The laureates studied the different political and economic systems brought in by European colonizers. As the committee noted, Acemoglu, Johnson, and Robinson “helped us understand differences in well-being across countries.” They demonstrated the importance of institutions for a country’s prosperity and developed theoretical tools that can explain why differences in institutions persist and how institutions can change.
The 2024 Nobel Memorial Prize in Economic Sciences has been awarded to Daron Acemoglu, Simon Johnson, and James A. Robinson, all working in the United States.
“The Royal Swedish Academy of Sciences has decided to award the 2024 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to Daron Acemoglu, Simon Johnson and James A. Robinson “for their research into how institutions are shaped by and influence prosperity,” the Nobel Committee said in a statement on its social media account.
Acemoglu is a professor at the Massachusetts Institute of Technology, born in Istanbul in 1967. Johnson is a professor at the same institute, where he received his doctorate in 1989. He was born in 1963 in Sheffield, UK. Robinson is a professor at the University of Chicago, born in 1960.
“Reducing the huge income gaps between countries is one of the great challenges of our time. The laureates have demonstrated the importance of public institutions in achieving this goal,” said Jakob Svensson, chairman of the Prize Committee in Economic Sciences.
The Swedish Riksbank established the prize in economics in 1968, the year of its 300th anniversary. Since then, the bank has donated an amount equal to the Nobel Prize to the Nobel Foundation each year. Traditionally, the announcement of the laureates in economics concludes Nobel Week.
The Prize in Economic Sciences is the first and so far only addition to the Nobel list. Initially, according to the will of the Swedish inventor and industrialist Alfred Nobel, the award was given for discoveries in physics, chemistry, physiology or medicine, literature, and for work to strengthen peace.
The laureates’ research formed a new approach in institutional economics, having given for the first time a quantitative, i.e. mathematically grounded, answer to the question of why some countries are rich and others poor. The translators of Acemoglu and Robinson’s book into Russian called it Why Nations Fail. It was written based on the authors’ research, many of which were done jointly with Simon Johnson, and became a world bestseller. Its earlier and more academic version, which became a scientific bestseller, was the book The Economic Origins of Dictatorship and Democracy.
Institutions are the “rules of the game” in society that people use to interact with each other in various spheres – political, economic, social, and others – and that thereby determine opportunities and incentives. In their research, Acemoglu, Johnson, and Robinson showed that economic prosperity or lack thereof depends on political institutions. Before that, economists, when building growth models, hardly thought in such categories: factors of production – physical and human capital – were considered as sources of economic growth. And the study of social structure was considered the business of political scientists and sociologists.
While it is impossible to prove that the laureates’ writings have influenced actual policy, they suggest that a strategy that emphasizes democracy and inclusive institutions is well-aligned with the goals of fighting poverty and promoting economic development, the Nobel Committee says. The World Bank’s 2017 World Development Report outlines an institution-building development agenda centered on the ideas of the Nobel economics laureates – 2024. And the UN’s 2030 Sustainable Development Goals include “building inclusive societies” with the rule of law and equal access to justice and “building effective, accountable and inclusive institutions.”
All three laureates are among the top 5% of the most cited economists, and Acemoglu is also among the top 10% of the most cited authors over the past 10 years (as of September 2024).
Acemoglu, who was born in 1967 in Istanbul and grew up in Turkey, has Armenian roots. His father was a lawyer and a lecturer at Istanbul University, and his mother was a principal and teacher at an Armenian high school in Istanbul. After school, Acemoglu went to study in the UK and in 1989 received a bachelor’s degree in economics from the University of York, then an master’s degree in mathematical economics and econometrics and a doctorate in economics from the London School of Economics (LSE). Since 1993, he has taught first at LSE and then at MIT, where he remains; he has received American citizenship. In 2005, he received the John Bates Clark Medal, which the American Economic Association awards to economists under 40 for outstanding achievements. Acemoglu’s wife, Asuman Özdağlar, is a professor of electrical engineering at MIT and one of his co-authors. Together with her, he wrote, for example, a recent NBER article about how social networks can reduce the well-being of users when monetized through advertising rather than subscriptions.
