The winners of this year’s Nobel Prize in Economic Sciences were announced on October 14, with Daron Acemoglu from MIT, Simon Johnson, and James A. Robinson from the University of Chicago receiving the prestigious award for their groundbreaking research on how social institutions are formed and their impact on national prosperity.
Their study explores the development of institutional frameworks in formerly colonized nations and their effects on economic prosperity, with a broad conclusion that democratic political systems tend to foster economic growth more effectively.
Additionally, the researchers focus on income inequality between nations. The Nobel Committee highlighted that this year’s laureates examined the diverse political and economic systems implemented by European colonizers across their colonies, underscoring the critical role that social institutions play in a nation’s prosperity.
Committee chair Tobias Svensson stated that reducing the significant income disparities among countries is one of today’s major challenges. He emphasized that the trio demonstrated the importance of social institutions in achieving this goal.
The Nobel Prize press release explained that European colonizers altered the social structures of their colonies, introducing various institutions. Some established inclusive political and economic systems that benefitted European immigrants over the long term. Conversely, others experienced extractive institutions designed to exploit indigenous populations and extract resources for profit.
Implementing inclusive systems can benefit everyone in the long run, but some countries remain trapped in extractive systems, leading to sluggish economic growth. Extractive systems may provide short-term advantages to the ruling class; as long as the political framework ensures their continued power, the public remains skeptical of their commitments to future economic reforms, perpetuating the status quo.
Acemoglu, speaking from Athens, expressed his delight at receiving the award and noted that their research highlights the value of democratic institutions. “Countries transitioning from non-democratic regimes to democracy tend to grow faster—by about eight or nine years—than those that remain non-democratic,” he explained, while also acknowledging the challenges of implementing democracy.
Johnson, in an interview with Reuters, reflected on the pressures facing the existing system in the U.S., particularly following former President Trump’s refusal to concede the 2020 election. “I believe this is the greatest concern I’ve observed in the industrialized world,” he stated, adding that the upcoming elections would represent a “heavy stress test” for American democracy.
