By Elliott Brack
Editor and Publisher, GwinnettForum
OCT. 29, 2024 | Sometimes, the obvious stares you in the face and you cannot see the obvious.
That’s our thinking about the recent awarding of a Nobel prize in economic sciences. The award went to three researchers, two at the Massachusetts Institute of Technology, and one at the University of Chicago. The prize in economic sciences is awarded by the Royal Academy of Sciences, Stockholm, Sweden, according to the same principles as for the Nobel Prizes that have been awarded since 1901.
Sveriges Riksbank (Sweden’s central bank) established the Sveriges Riksbank Prize in 1968 on the occasion of the bank’s 300th anniversary and pays the award in Economic Sciences in memory of Alfred Nobel.
In 2024, the awards were given to Daron Acemoglu and Simon Johnson, at MIT, and to James A. Robinson, University of Chicago “for studies of how institutions are formed and affect prosperity.” They developed the numbers behind the proven experience that government protection of ordinary people is good for economic growth. Their research explains why “[s]ocieties with a poor rule of law and institutions that exploit the population do not generate growth or change for the better,” while democracies do.
We quote from the press release from Sweden:
They “demonstrated the importance of societal institutions for a country’s prosperity. Societies with a poor rule of law and institutions that exploit the population do not generate growth or change for the better. The laureates’ research helps us understand why.
Nobel Prize
“When Europeans colonized 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 colonizers’ benefit. In others, the colonizers formed inclusive political and economic systems for the long-term benefit of European migrants.
“The laureates have shown that one explanation for differences in countries’ prosperity is the societal institutions that were introduced during colonization. Inclusive institutions were often introduced in countries that were poor when they were colonized, over time resulting in a generally prosperous population.
“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 democratization 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.”
Jakob Svensson, chair of the Committee for the Prize in Economic Sciences, says: “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.”
These three professors thought they recognized an obvious point. By building models, and delving into history, they proved the obvious: forming institutions with good leadership will see a country prosper.
- Have a comment? Click here to send an email.
Follow Us