The Nobel Prize in Economic Sciences for 2024 has finally been announced! The awardees are three scholars: James A. Robinson from the University of Chicago, Daron Acemoglu from MIT, and Simon Johnson, also from MIT.
Just yesterday morning, I asked an AI to make predictions based on online information. Looking at the actual results, it seems like the AI was misled. It predicted Acemoglu but did not predict the other two individuals.
However, that said, since this year’s Nobel Prize in Economic Sciences was awarded to three economists, what should we focus on? Will their viewpoints be too scattered to grasp the main points?
Here, there is one good piece of news and one not-so-good piece of news.
The good news is that although these three authors have different topics, they generally share a common research direction. This is to understand the factors that affect a country’s long-term economy and the relationship between national institutions and national economies. In other words, the research of the three awardees is not entirely scattered; there are identifiable focal points.
The not-so-good news is that this direction of research has a certain threshold for outsiders to understand. Unlike last year’s laureate Claudia Goldin, who studied the situation of women in socio-economic contexts—a topic that is relatively close to everyday life and easier to understand—this year’s awardees, despite having published books, have works that are more challenging to read. We will try to introduce them as much as possible today.
Let’s start with Simon Johnson. Simon Johnson previously served as the Chief Economist at the International Monetary Fund. He is currently a professor at MIT, and one of his most important research topics is the impact of U.S. policies since World War II on technological innovation in the United States. Regarding this topic, he co-authored “A Brief History of American Innovation” with his MIT colleague Jonathan Gruber.
From Simon Johnson’s research, one can discern an overarching concept: considering the bigger picture rather than getting lost in the minutiae. When examining the factors influencing technological innovation, it may seem that countless variables can affect it. However, adopting a macro perspective reveals that the prerequisites for a country to foster innovation are quite clear.
For instance, a region’s working-age population needs to be of a sufficient scale. In simpler terms, this means that the area must possess a large enough economy and an ample workforce. Jared Diamond, the author of Guns, Germs, and Steel, also proposed a big-picture perspective similar to Johnson’s. However, Diamond’s assertion is more direct: a country’s development hinges on having a pool of talented individuals who are not overly burdened by daily survival needs. This talent must have the leisure to contemplate innovation, rather than being preoccupied with basic sustenance.
Additionally, Johnson’s work emphasizes that any technological hub must have a promising new industry. Without such an industry, relying solely on existing sectors could lead to stagnation, even if the city appears to thrive in the short term. This insight parallels Clayton Christensen’s The Innovator’s Dilemma, where Christensen examines companies rather than cities or nations. Both scholars agree that organizations—whether cities or companies—must be willing to take risks on new technologies.
Failure to invest in new technologies and relying only on current ones can result in seemingly correct micro-decisions that ultimately lead to substantial failures. This explains why technological hubs shift over time; historically, dominance often changes hands, reflecting the dynamic nature of innovation ecosystems.
For more insights on this topic, you can explore Simon Johnson’s research and related literature on technological innovation and economic development.
It’s interesting how insights from Simon Johnson, Jared Diamond, and Clayton Christensen align despite their differing fields. This echoes the notion that truths often share similarities.
Now, moving on from Johnson, let’s discuss the duo of Daron Acemoglu and James A. Robinson, who are quite intertwined in their work. They have co-authored several influential books, with Why Nations Fail being one of their most prominent.
In Why Nations Fail, Acemoglu and Robinson tackle the core question of what creates disparities in wealth among nations. Historically, various explanations have emerged, but many have significant flaws.
One of the earliest theories was racial determinism, suggesting that some nations are inferior due to their ethnic composition. This idea garnered support from various quarters, including Francis Galton, a key figure in modern statistics. However, this viewpoint has been largely discredited and is now often viewed as racially prejudiced.
Challenging this notion, Jared Diamond argues that a region’s development potential is primarily determined by its resource endowments. This idea dates back to the 18th century and was originally proposed by the French political philosopher Montesquieu. Diamond bolsters this argument with extensive evidence.
