Last month, the 2024 Nobel Prize in Economics found its winners. rewarded Thanks to three scientists, Daron Acemoglu, Simon Johnson, and James Robinson, for their “studies of how institutions form and affect well-being.” Don’t let the dry language fool you: The award has sparked more controversy than any other award in recent memory. a critic wrote “reveals how the discipline of economics has failed to ask critical questions.” another one in the name the trio’s work is “historically inaccurate, if not ideologicalized.” I admit to sending lengthy emails to colleagues in my department.

Why so much drama? In their Nobel Prize-winning work, Acemoglu, Johnson, and Robinson (three respected economists almost universally referred to as “AJR” by their colleagues) argue that nations with democratic institutions have the most economic growth. An intriguing thesis that reaffirms the political systems of Western democracies. The problem, not only in terms of theory but also in terms of the durability of these political systems, is that this is simply not true.

According to the AJR, certain types of economic institutions (private property, freedom of contract, a strong and impartial legal system, freedom to start new businesses) are “inclusive,” meaning that they allow most people to participate freely in the economy in some way. This allows them to make the best use of their skills. These institutions are creating modern, wealthy economies that not only win the natural resources lottery but are driven forward by technological innovation.

Economic institutions don’t just fall from the sky. Laws and systems that enable the functioning of the economy, such as market regulations, must be established and maintained by governments. AJR therefore claims that: political Institutions determine economic outcomes. A nation’s political institutions are what determine who can govern, how those rulers are selected, and how power is distributed throughout the government. Institutions have a sacred place in constitutions, electoral rules and even traditions. In a dictatorship or monarchy, political power is narrowly distributed and relatively unlimited. AJR argues that in such cases, a small ruling class will tend to use its power to restrict competition and extract wealth for itself. Conversely, if political power is widely distributed among different groups in a society, then their common interest in doing business and competition among them will result in wealth-creating economic institutions.

In the United States, for example, the oil industry would prefer not to have to compete with alternative energy. Old-style citizens do not want to compete with new immigrants. But if the government is given the power to exclude my opponents, the same power could potentially be used against me. So, AJR’s thesis is that our common desire to maximize our individual freedoms and protect our property prevents us from ceding this power to the government. We would rather stay competitive than risk being left out of the game. And this competition forces us to be more efficient than ever.

Ultimately, AJR argues that decentralized democratic systems, such as those found in the United States, Germany, and Switzerland, promote economic prosperity by improving a country’s ability to innovate. Democracies with more centralized power are less productive. (Consider countries with less separation of powers, fewer checks and balances, and relatively weak state and local governments, such as France, Portugal, and Greece.) Finally, one-party states and authoritarian regimes are the more centralized and centralized. Less competitive political systems breed stagnation.

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The most common criticism of the AJR thesis is based on methodological objections to the way they collected and analyzed the data. But you don’t need a degree in economics or statistics to be skeptical of their arguments. The real world offers many counterexamples.

On the one hand, there are non-democratic systems whose economies are in fairly good shape. To take the most obvious, China’s economy has grown tremendously since the late 1970s, even as its political system remains autocratic and repressive. It is now a global competitor or leader in research into electric vehicles, solar panels, quantum computing, biotechnology, mobile payment systems, artificial intelligence, 5G cellular and nuclear fusion. South Korea and Taiwan are currently democracies, but while they were each relatively authoritarian states, they transformed from an agricultural backwater into a technological powerhouse from the ’60s to the ’90s. The same goes for Japan. After World War II, Japan’s wealth increased dramatically as the country became a world leader in technology and manufacturing. At that time, it was a one-party state with heavy government intervention in the economy. Elections were held regularly but only the Liberal Democratic Party won. The party therefore controlled almost all major political institutions across the country for nearly four decades, leading to infamous, widespread corruption. Despite this, the economy improved.

