Nobel Prize in Economics Awarded to Americans for Explaining Poverty in Authoritarian Regimes

The Swedish Royal Academy of Sciences has decided to award the Nobel Prize in Economics to Americans Daron Acemoglu, Simon Johnson and James A. Robinson, who have managed to explain why societies without the rule of law and with institutions that exploit the population cannot achieve economic growth.

This is reported by the Nobel Committee's website.

It is noted that the winners of this year's Nobel Prize in Economic Sciences have demonstrated the importance of public institutions for the prosperity of the country.

Societies with poor rule of law and institutions that exploit the population do not create growth and do not change for the better. The research of the laureates helps to understand why this is the case, the committee said in a release.

‘When Europeans colonised large parts of the world, the institutions in those societies changed. This was sometimes dramatic, but not the same everywhere.

In some places, the goal was to exploit the indigenous population and extract resources for the benefit of the colonisers. In others, colonisers created inclusive political and economic systems for the long-term benefit of European migrants.

The laureates have shown that one of the reasons for the differences in the welfare of countries is the social institutions introduced during colonisation. Inclusive institutions were often introduced in countries that were poor at the time of colonisation, and over time, this led to overall prosperity for the population. This also explains why some former colonies that were once rich are now poor, and vice versa.

Some countries fall into the trap of extractive institutions and low economic growth. The introduction of inclusive institutions could create long-term benefits for all, but extractive institutions bring short-term benefits to those in power.

As long as the political system ensures that these people remain in power, no one believes their promises of future economic reforms. According to the laureates, this is why no improvements are made.

However, this inability to make convincing promises of positive change may also explain why democratisation sometimes occurs. When there is a threat of revolution, people in power face a dilemma. They would prefer to stay in power and try to appease the masses by promising economic reforms, but the population is unlikely to believe that they will not return to the old system once the situation stabilises. Ultimately, the only option may be to transfer power and establish democracy.

‘Reducing the huge income gap between countries is one of the greatest challenges of our time. The winners have demonstrated the importance of public institutions in achieving this goal,’ said Jakob Svensson, Chairman of the Prize Committee in Economic Sciences.