Nobel in economics provokes scholarly debate

This year’s Nobel Laureates have a strong following among Pakistani economists, led by former Governor State Bank Dr Ishrat Hussain. He viewed their global recognition as a validation of his own academic work on Pakistan.

Earlier this month, the Royal Swedish Academy of Sciences awarded renowned economists Dr Daron Acemoglu, Dr Simon Johnson of Massachusetts Institute of Technology (MIT), and James A Robinson of the University of Chicago the 2024 Sveriges Riksbank Prize in Economic Sciences in memory of Alfred Nobel.

They were recognized for their research on how institutions shape economic prosperity. Their work collectively demonstrates that countries with “inclusive” political and economic institutions, rather than “extractive” ones, achieve long-term economic success.

As in other disciplines, intellectual debates in economics often spark discussions within international academic circles. It’s common to speculate on potential contenders before the prize announcement and to critique the laureates and their work afterward. Social media has brought these debates into the public sphere, allowing anyone interested to gain insight into competing perspectives. 

The widespread popularity of the laureates’ theory led to broad acclaim for the Swedish Academy’s decision. However, it also brought critiques into the mainstream, with some arguing that their work was neither entirely original nor sufficiently nuanced, even to the point of being misleading. Critics also questioned if the three economists were truly deserving of the award, suggesting that there are other candidates with more groundbreaking ideas who may have been overlooked. 

Dr Durre Nayab, former Joint Director of the Pakistan Institute of Development Economics (Pide), and Director of Socioeconomic Insights and Analytics (SIA), a new think tank, strongly defended the trio on the issue of originality. “Academic work often builds on existing theories. While the 2024 laureates’ research draws from economists like Douglass North and Joseph Schumpeter, it advances institutional theory through rigorous empirical analysis and formal modeling, making their contribution highly significant”, Dr Nayab remarked.

Dr Hussain expressed excitement at the recognition of the institutional economists. “It is the strength of institutions that determines the success or failure of national economies. My book, ‘Governing the ungovernable’, is an empirical validation of their thesis as applied to Pakistan. I am pleased to see my work vindicated”, he noted.

Some observers in Pakistan found the application of the institutional theory by local academics’ problematic. “Certain self-proclaimed visionaries in the country, driven by self-interest, contribute little of real value. They often align with an establishment known for historically questionable actions, using all kinds of ploys including institutional theory as a convenient cover for their blatant opportunism, intellectual bankruptcy and dishonesty. Rather than addressing the root causes of social and economic backwardness in the country, these individuals blame underdevelopment solely on weak extractive institutions, focusing on symptoms rather than underlying issues”, commented an economist anonymously.

Sakib Sherani, founder, Macroeconomic Insights, saw the recognition of Dr Daron Acemoglu and his team, as a predictable outcome, given their stature. Commenting on the award he stated, “This year’s Nobel Prize is very timely, in my view, as the long shadow of authoritarianism and extractive institutions is spreading across many countries, including Pakistan. It is vital to reaffirm the critical importance of inclusive institutions and participatory democracy in driving economic development to both elites and those in power”.

Some global critics, whose input is available online, accuse laureates of adopting a ‘reductionist’ approach. One blogger, remarked that their focus on property rights as a key element of inclusive economic institutions was too narrow, arguing that this interpretation falls short as comprehensive framework for understanding democracy or development.

Furthermore, some critics argue that Dr Acemoglu’s team places too much emphasis on internal factors when explaining a nation’s success or failure, downplaying the significant impact of external forces such as colonialism, imperialism and post-imperialist experiences.

A senior local economist remarked, “Their simplistic explanation of uneven development within and between nations fails to account for the deeper complexities, including historical biases, cultural dynamics, resource conflicts, and how these factors influence the quality and timing of policy decisions shaping their trajectory.

“The mere existence or enforcement of property rights doesn’t ensure inclusivity. A property-owning democracy with broad, equitable ownership is fundamentally different from a plutocratic oligarchy. In many earlier colonies, private land ownership was established by dispossessing native populations, resulting in huge land holdings and deep entrenched inequalities”, he added.

He observed that while it’s normal to celebrate award winners, the Nobel Prize in Economics establishes a hierarchy of knowledge that patronizes certain perspectives. This, in turn, influences which ideas are embraced both within the field and globally, a major concern in a world striving to find diverse solutions.

Another critic pointed out that the protection of ideas through intellectual property rights, such as patents and copyrights, has garnered valid criticism. Even mainstream economists acknowledge the substantial societal costs associated with this practice, as it limits access to valuable goods and services and hinders further innovation.