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Annotated captions of Niall Ferguson: The 6 killer apps of prosperity in English

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tedtalks 00:00
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Let's talk about billions.

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Let's talk about

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past and future billions.

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We know

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that about 106 billion people

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have ever lived.

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And we know that most of them are dead.

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And we also know

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that most of them live or lived in Asia.

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And we also know

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that most of them were or are very poor --

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did not live for very long.

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Let's talk about billions.

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Let's talk about

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the 195,000 billion dollars of wealth

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in the world today.

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We know that most of that wealth

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was made after the year 1800.

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And we know that most of it

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is currently owned

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by people we might call Westerners:

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Europeans, North Americans, Australasians.

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19 percent of the world's population today,

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Westerners own two-thirds of its wealth.

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Economic historians

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call this "The Great Divergence."

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And this slide here

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is the best simplification

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of the Great Divergence story

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01:23

I can offer you.

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It's basically two ratios

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of per capita GDP,

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per capita gross domestic product,

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so average income.

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One, the red line,

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is the ratio of British to Indian

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per capita income.

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And the blue line

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is the ratio of American to Chinese.

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And this chart goes back to 1500.

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And you can see here

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that there's an exponential Great Divergence.

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They start off pretty close together.

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In fact, in 1500,

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the average Chinese was richer than the average North American.

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02:01

When you get to the 1970s,

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which is where this chart ends,

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the average Briton is more than 10 times richer

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than the average Indian.

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And that's allowing

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for differences in the cost of living.

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It's based on purchasing power parity.

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The average American

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is nearly 20 times richer

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than the average Chinese

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by the 1970s.

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So why?

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This wasn't just an economic story.

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If you take the 10 countries

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that went on to become

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the Western empires,

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in 1500 they were really quite tiny --

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five percent of the world's land surface,

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16 percent of its population,

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maybe 20 percent of its income.

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By 1913,

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these 10 countries, plus the United States,

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controlled vast global empires --

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58 percent of the world's territory,

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about the same percentage of its population,

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and a really huge, nearly three-quarters share

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of global economic output.

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And notice, most of that went to the motherland,

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to the imperial metropoles,

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not to their colonial possessions.

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Now you can't just blame this on imperialism --

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though many people have tried to do so --

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for two reasons.

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One, empire was the least original thing

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that the West did after 1500.

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Everybody did empire.

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They beat preexisting Oriental empires

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like the Mughals and the Ottomans.

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So it really doesn't look like empire is a great explanation

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for the Great Divergence.

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In any case, as you may remember,

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the Great Divergence reaches its zenith in the 1970s,

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some considerable time after decolonization.

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This is not a new question.

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Samuel Johnson,

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the great lexicographer,

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[posed] it through his character Rasselas

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in his novel "Rasselas, Prince of Abissinia,"

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published in 1759.

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"By what means are the Europeans thus powerful;

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or why, since they can so easily visit Asia and Africa

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for trade or conquest,

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cannot the Asiaticks and Africans

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invade their coasts,

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plant colonies in their ports,

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and give laws to their natural princes?

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The same wind that carries them back

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would bring us thither?"

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That's a great question.

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And you know what,

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it was also being asked at roughly the same time

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by the Resterners -- by the people in the rest of the world --

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like Ibrahim Muteferrika,

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an Ottoman official,

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the man who introduced printing, very belatedly,

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to the Ottoman Empire --

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who said in a book published in 1731,

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"Why do Christian nations which were so weak in the past

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compared with Muslim nations

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begin to dominate so many lands in modern times

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and even defeat the once victorious Ottoman armies?"

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Unlike Rasselas,

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Muteferrika had an answer to that question,

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which was correct.

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He said it was "because they have laws and rules

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invented by reason."

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It's not geography.

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You may think we can explain the Great Divergence

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in terms of geography.

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We know that's wrong,

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because we conducted two great natural experiments in the 20th century

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to see if geography mattered more than institutions.

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We took all the Germans,

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we divided them roughly in two,

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and we gave the ones in the East communism,

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and you see the result.

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Within an incredibly short period of time,

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people living in the German Democratic Republic

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produced Trabants, the Trabbi,

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one of the world's worst ever cars,

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while people in the West produced the Mercedes Benz.

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If you still don't believe me,

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we conducted the experiment also in the Korean Peninsula.

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And we decided we'd take Koreans

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in roughly the same geographical place

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with, notice, the same basic traditional culture,

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and we divided them in two, and we gave the Northerners communism.

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And the result is an even bigger divergence

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in a very short space of time

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than happened in Germany.

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Not a big divergence in terms of uniform design for border guards admittedly,

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but in almost every other respect,

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it's a huge divergence.

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Which leads me to think

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that neither geography nor national character,

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popular explanations for this kind of thing,

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are really significant.

