Governance lottery (Weather’s Version)

Awarded for their pioneering research on how institutions shape economic prosperity, Daron Acemoğlu, Simon Johnson, and James A. Robinson have been awarded the Nobel Prize in Economic Sciences. They have significantly advanced our understanding of global inequality by highlighting that institutions set up during colonisation have had an enduring impact on economic outcomes in the countries affected.

The authors aim to address why some countries are far wealthier than others, despite having similar geographic characteristics or natural resources. European powers’ colonisation strategies were shaped by the feasibility of settling in different regions. Where Europeans faced high mortality rates due to diseases, they avoided settling permanently and instead established ‘extractive institutions’, which transferred resources from the colony to the colonising country without regard for encouraging long-term development or protecting the property rights of local populations. Turns out that institutions are much like a Wi-Fi signal for success: if they’re strong, you survive – if they’re weak, you buffer endlessly. Where the Europeans felt like they could set up camp, they instituted strong governance, including property rights and checks on governmental power, creating bite-sized extensions of the European countries at the time.

The prize winners weren’t completely anonymous before their win. While all three now work at American universities, none were born in the US. Acemoğlu was born in Istanbul and studied in the UK, receiving his master’s degree and doctorate from the London School of Economics (LSE) after undergraduate studies at York. He began his academic career there before moving to the Massachusetts Institute of Technology (MIT). In 2005, he won the John Bates Clark Medal, awarded to the most promising American economist under the age of 40.

Acemoğlu and Robinson co-wrote the best-selling book Why Nations Fail, which delves into the effects of inclusive and extractive institutions on economic prosperity. Robinson holds dual British and American citizenship. He received degrees from LSE and, most notably, Warwick, before completing a doctorate at Yale.

“Institutions are exactly the parts of markets that are inherently resistant to discovery through numbers”

Brendan Geeley, Journalist for the Financial Times

Johnson was born in Sheffield but spent his working life in the US. After completing a master’s at the University of Manchester following an undergraduate degree at the University of Oxford, he received his doctorate from MIT. He has previously served as an economist at the IMF and was a Senior Fellow at the Peterson Institute for International Economics, a think tank.

Some have criticised the prize-winners’ findings. One major thought is that their research is fraught with “spurious correlations”, where variables that are correlated with one another aren’t causally linked.

Moreover, Brendan Greeley, a journalist for the Financial Times, has argued “institutions are exactly the parts of markets that are inherently resistant to discovery through numbers”. An economist, well-versed with numbers, may struggle to find the answer here.

Still, other reputable researchers back the researchers’ claims. If your ancestors got unlucky with colonialism’s governance lottery, at least you can find peace by realising you can just blame it on the weather.