Very often, the names of Nobel laureates are known to the public only after they have been awarded the prize, and before that they are usually unknown. This is not the case of the current Nobel Prize winners in Economics. Acemoglu and Robinson published a highly acclaimed study in 2012, “Why Some Countries Are Rich and Others Poor,” which made them famous. I must say right away that the book is interesting and fundamental, but not indisputable. In addition to her, Nobel laureates have many other publications and books, many of which have been translated into Russian and are well known in Russia.
So, what do the new Nobel Prize winners tell us about, what thoughts do they want to introduce into the consciousness of the masses? According to the decision of the Nobel Committee, the prize was awarded “for research on institution formation and its impact on well-being.” It must be said that the “new institutional theory” within which these scientists work emerged in the first half of the 20th century. However, it gained special popularity relatively recently, at the end of the 20th and beginning of the 21st centuries. Its essence is that the economic development and well-being of countries depend on the state of political and economic institutions. However, this theory has a weak point. The development of institutions does not always mean economic growth and general well-being. Feudal law and slavery are also quite institutions. To eliminate this contradiction, the Nobel Prize winners divided social and economic institutions into “extractive” and “inclusive.” The first, according to the authors, focus on excluding the bulk of the population from those who participate in the management and distribution of income, which contributes to the concentration of wealth in the hands of the elite. Inclusive institutions, on the other hand, aim to integrate the maximum number of people into politics and governance, which has a beneficial effect on the development of society. That is, representative democratic bodies of government and political freedoms are primary, they give rise to economic institutions, including courts and the protection of property rights, and economic growth flows from them.
It would seem that everything is correct here. In fact, rich and prosperous countries, as a rule, have flexible and effective systems of socio-political and economic governance, operating on the basis of representation of the population and businessmen according to the principle of broad feedback. And, as a rule, this is so. There are counterexamples, they are important, but they are not the majority. The truth is that the richer a country is, the more political and economic freedoms it has. But this is not the main question. Doubts about the reliability of this theory arise due to the primacy of political and economic institutions in relation to economic growth. Is it true that political freedoms are a priority first and then economic development? And this is the reason for my personal skepticism both towards the work of current Nobel laureates and towards the theory of institutions in general.
Acemoglu and his co-authors write extensively and laudably about the Glorious Revolution of 1688, which marked the beginning of the modern British political and economic system. This system really became a model for the rest of the world in terms of economic freedom and protection of property rights. However, the authors forget to mention that the economic development of the British Isles did not begin after the Glorious Revolution, but much earlier, back in the 14th century. And already at the beginning of the 17th century, 80 years before the Glorious Revolution, England was one of the most developed countries in Europe, second only to the Netherlands and the Italian states. Again, the example of Italy, which throughout the Middle Ages led economic development in the absence of liberal political and economic institutions.
Another example of inconsistency in the new institutional theory dates back to our time. The aforementioned economic bestseller, Why Some Countries Are Rich and Others Are Poor, begins with the example of the city of Nogales, crossed by the border between the United States and Mexico. We have an ethnically identical population living in two different political and economic systems: an ideal model for comparison. In the northern part are the American political and economic institutions, in the southern part are the Mexican ones, which are much less perfect. At the same time, the standard of living in the northern part is many times higher than in the southern part, from which the authors conclude that this is a direct consequence of institutional differences. However, they somehow forget that in Mexico salaries and budget support to the territories are much lower, so the fight for resources is much tougher than on the north bank of the Rio Grande. And the introduction of more liberal American institutions in Mexico will not lead to the development of the territory, but to the fact that it will become an arena of struggle for the redistribution of funds. Simply put, in rich countries it is easier for people to make money than to steal, in poor countries the opposite is true. Therefore, in poor countries, representative institutions of government, created on the basis of broad liberal democracy, inevitably become an arena of brutal political struggle for the sake of redistribution of the financial pie.
