The 2024 Nobel Prize in Economics has been awarded to Daron Acemoglu and Simon Johnson from the Massachusetts Institute of Technology and James A Robinson from the University of Chicago for studies of how institutions are formed and affect prosperity, a statement by The Royal Swedish Academy of Sciences said on October 14, 2024.
The three laureates have demonstrated the importance of societal institutions for a country’s prosperity. “They have helped us understand differences in prosperity between nations,” the statement noted.
The research by the three helped increase the understanding about why societies with a poor rule of law and institutions that exploit the population do not generate growth or change for the better.
“When Europeans colonised large parts of the globe, the institutions in those societies changed. This was sometimes dramatic, but did not occur in the same way everywhere. In some places the aim was to exploit the indigenous population and extract resources for the colonisers’ benefit. In others, the colonisers formed inclusive political and economic systems for the long-term benefit of European migrants,” the statement noted.
One explanation for differences in countries’ prosperity is the societal institutions that were introduced during colonisation, according to the laureates’ research.
Inclusive institutions were often introduced in countries that were poor when they were colonised, over time resulting in a generally prosperous population. This is an important reason for why former colonies that were once rich are now poor, and vice versa.
Some countries become trapped in a situation with extractive institutions and low economic growth.
The introduction of inclusive institutions would create long-term benefits for everyone, but extractive institutions provide short-term gains for the people in power. As long as the political system guarantees they will remain in control, no one will trust their promises of future economic reforms. According to the laureates, this is why no improvement occurs.
“However, this inability to make credible promises of positive change can also explain why democratisation sometimes occurs. When there is a threat of revolution, the people in power face a dilemma. They would prefer to remain in power and try to placate the masses by promising economic reforms, but the population are unlikely to believe that they will not return to the old system as soon as the situation settles down. In the end, the only option may be to transfer power and establish democracy,” according to the statement.
“Reducing the vast differences in income between countries is one of our time’s greatest challenges. The laureates have demonstrated the importance of societal institutions for achieving this,” it quoted Jakob Svensson, Chair of the Committee for the Prize in Economic Sciences, as saying.