Daron Acemoğlu: Institutional Economics and the Road to the Nobel

From Istanbul to the World: The Birth of an Economist

There are some people about whom you sense, from the moment you start to follow them, that one day they will achieve something great. For me, Daron Acemoğlu was exactly that kind of person. From my university days I followed his articles, read his books and told those around me, "This man is going to win the Nobel Prize one day." When that prediction came true in 2024, the happiness I felt was beyond words.

Daron Acemoğlu was born in Istanbul on 3 September 1967. His family was a Turkish family of Armenian origin. His father, Kevork Acemoğlu, was a lawyer and also taught at Istanbul University; his mother, İrma Acemoğlu, was the headmistress of Aramyan School. We can say, then, that Acemoğlu grew up in an intellectual atmosphere. Education and the production of knowledge were written into his DNA.

He completed his secondary education at Galatasaray High School, one of the most prestigious institutions in Istanbul. The multilingual, multicultural character of Galatasaray sowed the first seeds of Acemoğlu's later capacity to think with a global perspective. After graduating, he went on to England, where he completed his undergraduate degree in economics at the University of York. He took his doctorate at one of the most respected institutions in the world: the London School of Economics (LSE).

Even his doctoral thesis carried the seeds of what was to come: "Essays on the Microfoundations of Macroeconomics: Contracts and Economic Performance." From the very beginning, in other words, he was interested in how institutions, contracts and structural arrangements shape economic outcomes.

A Rising Star at MIT

Joining the Department of Economics at MIT (Massachusetts Institute of Technology) in 1993, Acemoğlu entered the most productive phase of his career. MIT was already one of the world's leading institutions in economics, but Acemoğlu's presence made the department stronger still. He was quickly promoted to professor and was awarded the title of "Institute Professor" — the highest honour MIT can bestow on a scholar.

Acemoğlu's academic productivity was almost unbelievable. He has published hundreds of articles, written dozens of books, and touched on nearly every subfield of economics. But what truly set him apart was his revolutionary approach to economic growth and development.

Traditional economic theories tended to explain why some countries are rich and others poor in terms of geography, climate, natural resources or cultural differences. Acemoğlu said something very different: "Institutions are what matter." This seemingly simple sentence was, in truth, a paradigm shift in economic thought.

Inclusive and Extractive Institutions: The Fate of Nations

The framework of institutional economics that Acemoğlu developed with James Robinson offers a powerful tool for understanding economic inequalities around the world. At the heart of this framework are two concepts: inclusive institutions and extractive institutions.

Inclusive institutions are the structures that allow broad sections of society to participate in economic and political processes. Societies in which property rights are protected, contracts are enforced, educational opportunities are open to all, the rule of law functions and creative entrepreneurship is supported, are societies with inclusive institutions. In such institutions, individuals can display their talents, innovate and share in the value they create.

Extractive institutions are the exact opposite. They are structures that concentrate economic and political power in the hands of a narrow elite, excluding the great majority of society from resources and from decision-making. In extractive institutions, wealth is not created but transferred. The powerful suppress innovation, block competition and restrict social mobility in order to maintain their position.

This distinction may seem simple at first glance, but the genius of Acemoğlu and Robinson lies in turning the framework into a universal theory by underpinning it with historical evidence.

The Legacy of Colonialism: A Natural Experiment

One of Acemoğlu's most striking pieces of research is the article "The Colonial Origins of Comparative Development" (2001), published with Simon Johnson and James Robinson. The paper showed that the different institutional structures established by European powers in different regions during the colonial era continued to shape the economic fate of those regions even centuries later.

The argument ran as follows: in regions they considered suitable for settlement (for example, North America and Australia), European colonisers established inclusive institutions — because they themselves were going to live there. But in places like the tropics, where disease was rife, they preferred to extract resources rather than settle, and they put extractive institutions in place. This institutional inheritance continued to exert its influence long after the colonial era had ended.

This research was an enormous contribution to economic science, because it convincingly established the causal effect of institutions on economic outcomes.

Why Nations Fail: Ideas Become a Book

In 2012, Acemoğlu and Robinson gathered years of work together in the book "Why Nations Fail: The Origins of Power, Prosperity, and Poverty." The book reached far beyond academic circles and became a global bestseller.

The book opened with the example of Nogales — two cities of the same name, geographically adjacent: one in the U.S. state of Arizona, the other in the Mexican state of Sonora. Same climate, same geography, same cultural background... yet one is developed and the other relatively poor. Why? Because they live under two different institutional structures.

The book supported its argument across a vast historical sweep, from the Roman Empire to the Ottomans, from the Industrial Revolution in England to the collapse of the Soviet Union. For Acemoğlu and Robinson, creative destruction — the replacement of old technologies and business models by new ones — is only possible in inclusive institutions. Extractive institutions, fearful of creative destruction, suppress innovation.

The book had a deep impact on political scientists, historians and policymakers, as well as economists. Even Bill Gates engaged with a public debate around the book and entered into a lengthy public discussion with Acemoğlu.

The Narrow Corridor: The Narrow Path to Liberty

In their 2019 book "The Narrow Corridor: States, Societies, and the Fate of Liberty," Acemoğlu and Robinson took up the question of democracy and freedom in greater depth. The book's central argument was this: liberty flourishes neither where the state is utterly powerless nor where the state crushes society. Liberty is possible in a narrow corridor where a strong state and a strong society balance one another.

