Paul Romer: A Theory of History, with an Application

Good evening. I am Stewart Brand from the Long Now Foundation. Couple of announcements, as usual when we are here at the Cowell Theatre there is a reception afterwards, it is down the street around the corner of the Long Now Museum shop office and party pad. I am told that outside after the show as well as before you can save $5 on tickets for the Maker Fair which is coming up May 30th and 31st and the San Mateo County Expo Center and one of the reasons that we are on cahoots on with them on this is – one is it is a wonderful event. Makers are people who as they say rip the back off of technology and put their hands in where they are not supposed to and make things happen, and I guess an example of that – Long Now is going to be exposing for the first time one of the mountain size parts of the 10,000 year clock that we have been working on. Two thousand pounds of gear – it is a – Geneva Wheel for the clocks such as we go in the mountain, it is a working piece of apparatus that will work as you watch. If you put your hand in it, it will grind it probably flat. That will be the first exposure of that piece 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 vacation and at the end of July, the reply to part of Michael Pollan would be Pamela Ronald and Raoul Adamchak he is an organic farmer or some major repute in California. Teaches organic farming at University of California Davis. His Wife is Pamela Ronald and she is a head of a genetics engineering lab – plant genetic engineering lab at UC Davis and they make 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 – he is the primary founder and formulator of what is called New Growth Theory, and New Growth Theory was a formal and persuasive way to make sure that economic growth realizes – economic understanding realizes the power of ideas. So always talking about resources and various economic balances and so on. But ideas in their own right are a powerful source of the creation of wealth. For a while now, I guess a couple of years, he has been working up on a new formulation, which is modestly calling a theory of history and this is the launch of that, there will be a series of presentations that he will be making, putting this 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 self deprecation in the immodesty of proposing a theory of history. When I was a physics student, the typical exam question that we used to talk about – that would be post to us by our professors was – define universe and give two examples and I think accepting the assignment proposed a theory of history and given application is almost as difficult or as full hearty as that. But I hope by the end of the evening I will have persuaded that there is some value, the thinking about history from a very abstract theoretical perspective and value 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 their elegance, really is works of arts. Some of the highest forms of human achievement, but this talk tonight is not about a theory in that sense, it is really theory as a tool of a very specific application in mind and we will come to that at the end. So, when you judge the theory, keep in mind that it is application that matters, not the elegance per se. But I will still 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 be able to describe data like this – this is a measure of the wage in terms of the amount of light, you could earn if you took your efforts as a worker. Work for an hour then bought fuel with the available technologies at a particular point in time and then use that fuel to produce light. Notice that it is a ratio scale, so over this roughly 10,000 – 12,000 year horizon, we are seeing many orders of magnitude increase in the amount of light, the luminance of light you could get if you work for one hour to get fuel to produce light. So the most striking fact that a theory of history has to be able to account for is this kind of improvement. But it also has to explain the time pattern here. With this kind of plot with the 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, increasing over time. So, this is what… this is the… the sort of the minimum that any Theory of History has to account for, why is it possible for things to be getting so much better, and why are things been getting better faster as time has proceeded. Now, I have already said something about the available technologies of the time, you cannot think about a chart like this without thinking about technological change. I have called out here one data point which is the point where Edison invented the electric light bulb. Notice this was not the beginning of this rapid upturn, even things like candles were very important technologies that led to big improvements compared to sesame oil and a stone lamp. But the electric light bulb was clearly a very important part of this general process and we know that there is a series of technologies that lie behind that light bulb. But we have to stop and think about – what does it mean to say a technology? What do we mean by a technology here? And this is the theory part, the abstraction, how do 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 is generation, there is transmission, there is the light bulb, but let us just strip this down to one very simple part. A simple technology is a formula that says, if you take iron and mix a little bit of carbon in with it, you can make steel, and then with steel you can build things like the towers that are part of this grand technology that leads to light in people’s homes. So you can break this complicated technologies down in to very small parts and they amount to formulas, recipes, instructions but they are all about how to use the physical objects in the world differently. How to rearrange them in a way that is more valuable to us a humans. Another example that pulls down even to a more simple kind of application of this concept of this technology, one that many people have found memorable is the idea of a cups that you can get in any coffee shop these days. It used to be that the cups and the lids, the three different sizes of cups that you can typically find in a 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 a very simple idea about re-arranging the physical objects in the universe around us. The wood that then gets turn into paper, that then get turn into cups. But if we did it in a slightly different way, it would save time, and it was the cumulative effect of any large number of innovations, technologies, formulas like this that drives human progress and this improvements and standards of living. Now, technologies have this remarkable feature