This year’s Nobel Prize in Economic Sciences has been awarded to Daron Acemoglu, Simon Johnson, and James A. Robinson for improving our understanding of the relationship between institutions and prosperity. These scholars’ theoretical tools for analyzing why and when institutions change have significantly enhanced our ability to explain – and address – the vast differences in wealth between countries.
Policymakers’ failure to grasp how institutions work was on stark display in Afghanistan. As Acemoglu explained in 2021, the country’s “humiliating collapse,” and the Taliban’s takeover following America’s chaotic withdrawal, reflected the deeply misguided idea that a “functioning state” could be “imposed from above by foreign forces.” As he and Robinson had previously shown, “this approach makes no sense when your starting point is a deeply heterogeneous society organized around local customs and norms, where state institutions have long been absent or impaired.”
Leaders should not make the same mistakes during Ukraine’s reconstruction. As Acemoglu and Robinson observed in 2019, following the collapse of communism, the country “remained trapped by kleptocratic institutions that bred a culture of corruption and destroyed public trust.” If the country is to thrive after the current war ends, it will need to avoid a top-down restoration of the “extractive institutions” of the past, and instead engage civil society to “build better institutions” from the ground up.
Acemoglu and Johnson have argued that a better understanding of institutions should also guide US policy toward China. Though the rise of Chinese manufacturing seemed to be a perfect example of the nineteenth-century economist David Ricardo’s famous “law of comparative advantage,” China always owed that advantage to repressive institutions. So, far from making everyone better off, as Ricardo’s law assumes, China’s economic might “threatens global stability and US interests” in ways that must – and, increasingly, do – shape US policy toward the country.
And it is not just China. As Acemoglu has shown, “the post-Cold War project of globalization also created the conditions for resurgent nationalism around the world,” such as in Hungary, India, Russia, and Turkey. In this context, the West must rethink its approach to engagement, both economic and political, with these countries.
Ricardo’s insights are also relevant to debates about artificial intelligence, noted Acemoglu and Johnson earlier this year. Whether machines “destroy or create jobs all depends on how we deploy them, and on who makes those choices,” they write, noting that it “took major political reforms to create genuine democracy, to legalize trade unions, and to change the direction of technological progress in Britain during the Industrial Revolution.” Likewise, building “pro-worker” AI today will require us to “change the direction of innovation in the tech industry and introduce new regulations and institutions.”
According to Acemoglu, three principles should guide policymakers. First, measures must be put in place to help those who are adversely affected by the “creative destruction” that accompanies technological progress. Second, “we should not assume that disruption is inevitable.” For example, rather than designing and deploying AI “only with automation in mind” – an approach that Acemoglu and Johnson have pointed out would have “dire implications for Americans’ spending power” – we should tap its “immense potential to make workers more productive.” Finally, the era of innovators moving fast and breaking things must be put behind us. It is imperative that we “pay greater attention to how the next wave of disruptive innovation could affect our social, democratic, and civic institutions.”
This year’s Nobel Prize in Economic Sciences has been awarded to Daron Acemoglu, Simon Johnson, and James A. Robinson for improving our understanding of the relationship between institutions and prosperity. These scholars’ theoretical tools for analyzing why and when institutions change have significantly enhanced our ability to explain – and address – the vast differences in wealth between countries.
Policymakers’ failure to grasp how institutions work was on stark display in Afghanistan. As Acemoglu explained in 2021, the country’s “humiliating collapse,” and the Taliban’s takeover following America’s chaotic withdrawal, reflected the deeply misguided idea that a “functioning state” could be “imposed from above by foreign forces.” As he and Robinson had previously shown, “this approach makes no sense when your starting point is a deeply heterogeneous society organized around local customs and norms, where state institutions have long been absent or impaired.”
Leaders should not make the same mistakes during Ukraine’s reconstruction. As Acemoglu and Robinson observed in 2019, following the collapse of communism, the country “remained trapped by kleptocratic institutions that bred a culture of corruption and destroyed public trust.” If the country is to thrive after the current war ends, it will need to avoid a top-down restoration of the “extractive institutions” of the past, and instead engage civil society to “build better institutions” from the ground up.
Acemoglu and Johnson have argued that a better understanding of institutions should also guide US policy toward China. Though the rise of Chinese manufacturing seemed to be a perfect example of the nineteenth-century economist David Ricardo’s famous “law of comparative advantage,” China always owed that advantage to repressive institutions. So, far from making everyone better off, as Ricardo’s law assumes, China’s economic might “threatens global stability and US interests” in ways that must – and, increasingly, do – shape US policy toward the country.
And it is not just China. As Acemoglu has shown, “the post-Cold War project of globalization also created the conditions for resurgent nationalism around the world,” such as in Hungary, India, Russia, and Turkey. In this context, the West must rethink its approach to engagement, both economic and political, with these countries.
Ricardo’s insights are also relevant to debates about artificial intelligence, noted Acemoglu and Johnson earlier this year. Whether machines “destroy or create jobs all depends on how we deploy them, and on who makes those choices,” they write, noting that it “took major political reforms to create genuine democracy, to legalize trade unions, and to change the direction of technological progress in Britain during the Industrial Revolution.” Likewise, building “pro-worker” AI today will require us to “change the direction of innovation in the tech industry and introduce new regulations and institutions.”
According to Acemoglu, three principles should guide policymakers. First, measures must be put in place to help those who are adversely affected by the “creative destruction” that accompanies technological progress. Second, “we should not assume that disruption is inevitable.” For example, rather than designing and deploying AI “only with automation in mind” – an approach that Acemoglu and Johnson have pointed out would have “dire implications for Americans’ spending power” – we should tap its “immense potential to make workers more productive.” Finally, the era of innovators moving fast and breaking things must be put behind us. It is imperative that we “pay greater attention to how the next wave of disruptive innovation could affect our social, democratic, and civic institutions.”