Daron Acemoglu is the one of most important economists of the history. In his recent book titled “Why Nations Fail” Mr. Acemoglu searches social origins of prosperity and poverty. For Turkishtime -a monthly business magazine in Turkey, I interviewed Mr. Acemoglu about his latest book. Here is the full text of the interview:
In your book titled “Why Nations Fail” you search social origins of prosperity, power and poverty. What differences are there between developed countries like USA and Europe countries and emerging ones like Turkey, Indonesia and India regarding these social origins?
The main difference is in the institutions. Countries such as the United States, the United Kingdom, France, Germany and Canada have more inclusive economic institutions, supported by more inclusive political institutions, and that’s why they are richer. Inclusive economic institutions are those that provide greater incentives for innovation and investment, and a level playing field for their citizens so that people can deploy their talents. Inclusive political institutions are those that distribute political power more equally in society, so that politics is not hijacked by one person or a narrow group. India and Indonesia have typically not to encourage innovation investment or provided a level playing field. Their economic and political institutions have been more extractive, meaning that property rights are insecure, innovation is not encouraged, investment is blocked by entry barriers and as importantly, the educational institutions are so weak that most of their citizens do not have any way of using their talents and abilities (though both of these countries have been taking steps in more included directions over the last two decades).
Turkey is somewhere in the middle. It is certainly not an African country, where a small elite runs everything, and it’s not even India or Indonesia. But we are still far from an environment in which the majority of the population is able to use their talent or faces an environment conducive to investment and innovation.
It is seen that basic criteria for measuring nations’ economical success is action of political institutions in your book. Is not this criteria relative?
Measuring the inclusivity of political institutions can be challenging because the devil is in the details: does a democracy really ensure that political power is equally distributed? Does the fact that a president or prime minister is elected ensure that he will not act in arbitrary ways, repress the opposition, not enrich himself and his cronies? But the concept is not relative. I think there’s a big difference between societies in which political power is monopolized by a small segment of society, be they the economic elite, politicians or the military, and societies in which this political power is equally distributed. This difference is the topic of the book.
You claim that nations which created successful economical and political institutions are successful. There are lots of regulatory boards in Turkey that regulate various sectors. What should be done to provide these boards work effectively?
Some regulation is part of the market economy. But in many countries regulation is stifling, and it is there in order to either serve the interests of the bureaucracy or protect other businesses by creating cost barriers against their competitors. A lot of regulation in Turkey is discouraging business creation.
Turkish government try to promote Middle East capital to come to Turkey by using cultural and geographical issues. It also plans to be more strongful in Africa. Can Turkey become Singapore of the region?
I think Turkey should aspire to be more than the Singapore of the region. Singapore is an exceptional case, able to achieve growth despite its relatively non-democratic institutions that have concentrated political powers in the hands of Lee Kwan Yew, his family and his associates. It has grown nevertheless because of its unique location and the fact that its elites realize that the wealth of the country is generated by trade and trying to extract more resources from its businessmen would be self-defeating. That model is not generally replicable (when politics is so unequal, the economics tends to be unequal too), and Turkey should strive to be economically powerful but also democratic and respectful of its citizens.
In your book you claim that China uses political institutions to monopolize its political power and China economy which based on these institutions can not be sustainable. We experience that mostly in emerging markets there are powerful and authoritarian institutions in office. Will authoritarian political institutions become new trend for creating successful economy?
Authoritarian institutions are attractive to political leaders precisely because they give a lot of power to would-be autocrats. In the book, we explain why this type of authoritarian growth, based on catch-up and technology transfer will not be able to generate innovation and sustained growth. Having said that, it remains true that many countries in Africa will follow this path, because they already have strong elites in power and they are recovering from devastating civil wars and instability. But in all of these cases, as in China, such growth will be limited, and also will be very unequal (and associated with lots of repression in violation of civil and political rights).
How could you evaulate Turkey’s political institutions regarding this trend?
Turkey has made great strides towards democracy over the last decade. You cannot have an inclusive society and respect for civil and political rights under the shadow of the military. Turkey is moving in the right direction by bringing the military under civilian control. That’s all good. But there are also very worrying signs. A democracy is only as good as its respect for the rule of law, and it is incompatible with arbitrary jailing of opponents and journalists. Inclusive political institutions are more than democratic elections. They also require political power to be equally distributed even after a government comes to power. Turkey still needs to learn that. I hope that lesson will not be learned through another cycle of repression authoritarian politics.
You claim that innovation is the strongest requirement for creating sustainable economy. What kind of politics should be implemented to create effective innovation atmosphere?
Openness to new ideas, new people and new technologies. A level playing field. Good educational institutions. Secure property rights.
Recent reports about China show that China’s innovation atmosphere is being improved. Can we say that the main trend in China is to shift from “cheap and imitation” technology to effective innovation?
That’s what’s being tried. But you cannot have innovation under the iron grip of the Communist Party. The lessons from the Soviet Union are applicable to China also.
By referring Anne Krueger’s thesis, Turkey and South Korea had similar qualifications. But South Korea has gained successful steps comparing with Turkey. Why did not Turkey become like South Korea? What should be done to become like South Africa? Although Turkey has successful macroeconomics figures its position in competition leauge is not so good. What are the main reasons of that?
Turkey has been growing, but it still a middle-income country. It’s business environment still compares badly to those of other nations and that’s why when international organizations to their rankings, Turkey is in the middle of the pack. That’s not what it should aspire to be.
Turkey aims to become one of world’s ten biggest economy in 2023. Is this realist aim regarding recent Turkey’s political economy? What should be done to achieve this aim?
Why should we set ourselves goals about our overall GDP? That’s a bad way of thinking about things. It’s the Cold War way of thinking about things. We should aspire to increasing GDP per capita, the living standards of the Turkish people. Taking pride of a large GDP is like taking pride of a high fertility rate. Turkey doesn’t need a high fertility rate. It needs rapid and sustained economic growth.
In Wall Street Journal Dalibor Rohac wrote this for your book: “(…)It is true, as the authors argue, that “poor countries are poor because those who have power make choices that create poverty.” But even if choices over policies and formal rules are guided by purely economic considerations, they are informed by expectations and beliefs of the policy makers, and by the prevailing social norms” How could you evaulate this review?
Yes of course. Norms and expectations matter. Those are part of the informal workings of institutions. But those are really hard to quantify. At the end, they are also determined by how the politics in a society works. That’s why we have focused much more on political factors. But one can develop a more complete picture if one combines our theory with a detailed theory of the workings and evolution of social norms.