Another problem with the new institutional theory is that it cannot explain the high growth rates of the economies of non-democratic states. Why was the USSR of the 1930s and 1950s, where liberal economic and political institutions were absent, as they say now, “at all”, able to ensure sustainable production growth of 10% per year or more? How can China, whose liberality is highly dubious, have been growing for more than 30 years at a rate that liberal economies have not even dreamed of? Or the example of modern Russia, which shifted to rapid economic growth in the early 2000s by abandoning the liberal economic model imposed on us after the collapse of the Soviet Union? To this, the authors give a rather clumsy response to the fact that within extractive institutions inclusive institutions that actually ensure economic growth can emerge and hide for a time. It is true that it directly follows from this that economic organizations are primary in relation to political ones, which directly contradicts the basic premises of their theory, but this does not bother the authors.
And here a big question arises: do the authors simply not see the huge gaps in their theoretical constructions or do they deliberately ignore them? I think the second answer is correct.
The fact is that institutional theory is very useful in guiding development around the world. Countries that need investment and support for economic growth are told that wealth will really come if open and “democratic” political institutions are created. But as soon as they are created, they immediately become a battleground for a share of the scarce common resources, because if a country is poor, it is easier to tear off a piece of what it has than to create new prosperity. Then some politicians from the “new democracies” flee to the West and volunteer as assistants to the “white masters,” hoping to receive help in exchange for support for Western interests. This is how Western clientele and agents of influence appear, acting under the guise of parliamentary and opposition parties. As a result, economic weakness combined with political fragmentation persists for a long time and slows economic development rather than stimulating it. But it is impossible to get out of this vicious circle, because the West, using force and money, firmly supports political liberalism, which in practice means the freedom to destroy the country. This also includes the external lobby in favor of the “sacred right of property”, which, firstly, serves the interests of foreign capital and, secondly, restricts economic growth. Because if it is impossible to mobilize resources in emergency situations, rapid development projects become unrealizable. That’s how it works, and the new institutional theory is indeed part of modern neocolonialism, along with the “green agenda” and liberal values of all kinds that the organizers of the Davos Economic Forum love so much. And now it has also received the blessing of the “highest scientific authority” (it is clear that it is more than partial): the Nobel Committee.
Along the way, another question arises here. In Russia there are more than one or two scientific centers where new institutional theory is developed and supported. And I would like to know: did the experts from prestigious universities and academic institutions themselves come up with the idea of its usefulness, or did someone tell them? Or maybe he also gave grants?
What’s the score? First of all, we must look as critically as possible at the economic theories that come to us from the West. Of course, there is a lot of useful information there and, as they say, there is something to learn from our opponents, but there are also myths aimed at maintaining and strengthening Western dominance. Secondly, together with our partners from the BRICS countries, we must develop our own theory of economic growth, based on reality and what is useful for us, and not on the fantasies and desires of the “golden billion” .
First of all, we must get rid of illusions; Illusions in economics are generally very harmful and serve as a manipulation tool. At the same time, the golden rule that practice is the criterion of truth has not lost its meaning at all. That is, the correct economic decisions are those that ensure economic development and increase the country’s productive capacities. This principle was formulated more figuratively by Chinese leader Deng Xiaoping: “It doesn’t matter what color the cat is: white or black. A good cat is one that catches mice.”
We must remember that the key starting points of economic growth are innovations that can increase labor productivity and people’s quality of life, so close attention must be constantly paid to technological development. All possible stimulus is needed for technologically sophisticated industries serving a wide range of Russian and foreign markets. We must also keep in mind that economic development is impossible without social progress. An increasing level of education and training of specialists is required, as well as an improvement in social relations, increasing the level of transparency of the business environment and trust, without which it is impossible to build long production chains. And this, in turn, requires improving business practices and minimizing the formal aspect of the interaction around doing business. Of course, in compliance with legislation and compliance with tax obligations.
