The winners of this year’s Nobel Prize in Economics were announced this week, with the Prize being shared by Daron Acemoglu and Simon Johnson of the Massachusetts Institute of Technology and James Robinson of the University of Chicago for their research on the effectiveness and functions of institutions and the role they play in shaping nations’ progress or failure.

The three prize winners are interested in the extent to which institutions account for the wealth or poverty of nations and the income disparities between them. Their pioneering studies, supported by rigorous data and applied research, have shown how institutions, since the age of colonialism, have functioned to generate the economic conditions we see today in developed, developing, and underdeveloped nations.

They find that nations with inclusive institutions that protect property rights and foster economic participation and competition have experienced longer-term growth and prosperity. In contrast, societies with institutions largely biased towards favoured elites, privileging them with exemptions that open paths to rapid enrichment while fostering a restrictive economic environment and leaving others with little more than crumbs and empty promises of prosperity, have failed to progress.

Acemoglu, Johnson, and Robinson characterise social institutions and their modes of governance as benign or malignant. Benign inclusive institutions characterised by inclusiveness and dynamism encourage and support growth and development, while malignant extractive ones facilitate the plundering of wealth and resources, closing off economic prospects and perhaps precipitating economic collapse.

It is for this reason that some countries have failed even if they share the same geographical space and cultural traits as countries that have found the path to progress. The different dimensions of this phenomenon are explored in well-known published research and books by these authors, such as Why Nations Fail (Acemoglu and Robinson, 2012) and Power and Progress (Acemoglu and Johnson, 2023).

Despite their evident enthusiasm for democratic institutions as an indisputable key to growth and development over the long term, they do not see democracy as a magic wand. The democratic process can be cumbersome and inefficient when it comes to the need to mobilise resources rapidly to achieve the desired economic growth. However, they simultaneously stress that economies under authoritarian governments tend to lack stability, resilience, and innovation.

In addition to the work of this year’s Nobel laureates, some other economists have also examined how other factors come into play in promoting or inhibiting progress and development. The role of culture, for example, has not yet received its due share of analysis. Nor should the factor of effective leadership be overlooked, especially in the present era of successive shocks and disruptions. Considerable evidence drawn from modern development experiences has shown that exceptionally skilled leaders have been pivotal to setting their countries on paths to development and growth, while impetuous leaders have steered their countries from one disaster to the next through vain adventures.

The counterargument to this is that the role of exceptional leadership is finite as the time of any leader in government will eventually end. Therefore, the only mechanism for ensuring the continuity of the reform processes such leaders set in motion and preserving their accumulated gains is the institutional frameworks they establish. These must safeguard rights and freedoms and encourage sound governance, for without that it is impossible to deter tyranny or set a correct course.

Institutions may come in different forms, but they may also lack substance and competence. They can be like palm trees with hollow trunks that will not bear fruit. There are plenty of such institutions still seated on global, regional, national, or local thrones. While they may boast grand titles or vast powers, they may also lack the resources, competencies, and skills to keep pace with the times. They may be like so many dinosaurs, set in their old ways and oblivious to how fast the world is changing around them.

If such institutions are asked to consider the need for sustainability or the adaptation to climate change, they may look blank or deny the underlying problem. When they hear about technological advancements and digital transformation, they may exaggerate the short-term negative impacts of the new technologies and dismiss their potential long-term positive impacts on productivity and competitiveness.

Barren institutions cannot renew themselves. But their consequent deterioration does not affect themselves alone, as it can drag the economy and society as a whole into a swamp of backwardness.

It is not unusual to hear urgent reminders that such institutions are ignoring the means to overcome major challenges and crises. Unfortunately, those in charge tend to plug their ears and don their blinkers in what has been called “the elephant in the room” syndrome. The expression comes from a fable by the 19th-century Russian writer Ivan Krylov about a visitor to a museum who described all the exhibits he saw in detail yet omitted to mention the large statue of an elephant standing in the entrance. In today’s modern world, it is impossible to feign ignorance of the huge elephants created by the world’s current security, political, and economic crises — bnamely debt, inflation, and unemployment — and their impacts on people’s lives and livelihoods.

As I wrote in a previous article on the simultaneous and ongoing crises now afflicting the world, these have distorted priorities, and the measures for dealing with them have provoked widespread frustration. The more we habituate ourselves to these crises, the more complacent those in charge will become about containing them, employing wishful thinking instead of hard facts and science.

The fact that Acemoglu, Johnson, and Robinson have been recognised by the Nobel Committee for their outstanding work in economics gives those who are committed to scientific thinking their rightful place of honour. This occasion is an opportunity for those in technical, scientific, cultural, and policy-making circles to study these economists’ works and exchange views on their ideas.

Meanwhile, let us also bear in mind the observation made by the 20th-century British economist John Maynard Keynes on the relationship between theory and practice. “The ideas of economists and political philosophers, whether right or wrong, are more powerful than is commonly understood,” he wrote.

“Indeed, the world is ruled by little else.”

This article also appears in Arabic in Wednesday’s edition of Asharq Al-Awsat.

* A version of this article appears in print in the 17 October, 2024 edition of Al-Ahram Weekly