“Once one starts to think about” economic growth, “it is hard to think about anything else.” Those words, from the late economist Robert Lucas, explain why we’re so fascinated by international development. We want to know how some countries got rich, why others stay poor, and if there’s anything that poor countries can do to change their fortunes.
Our growth obsession helps explain why the Nobel Committee for the Prize in Economic Sciences awarded this year’s prize to Daron Acemoglu, Simon Johnson, and James A. Robinson. While each of these economists has a distinct background, their collaborative work has focused on how political institutions affect countries’ economic development.
Their contributions to this field span decades. In 2005, Acemoglu and Robinson published Economic Origins of Dictatorship and Democracy, which offered a theory of why democracy survives in some places and not others. Their hypothesis was straightforward: elites allow political equality (democracy) under conditions of relative economic equality, but they oppose political equality when economic conditions are substantially unequal, fearing that the masses would pursue wealth redistribution. If we think of democracy as good, per their theory, then redistribution is not the solution, since that is precisely what elites fear and will drive them to support dictatorship. Instead, we should create opportunities for social mobility and a high-quality, universal educational system that will lead to more equality in the long run.
The trio’s most noted work was a 2001 article, “The Colonial Origins of Comparative Development.” In that paper, published in the American Economic Review, Acemoglu, Johnson, and Robinson found a strong relationship between a country’s “expropriation risk”—the chance that a government will seize private property without due compensation—and its GDP per capita. The economists used European settler mortality as a proxy to measure expropriation risk in colonial societies. Why? In territories where many European settlers died from tropical diseases, they never settled in great numbers and instead focused on extracting wealth from the natives. But in places where Europeans could settle and survive, they developed institutions to protect private property and freedom of contract.
In 2013, Acemoglu and Robinson published a book based on this work, Why Nations Fail. Here, the economists focus less on preventing expropriation and more on what they call “inclusive institutions”—a byword for democracy—and imply that universal suffrage helps to promote development. Unfortunately, their book provides no rigorous evidence to substantiate this, and careful research both before and after their work appeared has found that the causal effect of democracy on growth is positive on average, but small in magnitude and inconsistent across countries and time periods.
Still, the three economists’ work on institutions inspired later research, which confirmed that extractive government institutions are detrimental to long-term economic growth. Districts in Peru that historically practiced forced labor, for example, today still have lower-quality road networks and more subsistence farming. In India, “villages that were assigned to landlords in colonial India are poorer in 2012.” The probable explanation for these results is that “differences in historical institutions lead to very different policy choices.”
Reasonable counterpoints exist to that explanation. Observers of the East Asian miracle, for example, emphasize the importance of policy over institutions. Singapore has thrived despite its flawed democracy (or borderline dictatorship, depending on your point of view) because of its largely free market and technocratic policies. Taiwan and South Korea also initially developed under dictatorship, and Hong Kong’s free-market model emerged under a political system with limited public participation.
Still, how stable are good policies without good institutions? Singapore has benefited from unusually wise political leadership. Dictatorship is an extremely high-variance strategy for development, compared with democracy. (And, of course, dictatorship is one of the most important causal factors in human rights abuses.)
While other scholars rightly emphasize the importance of culture and intelligence, it’s hard to translate those concerns into policy. We want to know what governments can do to foster long-term economic growth, and developing strong political institutions is one such measure. For contemporary economists’ awareness of that insight, we can thank Acemoglu, Robinson, and Johnson, who show that rule of law, protection of private property, and fair enforcement of contracts create an environment where entrepreneurs and innovators—and economies—can thrive.
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