Nobel Prize rewards research on poor and rich countries

  A trio is awarded this year's economics prize in memory of Alfred Nobel. Daron Acemoglu, Simon Johnson and James A Robinson have asked why some countries are poor and others rich. They have found the answer in the colonization of the Europeans.

 Daron Acemoglu, is on video link from Athens when the award is presented at a press conference at the Royal Academy of Sciences. - It's a real shock, says Acemoglu, who was, however, among the pre-selected favourites.

 This year's prize is about understanding why some countries are rich and others poor. To arrive at that, the trio studied the Europeans' colonization of the world centuries back and what kind of political and economic institutions were introduced or retained in the various countries.

 The research has been able to show the importance of good social institutions for a country's prosperity. - It is very important because it provides a good tool for how to attack poverty and other types of problems that we see around the world, says Tommy Andersson, professor of economics and member of the prize committee. According to Andersson, previous theories have assumed that countries that become rich automatically get democracy.

 This year's award winners have shown that it is often the other way around - that countries with good institutions often become rich. The research has also shown that countries that were relatively rich when they were colonized today have generally ended up in a worse situation than countries that were poor when they were colonized. - In countries where you could exploit a lot of resources, you typically introduced institutions that benefited a small elite.

 This meant that countries that were previously rich got exploitative institutions that in the long run turned out to be very bad for prosperity, says Andersson.

 Poorer and more sparsely populated "colonies gave more space to larger settler colonies.- Europeans who came to those areas wanted to create a system that certainly benefited themselves, but also benefited others through better protection of property rights, for example, so they could invest in their new home countries, says Tommy Andersson.

 Institutions that protected property rights proved to be good for long-term growth. According to Tommy Andersson, the research has, among other things, influenced several bodies within the UN. - It is among their 2030 goals to create inclusive institutions. In that sense, they have contributed to bringing up the importance of institutions on the agenda, he says. All three prize winners are active at universities in the United States.

Todde

Also check: https://axiom1b.blogspot.com/2024/05/we-europeans-are-becoming-tiny-minority.html

 

The research helps us understand gaps

Memes?

 Weak social institutions are one of the explanations why some countries continue to be poor. Daron Acemoglu, Simon Johnson and James A Robinson, who research economic differences, receive this year's economics award. Why did this trio receive the award?

 Today, the richest fifth of the world's countries are around thirty times richer than the poorest fifth. Although all countries have become richer in recent decades, the income gap between the richest and poorest has not decreased. The prize winners' research has helped us understand why this is the case - i.e. why some countries are poor and others rich. This was stated by Jan Teorell, professor of political science at Stockholm University, in connection with the announcement of this year's economics award.

 What explains the large gap between rich and poor countries? The laureates' research shows that a large part of income differences is due to different countries having developed different economic and political institutions. Countries with so-called inclusive institutions – with democracy and protected property rights (C2) – have become richer than countries with exclusionary institutions that pose great risks of expropriation and autocracy.

 One of the reasons why some countries have inclusive and others have exclusionary institutions can be traced far back in time – to differences in what happened in different colonies after Europe colonized large parts of the world, beginning in the 16th century.

 More Europeans moved to colonies with fewer diseases and lower death rates. This in turn led to the creation of more inclusive institutions in these colonies. In colonies where fewer Europeans moved - due to diseases such as malaria and yellow fever - on the contrary, more exclusionary institutions were formed where the colonial powers usurped the country's resources at the expense of the local population.

 The laureates' research also shows that the colonies that were the poorest in the 16th century are today the richest, and vice versa. One of the reasons is that the poorest colonies were more sparsely populated. This led to more settlers moving there, which in turn led to the colony gaining more inclusive institutions.

 Over the centuries, all this has led to large differences between how much the economy has grown in different countries. Is it not possible to simply introduce inclusive institutions? It's not really that simple - something that the award winners manage with the so-called "commitment problem." In countries without democracy and inclusive institutions, the people will constantly fear that the assets they may have managed to build up will be confiscated by the ruling elite, even when the elite promises economic reforms. It inhibits people's incentive to create value for themselves, and in turn the country's economic development and opportunities to grow rich.

 The so-called "commitment problem" is also one of the explanations for why authoritarian states sometimes turn into democracies. The elite know that the only way for the country to get rid of the "commitment problem" - and thus become rich - is to introduce democracy.

Todde

Also check: https://axiom1b.blogspot.com/2024/02/we-are-good-guys-it-is-excellent-to.html

Poverty is not the fault of rich countries

 The question is whether an economics prize has ever had such immediate relevance to contemporary issues as the one awarded this year to Daron Acemoglu, Simon Johnson and James Robinson. Above all, Acemoglu and Robinson show in their best moments why both the self-hatred of the left and the complacency of populism are false alternatives. In the influential book "Why nations fail", Acemoglu and Robinson show that vocal parts of the academic left have a fundamental error in their social analysis: It is not the fault of rich countries that poor countries are poor. For example, Sweden was not poor in the 19th century because Great Britain was rich. On the contrary, we could also become rich when we copied reforms such as freedom of business and democratization. Thanks to these better institutions – Acemoglu and Robinson call them inclusive – Sweden was able to quickly build its own prosperity, with good help from other countries that had made, or were about to make, the same journey.

 So we don't have to feel guilty because we live in a rich country; the wealth we created has not been taken from anyone else. Most important among these inclusive institutions is the right to property. It means that you can trust that you have access to what you have created, also in the future. It allows us to work for others, sign contracts, invest, give credit and make business plans to get higher income in the long run. It is in such societies that prosperity grows.

 Poverty is inversely related to the difficulty of establishing functioning institutions. There is always a temptation for those in power to seize the resources available, which undermines ownership and the ability to build wealth in the long term. Acemoglu and Robinson call it extractive institutions. In their follow-up book "The Narrow corridor" (Penguin Press), Acemoglu and Robinson show how even strong clans keep societies in poverty and lack of freedom. But the fact that power is limited by the rule of law and individual rights such as freedom of speech, and is only on loan during the term of office until the next election, also makes it difficult for rulers to enrich themselves and their friends in the short term.

 As, among others, Acemoglu and Robinson's research has helped to show, democracies therefore generally have better economic development than authoritarian regimes.

 Even the extractive logic is unfortunately highly topical in our time. Namely, it is driving the authoritarian and populist trend that is sweeping the world. As the author and journalist Anne Applebaum recently showed in her book "Autocracy Inc" (Allen Lane), it is precisely the ruling clique's will to enrich themselves (and stay in power) that unites communist, nationalist and Islamist governments these days. These regimes not only spread unfreedom and geopolitical instability, but also economic stagnation in societies where it is easier to plunder.

 Acemoglu and Robinson show that, contrary to the notions often found on left-leaning culture pages, property rights and economic freedom contribute to creating and underpinning common interests, trust and community.

 In addition, they have shown that democracy's division of powers, equality before the law and individual rights such as freedom of expression are also important for economic prosperity. In short: We can become richer and freer - and so can all other countries.

Todde

Also check: https://axiom1b.blogspot.com/2023/05/overpopulation-and-future-of-mankind.html