Three economists Daron Acemoglu, Simon Johnson, and James Robinson on Monday emerged winners of the 2024 Nobel Prize in Economic Sciences, for their groundbreaking research explaining why some nations prosper while others remain poor. The prestigious award includes a cash prize of 11 million Swedish kronor (approximately $1 million).
The Nobel Committee recognised the trio for their work in demonstrating how the nature of institutions significantly influences a country’s economic development. Their research has shed light on the complex relationship between societal structures and economic prosperity, challenging traditional explanations that focus solely on factors such as climate, agriculture, or culture.
Acemoglu, a Turkish-American professor at the Massachusetts Institute of Technology (MIT), Robinson, a British professor at the University of Chicago, and Johnson, a British-American professor also at MIT, have collectively argued that the key to understanding disparities in national wealth lies in the strength and inclusivity of a country’s institutions.
The laureates’ work, particularly highlighted in their 2012 book “Why Nations Fail,” introduces the concept of “inclusive institutions” versus “extractive institutions.” Inclusive institutions, which uphold the rule of law and property rights, are associated with long-term prosperity. In contrast, extractive institutions, which concentrate resources and power in the hands of elites, tend to result in persistent economic stagnation.
A striking example from their research compares two towns named Nogales – one in Arizona, USA, and the other just across the border in Sonora, Mexico. Despite geographical proximity and cultural similarities, the American Nogales enjoy significantly higher living standards. The economists attribute this difference primarily to the contrasting strength of local institutions on either side of the border.
The Nobel Committee also emphasised the laureates’ insights into the lasting impact of colonial institutions on current economic conditions. Their research demonstrates how the nature of institutions established during colonisation has profoundly shaped the economic trajectories of many nations.
“When Europeans colonised large parts of the globe, the institutions in those societies changed,” the committee said, citing the economists’ work. While in many places this was aimed at exploiting the indigenous population, in other places it laid the foundations for inclusive political and economic systems.
“The laureates have shown that one explanation for differences in countries’ prosperity is the societal institutions that were introduced during colonisation,” the committee added.
In a recent publication, “Power and Progress,” Acemoglu and Johnson explore how technological innovations throughout history have often disproportionately benefited elites rather than creating widespread prosperity. They express particular concern about the current trajectory of artificial intelligence, warning that it may not be conducive to economic equality or democratic values.
When asked if their research simply equates democracy with economic growth, Acemoglu clarified that while their work generally favours democratic systems, democracy is “not a panacea.” He acknowledged that authoritarian regimes, such as China, have achieved significant economic growth, presenting a “bit of a challenge” to their theory. However, Acemoglu maintains that authoritarian systems are likely to struggle with achieving sustainable, long-term innovation and growth.
“Our argument has been that this sort of authoritarian growth is more unstable and does not generally lead to very rapid and original innovation,” Acemoglu said in a phone interview during the announcement ceremony.
The Economics Prize, officially known as the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, was established in 1968, distinguishing it from the original Nobel Prizes instituted by Alfred Nobel himself.
This year’s award follows the 2023 Nobel Prize in Economics, which was awarded to Claudia Goldin for her extensive research on women in the labour market. Goldin’s work, spanning over 200 years of US data, revealed the evolving nature of the gender pay gap and its persistence even within the same occupations.
Featured image: Hurriyet Daily News
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