Renowned Economist Discusses Disparity of Wealth
March 28, 2013
BLOOMINGTON, Ill. – The question of why some nations are rich and others are poor
has been debated for centuries. In a lecture given Wednesday at Illinois Wesleyan
University, one expert argued that it is economic and political institutions, or the
lack of them, that dictate economic success.
Daron Acemoglu, co-author of Why Nations Fail: The Origins of Power, Prosperity, and Poverty, was the speaker at the inaugural Robert S. Eckley Lecture in Economics. The lecture
was made possible by a gift from IWU President Emeritus Robert S. Eckley given shortly
before his death in 2012. Acemoglu also spoke to Wesleyan students and met with economics
and political science faculty prior to his public lecture.
Acemoglu, the Elizabeth and James Killian Professor of Economics at Massachusetts
Institute of Technology, is the winner of the 2005 John Bates Clark Medal from the
American Economic Association. A widely published scholar, Acemoglu co-authored the
2012 New York Times bestseller Why Nations Fail with Harvard political scientist James Robinson.
In his lecture, Acemoglu said that experts have long debated the question of why some
nations are wealthy and others are not, noting the same question was the starting
point for Scottish economist and moral philosopher Adam Smith in writing The Wealth of Nations (1776), today considered a fundamental work in classical economics.
“At the time Smith was writing, the gap between the richest and poorest nations of
the world was on the order of four-or five-fold,” said Acemoglu. “Today that gap stands
Acemoglu said one popular theory expounded is that some nations are condemned to poverty
because of their geography – that they are disadvantaged by poor soil or a bad climate
for productive agriculture, for example. Other theories say cultural differences between
nations or ignorance of effective policies to foster economic growth are root causes
of economic disparity between nations.
Acemoglu said he and his co-author instead argue that it is a nation’s economic institutions
– and whether they are inclusive or extractive – that shape its prosperity or lack
thereof. Inclusive economic institutions are those which provide incentives to people
to invent and to innovate and which provide opportunities to the vast majority of
citizens, Acemoglu said, citing secure property rights and an unbiased, effective
legal system as important examples.
“You need a level playing field so that profitable, lucrative businesses and activities
in a society are not in the monopoly of a few people,” said Acemoglu. “The more people
taking part in the playing field, the more likely is a society to bring its best technologies
to its consumers. For that sort of level playing field, you need regulations that
prevent monopolies from forming, that do not allow entry barriers to block new technologies,
and that require the sort of investment in education and public structure that brings
society at large into the economic theme.”
The problem, Acemoglu continued, is that historically most economic institutions have
not been inclusive. Indeed, the opposite more often occurs, creating societies with
extractive economic institutions, which often serve the interests of an economically,
powerfully advantaged minority of citizens that Acemoglu called the elite.
“We call them ‘extractive’ because they have been designed to actually enrich and
benefit the small minority in society at the expense of the rest of society,” Acemoglu
said. “Extractive economic institutions often serve the interests of the elite and
not so much the rest of society.”
In a question-and-answer session following his talk, an audience member asked Acemoglu
if he believed that elites have a stranglehold on the current American economy, making
the playing field less than even.
Acemoglu said he is both optimistic and pessimistic, noting that the U.S. has had
one of the most inclusive economic and political institutions in the world. Fault
lines in that inclusion have recently emerged, however.
“The U.S. has become much more economically unequal,” he said. “The gap between the
top one percent and the rest of society is getting larger. We know from history [that]
when societies become very economically unequal, political inequality follows."
Acemoglu said there is considerable evidence that the wealthy have a disproportionate
voice in politics. “This is not inconsequential when it comes to discussion and decisions
of how to get out of the current fiscal crisis or what to do about changing the structure
of government,” the economist said. “Those are very political decisions.”
Acemoglu said he has optimism, however, because the country has already weathered
storms, citing the Gilded Age, when there was an even more pronounced inequality with
greater dominance of the economy by a few companies and much weaker political institutions.
“U.S. institutions were able to reform themselves, reducing the power of the trusts,
creating a much better-regulated system" with creation and enforcement of antitrust
laws and a newly empowered Justice Department, he said.
The Robert S. Eckley Lecture in Economics allows economics faculty to bring to campus
a distinguished scholar to broaden the understanding of economic analyses and perspectives
among others on campus and in the community. President Emeritus Eckley received a
Ph.D. in economics from Harvard University. He was an industrial economist for the
Federal Reserve Bank of Kansas City before joining Caterpillar Tractor Co. where his
work included economic research, pricing and product control. He served as president
of Illinois Wesleyan from 1968-1986.
Contact: Kim Hill, (309) 556-3960