This article originally appeared in the National Review. Below is an excerpt from the article.
By Jon Hartley, November 11, 2024
Daron Acemoglu, Simon Johnson, and James Robinson won the Nobel Prize in Economics this year for their work on institutions and the causes of prosperity. In fact, I recently hosted Acemoglu and Johnson on my Hoover Institution podcast, prior to the announcement.
Many other economists over the years have discussed the role of institutions, including Barry Weingast and Avner Greif, as well as Douglass North, who famously called institutions “rules of the game” in work that won him a Nobel Prize in 1993. Institutional economics was a very theoretical field before Acemoglu, Johnson, and Robinson came along. Before the turn of the century, the big question in development economics was, “What is the fundamental cause of growth across countries?” Was it geography, as advocated by Jared Diamond in his 1997 book Guns, Germs, and Steel, which asks why cold countries are so rich and hot countries so poor? Was it culture, as suggested by Max Weber in his famous early-20th-century work The Protestant Ethic and the Spirit of Capitalism, which argued that Protestant countries are richer than Catholic countries? Or do institutions explain international differences in prosperity, which Acemoglu and Robinson argued in their 2012 bestseller Why Nations Fail?
Acemoglu, Johnson, and Robinson attempted to bring empirical rigor to the study of institutions in now-famous papers such as “The Colonial Origins of Comparative Development: An Empirical Investigation,” published in 2001, and “Reversal of Fortune: Geography and Institutions In The Making of The Modern World Income Distribution,” published in 2002. While these papers and the validity of their empirical design have been contested, Acemoglu, Johnson, and Robinson were the first to attempt to study the importance of institutions with new empirical tools that tease out cause and effect. Why Nations Fail summarizes many of these findings but goes further to outline many stories of institutions at work around the world. Take the natural experiment of Korea, for example. Since the early 1950s, the peninsula has been divided between the communist totalitarian north and the relatively capitalistic south (which didn’t democratize until much later, in the 1990s). Capitalist South Korea prospered, while North Korea became poor.
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Jon Hartley is a senior fellow at the Macdonald-Laurier Institute, a research fellow at the Foundation for Research on Equal Opportunity, and an economics Ph.D. candidate at Stanford University. He is also the host of the Capitalism and Freedom in the 21st Century Podcast at the Hoover Institution.
