Daron Acemoglu – Inclusive institutions, democracy and the key drivers of economic growth
Summary
TLDRIn this interview, Daron Acemoglu, an Institute professor at MIT, discusses the pivotal role of institutions in fostering economic growth. He emphasizes the importance of inclusive economic institutions that provide stability and equal opportunities, and stresses the interplay between economic and political factors. Acemoglu also addresses the challenges facing democracies, including the rise of autocratic tendencies in Central Europe. Furthermore, he delves into the impact of automation on labor markets, highlighting the need for a balanced approach to technological change. His journey into economics was inspired by a desire to understand the connections between democracy, economic development, and social well-being.
Takeaways
- 🌟 Daron Acemoglu is an Institute professor at MIT, focusing on political economy and the impact of technological change on productivity, inequality, wages, and employment.
- 🏛️ Acemoglu emphasizes that good institutions, which provide stability and secure rights for individuals, are key drivers of economic growth and shared prosperity.
- 🔄 The economist argues that inclusive economic institutions are both incentive-related, encouraging investment and innovation, and opportunity-related, ensuring a level playing field for all.
- 🤝 Acemoglu points out the interdependence of economic, political, and social factors, noting that economic institutions are shaped by and cannot be separated from political ones.
- 🌍 He discusses the challenges democracies face globally and in Central Europe, highlighting the retreat of democracy since the early 2000s and the exploitation of democratic weaknesses by autocratic leaders.
- 👷♂️ The interview touches on the relationship between labor and technological growth, with Acemoglu noting the potential disruptions and social backlash caused by automation.
- 🛠️ Acemoglu criticizes the focus on automation over the past 20 years, suggesting it has led to a neglect of new tasks and activities that could compensate for job displacement.
- 💡 He suggests that institutions are not just designed but evolve from historical processes and political interactions, making them difficult to change simply by altering constitutional provisions.
- 🌱 Acemoglu's interest in economics was sparked by his teenage experiences in Turkey during a military dictatorship, leading him to explore the links between democracy and economic development.
- 📚 His academic journey led him to discover economic historians like Douglas North, who inspired him to pursue questions about the institutional foundations of economic development.
Q & A
What are the main areas of research focus for Daron Acemoglu?
-Daron Acemoglu focuses on political economy, particularly the institutional foundations of long-run economic development, poverty, prosperity, and technological change and its impacts on productivity, inequality, wages, and employment.
How does Daron Acemoglu define good institutions in relation to economic growth?
-Good institutions, according to Acemoglu, are those that create stability and secure rights for individuals to engage in economic transactions, investment, education, and legal functions. These institutions are inclusive and provide a level playing field and equal opportunities for a broad cross-section of society.
What is the relationship between economic institutions and political power according to Acemoglu?
-Acemoglu emphasizes that economic institutions are shaped by political institutions and the distribution of political power in society. Economic institutions cannot remain inclusive if political institutions and structures are against inclusivity.
Why does Acemoglu argue that designing institutions is challenging?
-Acemoglu points out that institutions are evolved things, resulting from historical processes, interactions between politics and norms, and people's participation in politics. They cannot be easily designed or changed by just altering the provisions of a constitution; it requires a bottom-up process and active participation.
What are the current challenges that democracies face worldwide and specifically in Central Europe?
-Acemoglu notes that democracy has been in retreat globally since the early 2000s, with powerful leaders and autocratic tendencies undermining democratic structures. In Central Europe, despite economic success, the relatively new democratic experiment leaves vulnerabilities that are being exploited.
How does Acemoglu view the role of democracy in fostering economic growth and social development?
-Acemoglu believes that democracy, while necessary, is not sufficient on its own. It must be accompanied by inclusive political and economic institutions to cultivate values and participations that contribute to economic growth, education, and child health.
What is Acemoglu's perspective on the impact of automation on labor markets?
-Acemoglu sees automation as a double-edged sword: it improves productivity but can displace labor and generate social backlash. He argues that while automation has been a part of technological change, it has often been accompanied by the creation of new tasks and activities that have kept labor engaged and provided a stable labor share of national income.
How did Daron Acemoglu's early life experiences influence his decision to become an economist?
-Acemoglu's interest in economics was sparked by his experiences growing up in Turkey during the 1980s under a military dictatorship. He was intrigued by the relationship between democracy, economic conditions, and freedom of the press, which led him to study economics to understand these issues.
