Productivity and Growth: Crash Course Economics #6

Productivity and Growth: Crash Course Economics #6

Adriene: Hi, I’m Adriene Hill. Mr. Clifford: And I’m Jacob Clifford. And
welcome to Crash Course Economics. Adriene: So far we talked about GDP and how
the overall economy, but we haven’t really talked about why some countries have a high
GDP and others have low GDP. So, why are some countries rich, and others poor? Let’s investigate. Mr. Clifford: Look, a clue! Productivity! Adriene: Hmm… [Theme Music] Mr. Clifford: So, if we’re gonna figure out
why some countries are rich and some are poor, we have to first define what it means to be
rich. Economists measure economic output by looking
at Gross Domestic Product or GDP. As you remember from the last video, GDP is the market value of all goods
and services newly produced in a country in one year. India’s GDP is over six times larger than
the GDP of Singapore, but that doesn’t mean the average Indian is richer than the average
Singaporean. That’s because India has 240 times more people than Singapore. So, economists look at something called GDP
per capita, to determine how wealthy a country is. GDP per capita is the GDP of the country
divided by its population. It represents output per person, and a country with a high GDP
per capita is considered rich. Of course, some of you may say being rich
has nothing to do with GDP or money. It has to do with whether or not you’re happy. Fine,
money may not buy happiness, but it can prevent a lot of misery. The United Nations’ Human
Development Index, or HDI, measures life expectancy, literacy, education, quality of life, and
it ranks countries according to their findings. The data shows the country that have a high
GDP per capita have far less infant mortality, poverty and preventable diseases. So, economists often used GDP per capita to
measure a country’s standard of living. Countries with the lowest standard of living are the
ones that are conventionally considered poor. So, why are some countries poor? Adriene: If you ask someone on the street,
they might say the difference is due to lack of natural resources or inept governments,
that is if the person doesn’t subscribe to some antiquated racial or social Darwinist stereotypes —
but we should talk about those ideas. Well, let’s skip the racial and social Darwinists stereotypes,
but resources and leadership are interesting. First, resources. Look at Singapore: third in GDP
per capita and ninth on the Human Development Index. Or Switzerland, ninth in GDP per capita
and third on the HDI. Singapore is a teeny tiny island, and Switzerland’s main natural
resources is cows. And cows are great! I love cows, love love, but they aren’t really natural
resources. Zimbabwe, on the other hand, has tons of natural
resources, like fertile soil, coal and rare minerals, but their economy? It’s a wreck.
It’s a hundred and sixty first (161st) in GPD per capita and a hundred and fifty sixth
(156th) on the HDI. Their incompetent and corrupt government keeps them poor. For comparison sake, the GDP per capita in
the US is 18 times higher than in Bangladesh, and we’re not just trouncing Bangladesh. GDP
per capita wise, we’re also crushing the GDP numbers of our great-grandparents. Take that,
Aloysius! GDP per capita in the US today is about
8 times higher than a hundred years ago. That’s pretty impressive. Maybe the Thought Bubble
can produce an explanation. Mr. Clifford: Let’s say John runs a bakery.
Each worker to produce a dozen donuts per hour, and each donut sells for $1. If John
wants to stay in business, he can’t pay his workers more than $12 an hour. Obviously, he needs to pay for the ingredients
and the oven, but even if you wanted to be generous, he couldn’t pay them $20 an hour.
They just don’t produce enough for us to cover the cost. But if John can find a way for each
worker to produce four dozen donuts per hour, he can pay them $20 per hour. Simply put,
the more that each worker can produce, the more money each can earn. Economists argue that the main reason some
countries are rich is because of their productivity. Their ability to produce more output, per
worker, per hour. US workers, altogether, earn 18 times more per hour than Bangladeshi
workers, because they’re able to produce 18 times more output per hour. US workers today
earn 8 times more per hour than US workers a hundred years ago, because they produce
8 times more output per hour. But not only is US producing more stuff, it’s also producing higher
value products, like Avengers movies and jet engines. So going back to our bakery example, it’s
like a worker from a hundred years ago be able to produce six plain donuts per hour,
while workers today is able to produce 60 salted caramel designer cupcakes per hour. Adriene: Thanks, Thought Bubble. Before we
go further, we need to point out the limitations of this bakery example. It’s true, productivity
is key. A country that is more productive can create more stuff and can generate higher
incomes, but in real life, it doesn’t always look like that. For example, in the US, the GDP per capita
