Why we shouldn't congratulate Acemoglu and his colleagues for winning the Nobel?

The 2024 Nobel Prize in Economics was awarded to Daron Acemoglu, Simon Johnson and James Robinson for the paper "The Colonial Origins of Comparative Development: An Empirical Investigation" (2001) was awarded to Daron Acemoglu, Simon Johnson and James Robinson. The text of the award reads: "Societies with weak rule of law and institutions that exploit the population do not grow or change for the better. The research of the laureates helps us to understand why.' The concluding section says: 'In the end, the only option may be to hand over power and establish democracy.'

The article analyses the relationship between GNP per capita and 'inclusive' or 'democratic' institutions in former colonial countries. Accordingly, countries with 'inclusive' or 'democratic' institutions are 'rich' in terms of GNP per capita, while countries with 'exclusionary' institutions are 'poor'. The authors construct a highly controversial index of property rights and discover correlation and causality between this index of inclusiveness and GNP per capita. They find the main reason why the US is many times richer than other former colonies: Democratic institutions.

How innocent!

Didn't the USA, in addition to the slave trade, make huge profits from plantations and accelerate the accumulation of capital?

Didn't the flow of value obtained through colonialism and imperialism at the expense of the impoverishment of the rest of the world contribute to this enrichment?

Was the world's largest network of corruption and bribery in the USA, where inclusive institutions were idealised, forgotten?

Didn't the intensive exploitation of workers - in a certain group - which was the subject of world classics, contribute to this enrichment?

Not really, according to Acemoglu and his friends.

Although all these factors played a role, the wealth of the US and the West was related to their democratic institutions.

Some countries became rich because they had democracy, while those that failed to establish democratic institutions were stuck in poverty.

This is the neo-institutionalist thesis of the authors.

Both in their later articles and in their books such as The Economic Origins of Dictatorship and Democracy, The Fall of Nations, and The Narrow Corridor, they refined and elaborated their arguments with an admittedly rich but sometimes superficial use of historical material. In contrast to the mainstream literature, they have taken into account the perspectives and accumulated knowledge of various social sciences. However, despite the intensive work, the flood of information and the pleasant presentation, they did not refrain from universalising their initial and simple arguments in their books by taking the easy way out and turning them into law.

WHAT THE NEO-INSTITUTIONALIST NARRATIVE MISSES

The "innocent" narrative is largely, but not entirely, wrong.

What it is right about is that institutions, as stable patterns of behaviour and legal constructs, have an important influence on economic development. In Western Europe, for example in England, the development of individual rights such as property rights limited the arbitrary rule of the king. Combined with other conditions, the security of property rights accelerated trade and capital accumulation. This paved the way for the extraordinary accumulation of capital in England. In the Ottoman Empire and other centralised feudal states, deficiencies in property law and security of tenure, together with other conditions, contributed to the stagnation of capital accumulation and related economic activities. The need for large-scale trade and production, and hence innovation and technological progress, was also limited in these countries. Thus, while capitalism spread first in Britain and then in Western Europe and the United States, non-Western geography lagged behind.

The emphasis on institutions, especially democratic and inclusive institutions, as a determining factor sounds good at first glance.

If only the reality were as pleasant.

There are significant shortcomings, problems and, to be fair, distortions in this narrative.

First, even if we assume that it explains Britain, it lacks the capacity to explain the whole. At the end of the 19th century, Germany under Bismarck had no democratic institutions, but it prospered. Or Japan. To reduce the Meiji Restoration to democratisation does not seem plausible. It is not only far-fetched, it is wrong. It is impossible to explain today. Take China, for example. It does not have democratic and "inclusive" institutions in the classical sense, but it is the second largest economy in the world. GNP per capita and productivity are growing. Acemoglu and his friends are also aware that their explanations are not enough at this point. They are not giving up, relying on the forgetfulness of time and throwing the ball into the future: China is growing today, but there is no tomorrow. This explanation is not very convincing either, because real politics is moving in the opposite direction. With its economy and technology, the "China threat" is at the top of the US agenda. Even without market-friendly democratic institutions, there are inventions, technological progress and growth. Productivity rises. As the political economist Yuen Yuen Ang points out, the mythologising of the 'Chinese exception' by Acemoglu and his colleagues is based on their failure to analyse the real causes and paths of European prosperity. For example, European development does not fit into the narrative of free trade and democratic institutions based on competition because these countries have long developed their own industries and paved the way for monopolisation through protectionist and non-inclusive foreign trade policies. This alone means the collapse of the neo-institutionalist narrative of 'market-friendly democracy'.

Second, the narrative of the birth of capitalism in Britain is also highly reductionist. The great transformation is multifaceted. Before asking about the impact and contribution of 'democratic' institutions, we should ask how democratic institutions came into being. There is no short answer, but it is clear that the struggles of the growing commercial bourgeoisie and the peasants forced the king and some aristocrats to make concessions. The development of the bourgeoisie is closely linked to international trade and colonisation, and the associated developments in production. The emergence of comprehensive institutions is therefore not explanatory, but rather a dimension or manifestation of broader transformations.

Third, despite the rich bibliography and strong narrative of The Narrow Corridor and The Fall of Nations, the role of colonialism and imperialism in the wealth of the West and a few other developed countries is largely neglected. Without the plunder of India, for example, Britain's prosperity in the eighteenth and nineteenth centuries might not have been possible without "democratic" institutions. To put it bluntly, the wealth of the major countries is largely linked to their colonial and imperialist domination of the rest of the world.