This "narrow corridor" metaphor explained why so many societies in history have failed to sustain liberty. When the state grew too strong, it slid into despotism; when society overwhelmed the state, things slid into chaos. Only when a dynamic balance was struck between the two — a continuous process of contest and adjustment that Acemoğlu calls the "Red Queen effect" — did real liberty and prosperity become possible.

Power and Progress: A Critical Look at Artificial Intelligence

Published in 2023 with Simon Johnson, the book "Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity" is Acemoğlu's most current — and perhaps most controversial — work. The book argued that technological progress does not automatically translate into social welfare; it depends on institutional and political choices.

Acemoğlu has taken a particularly critical stance on artificial intelligence. In his view, AI technology in its present form is focused more on replacing human beings than on empowering them. This carries the risk of deepening social inequality. AI applications shaped by the profit motives of big tech companies, instead of producing benefits for broad sections of society, are increasing the wealth of a narrow elite.

These views drew sharp criticism from technology optimists. But Acemoğlu's argument was consistent: throughout history, technology has not always lifted society; for it to do so, the right institutional structures and political will had to be in place. He reminded his readers that, in the first decades of the Industrial Revolution, workers' living standards actually declined, and that improvement only came with the emergence of balancing forces — trade unions, the expansion of the vote and regulatory institutions.

The 2024 Nobel Prize in Economics

14 October 2024 was a historic day for the world of economics. The Royal Swedish Academy of Sciences announced that the Nobel Prize in Economics had been awarded to Daron Acemoğlu, James Robinson and Simon Johnson. The citation read: "for studies of how institutions are formed and affect prosperity."

The award was the crowning of years of work, hundreds of articles, dozens of books and countless academic debates. The Nobel Committee's statement underlined that the work of Acemoğlu and his colleagues had contributed to "our understanding of why differences in income across societies are so large and persistent."

Acemoğlu's speech at the Nobel ceremony was also moving. He thanked his family and his students and once again stressed the necessity of institutional reform. The messages of congratulation from Turkey created an additional sense of excitement.

Turkish Identity and Global Impact

Acemoğlu's Turkish identity is an important context for understanding his global impact. Hailing from a country like Turkey, where inclusive and extractive institutions are intertwined and the process of democratisation has been full of ups and downs, Acemoğlu was building his theories not only on an abstract academic plane but also out of lived experience.

Acemoğlu, who has at times taken critical positions on political developments in Turkey, has not shied away from voicing his warnings about institutional decay in his own country, too. This stance has made him both a much-loved and a much-debated figure in Turkey.

Criticisms and Debates

Of course, every major theory has its critics, and Acemoğlu's work is no exception. Among the leading criticisms is the charge that the institutional approach claims too much — that it tries to "explain everything" in too sweeping a way. Against Acemoğlu, who is held to downplay the role of geography and culture, thinkers such as Jared Diamond have defended the importance of geographical factors, while some researchers have argued that cultural values exert an influence independent of institutions.

Acemoğlu's argument based on colonial-era institutions has also drawn criticism from the standpoint of how the historical data are interpreted. Some economists have pointed out that the causal relationship is not as clear-cut as Acemoğlu suggests, and that there is an endogeneity problem (the difficulty of disentangling cause and effect).

Even so, these criticisms do not diminish the value of Acemoğlu's work. On the contrary, they show how lively an academic debate his ideas have generated.

Creative Destruction and the Economic Value of Democracy

One of Acemoğlu's most important contributions is to have shown empirically the relationship between democracy and economic growth. For many years economists argued over the question, "Is democracy necessary for economic growth?" The rapid growth shown by authoritarian regimes such as China led some to view democratic institutions as a luxury.

Using large datasets and advanced econometric methods, Acemoğlu showed that, in the long run, a transition to democracy is associated with roughly twenty percent higher per-capita GDP. More importantly, he argued that the growth of authoritarian regimes is not sustainable: because they suppress creative destruction, in the long run they are condemned to stagnation.

The concept of creative destruction — a term, in fact, borrowed from Joseph Schumpeter — plays a central role in Acemoğlu's framework. New technologies, new business models and new ideas are forces that disturb the existing order but propel society forward. For these forces to operate freely, however, inclusive institutions are required.

My Personal Assessment

As someone who has been following Acemoğlu for years, I can say with confidence: his contribution to economic science is not only theoretical but, on a practical level too, immense. He offers a road map for the policymakers of developing countries. The message is clear: even if you have no natural resources and even if your geography is disadvantaged, if you build the right institutions, you can develop.

The critiques of artificial intelligence in Power and Progress are also especially valuable today. In an era when everyone is being swept along by technological optimism, asking the question, "Wait a minute, who actually benefits from this?" takes courage. Acemoğlu has always shown that kind of courage.

As an academic who came out of Turkey and reached the very summit of global economic thought, Acemoğlu inspires not only the field of economics but also Turkish academia. The journey from Galatasaray High School to MIT and from there to the Nobel rostrum is one of the finest proofs that knowledge and perseverance know no borders.

I will continue to follow his work and his writings. For Acemoğlu still has much more to say to the world.