The 2024 Nobel Prize in Economics was awarded to Professors Acemoglu, Robinson and Johnson (ARJ) for “their studies on how institutions are formed and how they affect prosperity.” The call for Q4 could not have been more timely.
As with all awards, there will always be controversies: “not everyone who should be there is there, nor everyone who is there should be included.” The political moment to designate the award is also important to send a certain message. This has excluded several brilliant minds from receiving the Nobel, for example, Bhagwati, who has great contributions on international trade or Robert Barro as the promoter of macroeconomic theories that have been recognized in Lucas, Phelps and Sargent.
ARJ’s work has narrowed the gap to study the links between political science and economics. The winners are very prolific in various fields. But, due to its relevance for Mexico, I will highlight his theory of institutions, which is fair to point out that in 1993 the Nobel Prize was awarded to Douglass North, a pioneer in that field.
What are institutions? They are legal arrangements such as property rights, the rule of law, political systems such as democracy, an autonomous central bank, clear and transparent fiscal arrangements, independent organizations regulating economic activities, etc.
His theory points out that economic development is mainly caused by having the right institutions and having them respected. ARJ believe that if institutions are inclusive, that is, “they allow and promote the participation of the broad masses in economic activities that make the best use of their talents and abilities, and allow individuals to make the decisions they wish, then, a country will prosper” (quote from Acemoglu and Robinson, book 2001). It must be added that these appropriate institutions will encourage innovation and entrepreneurship in all its meanings and in turn will promote development. Its measurement methodology uses historical data along with a causal identification framework.
To emphasize their analysis, the authors use the two Nogales (Sonora and Arizona) as an example. Essentially it is the same city that shares the same geography, climate, culture, bilinguality. However, the way of life and prosperity are different. The difference is that on the American side there are guarantees embodied in institutions: property rights, civic honesty, respect for the laws, and in case of non-compliance, sanctions without discretion and citizen voice through effective representation. Credibility in these institutions also explains the sudden change in attitude when a Mexican crosses the border: he respects the laws, doesn’t run a red light, lines up without jumping a line, etc.
When the message is to institutionalize to progress and generate prosperity, the 4T in Mexico has chosen to deinstitutionalize. The consequences will be the country’s fall into an abyss of mediocrity, unproductivity and inhibition of creativity, economic growth and freedom.
