Why Daron Acemoglu, Simon Johnson, James A Robinson get Nobel in economics?

The Royal Swedish Academy of Sciences awarded the Nobel Memorial Prize in economics to Daron Acemoglu, Simon Johnson, and James A. Robinson for their research on how institutions are formed and how they impact prosperity.

You may recognize this award by its formal name, the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel. This announcement wraps up six days of Nobel prizes being awarded.

The Nobel committee explained that Acemoglu, Johnson, and Robinson have shown the vital role societal institutions play in a country’s economic success. In societies with weak rule of law or exploitative institutions, growth is stifled, and meaningful change doesn’t occur. Their research helps you understand the root causes behind this.

When European colonization spread across the globe, institutions in these societies changed. In some cases, the colonizers exploited the local populations for their benefit. In other instances, they established inclusive political and economic systems designed for the long-term benefit of European settlers.

The laureates’ work illustrates how these varying approaches to colonization explain differences in prosperity among countries today. Poorer nations often saw the introduction of inclusive institutions, which eventually led to widespread prosperity. This explains why many former colonies that were once rich are now poor, and vice versa.

Some countries, however, remain trapped in a cycle of extractive institutions and low economic growth. While inclusive institutions could bring long-term benefits for everyone, extractive systems offer short-term advantages to those in power. As long as these elites maintain political control, you can see why promises of reform lack credibility and progress stalls.

However, this inability to guarantee positive change can sometimes lead to democratisation. When faced with the threat of revolution, those in power may promise reforms, but the population often doesn’t believe them. The only option left might be to transfer power and establish democracy.

As you consider the vast income disparities between countries today, the laureates’ work highlights the essential role of societal institutions in bridging these gaps. As Jakob Svensson, chair of the Nobel committee for economic sciences, put it: “Reducing these inequalities is one of the greatest challenges of our time.”