MIT School of Humanities, Arts, and Social Sciences soundings
Fall 2004 [ Previous issues ]
How economies — and economists — work: A conversation with Daron AcemogluHow economies — and economists — work: A conversation with Daron Acemoglu

Charles P. Kindleberger Professor of Applied Economics Daron Acemoglu arrived at MIT in 1993, after teaching for a year at the London School of Economics. A native of Turkey, Acemoglu received the BA from the University of York in 1989, and the MSc and PhD from the London School of Economics in 1990 and 1992, respectively. He was promoted to full professor in 2000 after serving for three years as the Pentti Kouri Associate Professor of Economics, and was named the Charles P. Kindleberger Professor of Applied Economics in 2004. This spring, Acemoglu received the John Bates Clark Medal, a prestigious honor conferred by the American Economic Association once every two years. Recently, Acemoglu has been examining the role of political institutions in economic development, arguing that this factor outweighs other considerations in determining the relative economic strength of a nation. In this conversation with soundings, Acemoglu talks about the fundamental questions that led him to study economics, about the satisfactions of teaching at MIT, and about receiving the Clark Medal.

Your work covers an extraordinary range of disciplines within economic theory, including labor economics, macroeconomics, institutional economics, and — most recently — political economy. Was this a conscious trajectory for you, or do you conceive of all of these disciplines as different approaches circling the same basic questions?

I think there is actually a trajectory. I don't know whether that's an ex-post rationalization, or if it really worked out that way. But the original reason I got into economics was that I was interested in what you might broadly call institutional economics — that is, understanding the social roots of why some societies are prosperous, and some others aren't, and how we came to be the way we are. And for that reason, I wanted to study economics. In fact, I originally started by studying economics and political science, and then I found economics more satisfactory, and switched to economics all the way, and did my PhD in economics.

Throughout my studies, though, I kept my interest in these issues. And essentially I saw the analysis of economic growth, which is a very well-established discipline of economics, as part of this grand picture. A lot of the work I did early on was, in one way or another, related to a more traditional analysis of economic growth.

But partly because of my earlier interest, and partly because this was the right direction for me, I also questioned whether the traditional analysis of economic growth was sufficient to answer the questions that we were posing, in terms of why there are such wide disparities in prosperity across countries. And that's how I started to spend more and more of my time in political economy. Even during my graduate days, I was interested in political economy questions, and I did write one or two early papers on political economy when I was working on more traditional topics. But at the time, the scheme with which these things came together in a satisfactory way had not developed in my mind. And also, you know, fifteen years ago when I was doing my PhD, political economy was not viewed as a core topic in which it was a particularly good idea to do your thesis. So things have changed in that way.

All of these factors contributed to why I did the more traditional type of economics: the analysis of human capital, labor economics, economic growth, technology, how they link with political economy, and so on. And I'm very glad that this was the trajectory I followed.

What kind of questions are on the table in political economy that aren't raised by more traditional economic frameworks?

In economic growth, we ask two sets of questions that are central. One is: what makes an economy grow? And the other is: why are there disparities across the income levels of some economies?

At the end of the day, a lot of the theory of economic growth is trying to explain this in terms of economic variables. For example, physical capital: how much machinery does a society have? Human capital: what are the skills, education, and competencies of individuals? Technological capital: what techniques do they use, and how do they organize production? Those are the kinds of things that a lot of my research is about, as well.

But what's missing in this picture is what I call the fundamental causes, as opposed to proximate causes. For example, you can say that the United States is much richer than Ghana or Nigeria due to the superior technology of the United States. The U.S. has more abundant physical capital and machinery, and a better educated work force. But those are proximate causes, because the next question is naturally, well, why does the United States have superior technology? Why does it have a better and more educated work force? So that's where political economy comes in, and starts becoming an integrated part of the theory of economic growth, because it tries to bring answers to these questions.

Your recent work has focused a lot on the persistence of institutions. How does this fit into this picture of fundamental vs. proximate causes?

Once we start digging deeper into the question of why some countries have more physical capital, better technology, and so forth, three general classes of answers are most salient, and probably most obvious. One is to say that countries do differ in terms of geography. The second is to say that countries do differ in terms of their culture. And then third is to say that they differ in terms of institutions.