What was Acemoglu's initial misconception about the field of economics and how did it change?
-Acemoglu initially thought economics would directly address questions of democracy and dictatorship, but soon realized it was broader. He continued to be drawn to economics for its ability to tackle important social questions through quantitative analysis and later found a way to reconnect with his initial interests during his PhD.
How does Acemoglu describe the evolution of tasks and activities in relation to technological change?
-Acemoglu describes the evolution of tasks and activities as a response to technological change, where new tasks emerge that did not exist before, often becoming central to labor's gainful employment and share of national income.
What does Acemoglu suggest is the current problem with the direction of technological change and public policy?
-Acemoglu suggests that the current problem is an overemphasis on automation to reduce costs, neglecting the development of new activities where labor is central. This has led to an environment of disruption without sufficient compensatory measures, indicating a need for a change in the direction of technological change and public policy.
Outlines
🌟 Economic Growth and Institutions
In this segment, Daron Acemoglu, an Institute professor at MIT, discusses his research on political economy and the impact of institutions on economic development. He emphasizes the importance of inclusive economic institutions that provide stability and secure rights for individuals to engage in economic activities. Acemoglu explains that these institutions are crucial for technological change, productivity, and shared prosperity. He also highlights the interplay between economic and political institutions, noting that economic systems are heavily influenced by the distribution of political power. Acemoglu stresses the difficulty in designing institutions, suggesting they evolve through historical processes and political interactions, rather than being simply imposed by constitutions.
🗳️ Democracy and Its Challenges
Daron Acemoglu addresses the current state of democracy, particularly in Central Europe, and the challenges it faces. He begins by clarifying that while democracy is necessary for inclusive political and economic institutions, it is not always sufficient, as many self-proclaimed democracies lack true democratic values and participation. Acemoglu acknowledges the skepticism towards democracy but argues that it still outperforms other systems in fostering economic growth and social well-being. He notes a global retreat of democracy since the early 2000s, which he attributes to powerful leaders with autocratic tendencies. In the context of Central Europe, he points out that despite economic success, the region's relatively new democratic structures are vulnerable to exploitation by those seeking to undermine them.
🤖 Automation and Labor Markets
Acemoglu delves into the relationship between labor, technological growth, and the impact of automation on labor markets. He criticizes the lack of understanding among policymakers and researchers regarding the broader implications of automation. Acemoglu explains that while automation can improve productivity, it also displaces labor and can generate social backlash. He argues that throughout history, automation has been accompanied by the creation of new tasks and activities, which have helped maintain labor's share of national income. However, in recent years, the focus on cost reduction through automation has overshadowed the development of new labor-centric tasks, leading to a disruptive environment without adequate compensation.
🎓 Becoming an Economist
In this final segment, Acemoglu shares his personal journey into economics and academia. He recounts his early interest in understanding the relationship between democracy and economic conditions in Turkey during the 1980s. Initially drawn to economics to explore these questions, he found the field engaging and decided to pursue it further. Acemoglu's path led him to discover the works of economic historians like Douglas North, who inspired him to delve deeper into the intersection of economics and historical analysis. This eventually shaped his academic focus on the role of institutions in economic development.
Mindmap
Keywords
💡Institutions
💡Economic Growth
💡Political Economy
💡Technological Change
💡Inclusive Economic Institutions
💡Productivity
💡Democracy
💡Automation
💡Labor Markets
💡Political Power
Highlights
Daron Acemoglu is an Institute professor at MIT focusing on political economy and the impacts of technological change.
Institutions are key drivers of economic growth, particularly those that create stability and secure individual rights.
Inclusive economic institutions are both incentive and opportunity related, fostering investment and a level playing field.
Economic institutions are shaped by political ones, making a balance between the two crucial for inclusivity.
Designing institutions is challenging as they evolve from historical processes and political interactions.
Democracy is a necessary but not sufficient condition for cultivating values and participations in a political system.
Despite skepticism, democracy contributes positively to economic growth, education, and child health.
Democracy has been in retreat globally since the early 2000s, with Central Europe experiencing vulnerabilities.
The democratic experiment in Central Europe faces exploitation due to its relative newness and weaknesses.
Labor markets are threatened by automation, which displaces workers and generates social backlash.
Automation has been accompanied by the creation of new tasks, which has helped maintain labor's share of national income.
The focus on automation over the last 20 years has led to a disruption without compensatory activities.
