The Irish Times view on the Nobel economics prize: the keys to long-term success

The 2024 Nobel prize for economics was awarded this week to three economists who have studied the factors behind long-term economic progress, particularly the importance of institutions. The academics Daron Acemoglu and Simon Johnson of the Massachusetts Institute of Technology and James Robinson of the University of Chicago won for their work on the inequalities in wealth among different countries. And these are substantial – as the Nobel committee pointed out, the richest 20 per cent of the world’s countries are now around 30 times richer than the poorest 20 per cent.
The story is illustrated in a tale of two cities – or rather one divided in two by a fence. The professors pointed to the contrast between the relatively prosperous city of Nogales in Arizona and the poorer part of the city across the border in Mexico. One has been politically and economically stable, the other riven by crime and corrupt local politicians. Institutions, in other words, matter.
As time goes on, institutions face new threats. Nogales is now one of the areas where the debate about immigration into the US is most intense.
The wider research by the academics was based on historical evidence that colonosing countries generally put democratic and inclusive institutions in countries where they settled large numbers of their own populations, but not in other cases, where the sole focus was on extracting wealth. Not surprisingly, the former did better. As well as political stability, the underpinning of property rights and a robust legal system were seen as vital for investment and innovation.
Ireland inherited many institutions and laws from Britain, but the State failed to make strong economic progress until the 1960s. Nonetheless political stability, predictable policy – including in the vital area of education – and a developed legal system have helped to build a modern economy.
Institutions often need to be modernised and Ireland may have become complacent. In particular, the outcomes of the governance, planning and legal processes are now too often delivering poor results and delaying vital investments.