Nobel Prize-winning economist Simon Johnson sheds light on the role of institutions in determining the economic destiny of a country. In an interview with Kazinform, Johnson explained how historical legacies continue to shape today's global economy.
Mr. Johnson, what prompted you to explore the role of historical institutions in economic development, particularly in the context of colonization?
I spent much of the 1990s working in former communist countries of Eastern Europe (especially Poland), as well as Ukraine and Russia. I was frustrated that the standard tools of economic policy were not working as expected, and I began to study informal entrepreneurship, the rule of law, and corruption in search of an explanation. Looking back, I was on a path leading to inclusive institutions.
How did working with Daron Acemoglu and James Robinson influence your approach to the complex questions addressed in the study?
„Daron and Jim are deep thinkers with a broad perspective on history and politics. During my first conversation with Daron in the late 1990s, I realized that they were very close to unlocking what makes institutions sustainably inclusive. They were missing just one item and I helped them find it. Once we had that element, a lot of other things started to fall into place.
Looking back, what moment of your career do you consider the most important?
This was a conversation with Daron after a workshop. We immediately and fully agreed that geography alone cannot fully explain why some countries are so much richer than others. Daron asked me if I would like to help find the missing piece - the answer to the question of why Europeans acted so differently in different parts of their empire. It seemed like an incredibly challenging, open-ended challenge, and I jumped at the chance. Working with Daron and Jim was a fantastic experience.
What was the most surprising discovery for you when studying persistent institutional differences?
The form of European colonization left such a deep imprint on the institutions of states that the consequences lasted for centuries — in some cases up to 500 years. History is not destiny, but shaking off the legacy of extractive institutions has proven extremely difficult.
What key lessons can developing countries learn from your research to improve their political and economic systems?
There are no simple or universal lessons. It is important to develop the middle class. Giving more political voice can be helpful. And thriving alongside people of all educational levels should be a priority. But even in the US and Western Europe we still face the same problems, as you can see by reading the headlines any day of the week.
Your research shows that under certain circumstances societies can get rid of extractive institutions and create more inclusive ones. What are these circumstances and how can they lead to long-term prosperity?
It's not easy. The most inspiring examples involve interacting with the international economy, but not in a way that requires you to always produce raw materials or use cheap labor. Singapore and South Korea were quite poor in the 1960s and found ways to build real prosperity. Poland and other regions of the former communist world have found success through closer integration with the European Union. But for countries that had the most extractive institutions during colonialism, such transitions prove extremely difficult.
Are there contemporary examples of countries that have successfully transitioned from extractive to inclusive institutions? What do you think are the main lessons that can be learned from their experience?
As I already mentioned, if we consider a fairly long historical period, some European countries, including parts of Scandinavia, can be classified in this category. But they started early and managed to combine democratization with industrialization. Today, the global economy has become a difficult place - it is easy for elites to make money from mining, and they can use these resources to maintain power.
Could international organizations like the IMF or the World Bank use your findings to support countries stuck in the cycle of extractive institutions?
The fund and the bank already know all this. I worked at the IMF for 3.5 years in the early 2000s, including 18 months as Chief Economist, and we had many discussions about how institutions promote, or more often hinder, sustainable prosperity. I left the IMF more than 16 years ago, but I know they continue to care and think about these issues. However, when the main goal of entrenched elites is to enrich themselves, progress is difficult to achieve.
What areas of research can food be further explored in relation to the relationship between historical institutions and contemporary prosperity?
„Deeper study of what happened in specific countries brings many additional insights and, hopefully, approaches to what might change the situation. I remember the outstanding research of Melissa Dell on Peru and Lakshmi Iyer on India, but there are many other talented young people working in this field.
How do you see the economy developing over the next decade and what role do you intend to play in that development?
In 2023, Daron Acemoglu and I published Power and Progress: Our Thousand-Year Struggle for Technology and Prosperity, arguing that we need to think more clearly about the choices we make as a society about the direction of technological change and to focus on how to create what we and David Autor (our MIT colleague) call “Pro-Worker AI“. If AI increases the marginal productivity and wages of non-college workers, it could potentially reduce inequality not only in the US but around the world. However, an innovation path driven solely by Big Tech is unlikely to achieve this goal, and there are many cautionary tales to support this thesis. But we can also achieve much more when (and if) we understand that creating a technology vision is a primary task. Letting a few billionaires set the tech agenda will give you the world they want – one where all the power is in their hands. But how can we change the direction of technological development, embed it more deeply in democracy and accept a wider range of opinions? It's not easy, but we and many others are working hard.