has been steadily increasing for decades, but median family incomes haven’t changed
much at all. This gets to issues of income inequality, and we’re gonna devote an entire
episode to it. Limitations aside, low productivity remains
a fundamental reason why some countries are poor. Higher productivity not only helps explain
why we have more money to buy stuff, but also why we have more stuff to buy. And speaking
of stuff to buy, because it is socially unacceptable somehow for me to appear in the same clothes
over and over, I need 40 blouses to make this series. That is a lot of blouses. That strains
resources, pollutes the planet, and at high levels like 40 is completely unsustainable. Don’t worry
though, some of these are from thrift stores. So what about people in poor countries? What
do they need? Well, they need food, clothing and housing, they need clean water and plumbing
and sewers, they need hospitals and medicine, but all those things have to be produced,
so a country that produces more of these things with fewer resources is gonna be wealthier
and healthier, and perhaps even happier than a country that can’t. But making a million
cell phones isn’t very impressive if your country has a hundred million people, so we
need to look at how much stuff we produce per person. That’s GDP Per Capita. Mr. Clifford: So if everything all boils down
to productivity, what makes some countries more productive than others? Well, let’s go
back and look at the main ingredients that we need to produce things, what economists
call the factors of production. First, you need land, which includes all natural
resources, and then you need workers which is labor, and then you need capital which
includes machines and factories and infrastructure, things you need to produce other things. One
special type of capital is the workers’ education, knowledge and skills required to produce things.
Economists call this human capital. So school’s not just about torturing you, except for PE,
it’s about helping your human capital. The quantity and quality of these resources
is the first step to being more productive, but perhaps even more important is how you
use them. Increasing the amount of capital has a cost, but finding new ways to organize
production is virtually free. Economists call the organizational effectiveness “technology.”
Think of it as the good ideas about how to combine labor and capital that you already
have. US workers produce so much more than Bangladeshi
workers because the US has more factories, robots, and computers. But more capital only
gets you so far; it increases your production capacity but it also eats up some of that
production capacity. You have to develop more factories and workers and machines to make
more capital, and then replace them when they wear out. Technology on the other hand takes
the same amount of resources and organizes them in a way to produce more output. Adriene: Here’s an example. Twenty-five years
ago, you could find computers in just about every workplace in the US, but productivity
growth in the US was flat. Then, starting in about 1995, US productivity boomed, led
by computer technology. SO what changed? In the late 80’s and early 90’s, most workplace
computers were individual units, plugged into nothing but an electric outlet. They were
useful for writing and printing documents, or acting as overgrown calculators, and playing
Oregon Trail, but that was about it. When the World Wide Web came along everything changed. It turns out that computers are far more useful
when they can talk to each other. The computer at the store could talk to the computer at
the warehouse which could talk to the computer at the factory. That means I can get a new
blouse from the other side of the world pretty much immediately. Connectivity equals productivity.
Productivity in the US boomed for the next 10 years, and wages jumped as a result. 200 years ago, productivity in the US wasn’t
that great, but it grew a little bit every year. Compounding that over decades and centuries
gives us the huge gap between the US standard of living and that of many developing countries.
The good news is that in recent decades, many developing countries, like China, South Korea,
Mexico and Ghana have dramatically improved their capital in technology and have seen
their living standards rise. So if you want a single, one-word answer as
to why some countries are more successful than others, here it is: Productivity. So
if you look at the big picture– Mr. Clifford: And by “big picture,” we mean
both globally and historically– Adriene: increasing productivity has resulted
in increased standards of living for much of humanity over the last hundred years, and
it’s hard to argue that this is a bad thing. Mr. Clifford: Thanks for watching, we’ll see
you next week. Thanks for watching Crash Course Economics.
It was made with the help of all of these nice people. You can improve their standard
of living by supporting Crash Course at Patreon. It’s a voluntary subscription platform that
allows you to pay whatever you want monthly to help make Crash Course free for everyone
forever. Thanks for watching, DFTBA.

