Daron Acemoglu, Simon Johnson, and James Robinson were awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, or the 2024 Nobel Prize in Economics for their thoughts on the wealth gap between countries on October 14. Their thinking has changed the way people understand the problem of economic inequality, from a cultural paradigm to a political paradigm.
Acemoglu and Johnson are professors at the Massachusetts Institute of Technology, while Robinson is Director of the Pearson Institute for Global Conflict Studies and Resolution at the University of Chicago, specializing in the economies of sub-Saharan Africa and Latin America. Acemoglu and Robinson wrote the book “Why Nations Fail: The Origins of Power, Prosperity, and Poverty” (2012), about the important role of government in determining the success or failure of a country, especially economic inequality.
The term economic inequality refers to the unequal distribution of income and wealth in a society or country, resulting in a gap between the rich and the poor. You could say that wealth is only enjoyed by a few, leaving many people in difficult circumstances.
Prior to the 2024 Nobel Prize in Economics, theories on economic inequality emphasized cultural, capitalist, and geographical factors. In contrast, Acemoglu, Johnson, and Robinson focus the factors of economic inequality on extractive institutions. Although they mention that geography and culture are also influential, institutions are the key factor in regulating a country's economic path. For them, countries with extractive institutions tend to experience economic stagnation and injustice.
Extractive institutions are systems or rules created to benefit an elite or ruling group by utilizing the country's resources and wealth. In short, this system is designed to enrich the few at the expense of the welfare of the majority of the population. Countries that do not develop are often caused by extractive institutions. The characteristics are rampant corruption, low political transparency, weak law enforcement, limited access to community movement, dependence on natural resources, and policies that favor the ruler.
According to Acemoglu, Johnson, and Robinson, inclusive institutions are needed to advance the country's economy and welfare. Inclusive institutions have a system of equitable distribution of economic and power to the wider community. This system supports innovation (creative destruction) because it provides opportunities for anyone to innovate, without fear of being monopolized or dominated by the elite. Acemoglu and Robinson emphasize that the process of creative destruction or sustainable economic innovation is very important for the country's economic growth.
In general, this perspective emphasizes that the prosperity of a nation is highly dependent on its institutions or politics. Countries with inclusive institutions are more likely to achieve sustainable economic growth and social welfare. From the 2024 Nobel Laureates in Economics we learn that it is important to promote transparency and accountability. Every individual also has a role to play in creating a better future.
In Islamic economics, inclusive institutions play an important role in realizing justice and social welfare. Key principles of Islamic economics such as justice, brotherhood and balance encourage the creation of inclusive institutions, which provide equal opportunities for all individuals to participate and benefit from the economic system.
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