On the other hand, there are many examples of decentralized democracies. don’t do that Experience the kind of knowledge and technology-driven growth that AJR celebrates. Canada is a relatively wealthy country, but it has experienced a prolonged decline in productivity over the past few decades without any changes to its institutions. SET take into account Australia, another decentralized democracy, is an example of their theory in action, but its wealth comes overwhelmingly from natural resources; not very good at cutting edge science and technology. Nor has decentralized democracy propelled Argentina, Brazil, Mexico and India into the economic stratosphere. Great Britain was the world’s wealthiest and most technologically advanced high-tech superpower in the 18th and 19th centuries; but it lost this position as its political institutions became more democratic and dispersed.

A particularly illustrative example is Spain. Spain has been institutionally transformed since 1975. It has moved from 40 years of military dictatorship to a market-oriented, decentralized democracy. Despite this revolution, there was relatively little change in Spain’s national innovation rate. Economic growth per capita average Less than 1.5 percent per year since the end of the dictatorship. This is far worse than Ireland (a unitary democracy), Singapore (a “partially free” single-party democracy, according to Freedom House) and Vietnam (a communist dictatorship), all of which have increased their economic competitiveness over the same period. .

AJR responded to these criticisms, often individually. They have defendedFor example, unless China’s political institutions change, its growth will be unsustainable in the long run. India, meanwhile, may be a decentralized democracy, but it is “highly patrimonial,” which “impedes the provision of public goods.” Arguments like this cannot be falsified: Seemingly inconsistent results can always be explained by pointing to some overlooked feature of a particular country. And if a heritage culture has defeated otherwise healthy institutions in India, then perhaps the institutions are not so fundamental after all.

If political institutions do not explain economic outcomes, what do? My colleagues who study innovation and economic growth point to many possible answers, including culture, ideology, individual leadership, and geography. Inside my own researchI discovered that countries with technology-driven, fast-growing economies have something in common: a strong sense of external threat. Some fear invasion; Others worry about missing out on vital economic inputs such as energy, food and investment capital. Taiwan’s existence is threatened by China, as is Israel’s existence, after Arab states began to unite around Taiwan. These two countries needed to establish high-tech defense industries in their own countries. And Earn money to buy advanced weapon systems produced abroad.

Stagnant economies, by contrast, tend to focus more on internal divisions. They are less concerned about military attacks or imports of essential goods and more harmed by deep conflicts over class, race, geography or religion. If a country’s internal threats are perceived to outweigh external threats, then the public will fear the costs, risks, and redistribution of creating a competitive economy. Since the cake is safe, they fight over the size of their slices. (If I’m right, then Donald Trump’s focus on persecuting the “enemy from within” bodes badly for America’s economic prospects if he is re-elected this week.) But if a country’s perception of external threat is greater than its perception of internal threat, then investment in innovation tends to do. The costs and risks are worth it. The cake is in danger, so people cooperate to defend it. The question of why some countries develop while others stagnate is not just an academic question. In the late 1980s and early 1990s, under pressure from the West, Russia established a parliament and privatized state assets; The West declared victory. The US invaded Iraq in 2003, established a parliament and stock exchange, and then declared “Mission accomplished.” The promised economic miracles never materialized.

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Western democracies often assume that establishing the right institutions will bring the desired results. Not. A society uses institutions to achieve its goals. But goals come first and are determined by fights over wealth, power, resources, ideas, identities, culture, history, race, religion and status.

How did a thesis that was so obviously wrong win the Nobel Prize? I suspect this is partly because it tells the story that many educated Westerners want to hear about democracy. We request Living in a world where democracy makes everything better. But if democratic nations make excessive promises about what democracy can achieve, they run the risk of legitimizing it. In Russia, China, and much of the Middle East, democracy is widely viewed as dysfunctional, in part because it fails to deliver the economic prosperity promised.

Ambitious politicians recognize that institutions are instruments, not causal forces. The same tools in different hands will achieve different results. Men like Hitler and Mussolini understood this. They exploited fundamental political divisions to undermine both democracy and markets. These lessons do not go unnoticed by Xi Jinping, Vladimir Putin, Recep Tayyip Erdoğan, Viktor Orbán, Narendra Modi and even some modern leaders in the United States. Therefore, we ignore more fundamental political forces and take risks. So are Nobel Prize winners.