that makes them very different from physical objects, they interact with people in exactly the opposite way that physical objects interact, as there were more people on earth, there was less land available per person, that has been a fact all throughout human history. So, with physical objects the more people you have, in some sense the worse off each of us has to be. But what I am going to argue now is that with technologies the more people we have, the better off we can be, because with technologies these ideas, these formulas, these recipes or things that we can share and all use at the same time. So you and I may not be able to both farm the same square meter to raise organic food, but you and I can both use an insight about crop rotation or fertilizers or a new type of seed. So what this means is, if you think about historical dynamic where you have more people, there are more people to go out and make discoveries which leads to more of this technologies, but because everybody can share the technologies that means that you have more technologies per person, more technologies, more ideas per person, therefore leads to more people and then more people further spurs the discovery process which spurs… makes it possible for more and more people to live on a give piece of land so that you can think about the broad sweep of human history up until relatively recent times, as being a positive feedback loop between people and technologies that comes from this special characteristic of shareability of the technologies. Now, it would not have to be the case that new technologies alone would dominate the scarcity effects of less land. It could have been the case that as we had more and more people having less land per person, led to less food per person and no amount of discovery could overturn that result. So we might have lived in a very harsh world like that where there just wasn’t enough to discover that could offset the effects of scarcity. 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 have before 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 comes from positive feedback between discovery and more people and then combined in the most 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 more – to higher standards of living. But in the last several centuries, humans have gone through the demographic transition which meant that at some point, the number of people did not keep up with the new technologies that were being discovered. Income per person started to go up, that set off another kind of explosive dynamic which was – as income per person starts to go up, for reasons that I think are still not clear, humans end up deciding to limit fertility. So population growth could not keep up with this accelerating 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 can explain the broad pattern of accelerating progress over time. But now what we need to do is bring another critical element in to this story. I want to tell that as follows. There is a scholar who has looked at books about manners during the Middle Ages, and the kind of things that this manners books would teach people who wanted to learn how to behave appropriately in modern society were in junctions like this, that if you are at a table eating dinner and you need to spit, do not spit across the table over the food of the people eating across from you, but turn over your shoulder and spit behind you. So these things, seemed like things that we would – how could anybody not know that, but if you go back in time to hunter gatherer societies, you did not really have to worry very much about where you could spit. So, as we went through this process of more technology leading to more people leading to more technology, and increasing density of people. All of a sudden we started to have interactions with each other which called for rules for managing potential negative spillovers between people. I will give you another example, we have a number of technological innovations in fishing, 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 many more fish. Without the right kinds of rules, those technological advances can do an enormous amount of harm to the world’s fisheries and in fact in many case unfortunately they have. In a few cases we have actually been able to supplement those technological advances with appropriate rules with limit the catch to the sustainable yield, and then you get the benefits of technology, it takes less human effort to catch the sustainable yield of fish without any of the harm. So, for both of these reasons, spillovers associated with 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 different types of ideas, that when we contrast the properties of scarce physical objects that cannot be shared with ideas which can be shared and can be reused, we want to think about technological 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 to us. Let us think about what rules are – what rules are just ways to structure the interactions that people have with each other. So technologies are just structuring physical objects, just structuring matter in ways that are more valuable. Rules are structuring are interactions to make sure that we get the most value out of those interactions. It could be as simple as drive on the right, or drive on the left, does not really 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 one of these conventions, it becomes hard to change. So if you end up in an area where your rules are drive on the left where everybody else around you is drive on the right, it might be efficient for you to switch your system, but it maybe very hard to do. So rules can be as simple as driving on the left or on the right. Another very important rule in human history 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, we established this new convention that we would assign to certain people the concept of ownership over a particular piece of property which meant that no one else could take advantage of that property without the approval of the person who had this ownership right, and then associated with this ownership right, were conventions about what do you do when those rules are violated. Any rule like this amongst humans will end up with violations. Early in human history, violations of rules like challenges to one’s owner, or theft of property like animals. Most societies led to overwhelming retribution and vengeance in response. Over time, we evolved a notion of the right way to respond to a violation of this convention about ownership with a notion of damages rather than violent retribution. Damages which were proportional to the harm and which rather than destroying 