The relationship between economic, political, and social developments and the awarding of the Nobel Prize has always been closely intertwined. Context gives value and meaning to everything. This is also the case with the Nobel Prize, which cannot have any value if it is not considered a product of its time. Since its establishment in 1969, the Nobel Prize in Economics has highlighted scholars whose work has reshaped the way we understand economics, markets, and policymaking, recognizing scholars for their contributions in response to the challenges of the time.

The topics and focus of the research evaluated often reflect the pressing issues facing societies. Global financial crises of the century. 20 and 21 led to significant advances in the study of the problems and challenges of the market as well as the banking sector. This was reflected in the 2013 joint award for Robert Shiller and Eugene Fama, whose opposing theories on asset prices provided valuable insights into market dynamics, particularly relevant after the 2008 financial crisis.

Nobel Prize winners Amartya Sen in 1998 and the trio Abhijit Banerjee, Esther Duflo, and Michael Kremer in 2019 contributed to the improvement of living conditions through their scientific research on poverty alleviation and the effectiveness of development policies.

In an era characterized by rapid innovation, Paul Romer's studies on the theory of endogenous growth, which emphasize the critical role of technological change and knowledge in driving economic growth, were awarded the Nobel Prize in 2018.

The importance of politics is another key aspect the Academy has focused on in relation to the awarding of the Nobel Prize. Thus, Elinor Ostrom was honored in 2009 for her contributions to the governance of common resources, such as fisheries and forests – issues related to the broader environmental and sustainability concerns facing the global community. In recent years, behavioral and experimental economics have gained importance, offering new methods and concepts to understand economic behavior. Daniel Kahneman in 2002 and Richard Thaler in 2017 were recognized for their research work in this area. Meanwhile, one of the most distinct characteristics of our era is undoubtedly the crisis of democratic institutions at the global level and the dangerous increase in the degree of authoritarianism in the West as well. It was this context that gave impetus to this year's awarding of the Nobel Prize in Economics.

NOBEL PRIZE IN ECONOMICS 2024

This year's Nobel Prize in Economics was awarded to researchers Daron Acemoglu, Simon Johnson, and James A. Robinson for their work on how political and economic institutions affect long-term prosperity. Daren Acemoglu is a professor of Economics at the Massachusetts Institute of Technology. Simon Johnson is a professor of entrepreneurship at the Massachusetts Institute of Technology. James A. Robinson is an economist and political scientist, a professor of Global Conflict Studies at the University of Chicago.

Their research delves into why some countries achieve prosperity while others remain trapped in poverty, despite their efforts. A central theme of Acemoglu, Johnson, and Robinson's work is the role of institutions. Inclusive institutions—those that ensure political rights, economic opportunities, and social protection for a wide segment of the population—drive long-term economic growth. In contrast, non-inclusive institutions, which serve a small elite, often result in enduring poverty. Their findings, based on historical analysis, particularly the legacy of colonialism, reveal that the type of institutions established by colonizers has shaped the long-term development paths of nations.

Their studies show that countries where colonizers created inclusive institutions, promoting property rights and political participation, are among the world's wealthiest today. For example, the United States and Canada, where colonizers were more numerous and set up inclusive institutions, are prosperous. Meanwhile, regions where colonizers established extractive institutions, such as parts of Latin America, remain poor. This phenomenon, termed "fate reversal," explains how previously wealthy regions during colonization now struggle economically.

In regions where colonizers faced harsh conditions, such as high mortality rates, they set up exploitative institutions to extract resources and labor. These non-inclusive institutions have had a lasting negative impact on development. The persistence of these institutions, according to their research, stems from the way they benefit a small elite, who are resistant to reforms that would promote broader economic growth. This creates a self-reinforcing cycle, where the elite use political power to preserve the status quo, preventing the country from realizing its full economic potential. Their theoretical framework illuminates how societies can remain trapped in this cycle, with non-inclusive institutions perpetuating inequality and stifling development.

According to this year's Nobel laureates, Professors Acemoglu, Johnson, and Robinson, change is indeed possible, even in countries stuck in institutional traps. Under specific conditions, nations can break free and establish inclusive institutions. One pivotal factor is the threat of revolution. When the masses mobilize, threatening the established elites with revolution or large-scale social unrest, the elites may feel compelled to relinquish power and support institutional reforms, including democratization. Their model shows how this dynamic unfolded historically, such as during the democratization of Western Europe in the 19th and early 20th centuries.

The scholars' work has deep implications for both understanding economic history and informing contemporary development policies. Their research suggests that promoting economic growth in developing countries should focus on nurturing inclusive institutions—those that safeguard the rule of law, enforce property rights, and ensure political accountability. Without such institutions, attempts to stimulate economic development are likely to falter, obstructed by entrenched elites and corrupt political systems.

The case of Nogales, a city divided by the US-Mexico border, offers a striking illustration of how political and economic institutions can drastically affect living conditions. In Nogales, Arizona, residents enjoy a high standard of living, political rights, and economic opportunities. Just a few miles south, in Nogales, Sonora, living standards are notably lower, political institutions weaker, and economic security less assured. Despite sharing a similar cultural and historical background, the disparity between these two cities is largely explained by the stark differences in the institutions governing the US and Mexico.

This year's Nobel Prize, recognizing the work of professors Daron Acemoglu, Simon Johnson, and James Robinson, underscores the critical role that democratic and inclusive institutions play in fostering sustainable economic development, societal prosperity, and overall welfare. The Nobel Committee's choice highlights the importance of inclusive institutions in an era where authoritarianism is on the rise globally, and where democracy seems to be retreating. The recognition given to these scholars emphasizes the connection between democratic deepening and economic growth, serving as a timely reminder of the value of democratic governance in ensuring long-term prosperity.

*Prof. Dr Angjeli is an academician, economy expert, former Economy Minister and MP, president of the Mediterranean University of Albania