Fourth, the 'democratic' institutions that are presented as the basis of prosperity are not democratic in the modern sense. In England, when it was the 'empire on which the sun never set', a large part of the population did not even have the right to vote, let alone democratic rights. The authors equate the limitation of the king's powers, the participation of the merchant bourgeoisie and aristocrats in political administration, i.e. the involvement of a handful of elites in the rent-seeking mechanism, with inclusive and democratic institutions. Even if this is partially true, in terms of contemporary debates on democracy, what is at stake is the sharing of political power with a small number of elites. It is therefore not inclusive, but in a sense exclusionary: Where, for example, does the intensive exploitation of the domestic working class and the dispossession of the toiling masses - including violence - stand in terms of democratic inclusiveness in the enrichment of the bourgeoisie? The critical shift has more to do with property than with democratic institutions. In the narrative, democracy is sometimes equated with the property of the bourgeoisie.

The reduction of democratic and inclusive institutions to property rights and market-friendly reforms, this trivial "institutional" detail, is very important in terms of the current policy recommendations that Acemoglu and his colleagues arrive at by sleight of hand.

WHAT DO THEY PROPOSE?

How capitalism came into being, or how the West became rich, can be seen as an intellectual debate about the past. While Marxists might emphasise economic structure with its holistic transformation, Weberians might focus on culture, and Acemoglu and his colleagues on institutions. This is what the old institutionalists like Thorstein Veblen did, perhaps more successfully. The real problem, however, lies not in this debate, but in the solutions and political strategies proposed for contemporary problem areas on the basis of this debate.

The neoliberal thesis was this: The market economy brings political democracy.

With the ideological contribution of this discourse, the neoliberal restructuring programme, which promised wealth and democracy, became dominant in most parts of the world. But the result was neither democracy nor prosperity. On the wealth side, as the Nobel statement put it, "the richest 20 percent of the world's countries have become about 30 times richer than the poorest 20 percent". Democracy has also been controversial. Countries like Chile did not move to a pure market economy through democracy, but through military dictatorship. They became pioneering laboratories of neo-liberalism. In the USA, with its democratic and "inclusive" institutions, blacks could not even sit on the same bus with whites until the 1960s. The same US, with the military coups it organised against more or less democratic governments in many countries of the world, succeeded in spreading bloody dictatorships rather than democracy. The monopolisation of the US economy is already evident. Acemoglu and his colleagues occasionally mention the democratic risks posed by the monopolisation of technology in the USA.

The neo-institutionalist argument of Acemoglu et al. is slightly different from the neoliberal thesis: Market-friendly democratic institutions will lead to technological development, productivity, and thus wealth. The facts are the same, but this time the argument moves from institutions to the economy rather than from the economy to the institutions. The practical result is not much different: in both cases, the market and "market-friendly democracy" should be developed together.

A parable for countries like Turkey.

Sounds good. As autocratic regimes rise and the bells of fascism ring around the world, the call for 'democracy' is certainly sympathetic.

But here is where it gets confusing:

The critics' objection is not to 'democracy', but to the unfulfilled and unattainable promises of 'market-friendly democracy'.

They see "market-friendly" policies and institutions as absolute forms of democracy.

In their restatement of the softened neoliberal prescription in the form of 'institutional reforms' for dependent or, in the mainstream definition, developing and underdeveloped countries.

In their whitewashing of imperialism by reducing to the ingenuity of 'democratic institutions' the wealth that the 'rich' imperialist countries have extracted from the whole world through finance, cheap labour, global supply chains or technological 'rents' and have sworn to protect by military means.

The way they declare the alternative paths of the dependent countries to be 'undemocratic' from the outset, pretending that there is a truly free market in the monopolised world.

In the way they legitimise the low wages of the working class by reducing them to immeasurable marginal productivity.

And so on and so on...

However, it is the market-friendly environment itself that has made some of the institutions closest to democracy inoperable: Even if the current "market-friendly" environment protects property rights as they imagine, if it restricts the rights and opportunities of workers and labourers in areas such as education, health, social security, work, safety, social life, etc., and if it fails to respond to and suppress the growing reaction on these issues, the existing democratic institutions - if any - are also undermined.

For example, the fact that the working class, which suffers from illness and cannot get proper treatment because the health system has been privatised through institutional reforms, is a "stakeholder" in the "market-friendly" democratic "inclusive" institutions, can only be an ideological compulsion that goes beyond utopian expectations.

It must be said, however, that Acemoglu is not a neoliberal in the classical sense. The capitalist world system is struggling with problems such as low growth, limited productivity growth despite technological advances, and extraordinary income and wealth inequality. While discussing the search for solutions, the route of Acemoglu and his friends is limited to some social changes in the neoliberal prescription while remaining within the assumptions and framework of mainstream economics.

The mainstream menu that has dragged humanity into the vortex of inequality and exploitation, precariousness and poverty, is this time presented to us with a delicious sauce of a little more 'democracy', a little more 'social assistance', more 'education', but with the same ingredients.

With an attempt at 'inclusive' legitimisation...

With the sacrosanct market economy and market-friendly institutions...