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Daron Acemoglu on political economy

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Friday, Sep 30, 2011

While reading the first half of this interview with prolific economist Daron Acemoglu, I started to have the feeling that economics as a discipline is organized around neutralizing class-struggle arguments. (Or maybe it’s a rationalization of the panopticon.) Its chief normative purpose can seem to be to account for economic disparities between classes in bland, obfuscatory language and analysis. Yes, he makes an interesting point about structural unemployment (men haven’t received sufficient ideological conditioning to be prepared to take the low-wage service sector jobs that are actually available—the “skills mismatch” that policymakers frequently mention) but he also seems to cloak the political stakes of economic policy in neutral language that makes the unfolding of the economy seem like an act of god, not the conspiracy of elites. For instance, the interviewer sums up Acemoglu’s research on income inequality this way: “You said that trends in inequality can best be explained and forecasted by understanding interactions of five factors, all of which are constantly evolving in interaction with one another: technology, labor market institutions and policies, how firms organize production, labor market search and matching efficiencies, and international trade.” It seems a very strange list to me, displacing the motive forces guiding those interactions and rendering the study of them passive, reactive. You see this in Acemoglu’s response: ” I think we also have made much more progress in understanding how technology changes the demand for labor and interacts with the organization of firms and of tasks.” Yes, but who changes technology? And why? What drives the interaction? Who is doing the organizing? To what end? And so on.


Perhaps it’s just naive of me, I was thinking, to expect answers to such questions. But then the interview concludes with a discussion of political economy that addresses what strike me as more relevant questions.


So there is much meaningful heterogeneity related to economic outcomes in the political structures of societies. And these tend to have different institutions regulating economic life and creating different incentives. And I started believing—and that’s reflected in my work—that you wouldn’t make enough progress on the problems of economic growth unless you started tackling these institutional foundations of growth at the same time.
That got me onto a path of research that has been trying to understand, theoretically and empirically, how institutions shape economic incentives and why institutions vary across nations. How they evolve over time. And politics of institutions, meaning, not just economically which institutions are better than others, but why is it that certain different types of institutions stick?
What I mean by that is, it wouldn’t make sense, in terms of economic growth, to have a set of institutions that ban private property or create private property that is highly insecure, where I can encroach on your rights. But politically, it might make a lot of sense.
If I have the political power, and I’m afraid of you becoming rich and challenging me politically, then it makes a lot of sense for me to create a set of institutions that don’t give you secure property rights. If I’m afraid of you starting new businesses and attracting my workers away from me, it makes a lot of sense for me to regulate you in such a way that it totally kills your ability to grow or undertake innovations.
So, if I am really afraid of losing political power to you, that really brings me to the politics of institutions, where the logic is not so much the economic consequences, but the political consequences. This means that, say, when considering some reform, what most politicians and powerful elites in society really care about is not whether this reform will make the population at large better off, but whether it will make it easier or harder for them to cling to power.


This strikes me as an anti-technocratic understanding of how power functions, and opens the space to address the issues that dictate policy and technology and so forth. Acemoglu adds, “When a very narrow group controls political power for its economic ends, it also is quite disappointing for economic growth. It doesn’t encourage new technologies to come in; it doesn’t allow people to use their talents; it doesn’t allow markets to function; it doesn’t give incentives to the vast majority of the population; moreover, it encourages the people who control political power to suppress many forms of innovation and economic change because they fear it will be a threat to their stability.” This seems like a fair description of why people are occupying Wall Street.

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