100 thoughts on “Productivity and Growth: Crash Course Economics #6

  1. Wow. You guys missed the most important points: industrial revolution, colonization and globalization. Industrial revolution lead to the boost in production that helped begin the growth of Western economies, many of these countries had colonies, which ensured availability of raw material, cheap labour and manipulable markets for the produced goods. Finally globalization ensured that the status quo of the developed vs developing countries is maintained via outsourcing labour to the latter

  2. You have no idea how many videos I watched on this topic. So called experts over complicating it. These guys really killled it. I learned it right away. On the spot. Love their teaching style. Simple.

  3. Wow thanks to CrashCourse it will help me a lot for my board exam. i like all the videos specially this i earn and enjoy watching thank you guys.

  4. Very interesting video. I'm no economist and I'm just musing here, but I have to wonder what happens to GDP/standard of living when a country begins to produce MORE items (cheap plastic party favors, for instance) than anyone wants or more than the people can afford, or what will happen when the raw materials simply begin to run out. Obviously with the first you can currently try to expand your market into other countries or grow your population at home so that there will be more consumers, or use advertising (as we currently do) to create more artificial "needs." The second is a matter for a country's banks and financial officers. Yet what happens when we eventually hit a wall regarding overpopulation and/or lack of new raw ore synthesized materials? I suppose we could eventually colonize other planets, but realistically shouldn't we admit that there may be a limit to how high our standard of living can go (at least if we measure "standard of living" in terms of how much "stuff" we produce per person?) It just seems like there will eventually come a point when either we've hit the wall of lack of resources OR we can efficiently produce all the necessary and even fun items we need to fulfill the lower levels in Maslow's Hierarchy of Needs: medical supplies, furniture, clothing, water pumps, food, transportation equipment, party favors, etc. (And this is probably why GDP roughly equates to happiness; a person whose basic physical needs aren't met and who sees his children dying from illness or hunger is generally not too happy.) Then what we'll need is not more "stuff" produced but more knowledge and more discovery/inventions to make humans happier and healthier. Granted, however, we have a LONG way to go before we can even meet everyone on Earth's most basic needs, and we'll probably run out of raw materials before we do. Sorry for the ramble.

  5. Hello World. I am from one of the poorest country in the world, The democratic republic of Congo(Drc, Congo, or Zaire) However, What I don’t understand is we have land, we are number one in the world in natural ressources and we have a population of 80+ millions. My question would be, why don’t we produce ?

  6. This was naïve, CrashCourse.Zimbabweans are poor because of their leadership? Perhaps to some extent. But the main culprits are us, the rich countries. What happens today is proper, modern imperialism where rich countries use politics, weapons, threats and "goodwill" to use different "resources" in poorer countries. Why is the Zimbabwean leadership incompetent (and by who's standards?)? Because white people were there for too long without teaching the native African population to lead (the western way).

    And I would argue Sweden is faaaar far less productive than Bangladesh. We're still richer though. Why? Because we expropriate and displace both resources, capital and labour from and to poorer countries.

    Please don't over-simplify narratives like this CrashCourse. More than half of the worlds population are in dire straits because of us western, rich and for-a-very-loong-time-powerful people (as is nature), let's just face it, own it and start changing things.

  7. While I know you can't cover everything in each video, this does not recognize that economics is not without its history. I know there's an income inequality episode and that's all well and good but at every point in this video, there is an ignorance of the reason productivity is considered better in the developed world versus the developing world: intersecting histories of racism and colonialism. This is not irrelevant and I hope you'll cover it in income inequality because without it, economics is incomplete.

