Harnessing Technology for Transparency, Stronger Institutions, and Prosperity

[Arturo Herrera Gutiérrez] I’m going to start in a slightly strange way. I had insomnia yesterday, and I was watching a thriller, it was a British thriller. They were having a meeting, and someone was about to introduce the next Prime Minister of the UK. And then, he said, “My guest does not need an introduction, but I’m going to give it one anyway.” Daron Acemoglu does not need an introduction, and I’m not going to give you one…

[Daron Acemoglu laughs]

[Arturo Herrera Gutiérrez] But I want to share with you something that we are very grateful to him for two reasons. One that you know, the fact that he’s here with us. The second one is pretty internal to the World Bank, and I’m sure you are not familiar with that. Until very recently, our group was called “Governance.” Then around the summer, October, someone decided that this was going to change names and it will become “Institutions.” We just learned it like that, right? This created an identity problem within the Governance family. People start sending e-mails, Governance is not exactly the same as Institutions. It has different implications, what we’re going to do? Then come October, Daron, along with Simon Johnson and Jim Robinson, received the Nobel Prize and the text of the announcement said, “Because of their work on Institutions.” So, he actually legitimized our new name. As you will see from the title of his presentation, it’s about the impact of Three Institutions in Reducing Corruption. So, Daron?

[Daron Acemoglu] Thank you, Arturo.

[Applause]

