Seeking the Cure for American Economic Sclerosis

The Soviet Union had amazing mathematicians, scientists and engineers. Names like Andrey Kolmogorov and Lev Landau are still spoken of with reverence in technical circles. The Russians beat the U.S. into space twice, and for a time had the best missiles and fighter jets in the world. And yet in the 1980s, Russians were standing in lines for bread.

The moral of this story is that without good institutions, an economy can’t translate technology into wealth. Economists love to say that in the long run, productivity is determined by technology, but for the citizens of the USSR and many other dysfunctional countries, that long run never arrived. If you want to raise productivity, you need to focus some attention on the quality of your country’s institutions -- for example, how markets are set up and regulated or how contracts are made and enforced.