  8. When you are an expert in watching porn but need a knowledge in something to be able to talk with other humans🤸

  9. Can anyone elaborate more on the differences between productivity and economic growth from a company's perspective?

  10. He still talks Way To Fast! But, I do like that they make economics easier to understand – Macro is killing me!

  11. economics is a pseudo science(lots of unaccounted factors)
    fancy talk for misappropriation of scarce resources
    the 2 anchors hv dedicated their life to mysterious art of assblasting

  12. Race is real and IQ is the main determinant of national economic productivity— Zimbabwe was the breadbasket of Africa when it was Rhodesia

  13. Step 1.Type in google "countries by average IQ"
    Step 2.Check images.
    Step 3.Look at any image that shows the map of the whole earth.

    Makes you think.

  14. McDonald's has a higher GDP than most nations of the world, and all they do is have the clown sell food on a franchise menu. I believe GDP is culture based, it is completely dependent upon how the government, the people, the language, the culture (their myths, storytelling, and beliefs), the law, and how the law is made (rule of law of a common law of the land versus rule of man of individual leaders) responds to their environment.

  15. PIB per capita indica a riqueza da população. É o pib dividido pela população. Países como a China podem ter PIB maior que Singapura, mas talvez não PIB per capita maior. O PIB per capita pode ser limitado pelo efeito da desigualdade.
    Países são mais ricos são mais produtivos. FATORES DE PRODUÇÃO.
    Terra. Trabalho. Capital e capital humano.
    Finding new ways to organize production is virtually free.

  16. Sure, the economic reason why poor countries are poor is …. but hey white people there is also a historic reason. poor countries are poor because of colonialism (among other things of course)

  17. I am confused about formulas. I understand the main point what is confusing and what is forcing me to look to the internet is because of the formulas for the Solow Growth Model are extremely confusing.

  18. In 5:28 she says "making a million cellphones isn't very impressive if your country has 100 millions people" why though? Cell phones are costs around $100 right? Plus the profit margin is very high too.

  19. 85% of the comments: tone down on the humor it's not a kids show
    10%: Zimbabwe is poor because of the US and Nestle
    5%: summary notes

  20. If some countries are poor and others rich, it is not just productivity that is key. I also think that rich countries' policies of exploiting and keeping poor countries in some dependence are also an explanation for this difference between rich and poor countries.

  21. To increase productivity country needs resources. Most developed (read productive) countries are what they are just because of harsh exploitation of other countries and slavery. Now days, since "human rights have developed" and one cannot just simply kill and seize, that is done by "bringing the democracy".
    2nd – most developed countries passed the industrialization period with enormous pollution, and now they accuse developing countries for polluting. I'm not saying pollution is good thing, I just want to emphasize the unfairness.
    Economics are much simpler if you have an army and unarmed undeveloped object to exploit. (I have 10 cookies and I'm strong. My neighbor has 5 cookies but he's weak. It's easier to beat him and take his cookies, then to manage mines. Even it's impossible to manage it. And no problem, in few days I will use propaganda to demonize my neighbor and find the reason of his poverty in incapability of doing business himself.)

    That's where the truth of US' and other developed countries' wealth lies.

    Btw, great courses.

  22. A lot of people bring up the topic of colonialism and oppression. That is a very pessimistic, but understandable world view. Since I support limitless freedom of thoughts, I welcome you to have whatever opinion youd like to have, despite my disagreement. Domination and exploitation has undeniably been part of history, but its net influence to success has significantly decreased over time, let me explain why I believe so.

    As far as I can see it, western society's standarts and developments were no secret, ever. Our markets, our law system, our technology and our political structures are the biggest contributors to our wealth. Take middle eastern countries for example. They could have easily adapted to all of what we figured out over the course of hundreds of years: Democracy, open markets, a secular state, our lawsystem. All of this worked observably well for us. Why did they not adapt?

