For the last two decades, Daron Acemoglu, together with his co-authors Johnson and Robinson (and their critics) have been a constant source of inspiration for all those economists (like me) interested in the role of institutions in the economy, and in the interaction between economics, politics and history. They have been a recurrent presence in my lectures, my research and my blogging (for example, here and here). Now that I am temporarily on leave from academia, I missed talking about these last winners of the Economics Nobel Prize with my students this week.
Acemoglu and his co-authors have improved the terms of trade-off between finding very precise answers to small problems and finding imprecise answers to big questions. This is important and difficult. The challenges of our time are big, and will not be satisfactorily addressed by adding precise answers to very small problems. However, the research techniques of social sciences are very well developed for the small, but not the big questions. Acemoglu and his co-authors have mobilized a great deal of the arsenal of modern social sciences (causal econometrics, modern theory, case studies) to address big issues such as the challenges of democracy, inequality or technological change and how they interact. Because this is inherently difficult, they have received serious methodological criticisms, to which in some cases they have respectfully responded (for example, to the issues raised by David Albouy on their work, cited in the academic essay that justifies the awarding of the Nobel Prize, about the impact of settler mortality in the colonies as an instrument for the quality of institutions and contemporary economic outcomes). Recent research has raised serious methodological issues not only about the work of Acemoglu et al. on the deep historical causes of prosperity, but also on work they inspired about historical persistence by tens of researchers.
Their theoretical work on the difficulties of commitment in politics was followed by impressive (but, as mentioned, open to criticism) empirical work on the determinants of institutional change and the impact of (inclusive or extractive) political and economic institutions on prosperity in academic articles and later in the best-selling book “Why Nations Fail” (written by Acemoglu and Robinson, two of the three laureates). They contributed to improving the reputation of the book format among economists, also with “The Narrow Corridor” and more recently with “Power and Progress” –this one, by Acemoglu and Johnson, the best of the books in my view but not mentioned in the academic essay that justified the Nobel Prize decision. All these books have long bibliographic essays at the end, which are an amazing tool for teaching and research. They have also contributed to improving the prestige of multidisciplinary work on economics, politics and history.
After reading their books, I also learned about the importance of reading good academic book reviews. Probably the best book review I have ever read is the one by W. Bentley MacLeod on Why Nations Fail. And another very good one is the review by Avinash Dixit of The Narrow Corridor (you can find them through Google Scholar). Bentley MacLeod suggests that organizational economics and social choice would be good complements of Why Nations Fail. He casts doubt on the implications of the correlation between prosperity and the protection of individual property rights. Perhaps for poor societies, it is not optimal or possible to strongly protect individual property rights (for example, because insurance markets are not well developed). If they don’t have good property rights institutions it is perhaps not because they are making a mistake, but because they are doing what is appropriate for their level of development. Political scientist Yuen Yuen Ang has raised similar doubts about the institutions that are necessary for prosperity, suggesting that corruption is perfectly compatible with the development of market economies (although not desirable). Avinash Dixit suggests that the split between government and civil society in “The Narrow Corridor” (where Acemoglu and Robinson argue that the key to posperity is a government checked by civil society) is too simplistic, and that it is the divisions in politics and society and their interaction that drive social change. Dixit says that “if rifts in society do not exist, they can be created or exaggerated… leaders cultivate hatred to mobilize their people into conflict” (mentioning Trump and Modi as examples, although there are many more).
The two books have in common that they try to fit a common model to a big diversity of case studies over time and space, which is risky.
More than their specific ideas, the value of Acemoglu and his co-authors is to have raised the status of multidisciplinary work on institutions and the notion that power and social conflict are as important today as they were in the times of Marx. The idea that inclusive political institutions correlate with inclusive economic institutions and good economic outcomes is today challenged by the unstopped growth of China. Also, today the most economically prosperous country in the world (the US) looks into the abyss of political democratic collapse. The review of Bentley MacLeod has a graph summarizing the different impact of historical shocks on different nations depending on whether their institutions were inclusive or extractive. According to this, the different impact of the contact with America for inclusive England and extractive Spain would result into more prosperity for the British today. For all their great institutions, although the Brits still have a higher income per capita than us, Spain is growing more, lots of Brits come to party or to retire to Spain, and we didn’t make the stupid mistake of leaving the EU.
The notion of a “treatment” can hardly be transplanted from the medical sciences to economics or politics. The inherent difficulty of engineering prosperity results from the fact that human society is a complex system that is constantly changing over time. Institutions, culture, geography and technology co-evolve.
The book reviewers also point out the need for more research on local and international politics, and they question the nation as the relevant unit of analysis: can we compare China, the US or India to the small nations of the Pacific?
Acemoglu (the most famous of the three laureates) today is not the same as he was 25 years ago. Today, he has stronger opinions in favor of redistribution and government intervention. I would argue that he has become more progressive over time. His last book is a call to guide technological change in an egalitarian way through public intervention.
Acemoglu, Johnson and Robinson surely deserve the Nobel Prize –but perhaps they should share it with their critics and their book reviewers.
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