By "geography," I mean all kinds of factors that are ecological, geographic; entirely nonhuman in nature. Temperature, disease, environment, altitude, transportation problems. And you can see how these can make big differences. It's impossible to have a society like we have in Boston in the Arctic, or the Antarctic. And it may well be that being near the equator, or being in certain parts of Africa, may create some technological barriers to these countries in terms of transport, in terms of investments, etc., that are quite important. So that would be the geographic hypothesis.

Culture is probably even more obvious explanation, at least among laymen, as a source of differences. So it might be that some countries have different sets of beliefs, with religious beliefs being one of these, as encapsulated by Max Weber's discussion of the Protestant ethic and the rise of capitalism. People pay a lot of attention to the values that come from religion — or from other sources of social interactions — that make some societies more open to economic prosperity while others are not. Culture is a human characteristic, as opposed to geography. Even so, it is largely not "man-made," in the sense that it's not something that we can change easily. It's something that can be influenced over the long term. The culture, the religious beliefs, the values of societies do change. But that's largely outside our control.

So the factor that remains is how we organize our society, which is much more in our control. What type of methods of collective decision-making do we have in the political sphere, what kinds of rules and regulations do we have in the economic sphere, and what kind of social institutions do we have to reward or punish people for engaging in different kinds of activities?

So that's why to an economist, institutions seem like a very natural set of factors to play the role of the fundamental determinants of these proximate causes, and the economic growth. That's what a lot of my theoretical work is about, and that's what a lot of my empirical work is about.

You point out that institutions are far easier to change than, for example, the cultural features of a country. At the same time, you also point out that in reality, it can be very hard to change institutions.

A lot of my work emphasizes that there is a high degree of persistence to institutions. The way I like to say it is that in equilibrium, institutions are persistent.

So yes, it's in their nature to persist, but that doesn't mean that they can't be changed. As an example, let's take something that's quite easily identifiable as an institution: methods of political decision-making. If you have a constitution that says there's going to be a Supreme Court that can overrule laws that are passed by the Congress and the President, that's an institution, and that has a fairly important effect on a range of things. Now, as the U.S. example shows, such a constitution persists. Unless somebody makes a very big effort to overthrow it, it does persist. But that's an equilibrium outcome.

Similar constitutions, written in Latin America in the 19th century, did not persist. They got changed, constitutions got totally rewritten, Supreme Courts got banished, and so on. So while there is the tendency to persist, change is a possibility, as well. And the Latin American example shows the possibility for negative change. Potentially functioning constitutions were torn apart in civil wars, and chaos ensued.

But other, more beneficial institutional changes can be identified and analyzed. One example is apartheid, in South Africa. Apartheid is a relatively recent invention of the South African government, but in one form or another, the white rule over the majority blacks in South Africa had gone on for 200 years. So as a social institution, as an economic institution, as a political institution, it certainly endured for a long time. But once the international community started putting pressure on South Africa through sanctions, and the ANC organized the discontented black masses to demand some type of reform and representation, apartheid did change.

That's what I'm trying to communicate. Persistence is always within us, but within the feasible domains, we can change things. And I would say, by and large, the fact that apartheid has been ended in South Africa has made South Africa a better society. Not a perfect society, certainly. Crime is up, inequality is up, there are lots of problems. But that's an example of the fact that some man-made institutions, like apartheid, can be changed, and for the better.

One potential consequence of your work seems to be the identification of factors by which institutions — presumably including regimes — can undergo change. Is there a political or social justice component to your work? Do you want that to be part of your work?

That's a very good question! My objective is not to play the social parent, or to tell societies or others, what's good or bad. If that were my goal, then of course social justice, fairness, and things like that would have to play a role, and we would need to enter into a more philosophical discussion of what's "good." Is it good to grow at 8 percent, if that's associated with the aspirations of people increasing? Some people say yes, some people say no. I could point out that at the same time that people's consumption is increasing, their health is improving. But then some people might say no: they were happier when they were in their villages, and lived on much less.

Daron Acemoglu"I questioned whether the traditional analysis of economic growth was sufficient to answer the questions that we were posing, in terms of why there are such wide disparities in prosperity across countries. And that's how I started to spend more and more of my time in political economy."

Instead of this, I'm trying to answer a much more positive and limited question, which is: what are the arrangements that will lead to economic growth? I don't say things like, "The form of an organization that leads to economic growth is necessarily better than one that doesn't," because, you know, often we have democratic societies growing less rapidly than non-democratic ones. Does that mean that non-democratic ones are better? Not necessarily. But as part of understanding what they do, you have to understand what their economic consequences are. And I think that's where my comparative advantage lies.