[Daron Acemoglu] It’s great to be here, and I didn’t know about the name change, and I’m so happy to hear it. Thank you for inviting me. It’s my pleasure to be here. What I’m going to do is I’m going to spend the first 20 minutes giving you a little bit of a background on how I started thinking about topics that are central to both World Bank and this conference, and talk a little bit about the research that I did with Simon Johnson and Jim Robinson, but also emphasizing some of the technology work that I did. The reason of doing that is first, it’s fun to go over that; but second, I’m going to use that as the jumping off point to link that to corruption and to some of the current problems that both developed and developing countries are facing. So, what drew me to economics, I think, is what might have drawn many of you to the mission of the World Bank, that in the amazingly globalized, connected, integrated world that we live in, there are mind bogglingly large differences across countries. The richest 10% or so countries in this map, shown in dark blue, are over 60 times as rich in PPP adjusted GDP per capita as the 10% poorest that are shown in the lightest color. That’s just an outstanding gap between countries. What explains it? What drew me to economics was, in fact, my hunch and thinking as a teenager that these differences, which I was becoming aware of, were related to broadly what we could call “Institutions.” I was growing up in Turkey, where the country had its good share of really bad macroeconomic problems, unemployment, lack of productivity growth, as well as having just suffered a military coup and huge amount of political problems, corruption, and so on. If you are so inclined, you could look at the data, some of it put together exactly by you, the Rule of Law Index, which measures a lot of things, not just the rule of law, which I have on the horizontal axis and GDP per capita on the vertical axis, and you see a very strong relationship. This is the kind of variation that Jim Robinson and I in “Why Nations Fail” called “extractive versus inclusive institutions.” We could debate what the names mean and what the exact definition is, but by inclusive institutions, we essentially mean the kinds of things that we take for given in most economic textbooks. Markets that function, property rights, people are treated, companies are treated equally before the law, plus some amount of self-governance, political participation, civil society, and so on. Extractive institutions are the opposite, and the variation in this figure is very much caused by the fact that extractive institutions are everywhere. Even the top countries here, in terms of your measure of rule of law, I think, leave a lot to be desired and are relative to the ideal of inclusive institutions. But this correlation here could be caused by many factors, and that’s where a lot of the research that we were trying to do, or we did, was motivated by. It could be that rich countries can afford, or for other reasons, choose better institutions or create the appearance of better institutions, or both the vertical and the horizontal axis in this figure are caused by some omitted factors. Many candidates exist. As early as 300, 400 years ago, many of the natural philosophers who became interested in these issues developed their own ideas. Montesquieu today is famous for what we are losing in the United States, checks, and balances, and separation of powers, but he was an avid theorizer about why some countries were poor and some countries were rich. He thought that that was about how hard working different countries were and whether you were hard working or not was determined by the heat of the climate, places that were hot, people were lazy, they didn’t work hard enough, they were poor, you had temperate climates, people were vigorous and worked hard, but he didn’t stop there. He said, “Well, my theory of separation of powers and self-governance only applies to people that live in temperate climates.” “So if you’re in the hot climate, you’re both poor and you should be ruled by despots.” So, he explained the correlation that I showed you. You need something more than just a correlation, and that’s where Simon Johnson, Jim Robinson, and I turn to European colonial history. It’s an interesting history in and of itself, but what makes it particularly relevant is that the institutions of about 90 countries around the world today are shaped by their colonial experience. It’s one of the most transformative events of the last millennium. What makes it even more interesting is that colonialism wasn’t one thing. Colonialism was many things. So, if you look at this figure here, you’ll see that I have singled out a couple of countries, those in purple and those in green, those are all former European colonies. So, you see that former European colonies, according to the World Bank’s rule of law measure, have some of the best institutions and some of the worst institutions. So, whatever colonialism did, it’s not uniform in institutions. This is what we’ve tried to understand, but you need to make more progress. You need a theory, and that theory has to be both about what created the institutional variation, and then how that institutional variation from the colonial times impacted institutions that we see today. I’ll give you a very, very quick overview. I think this very quick overview is relevant because I’m going to come back to the same issues in the context of discussing corruption and the current institutional governance problems. Here is one schematic representation of many of the theoretical ideas that I’ve tried to talk about in my joint work with Simon and Jim and other work. This is like a dynamical system. Political institutions and the distribution of resources are what you would call “state variables.” They’re slowly changing, that’s where the source of persistence is coming from. They influence how collective decisions are made. So, whether institutions function or not, how they function, how tolerant they are to corruption, how secure property rights are, whether there is equality before the law or heavy discrimination, those are the collective decisions. That’s what I’m going to call “economic institutions.” And they are the sum total of the forces that I’m summarizing here by “de jure power,” meaning those political power that’s allocated by institutions. So, if the institutions say you’re a senator or you’re a president, those are the decisions you can make. That’s de jure power, but as important as that is what we call “de facto power,” which is power in the ground. So, if you have resources to hire your own army, or you can subvert the system, or you can do protest, that’s de facto power. The interplay of de facto and de jure power is a source of persistence and change. It’s a source of persistence because both de jure and de facto power are unequally distributed. If they remain in the hands of those people who are benefiting from the current institutional arrangement, they create what you might think of it as in the extreme form institutional stasis, the same institutions repeat. But much more interestingly, they would create what we’ve called a “path dependence.” The institutions of Mexico today have nothing in common at some level with the institutions that European set up once they took the Aztec Empire down, but the institutional trajectory of the country still bears the traces of what political structure was implemented there, which groups were disenfranchised, which groups were empowered and so on. So, that’s the path dependence. That’s what we are capturing here with the fact that the interplay of de jure power and de facto power is determining