Planet Money Summer School Govt 1: Why Are Some Countries Rich and Some Countries Poor? (Institutions)
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Jul 9, 2025 
In this discussion, Simon Johnson, a professor at MIT Sloan specializing in political economy, unravels why some nations thrive while others struggle. He dives into the intricate relationship between government institutions and economic success, illustrating this with compelling stories from India, New York City, and Peru. Johnson emphasizes how regulations can either uplift or hinder economies, showcasing the stark contrasts between informal vendors in Jamaica and formal sellers in the U.S. His insights reveal the transformative power of inclusive institutions over extractive ones.
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Informal Economy's Hidden Taxes
- Informal economies often mean people pay 'taxes' through bribes and extortion rather than to governments.
- This undermines economic growth and security for small-scale entrepreneurs in places like Jamaica.
Inclusive vs Extractive Institutions
- Inclusive institutions provide equal rights and protections, fostering trust and investment in the economy.
- Extractive institutions allow elites to seize wealth, discouraging entrepreneurship and growth.
De Soto’s Shirt Factory Experiment
- Hernando de Soto experimented by trying to legally start a shirt factory in Peru to understand bureaucratic hurdles.
- It took over nine months and required 11 permits plus bribes, proving why informal business thrives.
