Why are some countries poor and others rich? Political and economic institutions are at the center of it, Professor Daron Acemoglu of MIT and Professor James A. Robinson of Harvard argue in their new book, Why Nations Fail. Countries with inclusive institutions, they say, which allow everyone to enjoy economic opportunities, fair better than those with extractive institutions, which benefit a few at the expense of many.
The authors explained the premise at Columbia University’s Faculty House on Tuesday, April 23, as part of a Q&A with Business School Dean Glenn Hubbard. At the event, which was organized by the Richard Paul Richman Center for Business, Law, and Public Policy, Acemoglu and Robinson were awarded the 2013 George S. Eccles Prize for Excellence in Economic Writing. That same evening, the 2013 George S. Eccles Research Fund award was also given to Columbia Business School’s Paul Tetlock, the Roger F. Murray Associate Professor of Finance.
Why Nations Fail is the product of 15 years of academic research. In it, Acemoglu and Robinson argue that geography is not the cause of the modern-day economic discrepancies between countries. They point to both the Incas and the Indian subcontinent as examples. For a time, both experienced prosperity, but after being colonized by Europeans the two places fell behind. Since the countries’ geography didn’t change over that span, the authors say, while their fortunes did, geography can’t be the core issue. “The more we looked into it,” Acemoglu said, “the more we were convinced there’s very little to the geographic argument.”
Instead, Acemoglu and Robinson detail examples that speak to the importance of institutions. North and South Korea share a peninsula, for instance, yet their political systems are quite different. While the South rewards innovation amongst its people and invites widespread participation, the North is repressive and top heavy. As a result, the authors say, the fate of the two nations has followed suit—the people of the South enjoy far more prosperity than their neighbors.
At the Faculty House event, Acemoglu and Robinson were asked how China fits into such a model. Despite its authoritarian nature, China has experienced tremendous growth. The authors expressed their belief that its expansion will tail off in the long run, though, unless China can embrace more inclusive policies. Like the Soviet Union in the 20th century, they said, the country will struggle to innovate without inviting more participants to the table.
Tetlock, the Research Fund award winner, is a behavioral finance economist specializing in how information is incorporated into asset prices and how investors react to information. He plans to use the prize money from the award to support work he’s doing on trending topics. He argues investors’ collective attention focuses excessively on topics of the moment in the news, which could cause stock prices to overreact, but to underreact to other economic news.
The George S. Eccles Prize for Excellence in Economic Writing is awarded annually to the author(s) of the best book on economics that bridges theory and practice. The selection is made by a committee of Columbia Business School faculty members and a member of the Eccles family and is based on academic rigor and the accessibility of the material. Spencer Eccles, chairman and chief executive of First Security Corp. of Salt Lake City, Utah, established the award in 1986 to honor his uncle, George Eccles ’22. The Eccles Research Fund award, formally called the George S. Eccles Research Award in Finance and Economics, is a newer honor. It was first awarded in 2012.