THE PROSPERITY PARADOX

I would like to highlight few interesting points from this book.

This is Model T effect :

Ford's innovation, however, was not simply a car. It was an entire business model born out of his vision to create an entirely new market for the automobile. As was true for the Model T, market-creating innovations are less about the actual product being sold and more about the value network and business model an innovator develops. For Ford to sell his car to millions of Americans, he not only had to make a product that was simple to drive and affordable to purchase, but he also had to invest in many other things, such as gas and service stations, railroads to help him transport his product, and an aggressive advertising campaign targeted at average Americans who had never owned a car.

Building institutions with values :

We cannot fix problems with the law, systems, and institutions by simply adding another law, system, or institution. Effective institutions are not just about rules and regulations. Ultimately, institutions are about culture—how people in a region solve problems and make progress. At their core, institutions reflect what people value. And that, it turns out, has to be homegrown. Innovation can play a critical role in this process.

Infrastructure-innovation equation :

We have learned three important lessons as we've studied institutions and innovation. The first is that innovations, especially those that create new markets, typically precede the development and sustenance of good institutions; the second is that institutions must be built with the local context in mind because, if they do not solve local problems, they are almost always rendered useless by those for whom they are designed; and third, innovation serves as the glue that keeps institutions together.

When you create a new market, the profits from the market help pay for the infrastructures pulled into the economy. This is how many major infrastructure projects in the United States were developed. By themselves, many of the infrastructures-the roads, the rails, the canals, and so on-were not profitable. But once the infrastructures were pulled into an American economy that was creating a lot of value that needed to be stored or transported, the infrastructures then became viable. The infrastructure-innovation equation has not changed. Pulling it into the economy is likely to be far more powerful in the long run.

Last words :

We believe in the power of innovation. And, more specifically, we believe that investing in market-creating innovations, even when the circumstances seem challenging, provides one of the best chances for us to create prosperity in many of todays poor countries. This is the solution to the Prosperity Paradox, and it can get us to the end of development in our lifetime. The stakes are too high for us not to get this right.