If you were advising a graduate student who was interested in exploring similar questions in political economy, would you recommend that he or she start with the traditional approaches of economic theory, or jump right into the discipline of political economy?

You know, a lot of people now apply to graduate schools interested in institutions and political economy. And they say, "Those are the things I want to study." And my advice for them is always, no, you have to study the more neoclassical, traditional economics first, because it's only with a good understanding of these tools that you can do a sound analysis of the set of issues that you're interested in.

Otherwise, it gets a little bit too far afield from economics — too atheoretical. Institutions, political situations, democracy, dictatorship, underdevelopment — these are things that a lot of people conjecture about. Read the New York Times, and you see Thomas Friedman writing about it, Nicholas Kristof writing about it. Sociology departments talk about it. But I believe that as economists, we have to talk about it in a different way—bringing more theory, more quantitative methods. And in some sense, to be able to do those is precisely why you want to go through the gruesome training first.

You've mentioned before that your childhood in Turkey influenced your interested in economics. Can you tell me more about how you were introduced to economics, and why it felt compelling to you?

I turned 11 in 1979, which was a formative time for me. And what I was seeing around me in Turkey at that time was a chaotic country. Economically, it was a mess. The inflation rate was at levels that were unseen for Turkey. The economy was shrinking. There was a lot of political conflict. And when I looked at Europe and the United States, they were much more prosperous, and seemed immune to these kind of problems. So the question that came to my mind was: Why is it that the society that I live in is so very different from those that are supposedly similar in many other ways?

And then once I started asking these questions, I started to look around, and to read. I read a little bit about Africa, a little bit about Latin America, and again, I saw that there were wide disparities.

Those were the kind of questions that got me started. Of course, as a teenager, not even knowing what economics was about, you don't come up with answers to these questions that are economic, in a strict sense. Instead, you are naturally drawn to more social answers. So when I came back to these questions as a student of economics, I was asking these questions in a very different sort of way.

Tell me about your recent book project, Economic Origins of Dictatorship and Democracy.

That's a book I did with James Robinson, at Harvard. It came out in January. It looks at one part of the political economy. We ask: why is it that some countries end up with one type of democratic institutions, and others don't? What are the dynamics of these types of political institutions? It's an outgrowth of a bunch of work that Jim and I did in the 1990s, which was basically the first leg of the political economy work that I did, and was well received in economics. But this is actually a core topic of political science, and we wanted to make it accessible to political scientists. And I think it's worked. I've been very happy with it.

In the book, you draw upon four specific examples of governments — two democracies and two non-democracies. Why did you take that approach?

The examples we chose are used as motivating examples of general tendencies. So the book is mostly theoretical, and doesn't really pretend or claim to be a detailed historical account. But we start the book with a discussion of the history of the British democratization. And then we discuss the Argentinean failure to democratize. And throughout the book, once we develop theories, we come back to these examples, and say: how do they shed light on them?

Tell me about the Clark medal. What does it feel like to be in the company of scholars like Paul Samuelson, Milton Friedman, and Martin Feldstein?

Humbling. I mean, it just feels great. It's the kind of thing that you don't dare dream about, and I'm tremendously happy that I got it. It's a great recognition.

Where were you when you got the call?

I was here in my office. I was late for lunch. And I was just about to leave the office, and I got the call right after they had their meeting. It was a lot of fun, actually. I'm very glad I was late for lunch!

What brought you to MIT, and how has the distinctive environment at MIT influenced your work?

I taught at the London School of Economics as I was finishing my PhD. So, essentially MIT was my first job. And it was a no-brainer when I got the offer from MIT. I mean, Harvard, MIT, and Chicago are probably the best three economics departments. And MIT, in many ways, is the most dynamic, youngest, and most fun place to be.

The teaching here is fun. The first five years I was here I taught both undergraduates and graduates. And I must say I tremendously enjoyed it. I taught a game theory course for advanced undergraduates, which was taken by people from engineering, mathematics, biology, political science, economics. The best, brightest kids. It's fantastic, really a lot of fun. It just makes it a pleasure. After that, there was a need for me to teach more in the graduate courses, and I started doing that, and I gave up that undergraduate course, and I haven't had time to go back to it.

The thing I would not have guessed is how good an environment MIT is, by and large. It has facilitated a lot of things. It has not placed any undue burdens. It's been very cooperative. I feel there are a lot of resources. It's a big scientific umbrella. So I'm very happy about this place. As well as my chosen career path!



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