Why nations fail is one of the reasons given for the prize

Why Does the Capitol Insurrection Fail? How President Acemoglu, Robinson, and John F. Johnson Write about the United States

Americans were on edge when the Capitol insurrection occurred two weeks ago. More soldiers from the National Guard will provide security tomorrow than in Iraq and Afghanistan. Our political situation feels shaky. It’s like we’re living in a bad novel. We couldn’t reach Tom Clancy, so we called up the authors of Why Nations Fail instead. We wanted to figure out if the insurrection is a sign our nation is failing, and, if so, if there’s anything we can do about it.

As inauguration day approached, Americans feared that more violence was possible. Thousands of National Guard troops descended on the capital to keep the peace. Our democratic institutions felt worse off than ever.

When Acemoglu and Robinson wrote Why Nations Fail almost a decade ago, they used the United States as an institutional success story. Slavery, genocide of Native Americans and the Civil War are on the dark side of the nation. But it’s also a creature of the Enlightenment, a place with free and fair elections and world-renowned universities; a haven for immigrants, new ideas and new business models; and a country responsive to social movements for greater equality. Lucky for America — and its economy — its inclusive institutions have had a helluva run.

There are a number of academic disciplines and subfields that Acemoglu has excelled in. He’s made massive contributions not just to institutional economics, development economics, and political science (the area in which he just won a Nobel for), but also in realms like mathematical economics, economic growth, political economy, and the economics of technology and automation.

It would be easy for Acemoglu, Robinson and Johnson to argue that institutions are crucial to determining how rich a nation becomes. But, being economists, they also did some incredible statistical work to try and prove it.

For example, in one famous paper cited by the prize committee, Acemoglu, Robinson, and Johnson found there was a “reversal of fortune” in the wake of European colonization of the Americas. South and Central America went from being relatively richer than North America before colonization to being relatively poorer afterwards.

In South and Central America, where there were the Incan and Aztec empires, there were too many indigenous people for Europeans to simply move in and govern themselves. European colonizers have already-existing institutions that are geared towards oppressing the indigenous population. The purpose of these institutions was not to encourage innovation or protect individual freedom. Instead, these nations got a set of institutions that would be ill-suited for them to succeed in a modern, innovative industrial economy.

The power of institutions in the United States: why it took until January 6th? An explanation of why nations fail (with an explanation from MIT economist Daron Acemoglu)

When I got news of the award, I got to say, I was really excited, especially for Daron Acemoglu. I’ve been poring over his research for many years. To be able to speak with him on multiple occasions and pick his brain is one of the things that makes me happy at Planet Money.

Maybe it’s because Chamberlain was before my time, but, to me, Acemoglu is more like the Deion Sanders of economics. During his playing days, he was a wonderful player who could score on offense, defense, and special teams. Sanders was also a star baseball player. In the last year, Sanders has killed football by becoming a coach.

We thought we would revisit this newsletter in January 2021, which looked at the power of institutions in the United States, and how they thought about the country during a time of turmoil. You can also read it here.

“I don’t think January 6th was a singular day of failure,” says MIT economist Daron Acemoglu, who co-authored the book with University of Chicago economist James Robinson. “What surprises me is why it took until January 6th.”

Source: A Nobel prize for an explanation of why nations fail

Why Does South Korea Get Richer, Richer? Why Does the South Korean Government Fail? The Case for Pro-Democracy

Drawing on decades of economic research, Why Nations Fail argues that political institutions — not culture, natural resources or geography — explain why some nations have gotten rich while others remain poor. North Korea and South Korea are examples of good examples. Eighty years ago, the two were virtually indistinguishable. But after a civil war, North Korea turned to communism, while South Korea embraced markets and, eventually, democracy. The authors say South Korea’s institutions are to blame for it being more rich than North Korea.

“We are still at a point where we can reverse things,” Acemoglu says. I don’t think we’ll see a great improvement to institutions if we paper over these issues. And it can happen very rapidly.”

According to Acemoglu, politicians need to give those who have been left behind a leg up in the system. He advocates for a “good jobs” agenda that envisions policy changes and public investments to create, naturally, good jobs and shared prosperity (read more here). Robinson states that Robert Putnam’s work suggests that we should find ways to connect with other citizens rather than using political differences to divide us.

Traditional parties did not comprehend these grievances in a way that Trump did. I think he doesn’t have a solution to them. In Latin America, the populist experience was similar to where solutions were not needed for political success. Was there a solution to these problems found by Hugo Chvez or Juan Pern? They used the problems well for political ends.

The findings are generally pro-democracy, said Acemoglu, who along with Robinson co-authored the book, Why Nations Fail. He said that democracy isn’t a panacea.

The democracies are going through a rough patch. “And it is in some sense quite crucial that they reclaim the high ground of better governance, cleaner governance, and delivering sort of the promise of democracy to a broad range of people.”

The Wealth and Poverty of Nations: A Report by Acemoglu, Johnson, Robinson, Johnson & Seiberg-Witten

China has lifted hundreds of millions of people out of poverty despite the autocratic governing structure of the country.

It is very hard to introduce democracy. Conflict is created when you introduce elections. And in particular, in already polarized societies, elections can lead to short-lived outcomes that are sometimes not democratic in nature.”

The prize-winning researchers found that colonies where a large percentage of settlers remain tend to establish democratic institutions and prosper. Those where relatively few settlers survived often formed more autocratic, extractive institutions and ended up languishing.

The announcement came on a United States holiday that honors Chris Columbus and the indigenous people of the new world.

“Rather than asking whether colonialism is good or bad, we note that different colonial strategies have led to different institutional patterns that have persisted over time,” Acemoglu said during a news conference in Stockholm where the prize was announced.

Daron Acemoglu and Simon Johnson from MIT and James Robinson of the University of Chicago will share the prize — worth about $1.058 million — for helping to explain how the different institutions in those former colonies continue to shape economic fortunes today.

The wealth and poverty of nations has been a preoccupation of economists since Adam Smith founded the discipline 250 years ago, when he wrote a book titled, The Wealth of Nations.