Robinson was born in the UK in 1960, studied at the LSE and the University of Warwick, and received his PhD from Yale. He has taught at the University of Melbourne, the University of Southern California, the University of California, Berkeley, and Harvard. Robinson has a particular interest in sub-Saharan Africa and Latin America and is a research fellow at the Institute of African Studies at the University of Nigeria, Nsukka. From 1994 to 2022, he taught at the summer school at the University of the Andes in Bogotá and conducted fieldwork and data collection in Bolivia, Colombia, Haiti, the Democratic Republic of Congo, Nigeria, Sierra Leone, South Africa, and Zimbabwe. In 2013, he was included in Prospect magazine’s ranking of the world’s best thinkers.
Johnson was born in 1963 in the United Kingdom. He studied at the University of Manchester and Oxford, and received a PhD in economics from MIT. He served as the chief economist of the IMF in 2007–2008, was a member of the economic advisory panel of the Congressional Budget Office, a member of the Advisory Committee on Systemic Resolution of the Federal Deposit Insurance Corporation, and a member of the Advisory Committee on Financial Research of the Office of Financial Research of the U.S. Treasury Department.
Why some countries are rich and getting richer, while others are poor and fail to improve their situation in any meaningful way has long puzzled many researchers. “If a country is 50% richer than another, you can say, well, maybe that’s natural. They have some resources or some other advantage. But there’s nothing natural about a 30-, 40-, 50-fold difference in per capita income in a globalized, interconnected world,” Acemoglu says of why he became interested in the topic in the 1990s. Scientists have looked at a variety of reasons – geography, climate, cultural differences.
But take the city of Nogales, for example: it is divided by a wall between two countries – its northern part is in the United States, and the southern part is in Mexico. The income of the “northerners” is three times higher than in the “south”, they have a longer life expectancy, most teenagers go to school, and adults do not fear robberies and expropriation of their businesses. “Southerners” are less fortunate: although they live in a prosperous part of Mexico, they are three times poorer than their northern neighbors, most adults did not finish school, and most teenagers do not go to school, the crime rate is high, and starting your own business is unsafe. At the same time, the geography and climate of both parts of the city are absolutely identical. The origin of the residents is also the same: historically, the northern part was in Mexico, and the townspeople on both sides of the wall have common ancestors and similar culture and traditions.
The only reason for the differences in the quality of life and level of well-being of the residents of the two parts of Nogales is the wall itself: on either side of it, people live in different institutional conditions. In the northern part, there are American economic institutions that allow people to get an education, choose a profession, open their own business, and encourage them to invest to increase profits; and political institutions that allow them to elect their representatives and change them in case of unsatisfactory work. Residents of “Mexican” Nogales live in a completely different world, in which completely different institutions have created completely different incentives.
With this example, Acemoglu and Robinson begin their book, Why Countries Are Rich and Others Poor, in which they show that Nogales is not an outlier, but part of a clear pattern. But if so, why did some countries develop institutions that promote prosperity while others do not?
In their first joint and one of their fundamental works, published in 2001, Acemoglu, Johnson and Robinson attribute the reasons for this to the establishment of the first colonies by Europeans 500 years ago. The authors studied about six dozen current countries that were colonized during the Age of Great Geographical Discoveries – this colonization the researchers viewed as a natural experiment that unfolded in the history of mankind.
The Europeans established different rules in their colonies: in some territories these were rules that would now be called democratic, in other territories – dictatorship. The differences were caused by how attractive the colonized territories were for the colonizers themselves to live. If they were very attractive, many Europeans moved there. And then they had an incentive to establish rules that corresponded to the interests of citizens – rules that would support property rights, facilitate transactions and thus involve more people in economic activity.
If the territories were unattractive, then migration from Europe was smaller. And then institutions were introduced and supported there that corresponded to the interests of a small group of elites and helped them extract as many resources as possible.
In turn, the degree of attractiveness of colonial lands for settlement depended, firstly, on the mortality rate of Europeans who moved there. Where Europeans died more often from previously unknown diseases, migration was less (South America, India). Where the environment was more favorable, migration from Europe was greater (North America, Australia, New Zealand).