    China used to isolate itself. Just few decades ago, they adapted to open trade markets and created a globally tolerable political stability and BOOM: From poverty to strongest market force and still developing upwards.

    I see cultural ignorance when it comes to the differences in wealth. The middle east, for example, has – out of tradition and religion – largely not agreed upon adapting to what we in the western world figured out to be most succesful and now they pay the price for it. It is not that they are poorer, we are just richer, because we developed faster. They are where we were hundreds of years ago.

    Out of moral virtue we assign this circumstance to be our fault – as the developmental more successful culture, we are sceptical towards our own success, which is fundamentally a healthy thought. It is easy to find reasons, why we could consider ourselves oppressors, because there are some instances in form of examples, in which we did and still do indeed exploit these nations. As for my opinion though, those instances are rather rare and certainly not the main contribution factor to the situation we are in.

    Poverty has halved during the last 10 years, majorly because of westerners initiating global trade with underdeveloped regions. Almost all of the technology used all around the world comes from us and its knowledge is almost free to use for other countries. In my opinion, we do carry them to success more than we exploit and oppress them.

    When there is a winner, there must be a loser, but unlike in poker, it is not nessecarily the winners fault, that there is a loser. The loser can still develop, but if the winner develops just faster, it will on surface always appear like one is dragging the other down, despite this not being actually the case.

    With growing success of our strategy, the influence of it has increased. With growing possibilities of communication, there is less and less excuse for ignoring it. With the consistent factor of ignorance towards a system that is being perfected more and more, the influence of such ignorant behavior becomes more and more the main factor of wether you succeed or not.

  23. Does anyone else think Mr. Clifford is fast speech person? Thanks YouTube developers for the speed option. I had to put him in 0.75X or sometimes maybe 0.5X to catch up to him.

  24. 1:55 i believe the reason why some countries are poor revolves around two things:
    1)People- people are both an asset and a liability of a country it just depends on where they bend more, whether their more productive or more of a consumer
    2)Regulations and taxes- governments who are often uptight of these two usually observes economic downturns. Take San Francisco as an example, high taxes and building permits takes forever to be approved results to businesses moving out of the country.

    edit: sometimes it all just depends in the communities mentality. If they're lazy they are a liability to their country but if they produce goods at an extremely large quantities they're more of an asset to your country

    by asset and liabilities I'm referring to how Robert Kiyosaki defines them. Asset is something that gives you money while liabilities is something that take away that money

  25. I love how economic videos color code people when talking about wealth. Imagine if the did that for basketball, sprinting or penis size.

  26. Look for World System Theory in case anyone is thinking people in developing nations are not as hard working as developed nations.

  27. Got $25000 through the help of Matty who helped in funding my US bank account without any upfront payment and no interest for a project now worth over $500,000. contact him via whatsapp @ +15186023105

  28. "Even if we act to erase material poverty, there is another greater task, it is to confront the poverty of satisfaction – purpose and dignity – that afflicts us all. 
    Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things.  Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product – if we judge the United States of America by that – that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. 
    It counts special locks for our doors and the jails for the people who break them.  It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. 
    It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities.  It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children. 
    Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play.  It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. 
    It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. 
    And it can tell us everything about America except why we are proud that we are Americans.
    If this is true here at home, so it is true elsewhere in world. "

    -Robert Kennedy

  29. How did they go from the mathematical play-doh of GDP per capita to "each worker makes"? Each worker does not get the GDP per capita in their paychecks. The entire point of mentioning the problems caused by income and wealth inequality are because huge amounts of people make everything and get paid a tiny fraction of its value, while others make almost no contribution and grab for themselves the value of what those last people did. Messed up rules in the system.

  30. Look at a world map of IQ distribution and look at a map of wealth distribution and you will see that they match almost exactly, that will answer the question. The reason should be obvious, the higher the average IQ and the more likely that a country can advance technology.

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