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It's the ideas.

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It's the institutions.

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This must be true

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because a Scotsman said it.

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And I think I'm the only Scotsman here at the Edinburgh TED.

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So let me just explain to you

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that the smartest man ever was a Scotsman.

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He was Adam Smith --

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not Billy Connolly, not Sean Connery --

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though he is very smart indeed.

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(Laughter)

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Smith -- and I want you to go

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and bow down before his statue in the Royal Mile;

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it's a wonderful statue --

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07:08

Smith, in the "Wealth of Nations"

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published in 1776 --

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that's the most important thing that happened that year ...

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(Laughter)

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You bet.

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There was a little local difficulty in some of our minor colonies, but ...

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(Laughter)

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"China seems to have been long stationary,

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and probably long ago acquired that full complement of riches

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which is consistent with the nature of its laws and institutions.

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But this complement may be much inferior

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to what, with other laws and institutions,

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the nature of its soil, climate, and situation

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might admit of."

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That is so right and so cool.

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And he said it such a long time ago.

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But you know, this is a TED audience,

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and if I keep talking about institutions,

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you're going to turn off.

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07:57

So I'm going to translate this into language that you can understand.

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Let's call them the killer apps.

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I want to explain to you that there were six killer apps

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that set the West apart from the rest.

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And they're kind of like the apps on your phone,

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in the sense that they look quite simple.

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They're just icons; you click on them.

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But behind the icon, there's complex code.

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It's the same with institutions.

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There are six

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which I think explain the Great Divergence.

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08:26

One, competition.

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08:28

Two, the scientific revolution.

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Three, property rights.

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Four, modern medicine.

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Five, the consumer society.

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And six, the work ethic.

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You can play a game and try and think of one I've missed at,

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or try and boil it down to just four,

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but you'll lose.

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(Laughter)

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Let me very briefly tell you what I mean by this,

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synthesizing the work of many economic historians

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in the process.

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08:55

Competition means,

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not only were there a hundred different political units in Europe in 1500,

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but within each of these units,

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there was competition between corporations as well as sovereigns.

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The ancestor of the modern corporation, the City of London Corporation,

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existed in the 12th century.

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Nothing like this existed in China,

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where there was one monolithic state

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covering a fifth of humanity,

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and anyone with any ambition

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had to pass one standardized examination,

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which took three days and was very difficult

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and involved memorizing vast numbers of characters

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and very complex Confucian essay writing.

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The scientific revolution was different

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from the science that had been achieved in the Oriental world

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in a number of crucial ways,

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the most important being

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that, through the experimental method,

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it gave men control over nature in a way that had not been possible before.

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Example: Benjamin Robins's extraordinary application

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of Newtonian physics to ballistics.

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Once you do that,

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your artillery becomes accurate.

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Think of what that means.

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That really was a killer application.

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(Laughter)

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Meanwhile, there's no scientific revolution anywhere else.

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The Ottoman Empire's not that far from Europe,

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but there's no scientific revolution there.

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In fact, they demolish Taqi al-Din's observatory,

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because it's considered blasphemous

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to inquire into the mind of God.

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Property rights: It's not the democracy, folks;

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it's having the rule of law based on private property rights.

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That's what makes the difference

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between North America and South America.

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10:28

You could turn up in North America

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having signed a deed of indenture

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saying, "I'll work for nothing for five years.

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You just have to feed me."

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But at the end of it, you've got a hundred acres of land.

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That's the land grant

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on the bottom half of the slide.

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That's not possible in Latin America

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where land is held onto

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by a tiny elite descended from the conquistadors.

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And you can see here the huge divergence

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that happens in property ownership between North and South.

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Most people in rural North America

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owned some land by 1900.

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11:00

Hardly anyone in South America did.

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That's another killer app.

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Modern medicine in the late 19th century

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began to make major breakthroughs

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against the infectious diseases that killed a lot of people.

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And this was another killer app --

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the very opposite of a killer,

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because it doubled, and then more than doubled, human life expectancy.

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It even did that

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in the European empires.

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Even in places like Senegal,

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beginning in the early 20th century,

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there were major breakthroughs in public health,

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and life expectancy began to rise.

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It doesn't rise any faster

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after these countries become independent.

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The empires weren't all bad.

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The consumer society is what you need

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for the Industrial Revolution to have a point.

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You need people to want to wear tons of clothes.

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You've all bought an article of clothing in the last month;

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I guarantee it.

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That's the consumer society,

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and it propels economic growth

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more than even technological change itself.

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Japan was the first non-Western society

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to embrace it.

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The alternative,

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which was proposed by Mahatma Gandhi,

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was to institutionalize and make poverty permanent.

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12:05

Very few Indians today

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wish that India had gone down

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Mahatma Gandhi's road.