Secondly, the size of the local population had an impact. Where it was larger, Europeans again died more often when faced with resistance, and therefore moved there less often. In addition, the local population was larger in rich territories. By capturing these territories, Europeans received huge resources that allowed a relatively small number of colonizers to exploit the numerous native population in mines and capture even more resources – gold, silver, sugar. And where there was no natural abundance, there were no mines.
The differences in institutional trajectories determined the differences in long-term economic outcomes. They eventually led to what Acemoglu, Johnson, and Robinson call a “reversal of fortune”: countries that were relatively rich 500 years ago are relatively poor now, and, conversely, relatively less developed colonized regions have ended up among the world’s economic leaders. “Rather than asking whether colonialism was good or bad, we note that different colonial strategies led to different institutional patterns that persisted over time,” Acemoglu explains. Today, the bottom 50% of the world’s income distribution earns only 10% of global income, a gap that is largely driven by differences across countries.
Much of the poverty, unfortunately, is the result of long-standing institutional arrangements, political and economic. So there are very big challenges to overcome.
The current laureates were not the first to discover the importance of institutions for economic development. This idea goes back to Adam Smith, who noted in The Wealth of Nations the importance of free markets and competition for the prosperity of nations. In the 1970s and 1980s, the role of institutions in economic development was studied by Douglass North, who was awarded the Nobel Prize for his work in 1993. North divided public institutions into “limited access orders” and “open access orders”. Acemoglu, Johnson and Robinson introduced the concepts of “extractive” and “inclusive” institutions. In inclusive political institutions, the interests of the majority of the population are taken into account, while the political elite is limited. Extractive institutions are the opposite.
Inclusive political institutions underpin inclusive economic institutions that create strategic benefits for all and thus provide nations with a sustainable path to prosperity. Extractive political institutions provide short-term economic benefits for elites but fail to generate economic growth over the long term – they may experience short bursts but quickly fade away.
While researching an article about the causes and solutions to the global financial crisis in 2008, Acemoglu found himself repeating the monologue of iconic villain Gordon Gekko in the film Wall Street about how “greed is good.” Greed in itself is neither good nor bad, he wrote: “When channeled toward profit maximization, competitiveness, and innovative behavior under the auspices of sound laws and rules, greed can act as an engine of innovation and economic growth. But if it is not controlled by appropriate institutions and rules, it will degenerate into rent-seeking, corruption, and crime.” For most people, greed is fueled by ambition. And institutions can channel it into constructive channels. But the institutions that controlled financiers’ greed in the 1980s and 1990s were dismantled, and the result was the crisis.
Acemoglu, Johnson, and Robinson’s research “corrected” modernization theory, which was based on Seymour Lipset’s 1959 work. According to this theory, socioeconomic development determines political development: societies become more democratic as they become richer – the richer the country, the larger its wealthy and educated middle class becomes, which creates the basis for democratization. This theory was supported by the fact that richer countries are generally more democratic.
According to a later, second interpretation of this theory, democracy is a kind of by-product of the elite agreement, i.e. democratization occurs “from above”. According to a third version, the choice of the path to democracy or dictatorship is determined by the relations of social classes, i.e. democratization is initiated “from below”.
The 2024 laureates in their 2008 article debunked the first, classical version of modernization theory, proving that there is no connection between wealth and the quality of institutions: what looked like a cause-and-effect relationship is a correlation. And the correlation is due to the fact that political and economic paths are intertwined. And some countries took the path of democratization, associated with economic growth, while others took the path of dictatorship, associated with limiting economic development. That is, again, it was not wealth that led to democracy, but democracy that led to wealth.
Acemoglu and Robinson combined the second and third approaches, proposing a model that explains why countries get stuck in extractive institutions and under what conditions a transition to democracy can occur. The explanation consists of three components: trust, social conflict, and the problem of commitment.
If the political system benefits only the elites, the population may not believe that the economic reforms promised by politicians will benefit everyone else. A new political system based on free elections and allowing citizens to replace leaders who do not keep their promises does not inspire confidence among the elites, who fear that the economic benefits they and their government will lose will not be compensated for. Thus, countries get stuck in the trap of extractive institutions that hinder economic development. Acemoglu and Robinson call this the “commitment problem.”
