Incentive Key to Political, Economic Progress

Armenians and organizations interested in the advancement of the Republic of Armenia have reiterated that the republic is going nowhere fast unless democracy, the rule of law, accountability and transparency become facts, rather than election slogans. Below is a précis of an article on a related theme from the Dec. 2009 issue of “Esquire” magazine. It’s by MIT economist Daron Acemoğlu.

Social scientists have often asked why do some countries remain hopelessly poor while others enjoy the benefits of a high standard of living? The question they should have asked is. How? Because inequality is not predetermined. Nations are not like children—they are not born rich or poor. Their governments make them that way.


Armenians and organizations interested in the advancement of the Republic of Armenia have reiterated that the republic is going nowhere fast unless democracy, the rule of law, accountability and transparency become facts, rather than election slogans. Below is a précis of an article on a related theme from the Dec. 2009 issue of “Esquire” magazine. It’s by MIT economist Daron Acemoğlu.

Social scientists have often asked why do some countries remain hopelessly poor while others enjoy the benefits of a high standard of living? The question they should have asked is. How? Because inequality is not predetermined. Nations are not like children—they are not born rich or poor. Their governments make them that way.

Montesquieu, the 18th-century French philosopher, concluded that people in hot countries are lazy. Sociologist Max Weber attributed the economic success of Western European countries to the Protestant work ethic. Other experts claim the richest countries are those that were former British colonies or have the largest populations of European descent. Economist Jeffrey Sachs believes that geography and weather have a bearing on economic success. Ecologist Jared Diamond maintains that a rich flora and fauna are essential for economic success.

Montesquieu, Weber, Sachs, and Diamond ignore the power of incentives. People need incentives to invest and prosper; they need to know that if they work hard, they can make money and keep that money. And the key to ensuring those incentives is sound institutions—the rule of law and security and governing system that offers opportunities to achieve and innovate. That’s what determines the haves from the have nots—not geography or weather or technology.

In other words, fix incentives and you will fix poverty. And if you wish to fix institutions, you have to fix governments.

Acemoglu offers examples of rich countries (once impoverished Singapore and Botswana) and poor countries (North Korea, Egypt, Sierra Leone) which buttress his thesis.
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Acemoğlu is writing a book about his theory of inequality with James Robinson, a Harvard government professor.

 
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