Prof. D. Mukherjee*
The 2024 Nobel Prize in Economic Sciences was awarded on October 14, 2024 to Daron Acemoglu, Simon H. Johnson, and John A. Robinson for their groundbreaking research on the role of institutions in shaping economic development and global inequality which shall be ceremoniously solemnised 0n December, 2024 by the Royal Swedish Academy of Sciences. Their work reveals why some nations prosper while others struggle, especially through the lens of colonial legacies. They explore how former colonies with extractive institutions, like India and parts of Africa, became poorer, while those with inclusive institutions, like Australia and Canada, flourished.
A key insight from their research, particularly in the book Why Nations Fail, is that inclusive institutions foster innovation and economic participation, while extractive institutions concentrate wealth and stifle growth. Their analysis also links political transitions and institutional strength-such as democracy and property rights-with long-term economic success. Acemoglu’s work on labour economics and automation, and Johnson’s research on financial crises, further broaden their impact.In sum, their research has profoundly influenced academia and policy, offering valuable insights into how nations can tackle inequality and achieve sustainable growth through institutional reforms. Their work challenges classical economists by focusing on institutions as the key drivers of economic prosperity.
Karl Marx argued that economic systems are driven by material conditions and class relations, predicting capitalism’s eventual collapse due to its internal contradictions. Marx viewed capitalism as inherently exploitative, with political and economic institutions reflecting deeper class conflicts. He proposed revolutionary solutions, believing that changing the ownership of production would result in a fairer resource distribution.
However, Nobel laureates Acemoglu, Johnson, and Robinson argue that the failure of underdeveloped economies is not solely due to capitalist exploitation but stems from the nature of their institutions. They focus on extractive institutions, which concentrate power and wealth in the hands of a few, stifling innovation and economic growth. These institutions lead to corruption and inefficiency, unlike inclusive institutions that foster broader participation, innovation, and sustained growth. Their critique of Marx suggests that while class and material conditions matter, the structure of political institutions plays a crucial role in economic success or failure.
Joseph Schumpeter introduced “creative destruction,” where progress comes through the destruction of old industries for new ones. While Schumpeter viewed this as central to capitalism’s innovation, Acemoglu and colleagues argue that in countries with extractive institutions, this process fails to benefit the broader population. In such nations, the gains from innovation are monopolized by elites, preventing sustainable development, as seen in many African and Latin American countries.
Contrary to Adam Smith’s belief in self-regulating markets, Acemoglu and his co-authors argue that institutions are essential for shaping economic outcomes. Their work challenges Marxist views by suggesting inclusive institutions can align different societal interests, mitigating class conflict and promoting shared economic growth.
The research by Nobel laureates Acemoglu, Johnson, and Robinson is crucial for underdeveloped and developing economies, often torn between classical economic theories. Marxist solutions like state ownership have not achieved widespread prosperity, while market-based approaches like those of Schumpeter and Smith have also failed where institutions are weak or extractive.
Focusing on institutional reforms, the laureates argue that success lies not in choosing between capitalism and socialism but in creating strong institutions that foster innovation, protect property rights, and encourage broad participation. Their work offers a historically grounded alternative to classical economic ideas, emphasizing the role of institutions in economic development.
Their research on inclusive versus extractive institutions shows how political systems shape economic outcomes. For countries like India, Brazil, South Africa, and others, institutional reforms can unlock sustainable and equitable growth. The laureates stress that inclusive institutions, which promote broad participation, property rights, and political accountability, are essential for long-term growth. In contrast, extractive institutions create stagnation and inequality.India and Brazil, both emerging economies, need institutional reforms to address corruption and inefficiency. Strengthening governance, enhancing transparency, and promoting accountability are vital steps to ensure sustainable growth.
In South Africa and Sub-Saharan Africa, political instability and weak institutions have hindered development. Acemoglu, Johnson, and Robinson emphasize that building political stability and inclusivity is key to overcoming these challenges. South Africa, transitioning from apartheid to democracy, still struggles with creating inclusive institutions to address inequalities and unrest. The laureates argue that sustained development requires political systems offering broader governance and economic participation.
