On expected lines, this year’s Economics Nobel, the Sveriges Riksbank Prize awarded for economic sciences, was awarded to Daron Acemoglu, Simon Johnson and James Robinson. The three are famously known as AJR. The prize is for their studies on how institutions are formed and affect prosperity. Their work made the study and discourse on institutions – and their relevance – come alive in mainstream economics.
The Nobel Prize mentioned that the award for AJR was in recognition of their work, shaping the modern foundations of political economy, with the introduction of more inclusive institutions, less extraction and the rule of law would create long-term benefits.
Their work, according to the Nobel committee, questions: “…[W]hy don’t the elite simply replace the existing economic system?”
The laureates’ model for explaining the circumstances under which political institutions are formed and changed has three components, which the Committee acknowledged in its prize.
The first is a conflict over how resources are allocated and who holds decision-making power in a society (the elite or the masses).
The second is that the masses sometimes have the opportunity to exercise power by mobilising and threatening the ruling elite; power in a society is thus more than the power to make decisions.
The third is the commitment problem, which means that the only alternative is for the elite to hand over decision-making power to the populace. These components and modelled reasoning have helped one understand the differences in economic and shared prosperity between and within nations.
This is a significant contribution and recognition of AJR’s work which is deconstructed in a sourced slide below from their landmark book, Why Nations Fail.
Source: Rakesh Bhandari/X/@postdiscipline
Why Nations Fail was critical in explaining how and why merchants became wealthy from the Atlantic trade, and won property rights in England, which was already primed for this breakthrough. The regime was called inclusive, though the merchants were primarily slavers.
AJR’s work underlined that these inclusive Western societies strengthened the worst, most extractive features in the colonies over which they ruled, but deny that colonialism powered the wealth of the West.
Colonialism, colonial institutions and their overhanging presence still play a role in the poverty of the rest of the world. But, prosperity is due to property rights and innovation, and not exclusive to the West (consider Botswana and Japan as cases). The state can’t be captured, though, by existing businesses.
Entrepreneurs incentivised by property rights have to be free to shake things up again; otherwise declining marginal returns and stagnation set in. What they argue is why and how institutions matter, not geography, culture, or good public policy.
Their most interesting case study is not the Glorious Revolution for which they are most famous, but the spread, reversal and, in places, maintenance of the Napoleonic Codes. With good institutions, societies can separate themselves from societies similar in culture and geography; good institutions can even reverse what were considered geographic deficits.
In Acemoglu and Johnson’s latest book, Power and Progress, power asymmetries are more sharply focused on. Leaving technological choice and levers of society to the most economically powerful suffering from a grandiosity and narrowness of vision will not give us productivity bandwagons. Today’s over-automation gives us only so-so productivity gains, espouses workplace surveillance and sweat labour as a way of reducing unit labour costs, and has given us a click-driven social media antithetical to democratic deliberation.
What began, in their work, as a defense of bourgeois institutions, according to Bhandari here, has now become a call for bottom-up worker empowerment. This is also currently shaping the discourse on the form and application of a new industrial policy and a re-industrialisation approach in developing nations. The forms of empowerment are limited: unions, representation on corporate boards, and a more worker- rather than capital-friendly tax policy.
AJR’s political economy foundations have also given greater agency and space for interdisciplinary studies in and around economics. It promotes younger scholars to pursue similar research questions without limiting themselves to a given disciplinary space or field. As a teacher and researcher in economics, I have benefitted from their work and often use these in coursework references.
Euro-centrism
There is however another dimension to AJR’s work which opened up new critical spaces for academic work. Acemoglu, to many, including myself, was thought to be fated to win the Nobel eventually. He has been writing for more than 20 years now in favour of statist-institutionalism and how institutional design is critical for orienting welfare-centred incentives that cause a higher order growth and well-being trajectory for a win-win solution.
Having said that, most projections and interpretations in AJR’s core work, built upon and disseminated with popular opinions, emerge from a Eurocentric and Global North view of (western) institutionalism. Their principal work on institutions suffers from a stereotyping of the social and political categories, where institutional agents are critically mentioned without delving deeper into the role of agency (and its importance) in shaping democratic decision making (a point which was critical for example to Amartya Sen’s work in development as freedom).
The Global South perspective is mostly missing in their work on institutions which seems to be (sub)consciously done as an exercised choice to make the academic relevance of a statist, institutionalised discourse-led literature to be universally discernible. This also made it publishable in mostly western academic networks, including leading peer reviewed journals where power asymmetries between the Global North and South and its scholars remain deeply entrenched.
Economic historians may further argue how and why AJR’s own thesis and interpretation on institutions and their historical role – including in safeguarding/shaping private property rights – is built on a hyper-simplistic view of mercantile (or other) histories that lacks context-dependency, all done, in an effort to present a comparative, universalist axiom for preaching change.
One also needs to recognise how the Nobel values popularity in academic work and its reach. One of the reasons for Acemoglu’s prize is how popular he has been amongst mainstream economics writings and in the global citations database. With over 240,000 Google Scholar citations, an exceptional count, this is a testament to the groundbreaking nature of Acemoglu’s (and his coauthors’) work and its deep impact on the global academic community.
It is simply for that reason that this prize recognition for AJR is perhaps worthy in today’s time. I am sure the critical insights to their work, and their limited view and framework on institutions, will also get relevant attention in building scholarship and in taking the multi-disciplinary nature of the economic sciences forward.
Deepanshu Mohan is a Professor of Economics, Dean, IDEAS, and Director, Centre for New Economics Studies. He is a Visiting Professor at London School of Economics and an Academic Visiting Fellow to AMES, University of Oxford.
