It is indeed ironic that this wave comes in the year that the Nobel Prize for Economics was awarded to a trio of professors whose life’s work has been on the importance of institutions.
The winners of the 2024 Sveriges Riksbank Prize in Economic Sciences in memory of Alfred Nobel were Daron Acemoglu and Simon Johnson of the Massachusetts Institute of Technology and James A. Robinson of the University of Chicago for studies on how institutions are formed and affect prosperity.
Their research traced economic disparities back to colonialism and demonstrated that societies with strong and inclusive institutions are more prosperous, while countries with exploitative institutions are unable to grow consistently.
While their approach does indeed hold appeal in demonstrating how developing economies can prosper, it appears that in many ‘post-modern’ economies of the West, such as those of the US and Europe, institutions have degenerated into a complex construct of rules and do not function for the betterment of the greater good.
In a recent article, Daron Acemoglu says that “American democracy has long promised four things: shared prosperity, a voice for the citizenry, expertise-driven governance, and effective public services.
But US democracy—like democracy in other wealthy (and even middle-income) countries—has failed to fulfill these aspirations.”
Enter, Donald Trump. Sensing a decline in all four pillars and reflecting the political will of those who feel disenfranchised by these failures, Trump has responded not by calling for American institutions to be reformed, but by indicating that he will blow them up instead.
Kash Patel, Trump’s pick for the Federal Bureau of Investigation’s director, has said that a “comprehensive house-cleaning of the deep state” is required. Similarly, Trump has picked Robert Kennedy for health and human services, an individual who is a well-known anti-vaxxer and seen as a purveyor of conspiracy theories.
Supporters see an all-star cast of characters who will reverse what they consider an elite capture of institutions.
Today’s fight against the capture of institutions in the West has a different texture from struggles in the last century. In the early 20th century, left-wing populists fought to retake institutions from aristocratic capture by ‘robber barons.’
This was codified in newly created institutions set up under Franklin Roosevelt’s ‘New Deal’ after the Great Depression. In the mid-60s, America’s anti-war and ‘hippie’ movements posed a sort of cultural challenge to the establishment.
In this century, however, anti-establishment activism has come from right-wing populists who have presented themselves as the voice of those disenfranchised by stagnating real wages and have suffered the impact of major disruptions like the global financial crisis and covid pandemic.
This thread of populism has co-existed with anti-immigrant, anti-woke and pro-majoritarian strands. An additional feature has been the ‘direct’ communication with people afforded by social media, disintermediating the filters of the traditional press. To this minimum definition of today’s populism, Trump has added a libertarian and low-tax strand.
The danger for developing countries, including India, is that these political ideas travel without context and proliferate without any regard for the stage of a country’s development.
Anti-establishment rhetoric has huge implications for countries like Brazil, Argentina, India and Mexico as governments come and go and the long-term directional development of their economies gets fundamentally impacted by dramatic shifts in policies and processes.
Countries progress from low-income to middle-income and upper-income status on the back of stability in the broad political structure, with institutions guiding progress in a directional manner over multiple decades.
The slow, directionally correct compounding of productivity-led growth, aided by gradually improving quality and inclusiveness of institutions, all of it supported by a ‘stacking’ rather than chopping and changing of institutions, is the most reliable formula for development.
Out of context anti-establishmentarianism can prematurely burden institutions with the risk of degenerating into sycophancy of the party in power.
The tragedy of today’s anti-establishmentarianism is that it’s an ‘anti’ agenda. It is a disruptive force. Instead of creating positive mechanisms for people to be included in renewed prosperity, it simply divides society into ‘us’ and ‘them’ on issues like education, race, immigration and geography.
Setting right the failure of institutions to carry along a large part of a country’s population will require political leadership and action, of course.
But the answers are likely to come from reforms that simplify institutional processes and turns institutions more performance-oriented, rather than simply blowing them up.
Whichever political group seizes upon this truth will likely benefit from the anarchy that will arise from Trump’s gang of anti-establishment figures.
P.S: “It is the way the state and society interact and control each other that determines the capacity of our state, the policies of our government, and our resilience, prosperity, security, and ultimately, liberty,” said Nobel laureate Daron Acemoglu.
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