means in terms of thequality of life, remember this picture. This is a picture of students in Guinea reading theirtextbooks at the airport because this was the only place where they could get light at nightto do their schoolwork. It is a solved technical problem about how to generate electricityand get it to homes so students do not have to go sit at the airport to read their books andit is a solved political social problem to create rules that can lead to the implementation ofthose technical systems that get light to these kinds of young people. So as you evaluatethis theory of the history and this application and you run up against the inevitablereaction that we could never create new countries. You could never have and agreementto set aside a piece of territory and create something like a Hong Kong. You could neverhave a place where people opt in and opt out but where the political control might befrom a very different location, but as you think about all of those objections, think aboutexplaining it to one of these kids and telling them why we think the best solution is foryou to just spend as long as it takes, you know, maybe another thousand leader years as inChina to wait for somehow your own internal systems of rules to transform so you canget access to the kinds of things that we take for granted. Thanks. [applause]