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 mean when 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 reward someone who makes a discovery not by giving them an ownership right, but by giving them recognition and the key to getting recognition for a discovery is to be the first one to publish it, so priority is the critical determinant of who gets the recognition, the prize, the rewards in the scientific community. That of course creates strong incentives for people to get information out as soon as they discovered it, that turns out to be a very good rule for taking what is known in science, getting it widely shared, so others can then take what you have discovered and build on it to make a subsequent discovery. So, these rules can interact with the technologies that we described a minute ago. The discovery of the potential for cultivating wheat led almost inevitably to the evolution of rules about ownership of land. That if you are cultivating a piece of land, you need to able to capture the returns from that. You cannot let others come in, under the conventions 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 of rules, there are other cases where it goes the other direction. The patent system in the United States was a very important collection of rules, which where different from the rules of open science but which gave Thomas Edison the potential for monetary gain if he could come up with a better incandescent light bulb, and that was critical for spurring him to make the discovery that led to the first practical light bulb. But in parallel we have the institutions of science which were developing Maxwell’s equations and all the understanding of electricity and magnetism which were acquired for building up the transmission systems for developing the dynamos, so it took both the institutions of property and patents and the institutions of science to get those kinds of discoveries that let 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 whenever we need them and whenever we want them. But if you look around the world we see that the story about the evolution of this rules is actually much more complicated. A good indication of that is just to take the map of the world at night and look at the various sources of light and then zoom in on one particular area, the Korean peninsula – the Korean peninsula there is literally a black hole where there is no light but we know many people live there, the same technologies that generate light for people everywhere else in the world could be used in North Korea but something clearly prevents those from actually being put to use there. So there is something very extreme about the rules in North Korea which mean that existing technologies do not get used there and certainly important 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 to persist for very long periods of time. Again think back to the story about driving on the left versus driving on the right. From the broad historical perspective China is the case that most calls out for this amendment to the simple story of a feedback between people and technologies, because China was in the Middle Ages as that story would predict well ahead of the rest of the world. There is a whole list of important technologies that were developed first in China, like steel, like gunpowder, decimals, the wheelbarrow, the list goes on and on. But around a thousand… 1200 with the Ming Dynasty a new set of rules were imposed in China that brought progress there to a halt – technological progress there and which kept them from centuries from even being able to take advantage of technologies 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 1990 dollars so if we convert it in today’s dollars the numbers would look a little bit bigger. These are estimates of – and these are very crude estimates, but estimates of income per capita going back to the year 1,000 in China and whoever was the world leader at various points in time. If you look – if we zoom way in on that point 1,000 the historical estimates are at that point China was ahead, but China then entered into almost a thousand years of stagnation, as the leading countries in the world went zooming far ahead. So there is a potential for new rules like the patent system, like open science to speed up the rate of technological change and speed up discovery – speed up improvements and standards of living. So that acceleration we saw in the leading countries is not just the function of more people leading to more discoveries but in recent periods it has been more people discovering because there are rules that give them better incentives to discover and better ways to work with each other as they all engage in the discovery process, so rules can amplify this exhilarating process that was first driven just by population growth, but rules can also stifle and slow progress down and can do so for many centuries. So the theory of history that we have to work out here is one where we allow for this dynamic of technology, but we think about what is the underlying dynamic of 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 want you to think not about countries, but think about companies for a minute and zoom in to a much narrower piece of history. Think about the recent IT revolution in the United States. Go back to innovations that started at IBM, with the 360 line of mainframes and the emergence of centralized computing in important commercial applications, then think about the emergence of a company like Wang which was one of the companies pioneering the development of computing that was closer to the user and applications like word processing which became available to users when the computing power was closer. Wang emerged, competed with IBM, developed an important niche, but was soon eclipsed. Apple came in; was one of the first companies, others had tried but one of the first companies to move computing all the way to the end-user. IBM then responded with its own personal computer. Personal computers took off. Word processing became available on personal computers. Wang completely lost the word processing business but throughout this process, the applications and the functionality we could achieve all got better. Critical elements in this dynamic were things like new entry. At one point there was no Wang Computing, at one point there was no Apple, but those companies could enter, do things differently. When they enter, there was a process of copying so Apple pushes the PC, IBM copies with its own version of the PC. There are also cases like at Wang where there is really no future for that organization and workers and costumers get reallocated to other companies