Contentions surrounding the Nobel for Economics

This year's prestigious prize for Economics was co-awarded to three economists - Daron Acemoglu, Simon Johnson and Jim Robinson - for their work on how institutions affect prosperity. These economists claim that robust and representative institutions are the reason why some nations prosper, and others fail. However this assertion, and its recognition through the Nobel prize, has provoked significant controversy.

Although this year's Nobel prize gives another nod to idealised narratives of Western development, to many critics this award seems outdated given the reality of a multipolar world, and the complex history which has given shape to it.

Before turning to the criticism, let me begin by fleshing out the core argument of this year's Nobel Prize winners. Acemoglu, Johnson and Robinson have written several books and articles arguing that more than any other factor, it is the sort of political institutions that a country has developed which determines if that nation prospers or not. The three Nobel winning economists have argued that societies or countries which have managed to develop more inclusive, transparent and accountable institutions are more likely to prosper than countries which lack such institutions.

Besides former colonial powers in Europe, the Nobel winners highlight 'neo-Europes' as other societies which have been able to prosper, which includes settler colonies such as Australia, Canada and the US. These so-called neo-Europes became rich because their colonial legacies left them with inclusive and non-extractive institutions. In other words, these countries succeeded because they were democratic - or good.

Conversely, the Nobel winners point to the "reversal of fortune" among former European colonies between the years 1500 and the 1990s, where colonists had used extractive institutions such as slavery and taxation which kept them poor over the long term. This reversal of fortune in poor former colonies is contrasted to the prosperity of liberal democracies in Europe and in settler colonies. However, despite the creation of effective institutions in the case of the US, for instance, an estimated 10 million Native Americans were decimated, and the so-called non-extractive institutions relied on enslaved people from Africa who toiled on plantations and indentured Chinese labourers who built the transcontinental railroads. Moreover, there is no "level playing field" even in liberal democracies. The wealth gap in the US is alarming, and ordinary citizens often bear the burden of bailing out companies that are too big to fail, as was seen in the 2008 financial crisis. For the Nobel Prize winners, however, it was fair and transparent institutions which have helped the US become the most powerful nation in the world.

While democracy may have mattered in Western development, it was, and still is, an imperfect democracy at best, accompanied by colonial extraction, trade protectionism and unfair terms of trade which explain the divide between the global north and south more comprehensively.

Democracy in principle makes intrinsic sense when it aims to give voice to diverse groups and hold the powerful to account. However, democracy is easily coopted by the wealthy to exert outsized influence on policy, or by populists who readily turn the idea of the popular vote into a tyranny of the majority, resulting in varied forms of ethno-majoritarianism and xenophobia. This year's Nobel Prize winners, however, do not pay much heed to these ground realities.

Their argument instead seems to assert that democracy itself is the means to enable nations to become rich and powerful. The ideologising of capitalist democracy is problematic for the global south as well, as it often results in pushy conditionalities to compel poorer countries to adopt one-size-fits-all policies to privatise the public sector, which then further disempowers the poor.