Power of institutions
THEIR pioneering research on a question that all would like to the know the answer to — why some nations are richer than the others — has fetched Daron Acemoglu, Simon Johnson and James Robinson the 2024 Nobel for Economics. The award-winning work demonstrates that a country’s economic trajectory is influenced by the nature of its institutions, especially those forged during colonial rule. Nations with “inclusive” institutions — those promoting broad participation and safeguarding property rights — tend to achieve long-term prosperity. By contrast, those left with “extractive” institutions, which concentrate wealth and power among elites while marginalising the masses, often struggle economically. The laureates highlight that the global income divide can be traced back to colonial strategies. In densely populated regions, European powers often imposed exploitative governance, benefiting the colonial authorities rather than the local communities. This legacy of inequality persists: while the Aztec empire in Mexico once outstripped North America in wealth, today, inclusive institutions have allowed the US and Canada to surpass Mexico economically.
India’s colonial past, too, echoes these insights, with British rule prioritising resource extraction over local welfare. It resulted in deep-seated inequalities which affect the country’s economy to this day. Post-Independence reforms have targeted these structural imbalances, but the challenge of bridging disparities remains.
The findings offer guidance for policymakers. Governance reforms that guarantee rule of law, protect property rights and ensure widespread economic participation are more likely to foster environments where growth benefits everyone. Also, by acknowledging the enduring influence of colonial legacies, global regimes can design policies that invest in education, healthcare and access to opportunities to counteract historical imbalances. The selection of the winners is, indeed, significant, for it points to a possible way to arrest the rising inequality and authoritarianism.