In Sub-Saharan Africa, the colonial legacy and extractive institutions remain major barriers. The concept of “reversal of fortune” shows how once-prosperous nations declined under colonial rule. To move forward, these countries must implement reforms promoting inclusivity, reducing corruption, and strengthening legal frameworks, as seen in Rwanda.
In Eastern Europe, transitioning from socialism, inclusive institutions are crucial for sustaining democracy and growth. Countries like Poland and Hungary face challenges of political backsliding, and the laureates stress that maintaining independent judiciaries and strong democratic norms is essential to prevent stagnation.
The core insight from the Nobel laureates’ research is that sustainable economic development relies on the quality of political and economic institutions. For emerging economies like India, Brazil, South Africa, and those in Eastern Europe and Sub-Saharan Africa, the key to prosperity lies in building inclusive political systems that foster broad participation, accountability, and innovation. These reforms promote equitable economic growth and long-term political stability.
By focusing on institution-building, these nations can avoid the negative impacts of extractive institutions, such as inequality, corruption, and stagnation. The laureates provide a roadmap for unlocking the potential of developing economies through inclusive growth and sustainable development.
For India, aiming to become a developed nation by 2047, the insights of Daron Acemoglu, Simon H. Johnson, and John A. Robinson offer valuable lessons. Their research stresses that inclusive institutions, which create opportunities for broad political and economic participation, are essential for equitable growth. This requires political, economic, and governance reforms, especially given India’s large population and complex geopolitical environment.
India must improve democratic governance by reducing corruption and enhancing access to political processes. While India is the world’s largest democracy, decentralizing power and improving local governance can increase accountability and economic opportunities at the grassroots level.
To tackle income inequality, India needs inclusive economic institutions that ensure broad participation in growth. Improving access to education, healthcare, and financial services, especially in rural areas, is crucial. Investments in infrastructure and job creation in Tier II and Tier III cities are essential for inclusive growth.Tackling corruption and promoting transparency are critical for equitable growth. Expanding digital governance and reforms like the Direct Benefit Transfer scheme can enhance efficiency, while judicial reforms can improve the business environment.
India’s role in a turbulent global geopolitical environment necessitates strategic navigation. Research by Nobel Laureates highlights the significance of stable institutions, particularly relevant as India enhances its influence in global geopolitics, especially concerning its relationships with China, the U.S., and other major nations. To adeptly manage changing alliances and trade relationships, India must bolster its foreign policy institutions. Furthermore, aligning economic strategies with partners in multilateral organizations like BRICS, G20, and QUAD can aid India in stabilizing its external environment and tapping into new markets.
The Indian government should prioritize reducing import dependence through domestic manufacturing, particularly via the “Make in India” initiative, while maintaining a focus on clean energy to lessen geopolitical risks in energy supply. Investing in renewable energy not only advances India’s environmental objectives but also drives innovation and economic diversification.
With a population of 1.5 billion, India faces both challenges and significant opportunities. To unlock its demographic dividend, the government should implement reforms to enhance human capital. The Nobel Laureates’ focus on inclusive institutions is vital, as education and healthcare are central to inclusivity. The National Education Policy (NEP) 2020 provides a strong education reform framework, but successful implementation is essential. Expanding vocational training and skill development programs aligned with market demands is crucial for preparing India’s youth for the changing labour market.
Additionally, public health infrastructure requires significant improvement, as the COVID-19 pandemic revealed systemic weaknesses. A healthy population is critical for economic productivity, and investments in healthcare through public-private partnerships can enhance outcomes and alleviate pressures on public health systems.
Sustainability is essential for long-term growth. Research from the Nobel Laureates indicates that equitable resource distribution through inclusive institutions is necessary for sustained growth. India must balance economic growth ambitions with sustainable environmental practices. Ongoing investments in renewable energy, green infrastructure, and sustainable agriculture can help address climate change impacts while creating new economic opportunities.
India’s aspiration to become a developed economy by 2047 necessitates a thorough institutional overhaul inspired by the research of Acemoglu, Johnson, and Robinson. By emphasizing inclusive political and economic institutions, reducing inequality, enhancing governance, and strategically navigating global challenges, India can pave the way for sustainable, inclusive growth.
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*The Author is an Independent Researcher, Educationist and a Management Scientist
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