selling other products, developing other products, and Wang shrinks but progressed for the system as a whole and moves ahead. So imagine what would happen if we could not have any new companies? Your first reaction might be, well Moore’s Law should still operate, technology should still keep improving, but if you look at the history, these social organizations, these people working together under particular rule sets were critical drivers of technological change and the kind of rule set that was operating at IBM was very powerfully productive for some period of time, but it became less effective in a later period. New organizations emerged where a whole collection of people operated according to a different set of rules. We are able to compete with IBM, take some of its business away, IBM changed some of its rules in response to this competition but other organizations like Wang did not. If we couldn’t have that process of competition that drives IBM to change, that brings in the ideas of Wang or brings in the ideas at Apple, it is very likely that we would have had much slower progress in the IT industry and this is a kind of a warning to ourselves that the rules really do matter here, that we cannot just think of the technologies is operating according to their own inherent time clock, and we can arrange things so that there are new countries or new companies that had merged or not and it is very important in our economy that we can in fact have new companies. Now, let me tell this story again about countries instead of companies. So think about the process of world leadership in productivity. The Netherlands in the 16th and early 17th century was the world leader in commercial establishments that developed stock markets. They pioneered the financial crisis with the tool of bubble. It was a country which attracted many migrants from throughout Europe grew very rapidly because of that migration and for a period was the world leader, but then over time, leadership moved to the United Kingdom. We saw the early applications of engineering, applied science, the harnessing of power to the textile industry for a hundred years or more with the early stages of the industrial revolution; the UK 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 about things like our patent system compared to the British patent system, ours was much more democratic, much easier for small inventors to get access to. We pioneered a very different form of universities and a very different commitment to education and because of those different kinds of rules, we became the world leader. So in this chart that I showed you before about world leadership, this is the point where the Netherlands takes over as the world leader. This was the point where the UK takes over, and then this most recently is the spot for the United States. The same kind of dynamic that we talked about in 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 different from the rules that others had used. We saw cases of copying. The United States copied technologies and rules that worked well in Britain. Britain after World War II copied things that had worked well in the United States. We have also had cases of large-scale migration. I mentioned the migration into the Netherlands, in the period when they were surging ahead. The United States as a new nation of course attracted many migrants as well and continues to attract migrants in those areas with those sets of skills that will let them come in. So entry, migration, and copying all operate at the same scale between countries just as they do between companies and to just illustrate that process, let me just tell you a little bit more of the story of Pennsylvania as a new set of rules, its own country until it became part of the new United States. Pennsylvania was a dominion that was given to William Penn by King Charles II. Penn set out the charter, wrote out a charter for Pennsylvania and innovated in terms of the rules and certain things like legally protected guarantee of religion. Penn said this is the way Pennsylvania will be run then people who are interested in living under those kinds of rules were attracted to Pennsylvania. Penn actually went to the Netherlands in 1670 and tried to recruit people from 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 to freedom 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 who then go change the rules. This was not the dynamic that got us a legal protection of the freedom of religion in this period. So the question that we need to ask ourselves is what if there were no new countries? What if because of the conventions that we have now established about protecting boundaries, what if because of those conventions that no country can invade another country, we stop this process of the introduction of new national rule sets that can compete with the existing ones that can innovate in ways that the existing ones find hard to innovate with? So think about how did we create a new country in the United States? We actually did it through military conquest. I mean, Penn was given “the lands†by King Charles II, but there were people living here and Penn was actually relatively humane about this and tried to pay the Indians who were living there to leave, but in a sense we were able to create a new country in the United States because of violent military conquest of a piece of land that was occupied by some other people and said we are going to take whatever rule system was there and been placed before and put in 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 thinking about the invasion in Iraq and the invasion in Afghanistan. There are many conflicting and complicating factors in the invasion in Iraq, but the invasion in Afghanistan was something where there was broad international consensus that this was the right thing to do, to go in militarily and try and change the rule system that was in place there, and it still turned out very badly. So for better or for worse, it is almost certain going ahead that we are not going to see the kind of conquest of territory that lead to the introduction of Pennsylvania as a new colony or the United States as a new country, and then the question is does this mean that this dynamic of competition and entry and reallocation which drove improvement in the rules which in turn drove improvement in the technologies and standards of living. Are we about to enter a phase where this process is shutting down? So what I want to get you to think about the application now, if the theory of history here is it is the co-evolution of rules and technology which have driven progress and that rules have progressed in the same way that