On October 14, the Royal Swedish Academy of Sciences announced that the 2024 Nobel Prize in Economics would be awarded to three American scholars: MIT economists Daron Acemoglu and Simon Johnson, and University of Chicago professor James Robinson. The Nobel committee praised the trio for explaining why "societies with weaker rule of law and exploitative institutions fail to foster economic growth or progress," a key reason for their selection.

The chair of the Nobel Committee for Economic Sciences, Jakob Svensson, stated that "narrowing the vast income disparities between nations is one of the greatest challenges of our time." He added at the press conference, "They have uncovered the historical roots of weak institutional environments in many low-income countries."

The root cause, according to the laureates, is that "societies with poor rule of law and exploitative institutions do not generate growth or positive change." Acemoglu emphasized during the press conference in Stockholm that authoritarian regimes "are less likely to achieve sustainable innovation over the long term."

This rationale for awarding the prize is clearly timely and serves as a rebuke to authoritarian regimes like the Chinese Communist Party (CCP), which explains why Chinese state media has kept its reporting on the news to a minimum. Xinhua News Agency’s coverage was brief, amounting to just over 100 words, with only a single sentence referring to the reason for the award: "in recognition of their outstanding contributions to the study of how institutions are formed and how they affect economic prosperity."

In fact, as early as 2015, China’s Hunan Science and Technology Publishing House published the Chinese translation of Acemoglu and Robinson’s co-authored book Why Nations Fail: The Origins of Power, Prosperity, and Poverty, which was originally released in 2012. At the time, the political climate under the CCP was not as repressive as it is today, and the book sparked lively discussion in the fields of political sociology, economics, and history. Several notable figures, including prominent economist Wu Jinglian, commented on the work. Even CCP state media covered its content.

The book attempts to answer questions that have puzzled experts for centuries: Why are some nations rich while others remain poor? Why do citizens in some countries live in freedom and dignity, while others are enslaved and deprived of liberty? Why do some nations find success with ease, while others face repeated setbacks or remain mired in failure? What are the fundamental reasons behind the prosperity and success of a society or a nation? Can wealthy and successful societies sustain their prosperity? Why do some nations thrive for only a short time, while others remain strong for centuries? Do factors such as culture, climate, geography, or institutions determine whether a nation becomes prosperous or fails?

The book opens with the story of Nogales, a town divided by a fence between the U.S. state of Arizona in the north and Mexico in the south. The people, geography, and cultural backgrounds on both sides of the border are the same, but after two or three hundred years of development, the differences are stark. On the U.S. side, residents enjoy free education, health insurance, security, modern infrastructure, and the ability to vote for various public officials, from the president down to local town officials. On the Mexican side, however, the town faces rampant crime, drug problems, poor education, and sham elections, with residents continuing to live in poverty.

The authors argue that geography, culture, and the education level of those in power do not explain why some nations succeed while others fail—institutions are the decisive factor. This leads to the question: Why are U.S. institutions superior to those in Mexico?

By tracing the different historical paths of North and South America, the authors identify two types of institutional systems. In "inclusive institutions," nations uphold the rule of law, protect property rights, distribute political power broadly, establish checks and balances, and encourage diverse viewpoints. Over time, such nations tend to prosper. In contrast, nations with "extractive institutions," where political and economic power is concentrated in the hands of a privileged elite, inevitably decline. The ruling class, in order to preserve their power and wealth, uses political control to stifle competition and innovation, harming the majority and obstructing societal progress.

Through the example of Nogales, the authors explore historical evidence from the Roman Empire, Mayan city-states, medieval Venice, the Soviet Union, Latin America, England, Europe, the U.S., and Africa, convincingly demonstrating that human-made political and economic institutions are crucial for economic success (or failure).

The authors reject the "economic determinism" prevalent in modernization theory. They argue: "While economic institutions are extremely important in determining whether a country is poor or prosperous, it is politics and political institutions that determine what kind of economic institutions a country has. A country’s political institutions determine whether its citizens can hold political leaders accountable and influence their actions. This, in turn, determines whether political leaders act as agents of the people or abuse their power to enrich themselves and pursue personal goals at the expense of the public."

Historically, many nations have achieved success by establishing inclusive political and economic institutions. Most developed democracies today, such as the U.S., the U.K., France, Japan, South Korea, and Australia, have adopted such systems. In contrast, nations with extractive political systems tend to develop extractive economic systems.

The authors acknowledge that countries with extractive political institutions can sometimes adopt inclusive economic reforms without political reforms. However, they argue that such inclusive economic systems cannot last long. They will eventually devolve into extractive systems because political elites, unwilling to relinquish their power and wealth, use inclusive reforms to stimulate production and create more resources to exploit.

China is a prime example of a country with an extractive political system and an initially inclusive economic system. The book discusses China’s rapid development in recent decades, attributing it to a shift from a highly centralized economic system to a more inclusive one. However, the authors argue that China’s growth will become unsustainable once it reaches a middle-income level unless it transitions to a more inclusive political system.

Yet, in reality, the authors may have overestimated the CCP’s ability to reform. Twelve years after the book’s release, China’s economic development has already hit a dead end. The Party’s unchanging extractive political system has evolved into an extractive economic one, where policies never challenge the interests of elites or those in power. The recent stock market boom and bust is just another example of the CCP exploiting ordinary citizens for short-term gains.

By awarding the Nobel Prize to these scholars who revealed the connection between institutions and economic development, the Nobel Committee also exposed the deception behind the CCP's "socialism with Chinese characteristics" and "socialist market economy"—mere facades for extracting more wealth for the elite. Without inclusive institutions, economic prosperity is unsustainable, and people living under authoritarian regimes, including those in China, need to understand this. Only political change will lead to genuine economic development and happiness. This is likely why the CCP has been so reluctant to highlight the Nobel laureates’ work in China.

Editor: Pu Shan