In their landmark book ‘Why nations fail: the origins of power, prosperity, and poverty’, published a little more than a decade ago, the authors, Daron Acemoglu, and James A. Robinson, pointed out an important reason in the shape of institutional quality, to highlight why countries in general had differences of wealth, and prosperity. They linked that to whether colonizers of that area found it conducive on account of a number of factors, including the climate of that region, to stay there, and develop determinants of institutional quality, like level of democracy, rule of law, and economic freedoms. This type of colonization they indicated as ‘settler colonialism’, and the institutional design was inclusive in nature, both in terms of political institutions, and economic institutions.
On the other hand, they pointed out areas which were not supportive of colonizers, like India, which had densely populated areas, and a difficult climate overall, and which saw colonizers develop extractive political, and economic institutions, which allowed and supported extraction of local resources, and wealth to the home countries of the colonizers. In this, for instance, institutions did not favour participatory democracy, or upheld rule of law, among other determinants needed for enhancing institutional quality.
An important determinant of perpetuating this design required gaining support of a number of local people who worked for implementing their designs, and in support of which they were given a share in wealth, and power. Hence, there was a wrong distribution of property rights among those who connived with them.
After independence of these colonies, like in India, and Pakistan after independence, these political, and economic elites, which gained their wealth and power on the initial wrong distribution of property rights, perpetuated their wealth and power, and in a conducive environment of weak institutional quality; in turn, inequality not only increased within these countries, but also gap between developed and developing word, or between rich, and not so rich, countries increased over time.
In this regard, the writer in his (2016) Springer published book ‘The economic impact of International Monetary Fund programmes: institutional quality, macroeconomic stabilization and economic growth’ pointed out ‘This initial distribution of property rights was artificially done, since the recipient of such property rights did not otherwise have any natural claim (in terms of inheritance or personal monetary means) to justify such a grant of rights. This distribution put in place not only too much land in the hands of few individuals or families, which after the independence from British (resulting in the formation of Pakistan) were left with a lot of control and power in society to manipulate institutions so as to perpetuate their power ever further. In an independent Pakistan, these powerful political and economic elites colluded together to evolve political- and economic institutions in an extractive way [transferring resources from the many (the masses) to the few (the elites)], and hence achieved greater perpetuation of their power and reaped larger material gains over time.’
Highlighting about their work, one of the recipients of this year’s Nobel prize in economics, Simon Johnson was quoted in an October 17, Financial Times (FT) published article ‘Trio of economists wins Nobel Prize for work on wealth of nations’ as ‘Johnson, giving a press conference organised by MIT later in the day, said the “basic finding” of the trio’s work was that, while “episodes” of strong growth were possible under any regime, inclusive institutions were a much better foundation “if you want to sustain that growth over time”.’
On account of their work, as highlighted in this book, the authors, Daron Acemoglu, and James A. Robinson, along with Simon Johnson, with whom they also collaborated in other works over the years, have received the prestigious Nobel prize in economic sciences for 2024. Here, it needs to be pointed out that not only did they primarily highlighted why colonizers developed a certain type of colonization experience –settler colonialism, or extractive colonialism –but also pointed out that better quality of institutions, or lack of such quality determined how countries developed before and after independence; where countries with better institutional quality fared much better in terms of wealth, prosperity, and the level of democracy, than in the case of extractive colonialism.
Highlighting their contribution, the Royal Swedish Academy of Sciences pointed out in its statement ‘This year’s laureates have provided new insights into why there are such vast differences in prosperity between nations. One important explanation is persistent differences in societal institutions. By examining the various political and economic systems introduced by European colonisers, Daron Acemoglu, Simon Johnson and James A. Robinson have been able to demonstrate a relationship between institutions and prosperity. They have also developed theoretical tools that can explain why differences in institutions persist and how institutions can change.’
Highlighting about their work, one of the recipients of this year’s Nobel prize in economics, Simon Johnson was quoted in an October 17, Financial Times (FT) published article ‘Trio of economists wins Nobel Prize for work on wealth of nations’ as ‘Johnson, giving a press conference organised by MIT later in the day, said the “basic finding” of the trio’s work was that, while “episodes” of strong growth were possible under any regime, inclusive institutions were a much better foundation “if you want to sustain that growth over time”.’