The situation may change if a social conflict arises. The population has one advantage over the elites – mass participation. The masses may mobilize, for example, under the influence of economic crises. When faced with the threat of revolution – not necessarily violent, it may also be peaceful, which allows more citizens to join – the elite faces a dilemma: it could share the economic rent by promising reforms in order to retain power, but the population does not believe in promises. In this case, the elite may prefer to share power.
But since redistribution is involved, resources can soon end up in the hands of the elite again, or new democratic leaders fail to deliver on their promises, giving the old elites the opportunity to return to power. This explains why young democracies are unstable and can “slide” back into authoritarianism.
Building truly inclusive institutions requires the buy-in and support of broad societal groups. “Elections sometimes create conflict and, in polarized societies, can lead to short-term results that are sometimes not democratic in nature,” Acemoglu explains.
Acemoglu, Robinson, and their co-authors showed in a large sample of countries (175 countries over the period 1960–2010) that transitions to democracy lead to 20% higher growth in GDP per capita than would have been the case without such a transition over a 25-year horizon. However, this figure actually declines in the first decade.
Established democracies are quite expensive to dismantle, so they tend to self-perpetuate: for example, all 27 countries classified as democracies in 1920 remained so in 2020.
Economic growth is critically dependent on innovation. In one of their papers, Acemoglu and Robinson showed using a mathematical model that political elites can block technological and institutional innovations if they believe that such changes could destabilize the existing order and threaten their power – that is, if innovations create a “political substitution effect.” This occurs when political competition is low and does not occur when competition is high, or when elites believe that they are not threatened.
However, if the commitment problem is solved, then effective economic institutions do not require “prior” democracy. This explains why, for example, countries like China or Singapore have managed to modernize and achieve impressive economic results without being models of democracy.
The sources that make “undemocratic modernization” possible can be found in culture, Acemoglu and Robinson argue: the interaction of politics and economics cannot be separated from cultural factors. Many societies have a fairly stable set of cultural attitudes that define such concepts as the importance of hierarchy, the role of the family, higher ideals, and customs and traditions. These attitudes can provide justification—that is, legitimization—for various political arrangements and social hierarchies.
If cultural attitudes suggest that top-down rule is legitimate, that rulers are virtuous or endowed with divine authority, and that interference by ordinary people in state affairs is inappropriate, then such attitudes can be used both by elites to strengthen their positions and by citizens to adapt to life under authoritarianism. The longer it lasts, the more deeply rooted the corresponding cultural attitudes become, and the easier it is to legitimize the rule of elites, whether emperors or the Communist Party.
In their 2012 book, Why Countries Get Rich and Others Get Poor, Acemoglu and Robinson argued that China would be unable to sustain its economic growth without inclusive institutions. More than a decade after their publication, China poses “a small challenge” to that argument, Acemoglu acknowledged, as it invests in innovation in AI and electric vehicles. “But in general, I think authoritarian regimes will have a harder time achieving long-term, sustainable innovation results for a variety of reasons,” he added. In most cases, long-term, sustainable economic growth requires technological change, innovation, and creativity, all of which thrive in inclusive economic institutions, Acemoglu and his co-authors concluded.
However, democracies do not always realize their potential for prosperity, as evidenced by their current record low support, the Nobel laureate laments. The world is very constant, but you can still see examples of the transition from what we call extractive institutions to inclusive ones. All the countries that are prospering today were historically extractive.
Acemoglu had an unpleasant experience as a teenager: he was arrested for driving without a license in Istanbul. A night in a cell taught him how important regulation and rules are, the economist recalled as an MIT professor: “Without regulation and predictable laws, markets will not work.”
His childhood and adolescence in Turkey in the 1980s made him think for the first time about the possibility that economic ill-being could be linked to the political system. He became even more interested in the vast differences between poor and rich nations when he moved to prosperous London, where he studied at the LSE. However, at the University of York, where he came to study economics, Acemoglu discovered that none of the subjects explained the connection between economics and politics. So he began to study the issue on his own.