For instance, he posits that the relative strength of Eurasia compared to South America stems from the former’s abundance of easily domesticated and farmable plants and animals. In contrast, South America had limited agricultural options—primarily maize—and few domesticated animals, like llamas, which were not particularly useful for meat production or warfare. This lack of agricultural and military development hindered their capacity for basic sustenance, safety, and ultimately, innovation .
However, Acemoglu and Robinson found flaws in Diamond’s explanation. For instance, before colonization, the wealth gap between the Inca Empire and Spain was less than twofold. Yet, after the Spaniards brought their crops to South America, the wealth disparity not only did not diminish but actually increased. This is something that cannot be explained.
In addition to the previously mentioned hypotheses about race and geography, there is also the cultural hypothesis, which suggests that the culture of a place determines its economy. However, this hypothesis has also been debunked, as some countries with similar cultures can have significant economic differences. There are also those who propose the ignorance hypothesis, claiming that a region’s economic backwardness is due to the ignorance of its leaders, attributing it to individual incompetence. But clearly, this argument is untenable because, in most cases, the economic strategies of a place are not dictated by one person; there is often a large team behind it.
So, after refuting the geographical, cultural, and ignorance hypotheses, what exactly determines the economic strength or weakness of a place? Acemoglu and Robinson believe that the determining factor is institutions.
Specifically, this concept of institutions can be divided into two categories.
The first type is referred to as inclusive institutions, which are favorable to economic development.
For example, in 1775, Watt applied for a patent for his steam engine invention and prepared for mass production. He even wrote to his father, saying, “I have finally obtained the property rights granted by a parliamentary act for the new engine, and I hope this will bring me great benefits.” In fact, Watt did indeed acquire significant wealth from his steam engine.
The second type of institution is referred to as extractive institutions. For example, in medieval Russia, much of the labor output of serfs was taken by landlords. Clearly, under such conditions, people have little motivation to innovate.
So, how do these institutional differences arise? Acemoglu and Robinson argue that they are not entirely the result of human design. Often, a chance historical event can determine a country’s institutional orientation.
For instance, in the 14th century, the Black Death swept across Europe, causing massive devastation and killing half the population. However, it triggered a series of unexpected chain reactions in Western Europe. First, the population decline led to labor shortages. Once scarcity emerged, serfs could demand reduced taxes from their lords. Additionally, landlords understood that if they did not lower taxes, serfs might flee to other regions, leading to abandoned lands.
Thus, landlords had to concede and reduce taxes for the serfs. Ultimately, some of the serfs who gained more rights and freedoms had opportunities to leave the land and engage in trade and crafts in cities. As you can see, the development of commerce and craftsmanship provided a stronger foundation for economic growth.
However, the situation in Eastern Europe, particularly in Russia, was different. While Russia also faced the Black Death, the organization among landlords was stronger, allowing them to effectively counter the serfs. To prevent serfs from escaping, Russian landlords not only failed to improve conditions but also intensified their control, leading to a worse extraction than before. This phenomenon is referred to as the second serfdom in history.
Thus, a random historical event led to different institutional paths due to varying national responses, resulting in increasingly significant disparities. This phenomenon is known as institutional drift.
There are many opinions from various Nobel Prize winners in Economics, and today we have only provided a rough overview.
At the same time, beyond the specific viewpoints, I believe what is more worth noting is the perspective of these three Nobel laureates. This perspective emphasizes that when observing an event, one should recognize both the intentional designs that seem inevitable and the unintentional accidents that may occur. To borrow a saying that circulated online recently, if someone is doing push-ups in an elevator all the way to the 80th floor, and when asked how they made it up, they reply, “I just did push-ups.” Clearly, this perspective is flawed. The skillful perspective lies in not only seeing the individual but also recognizing the elevator—the real decisive factor outside the individual.
