MIT Economist Speaking March 28

Political economy theory of prosperity will be explored in Staller Lecture
Political economy theory of prosperity will be explored in Staller Lecture
Thursday, March 21, 2013

Daron Acemoglu of Why Nations Fail: Origins of Power, Poverty and Prosperity, a 2012 book invigorating public debate about economic development, will deliver the George Staller Lecture on March 28 at ILR.

Sponsored by Cornell's Economics Department and open to the public, the event with MIT's Killian Professor of Economics begins at 4:30 p.m. in 305 Ives Hall.

The lecture is named in honor of the late George Staller, a Cornell professor, graduate and scholar of Eastern European and Soviet economies. The lecture is made possible by a gift from Russell B. Hawkins A&S '77.

In Why Nations Fail, Acemoglu and co-author James Robinson of Harvard University describe the political economy theory of prosperity they have been researching for 15 years.

"The real challenge for us is to develop an understanding of why societies will not naturally gravitate to institutions that would maximize their growth potential," he said in an interview.

"Relatedly, we want to understand why some nations will be stuck with what we call 'extractive' institutions, which do not generally bring growth and development, while others will open for inclusive institutions, which encourage investment, innovation and technological change, underpinning growth-based prosperity."

Although many economists were familiar with the Acemoglu-Robinson theory, Why Nations Fail offered many non-economists their first glimpses of the idea.

"We really wanted to provide a simple framework for informed laypeople. We thought this was important because a lot of people worry about the economic disparities around the world," Acemoglu said.

"But, what they hear from experts and journalists are outdated ideas like the importance of geography or some national or religious cultural characteristics as the fundamental forces shaping the potential for economic development."

"We thought that if we could provide an alternative, and in our opinion, much more promising and empirically valid, framework for the average thinking person, that would be huge achievement," he said.

The United States could be heading toward an extractive economic approach, he said.

"Economic inequality has exploded in the United States, and that is concerning. But more concerning, in my opinion and according to the theoretical framework of Why Nations Fail, is the increase in political inequality -- the fact that the wealthy and well-connected now call the shots in politics."

"What happened after the financial crisis illustrates this. Politicians and leading bureaucrats turned to the captains of the financial industry to get advice, and paramount in their minds was to make sure that the financial industry wasn't alienated. As a result, the interventions and policies were very friendly to banking interests."

However, Acemoglu said he is optimistic about the United States.

"First, the United States has been here before, for example, during the Gilded Age. But U.S. institutions proved to be sufficiently flexible and powerful to withstand similar challenges."

"Second, I think the real danger would be for a monolithic or, at the very least, a largely aligned group of elites to become powerful and take control of politics. Even though businesses and the very rich have become much more dominant politically, they are very far from monolithic elite," he said.

Consider, Acemoglu said, the financial industry and Silicon Valley.

Although both are influential, "they have such different visions and interests that there isn't an easy way that these two groups can form a coalition and start passing legislation catering to their interests."

"It is this sort of heterogeneity of interests and opinions that give me hope that the internal dynamics of U.S. institutions will be able to withstand these challenges."