Whether a country is rich or poor, it is closely related to the colonization of the Europeans. Three researchers from the US have shown that differences between political and economic institutions are critical to levels of prosperity.
Daron Acemoglu, Simon Johnson and James Robinson (from left) use their research to explain the differences in wealth between nations.
Global wealth is very unequally distributed: half of the world’s population earns a tenth of all income and owns only two percent of all wealth. These inequalities are mainly explained by the different levels of prosperity between countries. The fifth richest country is now about 30 times richer than the poorest 20 percent of all nations.
The political and economic institutions of the colonies
But why are some countries so poor and others extremely rich? And why are income differences not decreasing despite increasing global growth? These are central questions in social science Daron Acemoglu, Simon Johnson and James A. Robin after that.
They delved deep into history and examined the political and economic institutions created by the European colonists up to 500 years ago. The three discovered that the establishment of these institutions had – and still has – a major impact on the economic development of nations.
For their research, the Economics professors working at the Massachusetts Institute of Technology (MIT) in Cambridge (Acemoglu and Johnson) and at the University of Chicago (Robinson) are using the Swedish Riksbank Economic Prize in memory of Alfred Nobel excellent.
According to the Royal Academy of Sciences in Stockholm, the work of the three laureates shows why a weak constitutional state and institutions that take advantage of the population prevent prosperity and change for the better. The winners’ research was not limited to empirical findings; they also developed theoretical tools that explain why the wealth gap persists and show how institutions can be changed.
The more settlers, the better
Links between a country’s wealth and its institutions are difficult to demonstrate. What is cause and what is effect? Do democratic institutions and a functioning legal system promote prosperity? Or do increased incomes really contribute to democratization?
Acemoglu, Johnson and Robinson found answers to the way Europeans colonized the world and changed existing institutions in the process. When it came to extracting natural resources, the local population was usually oppressed and exploited as cheap labour. Usually only a handful of colonists settled in such densely populated areas, but they introduced institutions that benefited them. On the other hand, the rights of the original population were curtailed or suppressed.
Colonization was different in sparsely populated areas where resistance to European settlers was low. Here it was important to create incentives so that the new residents worked hard and invested in their new future. The colonial power created comprehensive systems with certain democratic features and economic freedoms.
Reversing prosperity
Although hundreds of years have passed since then, the original form of institutions can explain today’s income differences. The general rule is that those societies that were rich when they were colonized are now among the poorest countries because they were oppressed and deprived of their rights by the new masters. On the other hand, the areas that were initially bare became richer over time because the colonists created structures and legal systems that promote prosperity. According to the award winners, this reversal process was particularly accelerated during the industrial revolution. For example, in the mid-18th century, industrial production in India now exceeded that of the United States.
In addition to the number of settlers, a second factor was crucial to later prosperity: outbreaks of deadly diseases. Areas with malaria or yellow fever tended to discourage colonists, so they introduced exclusionary institutions, which is why dysfunctional economic systems with corruption and legal uncertainty can still be found today.
The theory that climate and geographical location shape the prosperity of nations dates back to Montesquieu. This explains, for example, at least in part the poverty in many tropical countries. With their research, the three scientists added an important element to this theory.
Star economist Acemoglu, who has been the favorite to crown Sweden’s prestigious prize for many years, co-published the book “Why Nations Fail” with Robinson in 2012, which became a bestseller. . Last year, Johnson and Acemoglu published the book “Power and Progress. Our Thousand Year Struggle for Technology and Prosperity”, in which they expressed a very critical view of technology.
Asked about the decline in democratization around the world and the weakening of institutions, Acemoglu, who joined the Academy of Science press conference by telephone, said “we are not reaching our full potential.” It is vital that the population demands their democratic rights and better governance.
A difficult road to democracy
The three winners also found answers to why it is so difficult for nations to break negative patterns and introduce more inclusive institutions. As long as the political elites benefit from the prevailing system, the population does not trust their promises regarding economic reform and democracy. On the contrary, those in power feared that they would not be compensated for losing their power in the event of reform. This creates a deadlock and a problem of credibility between the elites and the population, which prevents the way out of poverty.
At the same time, oppressed communities without political power also have a trump card: there are many of them and they can mobilize and demand democratic reforms. Sometimes this threat alone causes autocratic regimes to step down and allow democratic change. This model explains, among other things, the democratization of Western Europe in the years around 1900 and why democratic and non-democratic periods alternate in some countries.