[MUSIC] How do you get the poor people of a poor country that consume even less and save even more, so that poor country can invest more and thereby achieve a higher rate of capital formation and technological change and lift that country out of poverty. That is the exact conundrum and dilemma many poor nations of the world face today. Here, it must be said purely as a statistical matter that the role of capital formation in economic growth cannot be understated. Consider that country leaders in the growth race invest at least 20% of their output in capital formation. By contrast, the poorest agrarian countries are often able to save and invest only about 5% of their national income. Moreover, much of the low level of savings that actually winds up in the capital formation process goes to providing the growing population with basic housing and simple tools, while there is little left over for more sophisticated technological development. The result in far too many poor countries is too little investment in the productive capital so indispensable for rapid economic progress. But here's some good news. These low levels of investment and slow rates of capital formation do not necessarily mean these poor countries will be denied the fruits of technological change. [MUSIC] Here is indeed some good news for developing countries, when it comes to the important element of technological change in the development process. In today's world, poor countries don't have to be inventive and innovative. Instead, they can simply import advanced technologies from the more advanced nations. In fact, the development histories of two of the world's largest economies, those of the United States and China, clearly illustrate this pattern of leveraging technological change to bootstrap one's country into the upper echelons of development. [MUSIC] In the case of the United States, the development of its auto industry during the early to mid 20th century provided a tremendous boost to America's economic growth. But here's the interesting plot twist. Many of the key inventions involved in producing automobiles originated almost exclusively from what was then more advanced nations abroad. Nevertheless, Ford and General Motors applied these foreign inventions and built huge assembly lines and rapidly became the world leaders in the automotive industry, thereby, leapfrogging the rest of the world. [MUSIC] As for the People's Republic of China, this communist nation was founded in 1949 after a peasant revolution, but remained an nation, largely closed to the world until 1979. That's when one of China's leaders, Deng Xiaoping, initiated China's second economic revolution. A key feature of this revolution has been the purchase, reverse engineering, and often outright theft of highly advanced foreign technologies and processes for use in Chinese factories. For China, the result has been historically rapid growth rates propelled by technological change, that have lifted hundreds of millions of Chinese citizens out of poverty. Many foreign countries however, their experience with China has been a cautionary tale about the need to protect one's intellectual property in countries where there may be little or no effective protection for intellectual property like patents, blueprints, designs and trade secrets. To frame this as a key point, as a business executive, be very careful to introduce safeguards to protect your company's intellectual property and trade secrets when venturing into foreign lands. And even if you keep your production and intellectual property in your own country, be sure to safeguard against cyber attacks from foreign shores aimed at taking your intellectual property. And with those words of wisdom, let's take a quick break. And when you are ready, it's on to the final module of this lesson and a quick look at some of the most important and useful development strategies available. [MUSIC].
