After the Bell: The odd relevance to South Africa of the 2024 Nobel Economics Prize

The trio was awarded the prize for advancing the understanding of economic disparities among countries. They are very much in the same camp. Acemoglu and Johnson are professors of economics at the Massachusetts Institute of Technology and Robinson at the University of Chicago. The trio has written zillions of papers and a few books together. 

For SA, Acemoglu is perhaps the most relevant because he is a frequent visitor to SA and knows the country well. And, if you are at all familiar with their work, even just a little, it’s easy to see how SA plays into their broader theories.

Re-reading some of the commentaries like this one by William Easterly on Acemoglu and Robinson’s first book from 2012, Why Nations Fail: The Origins of Power, Prosperity and Poverty, all reflect that the ideas in it now have enormous currency and my guess is that they are almost academic baseline at this point. 

If you had to summarise the book in two words, they would be “institutions matter”. That doesn’t seem like an academic breakthrough but, trust me, it is. Before the book, theories about the difference between successful and failed nations were enormously varied - and, if we are honest, a bit wacky. There were lots of notions that geography had something to do with it; hotter countries were less developed because work was more physically exhausting. Seemed logical. Religion was also mooted at a point because of the notional protestant work ethic. Culture in general is often claimed to be the differentiator, particularly by people who just happen to belong to that dominant culture! 

Why Nations Fail drove a bus through these ideas through the simple method of looking at towns and cities that spanned a border. The authors cited, in particular, the town of Nogales, Arizona, in the US and Nogales, Sonora, in Mexico. The lives of the people north of the border were, and are, enormously better than the lives of the people below the border, and yet the culture, geography and even dominant religion were the same. The obvious conclusion was that culture is an insufficient explanation. The problem wasn’t the culture; the problem was the border. 

But if culture is not the answer, what is the reason for the huge differences in lifestyle, health and wealth? The authors take us on a wild trip around the world to Botswana, Singapore, Germany and Korea before concluding that variations in living standards between countries are best explained by institutional differences. 

The political and economic institutional landscape is what matters: things like laws that support economic freedom, security of property, access to finance, banking systems and so on, built on pluralistic political institutions. Importantly, the book didn’t claim that economic prosperity is exclusive to democracy; there is an interesting bit on how and why the Soviet Union was initially successful in moving out of feudalism into industrialisation. But it did argue that over the longer term, democracy supports growth and innovation more effectively - an argument that is challenged, as the authors acknowledge, by the current continuing rise of China.

Anyway, the point is that most of these ideas have been internalised and extended by economic historians. But from a South African point of view, it’s actually the duo’s subsequent book, The Narrow Corridor, which is arguably more relevant, not least because there is a whole section about South Africa in it. 

This book was much more complicated and, to me at least, more interesting. The book asks the question: Where does liberty come from? And their answer is less appealing than you might imagine: liberty is not possible without a leviathan state. But - and this is crucial - the leviathan state must be balanced by an active and empowered citizenry.  

This balance is actually quite a rarity in history, hence the corridor is narrow. And it’s in constant flux, hence it is a corridor, not a singular place. The authors use the analogy of Lewis Carroll’s story in Through the Looking Glace when Alice and The Red Queen race against each other but, no matter how hard they run, they both remain in the same place. 

Having established these ideas, we are off again on a wild, historic journey from ancient Sumeria to modern Nigeria, from ancient Greece to Nazi Germany, from Communist China to modern India, ultimately arriving at South Africa. 

Well, not “ultimately” - it’s not the end of the story. But the places illustrate complex issues: Nigeria demonstrates the problem of having no leviathan state; ancient Greece demonstrates how balance was achieved - for a time; Nazi Germany demonstrates what happens when the balance is disturbed; India demonstrates how the “cage of norms” can restrict the development of liberty.

And South Africa? The crucial thing here is how elites can destroy a country by monopolising its wealth and you end up with a despotic leviathan that is oppressive. But also how, without a state, you end up with a “paper leviathan” that doesn’t allow economic prosperity to flourish. Hello, Nigeria.

But in South Africa, Acemoglu and Robinson were plainly encouraged by the emergence of a constrained leviathan - a strongish state in which elites were participating rather than overwhelming - and plainly discouraged by the gradual development of the consumptive state. In some ways, SA is something like a combined illustrative case. 

The point the two are making is essentially that with too much state power, you end up with a despotic leviathan that is oppressive and ultimately disrupts economic prosperity. And, by the way, I think there is a good argument to be made that China might well be moving into this situation. We will see. 

Without a strong state, there is insufficient capacity to resolve conflicts and provide services. And, by the way, I think there is a good argument that SA might well be moving into that situation. We will see. 

Taken together, the books demonstrate the thinkers’ economic centrism, which I suspect is why they have such widespread appeal. But it’s an intensified and enriched centrism too. As they so often do, I think the Nobel committee has made an ace choice - more strength to their elbows. DM