Nobel Prize in Economics: Despite Limitations, AJR's Work is Worthy of Its Time

"They provided an explanation for why some countries are rich and others poor," reads the Nobel Committee's paper.

On expected lines, this year’s Economics Nobel, the Sveriges Riksbank Prize awarded for economic sciences, was awarded to Daron Acemoglu, Simon Johnson and James Robinson (famously known as AJR) for their studies on how institutions are formed and how they affect prosperity. Their work made the study and discourse on institutions relevant again in the context of mainstream economics.

The Nobel Committee's paper states, "The laureates’ model for explaining the circumstances under which political institutions are formed and changed has three components. The first is a conflict over how resources are allocated and who holds decision-making power in a society (the elite or the masses). The second is that the masses sometimes have the opportunity to exercise power by mobilising and threatening the ruling elite; power in a society is thus more than the power to make decisions. The third is the commitment problem, which means that the only alternative is for the elite to hand over decision-making power to the populace."

These components, along with modelled reasoning, have helped explain the differences in economic prosperity between and within nations.  

This is a significant contribution, and the recognition of AJR’s work is deconstructed in a sourced slide attached below from their landmark book, Why Nations Fail. 

AJR’s work underlines that inclusive Western societies strengthened the worst and most extractive features in the colonies over which they ruled, but denies that colonialism powered the wealth of the West.  

Colonialism and colonial institutions (their overhanging presence) still play a role in the poverty of the rest of the world. But prosperity is due to property rights and innovation, and is not exclusive to the West (consider Botswana and Japan as cases). The state can't be captured, though, by existing businesses.

Entrepreneurs incentivised by property rights have to be free to shake things up again; otherwise declining marginal returns and stagnation set in. What AJR argue is why/how institutions matter, not geography, culture, or good public policy.  

Their most interesting case study is not the Glorious Revolution for which they are most famous, but the spread, reversal, and in places the maintenance, of the Napoleonic Codes. With good institutions, societies can separate themselves from societies similar in culture and geography; good institutions can even reverse geographic deficits. 

In Acemoglu and Johnson's latest book, Power and Progress, power asymmetries are more sharply focused on. Leaving technological choice and the levers of society to the most economically powerful, suffering from grandiosity and narrowness of vision, won't give us productivity anchors. AJR discuss this in their work in Power and Progress through historical references. They also argue and explain how over-automation with only marginal economic productivity gains, accompanied by workplace surveillance to sweat labour as a way of reducing unit labour costs, remains antithetical to democratic deliberation.

What began, in their work, as a defence of bourgeois institutions, according to Bhandari here, has now become a call for bottom-up worker empowerment. This is also currently shaping the discourse on the form and application of new industrial policy and a re-industrialisation approach to be adopted for growth in developing nations. The forms of empowerment are limited: unions, representation on corporate boards, more worker-friendly tax policy and not capital-friendly.

AJR’s political economy foundations have also given greater agency and space for interdisciplinary studies in and around economics, which is to be massively enriched by their work and the sharp debates around it, promoting younger scholars to pursue similar research questions without limiting themselves. As a teacher and researcher in economics, I myself have benefitted from their work and often use these (like most social scientists) in coursework references.  

There is, however, another dimension to AJR’s work which opened up new critical spaces for academic work. Acemoglu, to many, including myself, was thought to be fated to win the Nobel eventually. He has been writing for more than 20 years now in favour of statist institutionalism and how institutional design is critical for orienting welfare-centred incentives that cause a higher-order growth and well-being trajectory for a win-win solution.

Having said that, most projections and interpretations in AJR’s core work, built upon and disseminated with popular opinions, emerge from a Eurocentric, Global North (Western) view of institutionalism. Their principal work on institutions suffers from a stereotyping of the social and political categories, where institutional agents are critically mentioned without delving deeper into the role of agency (and its importance) in shaping democratic decision-making (a point which was critical, for example, to Amartya Sen’s work in Development as Freedom).  

The Global South perspective is mostly missing in their work on institutions which seems to be (sub)consciously an exercised choice to make the academic relevance of a statist, institutionalised discourse-led literature universally discernible, publishable in mostly Western academic networks (including the leading peer-reviewed journals where power asymmetries between the Global North and South and its scholars remain deeply entrenched). 

Economic historians may further ask how and why AJR’s own thesis and interpretation on institutions and their historical role (including in safeguarding/shaping private property rights) is built on a hyper-simplistic view of mercantile (or other) histories that lacks context-dependency, all done, in an effort to present a comparative, universalist axiom for preaching change.  

One also needs to recognise how the Nobel values popularity in academic work, and its reach. One of the reasons that Acemoglu’s prize was destined is how popular he has been amongst mainstream economics writings and in the global citations database (with over 240,000 Google Scholar citations).

(Deepanshu Mohan is a Professor of Economics, Dean, IDEAS, Office of Inter-Disciplinary Studies, and Director of Centre for New Economics Studies (CNES), OP Jindal Global University. He is a Visiting Professor at the London School of Economics, and a 2024 Fall Academic Visitor to the Faculty of Asian and Middle Eastern Studies, University of Oxford. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)