Policy makers around the globe have all consistently attempted to solve the answer to one riddle: what makes a country wealthy? Every national policy maker in the world is attempting to advance the economic wellbeing of their country. Often, the question is posed as “what makes a country poor” in order to try to find some possible remedies. For instance, why haven’t Canada or Mexico reached the same level of GDP as the US? Why is Egypt much more developed than its neighbors of Libya and Sudan? The answers to these questions have varied from the degree of market freedom (Adam Smith) to overpopulation (Thomas Malthus) to a country’s natural resources (Jeffrey Sachs).

However, a rising star in the MIT economics department by the name of Daron Acemoglu has a new thesis: that economic wellbeing is tied to the degree that the average person shares in the growth of a country. In other words, how much does the wealth of the average citizen grow in relation to the growth of the entire country’s economy? I would imagine that a good ratio would be perfectly correlated with a 1% growth in the average citizen’s wealth for each 1% increase in GDP. However, it’s possible for a country to grow without the average citizen benefiting at all.

To explore this, the NY Times has some really good examples. One of these is the mango farmer in Haiti. The author (Adam Davidson) explains that he had the opportunity to visit a group of farmers and was surprised that the farmers did not improve their fields- despite the relative ease of doing so as they were located alongside a river. It is reasonable to assume that the Haitian farmers may not have understood the techniques to improve their crops, but the author soon realized that the farmers were indeed savvy enough to do so. It turns out that the reason the farmers didn’t expand is because if they did, they might attract the attention of the Haitian elite who would claim their land as the farmers didn’t have any explicit property rights. There’s another example in the article and I believe that article shows fairly definitely how correct Acemoglu’s thesis is.

However, it is tough to think of Acemoglu’s thesis and not be curious as to how the recent, global increased economic inequality is tied to it. If the only persons to benefit from the growth of a country would be the “1%” or others that are similar, why would the average citizen continue to try to improve? How would the widening gap between the two classes impact economies around the globe? I do not have the answers yet, but I certainly think it is an interesting discussion with a lot of merit. What are the gloablEDGE community’s thoughts on both Acemoglu’s thesis and its possible impact?

File under

Share this article