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Finally, the work ethic.

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12:15

Max Weber thought that was peculiarly Protestant.

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He was wrong.

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Any culture can get the work ethic

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if the institutions are there

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to create the incentive to work.

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12:25

We know this

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12:27

because today the work ethic

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is no longer a Protestant, Western phenomenon.

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In fact, the West has lost its work ethic.

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12:36

Today, the average Korean

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works a thousand hours more a year

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than the average German --

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a thousand.

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12:46

And this is part

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of a really extraordinary phenomenon,

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and that is the end of the Great Divergence.

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Who's got the work ethic now?

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12:57

Take a look at mathematical attainment

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by 15 year-olds.

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13:01

At the top of the international league table

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according to the latest PISA study,

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is the Shanghai district of China.

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The gap between Shanghai

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and the United Kingdom and the United States

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is as big as the gap between the U.K. and the U.S.

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and Albania and Tunisia.

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13:19

You probably assume

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that because the iPhone was designed in California

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13:23

but assembled in China

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13:26

that the West still leads in terms of technological innovation.

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13:28

You're wrong.

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13:30

In terms of patents,

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there's no question that the East is ahead.

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13:35

Not only has Japan been ahead for some time,

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13:38

South Korea has gone into third place,

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and China is just about to overtake Germany.

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Why?

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Because the killer apps can be downloaded.

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It's open source.

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13:49

Any society can adopt these institutions,

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and when they do,

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they achieve what the West achieved after 1500 --

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13:57

only faster.

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13:59

This is the Great Reconvergence,

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14:03

and it's the biggest story of your lifetime.

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14:06

Because it's on your watch that this is happening.

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14:08

It's our generation

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that is witnessing the end of Western predominance.

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The average American used to be more than 20 times richer

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than the average Chinese.

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14:16

Now it's just five times,

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and soon it will be 2.5 times.

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So I want to end with three questions

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14:23

for the future billions,

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14:26

just ahead of 2016,

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14:28

when the United States will lose its place

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14:31

as number one economy to China.

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14:35

The first is, can you delete these apps,

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and are we in the process of doing so

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14:39

in the Western world?

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14:41

The second question is,

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14:45

does the sequencing of the download matter?

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14:50

And could Africa get that sequencing wrong?

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14:52

One obvious implication of modern economic history

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14:55

is that it's quite hard to transition to democracy

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14:57

before you've established

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15:00

secure private property rights.

tedtalks 15:00
15:03

Warning: that may not work.

tedtalks 15:03
15:05

And third, can China do without

tedtalks 15:05
15:07

killer app number three?

tedtalks 15:07
15:11

That's the one that John Locke systematized

tedtalks 15:11
15:15

when he said that freedom was rooted in private property rights

tedtalks 15:15
15:17

and the protection of law.

tedtalks 15:17
15:19

That's the basis

tedtalks 15:19
15:21

for the Western model

tedtalks 15:21
15:24

of representative government.

tedtalks 15:24
15:26

Now this picture shows the demolition

tedtalks 15:26
15:29

of the Chinese artist Ai Weiwei's studio

tedtalks 15:29
15:31

in Shanghai earlier this year.

tedtalks 15:31
15:33

He's now free again,

tedtalks 15:33
15:35

having been detained, as you know, for some time.

tedtalks 15:35
15:38

But I don't think his studio has been rebuilt.

tedtalks 15:40
15:44

Winston Churchill once defined civilization

tedtalks 15:44
15:48

in a lecture he gave in the fateful year of 1938.

tedtalks 15:48
15:51

And I think these words really nail it:

tedtalks 15:51
15:55

"It means a society based upon the opinion of civilians.

tedtalks 15:55
15:58

It means that violence, the rule of warriors and despotic chiefs,

tedtalks 15:58
16:01

the conditions of camps and warfare, of riot and tyranny,

tedtalks 16:01
16:04

give place to parliaments where laws are made,

tedtalks 16:04
16:06

and independent courts of justice

tedtalks 16:06
16:09

in which over long periods those laws are maintained.

tedtalks 16:09
16:11

That is civilization --

tedtalks 16:11
16:13

and in its soil grow continually

tedtalks 16:13
16:16

freedom, comfort and culture,"

tedtalks 16:16
16:20

what all TEDsters care about most.

tedtalks 16:20
16:23

"When civilization reigns in any country,

tedtalks 16:23
16:26

a wider and less harassed life

tedtalks 16:26
16:29

is afforded to the masses of the people."

tedtalks 16:29
16:32

That's so true.

tedtalks 16:33
16:36

I don't think the decline of Western civilization

tedtalks 16:36
16:38

is inevitable,

tedtalks 16:38
16:41

because I don't think history operates

tedtalks 16:41
16:43

in this kind of life-cycle model,

tedtalks 16:43
16:45

beautifully illustrated by Thomas Cole's

tedtalks 16:45
16:48

"Course of Empire" paintings.

