Daron Acemoglu, one of the world's most influential economists and winner of the 2024 Nobel Prize in Economics, questions the roots and future of global inequality with three groundbreaking books he has written in the last decade. Acemoglu's main thesis is simple but striking: The fate of a country is hidden in the quality of its institutions.
There are two books written by Daron Acemoglu together with James Robinson: "Why Nations Fail" and "The Narrow Corridor". The name of Acemoglu's latest book written with Simon Johnson is "Power and Progress". I have been working on the first of these three books for a while. Although there are many ways to summarize "Why Nations Fail", James Robinson does it in a more impressive and fluent way. The essence of the book is this: It tries to understand the reasons for the difference between rich and poor states in today's world, why some states can reach wealth while others cannot.
We can explain this through a photo of Korea taken from space. Korea was a single country ethnically and culturally 80 years ago. But after being divided into North and South, when we take a photo of Korea from space today, we see a dark country on one side and a bright country on the other. This does not mean that the South can reach the light bulb and the North avoids turning on lights for environmental reasons - this simply reveals the difference in development and prosperity between the two countries.
Inclusive and Extractive Institutions
When we look at why the development gap between the North and South has opened so much in 80 years, the authors say that we should look for the answer in institutions, especially economic institutions and the political institution that determines the structures of institutions.
Actually, what they say is quite simple: What determines the development level of countries is the institutions that mediate the governance of those countries. These institutions can basically be in two different ways: inclusive institutions and extractive institutions. There is development and progress in countries with an inclusive institutional structure. In countries with extractive institutions, we cannot talk about progress.
They explain this with a very good example: Bill Gates, one of the two richest people in the world, and Carlos Slim, the richest man in Mexico. When we look at how the wealth of the two was formed, although they have similar levels of wealth, we see that they became rich in very different ways. While Gates became rich by making innovation, technology investment, and novelties, Slim became rich through the privatization of monopoly enterprises in the hands of the state - especially telecom - after the party rule ended in Mexico, which followed the so-called revolution in 1920 and adopted liberal economic dynamics in the 1980s.
So what was the impact of these two rich people on their countries? While Carlos Slim's wealth impoverished the Mexican people by 2% every year, beyond Bill Gates' personal wealth, we see that the American software technologies sector, which progressed on the path he opened, created an economy many times over his personal fortune.
How does this happen? In countries with inclusive institutions, the state treats all its citizens equally in terms of incentives. Regardless of education level, color, religion, or mother tongue, when a citizen applies to the US Patent Office, they have the right to obtain a patent without discrimination since 1790 - since the founding presidency of Thomas Jefferson.
Different Stories of North and South America
One of the interesting points of the book is the story told about the development of the American system. The first discovered part of the American continent was not the north, but the south - places like Mexico, Argentina, Brazil. When these regions were discovered, human communities that were organized and produced value in a social way lived on them. When Spanish and Portuguese sailors reached here, they took control of the existing social structures, especially the ruling elites.
The situation was different in North America because the indigenous groups here did not have organized social structures like those in the South. They were too few in number to provide the labor force expected by the British. Therefore, the British elites brought their own subjects from the mainland and settled them in America. In this initiative known as the Virginia Experiment, they tried to apply the model in the south. But this plan did not work. The American lands were very vast and full of opportunities. People refused to live under the rule of elites and fled. At the end of the Virginia Experiment, it was understood that the model in the south would not work here. Therefore, they had to evolve into a more egalitarian and participatory social structure.
The Nogales Example: One City, Two Fates
The example where the effects of this transformation are best explained in the book is Nogales. Half of the city of Nogales on the American border in the north of Mexico was sold to America for $10M in 1841 because America wanted to build a railway here. After this date, half of Nogales, which became a city in the State of Arizona, continued its development and today it is 7 times richer than the other Mexican half of the city. Here is the difference between inclusive institutions and extractive institutions.
The China Model and the Future
An important point is the necessity of a strong but fair state and a strong civil society. In no country where these do not exist together can prosperity and fair sharing of created prosperity be achieved. This is especially important for the China example. China had a similar elite-people distinction under the Communist Party rule. However, the development that started with giving some agricultural freedoms to the public in the 1960s spread to the industrial field and made China a superpower.
Does this show that growth can be possible without inclusive institutional structures? We can say that things are not going so well in Russia, which is another of the "state-controlled" growth attempts similar to China.
Techno-Oligarchy and New Power Balances
So, are things going very well in the Western world? It is known to the whole world that Elon Musk, a techno-oligarch, is behind Trump's election as president for the second time. Will the American State, which was able to stand against the Rockefellers' attempt to establish their own oligarchs in the 1970s with antitrust laws and federal institutions, and overcame the techno-oligarchy attack in the 2000s by forcing figures like Gates and Zuckerberg to account in court, be able to cope with this new wave? Is our civilization aware of the approaching artificial intelligence revolution on the verge of a turn of the era? So how will this process proceed, where will history evolve? Let this be the subject of another article.
