(Finance) – The Royal Swedish Academy of Sciences has decided to award the 2024 Nobel Prize in Economics to Daron Acemoglu, Simon Johnson, James A. Robinson “for studies of how institutions form and influence prosperity.”
This year’s winners “showed the importance of social institutions for the prosperity of a country – we read in the reasons for the award – Societies with a poor rule of law and institutions that exploit the population do not generate growth or change for the better. Finding the winners helps us understand why.”
Daron Acemoglu, born in 1967 in Istanbul (Türkiye) is a professor at Massachusetts Institute of Technology in Cambridge (USA). Simon Johnson, born in 1963 in Sheffield (UK) and professor at the Massachusetts Institute of Technology in Cambridge (USA). James A. Robinson, born 1960, is a professor at University of Chicago (USA).
Colonization and civilization
As Europeans colonized much of the globe, the institutions of those societies changed. At times this was dramatic, but it was not the same everywhere, it is explained. In some places the goal was to exploit the indigenous population and extract resources for the benefit of the settlers. In others, the colonizers have created inclusive political and economic systems for long-term benefit of European migrants.
Nobel winners have shown that one explanation for differences in countries’ prosperity is the social institutions introduced during colonization. Inclusive institutions have often been introduced into countries that were poor when they were colonized, resulting in a generally prosperous population over time. This is a important reason why former colonies that were once rich are now poor and vice versa.
Politics and promises
Some countries remain trapped in a situation with extractive institutions and low economic growth. The introduction of inclusive institutions would create long-term benefits for all but the Extractive institutions provide short-term gains for the people in power. “As long as the political system guarantees that they will remain in control, no one will trust their promises of future economic reforms,” it is stressed. According to the winners, this is why no improvement occurs.
However, this inability to make credible promises of positive change may also explain why democratization sometimes occurs. When there is a threat of revolution, the people in power are faced with a dilemma. They would prefer to stay in power and try to appease the masses by promising economic reforms, but the population is unlikely to believe that they will not return to the old system as soon as the situation stabilizes. In the end, “the only option may be to transfer power and establish democracy“, we read in the Nobel document.
(Photo: Ill. Niklas Elmehed © Nobel Prize Outreach)