Navigating a route to prosperity
Why do some nations prosper and others fail? Daron Acemoglu, a professor of applied economics at MIT, thinks the answer lies in economic and political institutions and in the balance of power between the state and society.
On March 23, as part of CMC’s 75th Anniversary Distinguished Speakers series at the Athenaeum, Acemoglu shared lessons based on his research, highlighting the theme of “Civilization and Commerce,” emphasizing how to build and, more importantly, share prosperity.
In his talk, Acemoglu drew upon points that he and co-author James A. Robinson made in their influential 2013 book Why Nations Fail: The Origins of Power, Prosperity, and Poverty, and 2019 follow-up, The Narrow Corridor: States, Societies, and the Fate of Liberty.
Acemoglu is a lauded academician twice named to Foreign Policy’s Top 100 Global Thinkers. Based on 15 years of research and praised by numerous Nobel Laureates in Economics, Why Nations Fail espoused a new theory that nations that succeed do so because of their inclusive institutions, and those that fail do so because of their extractive institutions.
In inclusive economic institutions, Acemoglu explained, “economic opportunities are not monopolized by groups that are already privileged.” These systems protect property rights, distribute economic opportunities fairly, and follow a judicial system rule of law.
Meanwhile, “the logic of [extractive] institutions was very much based on the fact that they were designed or they evolved in such a way to be able to enable one group to extract resources and benefits.”
“But none of this could be made precise or understood without thinking of politics,” he said. “In that sense, the story of Why Nations Fail was really bringing the politics and the economics together.”
Why would a society put up with extractive economic institution? “There must be either a way of persuading you to put up with it, or coercing you to put up with it. That coercion could take a soft form or a hard form, but it needs to be working through some sort of political system,” Acemoglu said.
“In the same way that extractive economic institutions monopolize economic benefits and economic resources, extractive political institutions monopolize political resources in the hands of a narrow group and put very few constraints on how that political power is exercised. Extractive economic institutions are supported by extractive political institutions and in a symbiotic way.”
The way to build prosperity, he said, is by “moving away from these extractive institutions towards something that looks more like justice, rule of law and political participation.”
“Inequality is generally lower in inclusive societies, but it is not enough by itself,” Acemoglu said. Nations need to build justice and political participation. Furthermore, technological change has been central to all of the success stories, though it brings challenges and new inequalities. Finally, global contexts also play a role, he noted, pointing out the current pandemic and the Russian invasion of Ukraine.
In his talk, Acemoglu provided plenty of data, graphs, and examples from ancient Greece and colonial Virginia to the Congo and North and South Korea.
The lessons of The Narrow Corridor, he added, help us understand how to create inclusive markets and how to regulate them. That book specifically addresses the route to prosperity as dependent upon a balance of power between the state and society. Striking the right balance—as the United States has—requires more than a system of checks and balances against despotism. “You need popular mobilization, people from the bottom up,” Acemoglu said, “and you need a more structured way, a more institutionalized way of doing it.”
“The corridor is narrow…. That balance is quite a precarious thing,” he said. “The liberty that exists in the corridor is also very fragile.”
Afterward, Acemoglu fielded questions from several CMC students, including a sophomore biology major who asked whether Acemoglu believes there are extractive international institutions at play as well.
“The answer is yes,” Acemoglu said. “You cannot understand the current world without understanding the role of multinational companies, some of which are very much in the business of tax avoidance or tax arbitrage, and sometimes even worse things. And that raises a whole host of new issues.”
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