Although most people are not interested in the details of pure economic research, the discoveries can affect the daily lives of virtually everyone by shaping public policy or even the way we think about the world. This year’s Nobel Memorial Prize in Economics has been awarded (long overdue) to three researchers “for studies of how institutions are formed and affect prosperity.” The winners (Daron Acemoglu, Simon Johnson, and James A. Robinson) are all affiliated with US universities (MIT and the University of Chicago).
Each year, the Royal Swedish Academy of Sciences awards the Prize (formally the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel) in recognition of ideas and research that increase our understanding of important issues in economics and related areas. This year, the emphasis is on how societal institutions affect the rate of economic growth, productivity, and incomes. Simply stated, why are some countries rich while others are poor?
The institutions that are relevant in this context are the legal, political, banking, and other systems necessary for the smooth functioning of a society. Their structure and strength have much to do with how prosperous countries have become. If the institutions established during early colonial development embraced fundamental economic freedoms and opportunity and the rule of law needed to sustain them, long-term economic growth was likely. If, conversely, the institutions tended to exploit the population and resources available to the benefit of a small group, ultimate prosperity was elusive.
