It’s Evolution, Baby – How Institutions can Improve without Critical Junctures

Daron Acemoglu and James Robinson caught policymaker’s attention to the critical role of institutions for development. Their work gives too much emphasis to the prospects of revolution, however. A reading of the World Bank’s World Development Report of 2017 points to directions that all actors involved in the process, whether domestic or international, elite or non-elite, can take to improve societies. The field of development economics is defined by a puzzle: why are some societies so much richer than others? For a long time, people didn’t even realize there was a puzzle to begin with. Rich societies were rich because they had accumulated resources for longer and at higher rates than poor societies. What poor societies should do is gather resources, and they would be rich. But then Robert Solow demonstrated with a simple equation that, adopting basic premises, one could not explain persistent and large differences in wealth with differences in resources. Poor societies should be catching-up, but they were not. This meant that the bulk of the differences would have to be explained by the most elusive factor of the equation – productivity.