tedtalks 16:48
16:51

That's not the way history works.

tedtalks 16:51
16:53

That's not the way the West rose,

tedtalks 16:53
16:56

and I don't think it's the way the West will fall.

tedtalks 16:56
16:59

The West may collapse very suddenly.

tedtalks 16:59
17:02

Complex civilizations do that,

tedtalks 17:02
17:04

because they operate, most of the time,

tedtalks 17:04
17:06

on the edge of chaos.

tedtalks 17:06
17:09

That's one of the most profound insights

tedtalks 17:09
17:12

to come out of the historical study of complex institutions

tedtalks 17:12
17:15

like civilizations.

tedtalks 17:15
17:17

No, we may hang on,

tedtalks 17:17
17:21

despite the huge burdens of debt that we've accumulated,

tedtalks 17:21
17:24

despite the evidence that we've lost our work ethic

tedtalks 17:24
17:27

and other parts of our historical mojo.

tedtalks 17:27
17:29

But one thing is for sure,

tedtalks 17:29
17:31

the Great Divergence

tedtalks 17:31
17:33

is over, folks.

tedtalks 17:33
17:35

Thanks very much.

tedtalks 17:35
18:00

(Applause)

tedtalks 18:00
18:02

Bruno Giussani: Niall,

tedtalks 18:02
18:04

I am just curious

tedtalks 18:04
18:07

about your take on the other region of the world that's booming,

tedtalks 18:07
18:10

which is Latin America.

tedtalks 18:10
18:13

What's your view on that?

tedtalks 18:13
18:15

Niall Ferguson: Well I really am not just talking

tedtalks 18:15
18:17

about the rise of the East;

tedtalks 18:17
18:19

I'm talking about the rise of the Rest,

tedtalks 18:19
18:21

and that includes South America.

tedtalks 18:21
18:23

I once asked one of my colleagues at Harvard,

tedtalks 18:23
18:25

"Hey, is South America part of the West?"

tedtalks 18:25
18:27

He was an expert in Latin American history.

tedtalks 18:27
18:29

He said, "I don't know; I'll have to think about that."

tedtalks 18:29
18:31

That tells you something really important.

tedtalks 18:31
18:33

I think if you look at what is happening in Brazil in particular,

tedtalks 18:33
18:35

but also Chile,

tedtalks 18:35
18:38

which was in many ways the one that led the way

tedtalks 18:38
18:41

in transforming the institutions of economic life,

tedtalks 18:41
18:44

there's a very bright future indeed.

tedtalks 18:44
18:46

So my story really is

tedtalks 18:46
18:49

as much about that convergence in the Americas

tedtalks 18:49
18:51

as it's a convergence story in Eurasia.

tedtalks 18:51
18:53

BG: And there is this impression

tedtalks 18:53
18:55

that North America and Europe

tedtalks 18:55
18:57

are not really paying attention

tedtalks 18:57
18:59

to these trends.

tedtalks 18:59
19:02

Mostly they're worried about each other.

tedtalks 19:02
19:05

The Americans think that the European model is going to crumble tomorrow.

tedtalks 19:05
19:08

The Europeans think that the American budget is going to explode tomorrow.

tedtalks 19:08
19:11

And that's all we seem to be caring about recently.

tedtalks 19:11
19:13

NF: I think the fiscal crisis

tedtalks 19:13
19:16

that we see in the developed World right now -- both sides of the Atlantic --

tedtalks 19:16
19:18

is essentially the same thing

tedtalks 19:18
19:20

taking different forms

tedtalks 19:20
19:22

in terms of political culture.

tedtalks 19:22
19:26

And it's a crisis that has its structural facet --

tedtalks 19:26
19:28

it's partly to do with demographics.

tedtalks 19:28
19:31

But it's also, of course, to do with the massive crisis

tedtalks 19:31
19:33

that followed excessive leverage,

tedtalks 19:33
19:35

excessive borrowing in the private sector.

tedtalks 19:35
19:37

That crisis,

tedtalks 19:37
19:40

which has been the focus of so much attention, including by me,

tedtalks 19:40
19:42

I think is an epiphenomenon.

tedtalks 19:42
19:45

The financial crisis is really a relatively small historic phenomenon,

tedtalks 19:45
19:47

which has just accelerated

tedtalks 19:47
19:49

this huge shift,

tedtalks 19:49
19:51

which ends half a millennium of Western ascendancy.

tedtalks 19:51
19:53

I think that's its real importance.

tedtalks 19:53
19:55

BG: Niall, thank you. (NF: Thank you very much, Bruno.)

tedtalks 19:55
19:58

(Applause)