industries progress through competition, entry, reallocation, copying. What if we could continue that entry process without some form of conquest? Could we as humans come up with rules about how we change rules so that we create this potential for ongoing innovation even at the level of national rule sets? Now, to try and build the case that that application of this theory is possible, that we can keep co-evolution of rules and technology moving ahead and we can do it through entry, competition, reallocation, migration. Let me talk about how China got out of the trap that it was stuck in for a thousand years. Because of a historical accident that did involve conquest, so this part does not generalize, but because of a historical accident, a very small piece of China was under a different system of administrative control from the rest of China. It was under the control of the British. It was a place like Pennsylvania that people could come to if they wanted to live under a different set of rules then say the rules that were operating on the mainland. The rules that the British brought in to Hong Kong were the modern rules that we take for granted of a modern economy. Hong Kong especially in the post World War II era grew very rapidly as commercial, initially commercial manufacturing center later as a financial hub. Hong Kong grew very rapidly. The Chinese watching this demonstration effect close by started to take advantage of it by creating four special economic zones along the coastline in China where rules that had been developed in Hong Kong could be brought in one at a time in small measure within the special zones. So the Chinese did not try to change everything in the whole nation all at once, but when the leadership was persuaded that they really did have to move forward as a nation instead of continuing to lag farther and farther behind, they were able to take advantage of the close experience of Hong Kong and then replicate it in other special small zones where the rules and then the technologies of the modern world were brought in to China. That was then followed by a series of cities along the coast in China. So this gradual evolution from one very small spot to several others and the upshot was that whereas the last craft that I showed you stopped in 1950 now with a slightly different scale because it is $2,000; dollars in purchasing power of the year 2000, you can see how starting in the 1970s income per capita finally starts to grow in China and then takes off and goes through this surge, this unprecedented increase in standards of living. This increased at rates that we have never seen before in human history. If you want to see this in ratio terms relative to the United States, this shows you income per capita in China as a percentage of income per capita in the United States and you can see that there is no catch up at all through the 1970s and then this astonishing process of convergence that has taken place since the late 1970s. So the changes in the rules that the Chinese were able to implement by starting with small areas, by experimenting with those areas, by using those areas as places where you could copy not just the technologies that are idea-like and copyable but even copy the institutions by bringing them in first to Hong Kong then to the rest of China. This process of copying rules and technologies enabled this astonishing improvement in standards of living and the force which is just turning the corner for the world so that worldwide income and quality is now finally starting to shrink rather than grow partly because of that continuing divergence that we saw for almost a thousand years between the west and China. So what would it take to generalize from this Chinese experience and create the potential for new entry at the level of national rule systems? The first thing 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 of internationally recognized borders and we have come worldwide to a new consensus that internationally recognized borders cannot be violated and that is an extremely important development in human history. It will mean that we will no longer have wars of conquest of territory or for that matter, conquests like the ones that lead to the Pennsylvania but we will not have wars like World War I and II either. That needs to be preserved and almost surely will be preserved going forward, but you can distinguish sovereignty in the sense of the ultimate say over what happens within a kind of a predefined set of borders. You can distinguish that from a notion of administrative control that on paper, what the British had in Hong Kong was a delegated responsibility for administrative control within a piece of sovereign Chinese territory and if we think with open minds, there are many places around the world where the administrative responsibility for that piece of territory could be granted to other nations or consortiums of nations, to partnerships, to other kinds of groups who could facilitate the transfer not just of technologies, but even systems of rules 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 human history. There is no reason why something like that could not be done intentionally voluntarily as part of mutually beneficial agreement rather than by the kind of force that set up Hong Kong. So if we distinguish the borders from who is in control and are willing to think flexibly about who is in control, there are many more options which will open up here and this is particularly powerful if you think about setting up new systems of control in areas where almost no one lives, because then you could replicate something like the dynamic in Pennsylvania where you could propose new rules, different rules from those applying locally, perhaps even different rules that apply anywhere in the world and people can choose to opt in and operate under those new kinds of rules, so you can have much more experimentation, much more freedom for people to move into new places, and continued progress in the sense of competition between systems of rules. The places, and continued progress in the sense of competition between systems of rules. The other piece that we would probably need to make this work is to rethink citizenship that you can think about citizenship as partly being about residency. You can be granted residency rights in a particular place but citizenship typically involves some notion of voices well, some ability to vote or to have some control over the political system, but we are already used to distinguishing between these two notions. There are people who can move into one country as residence but who were not nationalized citizens and who therefore 