IN FAST-GROWING DEVELOPING countries like India and China, rapid productivity growth is largely driven by economic growth, resulting in rapid increases in the average living standards of the population. Consequently, an understanding of the reasons for this strong productivity growth requires a broader perspective on the dynamics of the overall growth process. In March 2012 two academics, Daron Acemoglu, an economist at MIT and James A. Robinson, a political scientist and economist at Harvard University, published Why Nations Fail: The Origins of Power, Prosperity, and Poverty (New York: Crown Business). (2) With great historical detail, the book makes the case that it is man-made economic and political institutions that underlie economic success by creating incentives for wealth creation, rewarding innovation and allowing widespread participation in economic opportunities.
On June 29, 2012 in Montreal, Christopher Ragan from McGill University had the opportunity to meet with both Acemoglu and Robinson to discuss their thesis that it is institutions that largely determine economic growth. This article is an edited transcript of the interview.
Chris Ragan (CR): Your book Why Nations Fail is essentially attempting to answer Adam Smith's question regarding the wealth of nations. Why do some countries succeed and other countries fail? What inspired you intellectually to write this book?
Daron Acemoglu (DA): It's probably quite similar for both of us because we were both interested in economic development. We both came into economics trying to understand the wealth of nations. After thinking about this problem a little bit, working on it from different angles, we independently and then together came to the conclusion that institutions and the politics of institutions played a central role. We could not go very far without understanding why countries were adopting different policies and different institutions and that these institutions and policies were endogenous. They were not God-given things falling from heaven. Our interest in history came out of that whole perspective.
James A. Robinson (JR): Yes, I think we both had this idea that the discussion in economics was completely lacking this historical angle and that it was terribly unsatisfactory. I remember, earlier this year, we were both at a conference and somebody was going on about Haiti and wondering why it was such a mess. How could you possibly think about such a question without recognizing the history of the country? You can't look only at the last 20 years of data and talk about that problem.
CR: You have to swim pretty hard against the current in the economics profession to be so inspired by the historical and political connections--and by the political economy. We all have our primary intellectual influences. Who were yours?
DA: I think the work of Douglass North and Joel Mokyr have been the biggest influences.
JR: And also work by Robert Bates on comparative political economies in Africa, in particular his book (Markets and States in Tropical Africa). I read that book when I was a graduate student at Yale. It just brought all of these things together in a very articulate way.
The Big Picture
CR: Let me turn now to some definitions and the big picture. For those people who don't yet know anything about your book, how do you describe the central message?
DA: The central message is that institutions shape the incentives that ultimately determine prosperity. But more importantly those institutions have to be understood within the political context because they are shaped by who has political power and how political power is exercised in a nation. And that is essential for our understanding of institutions because they really determine the distribution of resources in a society as much as the growth potential.
CR: You make a key distinction between inclusive institutions and extractive ones. …