What makes for a good economic system? How do we fix flaws in the system like inequality? The winners of the most recent Nobel Prize in Economics attempted to answer these questions: James Robinson of the University of Chicago, along with Daron Acemoglu and Simon Johnson of MIT, were jointly awarded “for studies of how institutions are formed and affect prosperity”.
Their work collectively explores why some countries are rich and others are poor, and why those income gaps persist. It’s rooted in colonialism, which meant different nations had different systems and institutions imposed on them that shaped their economic development over the long term. Marketplace’s David Brancaccio recently caught up with Prof. Robinson to talk about American institutions and what’s seemingly gone wrong in the past few years.
The following is an edited transcript of their conversation.
David Brancaccio: When I was a little kid in the ’60s, surveys showed that trust in government in the United States was running at 77% people trusted the government. It’s now 22% trust in government. Given your work, how big a problem is this for our prosperity?
James Robinson: Oh, I think it’s a huge problem. It’s a huge problem because it’s undermining people’s belief that the institutions in this country will deliver a future for them and will deliver prosperity and economic security for them, and that’s why there’s so much discontent, and that’s why there’s so much support for radical change.
Brancaccio: I guess it’s disappointing. We have an institution, the U.S. Constitution, provides for a lot of it. We have this institution called democracy. But clearly it’s not good enough to just have it. It has to be, I guess, nurtured and fertilized.
Robinson: Yes, it has to be nurtured and fertilized. And, you know, I think political elites have to be able to represent society and be aware of what’s going on in society. I think the current situation [is] a juxtaposition of different things, of political elites getting really out of touch with the problems of ordinary people with the adoption of an economic model in the 1980s under Ronald Reagan that’s generated enormous inequality and basically has done nothing for the majority of people in this country.
Brancaccio: You’re talking about what some people call neoliberal policies, things like freer trade, less regulation. That’s what you’re talking about?
Robinson: Absolutely. I mean, you know, that’s been great for educated people and business tycoons, but most Americans have not benefited one bit from that.
Brancaccio: That’s a striking thing for a Nobel Laureate to say. In other words, well, we know trickle-down didn’t work. But also, if you take a look at the aggregate population, you’re saying a lot of people are not prospering under the system that has become normalized.
Robinson: No, but that’s a fact. That’s just a well-established fact that every economist agrees on. There’s disagreement on what caused it, but it’s obviously connected to automation, to globalization, and also the adoption of this kind of free market ideology in some sense, which justifies CEOs paying themselves massive salaries, which justified undermining organized labor so there’s nothing to stop them and which has shifted the labor market dramatically away from ordinary working people.
Brancaccio: I mean, you did mention technology. I mean, typically, over the years, when I had conversations with people who understood economics rather more than I do, they’ve said, “David, don’t worry your pretty little head. Technology is disruptive, but ultimately it accrues much better, higher-paying jobs in the longer run, it’s just that if you’re a loser in the disruption, that doesn’t do you much good.”
Robinson: I think that’s a very naive view, honestly. You know, technology has different implications depending on how it’s used, how it’s regulated. I think if you go back and look at the British Industrial Revolution, for example, nothing happened to wages for 50 years, it was people organizing, pushing for democratic rights, pushing for the right to unionize and organize collectively, that started pushing wages up. And I think you see the same thing here. Technology can be used in different ways. Technology can be used to substitute for workers, and that’s the big drive here, but it can also be complementary to workers and complementary to skills. And that’s a choice that we have to make.
Brancaccio: A choice you may have to make starting this afternoon, right, with advances in artificial intelligence?
Robinson: Absolutely, but it’s the same thing. You know, the technology can go in different ways. It can raise all boats, but it won’t necessarily do that. It depends on who’s controlling it. I mean, do you honestly think that what Elon Musk wants is in the collective interest of people in the society? I don’t.
Brancaccio: It’s so interesting, and the other topic that you’ve spent a lot of time thinking about inequality, Elon Musk is also an example there — richest man in the world.
Robinson: Exactly, I think he’s both a kind of embodiment of the strengths and the weaknesses of this society. He was born in South Africa. Let’s not forget, this country was built by immigrants. And in some sense, the real economic edge this country has over any other part of the world is this ability to suck talent out of everywhere and pull it into the United States, and that’s a big part of the story. Where was Steve Jobs, his father’s family from? Where did Sergey Brin come from? So, yeah, that’s a great thing. But on the other hand, he’s also kind of out of control, using his money to basically buy turnout in the election. Of course, he’s a citizen, he has a right to express his views, but inequality in the economy is now corroding the political system through this inequality that it creates in political access and political power.
Brancaccio: We’ve done some polling in previous election years, and it’s always striking when I look at the results. Everybody thinks the system, the economy, is rigged in favor of somebody else. Now, it varies from four years to four years, but that is another erosion of institutions that we may need to thrive.
Robinson: Absolutely, I mean, that’s part of what you were saying to start with. You know, there’s facts you were quoting about how people have lost faith in the institutions. They’ve lost trust in the institutions, and so that makes them susceptible to claims that cheating is going on, or fraud is going on. They become more credible to people and that’s creating a vicious circle in this country, I would say.
Brancaccio: A vicious circle in which people do worse, and then they mistrust institutions even more?
Robinson: Yeah, they mistrust institutions even more and then institutions start not to work well. And so that’s a kind of spiral that leads to institutional collapse. I think what was remarkable about, you know, the election of President Biden was, you know, so many people believed in the institutions, they were willing to sacrifice their own personal interests under threats to stand up for the Constitution. And, you know, federalism saved us, but whether it will save us a second time, I don’t know.
Brancaccio: I’ve seen in the past that you’re reluctant, and I don’t blame you, to write prescriptions to solve our problems. Any hunches about what might pull us out of a vicious circle like this?
Robinson: I think there are real problems in this country, as we started talking about. I think the Democratic Party got completely detached from the problems of ordinary working Americans. You know, I find it’s absolutely breathtaking that President Biden, you know, prioritizes forgiving student loans, for example. I mean, what kind of policy is that? It’s just sort of egregious redistribution to your electoral block. I think they still haven’t got what it takes to reconnect with those people. So, you know, if we want to stabilize things, I still think the Democratic Party kind of believes in the institutions in this country in a way that the Republican Party doesn’t really seem to anymore, but they need to take the wind out of the sails and that means kind of, finding a way to reconnect with ordinary working-class people and give them a future that’s disappeared in the last 50 years.
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