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The Secret of Prosperity: What the Nobel Prize in Economics Was Awarded for
"Why are some countries rich and others poor?" - this is the title of the Russian translation of the book that became a bestseller by two of the three Nobel laureates - Acemoglu and Robinson. This is a simple and clear question that the three economists tried to solve for 25 years. For these efforts, they were essentially rewarded. In the language of the Nobel Committee, the prize was awarded for studying differences in national well-being and "how institutions are formed and how they affect prosperity." The topic of national differences is the subject of the scientists' most famous work, "Colonial Origins of Comparative Development: An Empirical Study," published in 2001 in the prestigious scientific journal The American Economic Review.
In countries like North and South Korea, and West and East Germany, even a novice will recognize that development paths vary depending on external factors. Even before Acemoglu, Johnson, and Robinson, scholars had repeatedly drawn attention to the striking differences in per capita income across countries and regions. Some looked at past associations with religion and war, while others focused on climate and geography, especially distance from the equator. But the Nobel laureates, inspired by and building on the institutionalist theory of economist Douglass North, decided to take different paths and look for different explanations.
They decided to focus on how long-term development occurred, taking as their starting point European colonial policies, which varied depending on the mortality rates of those settling new lands. Acemoglu, Johnson, and Robinson compared economies that had roughly the same income levels 400 years ago but have vastly different living standards today. They found that where conditions were favorable to Europeans, such as the United States and Australia, they settled and quickly developed prototypes of modern institutions, such as private property and the rule of law. The researchers called these institutions complex or “integrated.” In countries with unfavorable conditions, such as the Congo, extractive institutions emerged. Put simply, colonial policies in these countries were focused on getting rich quickly by extracting resources and using them to benefit the new elite and the country of origin. Research shows that African countries are currently poorer than other parts of the world not because of geography or culture, but because their institutions are less developed.
Most modern economists agree with the final conclusion that differences in well-being are related to the level of institutional development. However, the root causes of colonial policies related to settler mortality remain hotly debated in academic circles. Critics point out that mortality rates are influenced by natural factors such as climate and related diseases. However, Acemoglu, Johnson, and Robinson acknowledge that differences in mortality rates are not the only reason for differences between systems, but are merely one of several external factors that determine the overall picture. It is also important to emphasize that the studies discussed in no way justify colonial policies per se, but merely analyze large-scale data spanning several centuries.
Can we see traces of these postcolonial institutions today? The winners cited the city of Nogales, located on the U.S.-Mexico border, as an example. The city of fewer than 20,000 people is literally divided by a wall. If you look at the northern regions of the U.S., you’ll see that its residents are relatively wealthier, have a higher life expectancy, and more children earn a high school diploma. Residents of Nogales, on the Mexican side, are poorer than their American neighbors to the north and are more likely to encounter crime and corrupt officials.
But Nogales’s graphic example at the newly awarded winners’ press conference did not faze anyone, unlike China, which does not fit the established model. Scholars acknowledge that China’s success in high-tech industries challenges basic conclusions about the importance of democratic institutions. According to Acemoglu, “institutions are not a panacea, but rather provide the necessary foundation.” Unlike authoritarian countries, which are capable of only isolated episodes of growth, democracies grow faster and maintain this growth in the long term. The winners frankly admitted that they have no illusions about modern democracy, which is currently experiencing multiple crises. Among the key problems and risks, Acemoglu and Johnson highlight the increasing prevalence of populism and the country’s aging.
Since 2001, the study of the relationship between colonialism and institutions has been cited more than 18,000 times. While this is far from an academic record even within this Nobel series, many modern economists would not have dreamed of it. By comparison, the study of Geoffrey Hinton, the 2024 Nobel laureate in physics, known as the godfather of artificial intelligence, has been cited more than 163,000 times. Despite the citation gap, the advantages of the natural sciences over economics are obvious.
But Daron Acemoglu achieved rock star status in the world of economics long before he won the Nobel Prize. James Robinson and Simon Johnson, who won the Nobel Prize together, are indeed respected in academic circles, but perhaps receive less public attention. Together, they represent the marriage of the hard sciences and the mainstream. And these roles are not mutually exclusive, but complementary. Their important research on long-term development reached a wider audience through books published by the scientists, which quickly became bestsellers. This only increased the significance of their scientific achievements.
So what is the role of the Nobel Prize in Economics? If not to break new ground, then at least to show who pioneered a theory. This year’s winners combined historical data with innovative methods like instrumental variables to answer one of the most important questions in political economy: why are some countries rich and others poor? Acemoglu, however, doesn’t limit himself to one area; he watches trends and immediately catches them. Now one of his favorite topics is the risks associated with the spread of artificial intelligence.
All political economy research, especially that using unconventional data, deserves careful consideration. There is, of course, a great deal of room for scholarly debate here. But criticism that focuses on Acemoglu’s widespread popularity misses the point. Yet his contributions to economics have long been widely recognized. Acemoglu, Johnson, and Robinson have laid important foundations for the field of institutional economics, and I and many other political economists around the world are working to advance the field in new ways.
The editor's opinions may not coincide with the author's point of view.