Three economists were this week honoured because their work “demonstrated the importance of societal institutions for a country’s prosperity”. This is the way the Nobel committee of the Royal Swedish Academy of Sciences announced in Stockholm the choice of the work by Daron Acemoglu, Simon Johnson, and James A. Robinson for the award of the Nobel Prize in Economics for 2024.
Their work on poverty is relevant to Nigeria today, as the nation battles with poverty. The system that fosters poverty must be altered for the problem to be solved. These men have through their research established an incontrovertible correlation between a nation’s prosperity or poverty and its political structure. They have asserted that nations are poor or rich depending on their political structure, and the economic institutions established on those structures.
Why Nations Fail: The Origins of Power, Prosperity and Poverty, the seminal work by Acemoglu and Robison, is the definitive revelation of why one nation could be rich while another, even one next door, is poor. The formula for being rich, which their analyses of nations’ structures, histories and trajectories revealed so succinctly, is inclusivity.
These economists argue that nations that practise inclusivity in their national economic structures are more likely to be rich. The word argument is used here in the original sense of argument being a claim that is supported with evidence.
The authors declare that the central thesis of the book is that “economic growth and prosperity are associated with inclusive economic and political institutions, while extractive institutions typically lead to stagnation and poverty.” They explain however that this implies neither that extractive institutions can never generate growth nor that extractive institutions are created equal.
Their evidence establishes the fact that countries differ in their economic success or failure because of their different institutions, the rules influencing how the economy works, and the incentives that motivate people. This is simply a reference to the role that political economy plays in a nation’s material being.
To back this assertion, they cite examples that cannot be contradicted. One is the difference between the Koreas: North Korea and South Korea. The North is poor, while the South is rich, and the difference can only be explained in terms of their political structures. “Inclusive economic institutions create inclusive markets, which not only give people the freedom to pursue the vocations of life that best suit their talents but also a level playing field that allows them to do so,” they declare.
While Acemoglu and Robinson worked on Why Nations Fail, Acemoglu and Johnson produced another book, Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity. This book also investigates the phenomenon of inequality and warns that modern-day advancements in the area of technology could contribute to inequality rather than solve the problem.
Putting the two books together, shows these economists’ claim that the political economy of a nation is responsible for its economic structures. Extending that argument further, it means that individuals, households, or groups benefit from the economic structure depending on their location in that structure. The location here is not spatial.
It is rather the fact that the underlying political structure in any setting gives rise to and in turn influences the economic structure in that society. This is because the political structure determines the institutions that influence it. It is these institutions that determine how the economy works.
Therefore, discussing the political economy is simply talking about the confluence of the economy and the political structure in a nation. It involves an examination of the ownership and control of resources, the production of goods and services, and ultimately, the appropriation of the benefits arising from these activities.
This is perhaps the most cogent need for Nigeria right now. Indeed, if there is any aspect of Nigerian society that needs immediate rejigging, it is the country’s political economy. Doing this will untangle the economy from the cryptic powers holding it captive and help it unleash its power for growth. It will disperse the fuzziness that currently covers the economy and skew its benefits in favour of a few. This will turn the Nigerian system from an “extractive society” to an “inclusive society” as identified by Acemoglu and Robinson. It will release the productive power currently lying latent in the Nigerian system.
President Bola Tinubu spoke on this in his Independence Day speech, when he said: “As part of our efforts to re-engineer our political economy, we are resolute in our determination to implement the Supreme Court judgment on the financial autonomy of local governments.”
However, the question arises: is it possible to reengineer Nigeria’s political economy? Given the level of political hegemony that characterises the economic structure of the country, it will take a real struggle to attain even the barest shift in the makeup of our system.
Sure, it will take a tough battle to achieve the intended objective of re-engineering the Nigerian political and economic structure because those who may be affected negatively have spread their tentacles into the places that matter most. The battles that have erupted over the election of local government officials in some states are just an indication of the deep-seated nature of the challenge. Yet, it can be done if the willpower exists somewhere.
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