Daron Acemoglu's interest in economics was sparked by Turkey's political and economic situation during his teenage years.
Acemoglu's initial misconception about economics was corrected during his PhD, where he found relevance to his initial interests.
Douglas North's work inspired Acemoglu to pursue economic history and analysis to understand societal questions.
Transcripts
We landed two days ago in Boston, USA to start our journey
of visiting the awardees of the John von Neumann and
the Herbert Simon Awards of Rajk College for Advanced Studies.
Our first interview is with Daron Acemoglu at the Economics Department of MIT.
Let us welcome you in his office!
My name is Daron Acemoglu, I'm an Institute professor at MIT
and I am an economist but the two particular areas where
I focus most in my research are political economy
in particular institutional foundations of
long-run economic development, poverty, prosperity
and technological change and its impacts on productivity,
inequality, wages and employment.
You believe that institutions are the key drivers of economic growth.
Walk us through the relationship between good institutions and growth
and tell us what makes a good institution in the first place.
Satisfactory answers to those questions would probably take several hours
or perhaps a lifetime if you really want to think deeply about them,
but essentially what my research emphasizes
are three bits that are relevant for an answer perhaps.
The first one is that there is a lot of evidence
that institutions that create stability,
secure rights for individuals to get engaged
in economic transactions, investment,
education, contracting, legal functions,
I think those are important for both technological change
and productivity,
as well as for various aspects of shared prosperity.
Those are the things that we call sort of
inclusive economic institutions in my book with
James Robinson "Why Nations Fail?", and
essentially they're both
incentive related and opportunity related.
So the secure stable environments are good for
incentives for people to undertake investments
or better themselves and find new ways of approaching
new problems or existing problems.
But at the same time it is really also important to have a
level playing field, equal opportunity
for a broad cross-section of society
because otherwise it's going to be a very unequal
and also inefficient set up.
The second important idea, is that those economic factors
cannot be separated from political and social ones.
So if you say we want to have a dictatorship where power
is concentrated in the hands of a single person
or a small group of people, but they'll just do the right thing
for the economy that just almost never works.
And the reason is because economic institutions
are shaped by political institutions
and the distribution of political power in society.
And in fact this relationship is so organic that it is almost
impossible for economic institutions to remain inclusive
when political institutions and the political structures
are very much against inclusivity.
Meaning that they do not create a broad distribution of
political power, they do not create constraints,
they do not create broader political opportunities,
political participation, social participation, social respect
and so on
And then the third one, and that's the most challenging
in some sense is that it's really hard to design institutions.
You know, when we talk of institutions one naive reading
is that those are like constitutions and if you have
wise people who design good constitutions we'll be all set.
But that's not our view of institutions. Institutions are
evolved things, they result from historical processes,
they result from the interaction between politics and
norms, they result from people participating in politics
in various different ways.
And that's why you cannot change institutions
by just changing the provisions of a constitution
and you cannot easily design institutions,
it has to be partly a bottom-up process,
but it's not just a pure evolutionary process either.
Certainly people participating in politics
with different visions, learning from more successful
cases and understanding what the implications
of different institutional choices are,
is an important part of the process.
You stress the importance of democracy many times
throughout your works. Given the current political climate,
what are the challenges that democracies around the world
and in Central Europe more specifically face?
Well, you know, this is very important. And if I may,
let me take a few minutes to answer that question.
Starting from two basic premises first,
and then I'll come back to the state of democracy today
around the world and in Central Europe.
The first is that I talked of inclusive political institutions,
inclusive economic institutions.
I didn't use the word democracy.
And the reason for that is because
democracy is a necessary but not sufficient condition
for political systems that cultivate the sort of values
and participations that I indicated.
In particular, because many regimes call themselves democratic, they do have elections, but that's not enough
because elections if they are set up in the context of clientillistic situations, non-competitive places where
you know, some personalities dominate politics and there aren't the right sort of civil society
and other constraints on politicians is not going to be enough. But democracy is a scenic one,
so you need to have some sort of democratic structure.
The second is that democracy has had a bad day in both throughout history and today.
People are very skeptical about democracy, there are many critical voices about democracy.
My own research shows that despite all of these shortcomings of many democratic regimes,
actually democracy is very good for economic growth, it's very good for education, child health, lots of things
that we associate with modern successful societies democracy contributes to it because it's much better
than the alternatives. Now, in light of that you would expect democracy to be in the ascendancy.
