Annual Report 2025 - Report - Page 96
Institutions and Development
Rethinking Governance in the
Modern Economy
The Key Visual of the 8th Lindau Nobel Meeting in Economic Sciences set
the tone for its closing Panel Discussion: it illustrates how dramatically different
two countries can evolve, depending on their forms of government, their
institutions, and economic frameworks.
The contrast between North Korea – a dictatorship – and
democratic South Korea underscores the findings of three
economists who shared the 2024 Sveriges Riksbank Prize
in Economic Sciences: Daron Acemoglu, Simon H. Johnson,
and James A. Robinson. They demonstrated the close
connection between political institutions and economic
development. While their early work focused on Europe’s
colonization of the world, the Laureates’ research helps
explain why today, “the richest 20 percent of countries
are about 30 times richer than the poorest 20 percent,”
as Torsten Persson, moderator of the closing Panel Discussion, noted.
At the end of World War II, the odds for North and
South Korea were about equal when the nation was divided into the communist north and the democratic Republic
of Korea in the south. “North Korea and South Korea had
roughly the same prosperity,” Simon Johnson explained.
Yet South Korea prospered and today ranks among
the world’s leading economies. Johnson ascribes this to
the country’s willingness to reform, resulting in, “robust,
strong democratic institutions that favour private property and are relatively inclusive” – giving investors and
entrepreneurs confidence that they will benefit from par94 | Debating Economics With a Purpose
ticipating in the economy. Autocracies, by contrast, rely
on structures that benefit rulers and elites at the expense
of the broader population. Johnson and his colleagues describe such systems as “extractive.”
The long shadow of history was another key element of the discussion. Young Scientist Hugo Reichardt,
who worked with 2022 Lindau Alumnus Lukas Althoff,
presented research on the long-term effects of slavery
in the US. Analyzing census data from 1850 to 1940 and
neighbourhood-level statistics up to 2023, they found big
differences in income, education, and wealth between African-American families whose ancestors were enslaved
and those who were free before the Civil War. “Even today,
these two populations have very different socio-economic outcomes,” Reichardt explained. The gap accounts for
about a quarter of the overall Black–White income difference in the US.
Paul M. Romer, awarded the 2018 Prize in Economic
Sciences for his work on endogenous growth theory, focused on how ideas drive development in the knowledge
economy. The key difference between ideas and physical
goods lies in scalability: “The value of a new idea is proportional to the number of people who can use it.” In