Acemoglu and Robinson met at a seminar at LSE in 1992. Robinson remembers Acemoglu as a disheveled young man who fiercely questioned his methodology. “I was presenting my research at a seminar in early 1992, and there was a very annoying PhD student sitting in front of me who kept interrupting and picking on my presentation. The group went out to dinner afterwards, and I ended up sitting next to the same annoying character, but we got to talking and I discovered he had some original ideas that he was very good at communicating. That was Daron,” Robinson recalled. Robinson returned to Australia, where he taught at the University of Melbourne, and he and Daron continued to communicate via the then-new medium of email. One day, after exchanging new papers via email, they discovered that they had independently written almost identical papers. Because their economics training had instilled in both a deep aversion to duplication and inefficiency, the scientists decided to team up in their research.
There is no easy way to sum up how a society can move from an extractive set of institutions to an inclusive one, but to summarize our research briefly, I would say that we have also found no other way to ensure long-term national prosperity than to strive to achieve inclusive institutions.
Acemoglu amazed his co-authors, colleagues, and later students with the scale of his academic interests, publishing a dozen and a half works a year not only on institutional economics, but also on labor economics, macroeconomics, and political economy. And he could have won the Nobel Prize in any of these topics, says Jonathan Gruber, head of the MIT economics department: “Daron Acemoglu is an economist’s economist.” He is the author of several hundred works, about 120 of which were published in leading academic journals, four books co-authored with his current Nobel co-laureates, and two textbooks.
Acemoglu brought political economy into the mainstream at MIT – but when he got his first job there 30 years ago, he was warned that mixing economics and politics was “an undesirable heresy.” But he was interested in more than just the macro picture – as an undergraduate, he had concluded that macro trends begin in the micro, and had “inaccurately violated” the neat and sturdy distinction between the two disciplines, an IMF magazine described him as a “peacebreaker.”
“If you want to fully understand the bigger macro picture – growth, political economy, long-term issues – you have to understand the basic micro principles, like incentives, resource allocation, technological change, and capital accumulation,” Acemoglu explained of his difficulty in “fitting” into the existing divisions between disciplines. “He’s interested in everything,” Robinson confirmed.
Another of Acemoglu’s ongoing interests is technological innovation and artificial intelligence. According to Acemoglu, AI is currently doing more harm to society than good due to unequal access to this technology and the lack of regulation. In their new joint book “Power and Progress: Our Millennial Struggle for Technology and Prosperity,” which traces the major technological transformations in human history, Acemoglu and Johnson show that digitalization and the introduction of AI can make life for most people either worse or much better – the outcome depends on what economic, social and political decisions are made in this area. The book on technology continues the theme of institutions, showing that the most dangerous thing is that advanced technologies can be given to individuals and companies, which will allow them to gain enormous power.
“I’m not worried about superintelligent AI at all. I’m worried about dumb AI because I think AI has a lot of potential,” Acemoglu told the Nobel committee after the 2024 laureates were announced. “And if we don’t use it, or if we use it incorrectly, I think that potential will be lost. But more importantly, if we use it incorrectly, it will be a major driver of further inequality, of further weakening of democracy through manipulation by some actors. And it will contribute to the two-tier society that I think we’re already starting to suffer from.”
In the early 1800s, the classic political economist David Ricardo discovered that machines in themselves are neither good nor bad. His insight that the effects of machines determine whether they create or destroy jobs, and that this in turn depends on how they are deployed and who makes those decisions, is more relevant today than ever, Acemoglu and Johnson wrote in April 2024. Creating worker-friendly AI will only be possible by changing the direction of innovation in the tech industry and introducing new rules and institutions. As in Ricardo’s day, relying on the charity of business and tech leaders would be naive. It took England years during the Industrial Revolution to enact political reforms, create democracy, legalize labor unions, and change the direction of technological progress. The same challenge faces societies today, Acemoglu and Johnson argue.
Their efforts appear to have had an effect. Nobel laureate Paul Romer, who believed that technology drives the modern economy, has gone on to criticize tech giants, arguing that they are stifling the flow of new ideas and has advocated a tax on their advertising. And IMF First Deputy Managing Director Gita Gopinath has cited Acemoglu in calling for AI to be regulated so that society benefits.