But the problem is that democracy has been in retreat everywhere around the world
since about the middle or early 2000s. You know at some level that might appear surprising but it's not
because the fact that democracy is good for the poor for example or for protecting
the health investments in children, you know, that doesn't necessarily imply that everybody's going to
rally around democracy. There are people who benefit from weakening of democracies and among them
are powerful leaders with autocratic tendencies, and that's essentially what has happened in Central Europe also,
which is that, you know, if you look at it in many ways countries like Poland, Czech Republic, Slovakia, Hungary
have been economically very successful since transition. Contrary to many fears, they rebounded well,
and they’ve been able to build some parts of their economy quite well. But at the same time, the democratic experiment
which started very well, also left a lot of weaknesses that are easy to exploit. If you look at the democratic structures
with the civil society participation, media, political parties in Western Europe, they have evolved over centuries.
In the context of Central Europe, you know, the democratic experiment is much new, so it leaves more vulnerabilities
and for the same reasons that I've articulated, if the autocrats or people with autocratic tendencies want to
undermine them, it has greater vulnerabilities and I think that's what we're sort of seeing in many of these countries.
You spend a considerable time on studying the relationship between labor and technological growth,
which is becoming a more and more broadly discussed topic today.
What shocks threaten the labor markets and what sort of changes will we see as a consequence of automation?
I think it’s a fascinating topic. It's fair to say that both policymakers
and academic researchers have been asleep at the wheel. In the sense that we haven't really understood
what automation entails both in terms of its productivity and work implications, but also in terms of
social implications. And again for linking it to my answer to the previous question qualitative historians sort of
understood that especially when they were writing about the factory system in its early phases the assembly line
they saw that there was going to be a lot of disruption and therefore a lot of social reactions to these things
and I think we're living through a period similar to that.
Automation is a particular type of technological change because it replaces humans by machines.
It improves productivity, but the displacement that it creates may hurt labor and also it generates a lot of social
backlash. Now, of course, if the history of technology was just one of automation, we would have much greater pains
of economic growth, we would not have a relatively stable labor share which means distribution of resources being
somewhat more fair or even though it's always unequal in many modern economies...
but labour has been getting 60-65 percent of national income in many modern economies
So that would not have been possible, if automation was the only thing.
My own research emphasizes a lot the fact that automation has often gone hand-in-hand with what we call new tasks,
new activities in which labor is central. If you look at it like in the US economy, even the same is probably true
in Hungary: the majority of the people around you will be doing tasks that did not exist one hundred years ago.
Those are the tasks that are really central for labor to be gainfully employed and for labor to receive such a large
share of national income. But what I think has happened is that over the last 20 years there has been so much focus
in the business community on automating to reduce costs that those other activities have fallen by the wayside.
And as a result, it has created an environment in which there's a lot of automation,
so there is this disruption that it creates and the things to compensate for those have been absent.
So it's a deep problem and it's a problem of direction of technological change, it is a problem of public policy
and it is a problem of social norms among business leaders.
What drove you to becoming an economist and an academic?
Well, I think everybody has a different story for that, but in my case, I became interested in these questions
when I was in my teens, you know, as I was turning 16-17, you know Turkey in the 1980s
was in the midst of a military dictatorship, the economy was in trouble, there was nothing, like a free press,
and I started thinking about – in a naive teenager sort of way – you know how we could understand that,
whether these were related, you know, if Turkey had a better democracy, what would that imply and I decided
that those were interesting enough questions and I was passionate about about them that I should study them,
and I thought – and I was wrong on that – that that's what economics was about. So I would roll to study economics
in order to tackle these questions. It took me the whole of about a month to realize that economics wasn't about that,
but it was still fun, I really liked it. I liked the way in which – you know, you could see it as an undergraduate –, that
you are dealing with important social questions and you are using quantitative, serious analysis to tackle them
and I sort of went along for the ride with economics. I got interested in many different aspects of economics
and only after starting my PhD after finishing my masters and starting my PhD at the LSE,
I realized actually, I can go back and think about some of the same questions that had motivated me to get into it
and there were some economists who were sort of trying to do the same way. For example, I discovered Douglas North
at the time, you know, an economic historian who was using economic history and economic analysis
to tackle similar questions and that was inspiring and then made me want to go in a somewhat different direction
but along the same sort of paths that I had originally embarked.
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