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 of voice retain that in their country of origin, but not necessarily have the same kinds of voice in the place that they move to and some other group of citizens might be the ones who 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 post World War II era. There were voters in the UK who elected a prime minister who appointed an administrator for Hong Kong. So it was not a case of authoritarian rule but in fact, it was a case of democratic rule. It just turned out not to be a democracy that involved the local residence. Everyone in Hong Kong lived there in the same way that someone with a green card might come and live in the United States and if we are willing to allow for that kind of possibility, again, it could free up our notions about exactly where in the world and under what circumstances and what kinds of terms new kinds of economic and political arrangements could be put in place. The last thing that we have to do to deliver on this program is to rethink scale. If you think about economic development which is the application that most concerns me, we typically think of either the village or the nation will do something that will change things to level with the village with the nation, but go back to that discussion we had earlier about the power of more people leading to more ideas, leading to economic benefits. The modern representations of that power of ideas that we gain access to from immediate access to people are urban areas. We cluster in urban areas because we want those benefits being around many other people and we suffer the costs of having a lot less land per person because the ideas per person that we can have are so much greater in a city. So the scale to think about this kind of new development and for changing the prospects for all poor countries in the world right now is the same kind of scale that the Chinese were thinking about when they looked at Hong Kong then had the special economic zones, then the open cities. We need to think about city states as the unit where we could undertake this kind of innovation and create the opportunities for very different kinds of systems of rules and very rapid translation of the benefits from the rest of the world to those new cities. This is going to be 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 will– if economic growth takes place at any kind of reasonable rate, 5 to 8 billion people will want to move to cities, will be able to move to cities. A very small fraction in the world population will be left in rural areas producing all the food we need and almost everyone will want to live in cities and it will be an enormous challenge for us to provide the kinds of well-run cities that can lead to real economic benefits, real improvement and standards of living rather than the kinds of dysfunctional cities we see in some parts of the developing 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? How much land on earth would it actually take? If you take the world surface area represented as dots, compress it to a rectangle like this, and then asks suppose people could move into places like Hong Kong, so Hong Kong-like densities, how much land would it take to create urban areas for 8 billion people? It turns out it is a tiny fraction of the surface area on the earth and there is an enormous amount of land on earth which is right now very under utilized, not suitable for agriculture, but could easily be used to create these new urban spots. So finding the land would really be no challenge in carrying out a program like this even at scale. The challenge will be for us to rethink things that we have taken for 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 countries can enter into about what to do within their own borders, what ways existing countries can work together to create new kinds of arrangements that transfer rule systems as well as technologies across borders. So there is really nothing but certain kinds of presumptions and emotional reactions that hold us back from doing something that could be terribly important for helping people throughout the world catch up and potentially even keeping technology going at the frontier. There is a law that is referred to as Cardwell’s Law that says that no nation remains technologically innovative for long. We have been able to enjoy continued exhilarating economic growth and technological innovation, but only because that process of innovation has been able to move to different places across the globe and we would like to believe that the United States will remain the worldwide leader forever into the far future but if you take the long now timeframe seriously of the next 10,000 years, history does not give you a lot of confidence that any nation even the United States can remain the technological leader, but if there is still some potential for new places to emerge, new systems to be tried, places where new people can go, often young innovative people, the ambitious people who moved into Holland; these may be important not just in helping the rest of the world catch up but even 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 of light. There is very limited GDP, very limited opportunities for people to consume light there and if you want to picture to remember about what that means in terms of the quality of life, remember this picture. This is a picture of students in Guinea reading their textbooks at the airport because this was the only place where they could get light at night to do their schoolwork. It is a solved technical problem about how to generate electricity and get it to homes so students do not have to go sit at the airport to read their books and it is a solved political social problem to create rules that can lead to the implementation of those technical systems that get light to these kinds of young people. So as you evaluate this theory of the history and this application and you run up against the inevitable reaction that we could never create new countries. You could never have and agreement to set aside a piece of territory and create something like a Hong Kong. You could never have a place where people opt in and opt out but where the political control might be from a very different location, but as you think about all of those objections, think about explaining it to one of these kids and telling them why we think the best solution is for you to just spend as long as it takes, you know, maybe another thousand leader years as in China to wait for somehow your own internal systems of rules to transform so you can get access to the kinds of things that we take for granted. Thanks. [applause]