political institutions, subscripted by T plus one. That’s the endogenous evolution of political institutions. I think it is critical for our work, but it’s also critical for the savings that the World Bank cares about to think of institutions, not just something that’s given at a point in time, but something that’s evolving, that’s evolving as a result of all of the things that we care about, economic-political interactions, the corruption, the democracy and its failures, and so on. And then finally, it’s the red arrow. That red arrow captures two other important things. One is what we are talking about measuring, the effect of economic institutions or some summary measures of economic performance, such as GDP per capita, but also something else that’s central for corruption and fairness of the system, which is distribution of resources. Fine, GDP can increase by 2%, but who captures that 2%? In Saudi Arabia, you’ve had periods in which the economy grew by 5% a year for a decade, but not much of it went beyond the groups that control political power, or if they went beyond, they went in the form of handouts, which doesn’t really build a fair or democratic society. So, distribution of resources then is also bearing the imprints of the political dynamics and these institutional dynamics. So, that’s one picture to bear in mind. Now into this picture, what I’m going to do is I’m going to add a particular theory of colonization. And that theory of colonization is going to first give us a way of thinking about what is it that Europeans were trying to do at the time of colonization, and how that feeds into this schematic representation and leads to some amount of institutional change and some amount of institutional persistence. So, that’s what it is here, but for brevity, let me start from the end. That’s link D. Link D is what we are trying to estimate here. What is the relationship between current institutions and current performance? Why that? Because you have to choose something, and that’s what I showed you in the first scatter plot, and I’m going to talk about estimating a causal version of that. Now, current institutions are not made out of thin clot. They bear the imprints of history, and that’s what I was talking about in the previous schematic representation. That’s captured here by link C, that’s the institutional persistence, early institutions to current institutions. So, if somehow early institutions were, “randomly assigned” across the colonies, somehow there was a complete exogenous process that Spaniards set up different institutions in Argentina than in Mexico, then you would just take early institutions. Either you would look at the variation there, or you could do what we call two stage least squares using early institutions as an instrument for current institutions, and you’ll be home dry. But of course, those early institutions themselves were choices, and those choices were very much adapted to many of the conditions on the ground. The chances that the Aztecs that had already pretty draconian top-down institutions would suddenly have something very different under Spaniard control were not zero, but probably not very high either. There are lots of local conditions that were going to matter. You might want to think about what determined the early institutions. The whole project that we started here was based on a very, very obvious observation. If you look at those green ones here, one thing strikes you. Those are either places that were settler colonies, where Europeans settled in significant numbers, sometimes killing and displacing local people, sometimes because the land was broadly empty, or there wasn’t much of an indigenous population anyway. There was a little bit of settlement, but as a fraction, again, settlements were high. So, Singapore and Hong Kong would be examples of that, for instance. If you look at the lowest places there, some in the Caribbean, some in Africa, some in Central America, they were places where Europeans settled in very, very small numbers. They did either indirect control or indirect rule, ruling through existing elites, or they sent a small contingent of military and administrative people to do the ruling. So, perhaps then you might think there is a relationship between settlements and early institutions, and there’s a very good reason for that. Europeans in all of these places in history, were interested in more or less the same thing, political control and riches. But different places offered them in different ways, and they had different strategies. Many of the strategies actually had a lot of things in common. What the Spaniards did in Latin America and what the British themselves did in the Caribbean, they tried also in Australia and in North America. It didn’t succeed. So, the reason why actually there’s this link between settlements B and early institutions is not so much that they came up with completely different models of colonization. It’s that they tried more or less the same things, but the local conditions made the outcomes very different. Part of the reason we didn’t succeed in Australia is because the local settler white community could resist and weren’t subject to the same amount of violence and oppression when there was resistance as some of the indigenous communities. And also, the open land meant that they could actually run away and frustrate some of the plans, especially in North America and Canada. But again, those settlements themselves are determined by many things. Barbados got a lot of settlers, too, because it was so prosperous and people made a lot of money. So, we weren’t satisfied with the settlements either. So, we said, well, what determines settlements? And one of the main things that determines settlements was the conditions in terms of mortality and health. There were just tremendous differences in terms of mortality rates that were facing Europeans. Europe itself was not super healthy at this time. With industrialization, some of the British cities had life expectancy that fell to about 30 years at birth. New Zealand and Australia had significantly higher life expectancy. They were healthier places with no major diseases that European sometimes themselves brought together, but generally they were healthier, but in many parts of the world, mortality rates were hugely higher for Europeans because of local diseases for which Europeans had no immunity to. Most importantly, malaria and yellow fever, but also some gastrointestinal diseases. Local populations were afflicted by these diseases, but mostly not nowhere to the same extent. So, that’s why local population density in some of these places actually was very, quite high. Even if you had epidemics, only a very, very small fraction of the population would die. Europeans would die at rates close to 80% in some of these places. One year and 60%, 70%, 80 % of the people who were first sent there would die. And of course, under such conditions, their settlement path would not be possible. This is what we were motivated by, and we did some research and were able to construct a series for European’s potential settler mortality. Settler, because this is the mortality rate that would, at least was intended to be created as the mortality that would face a homogeneous group of settlers. It wasn’t so bad because most of this data comes from soldiers that were sent there under non-campaign conditions, all of them relatively healthy males of the same age range. And potential, because in fact, this wasn’t settler mortality, it wasn’t the mortality rates of the settlers. In some places, Europeans didn’t go there at all. That’s what you can see on the horizontal axis, it’s logged because the variation is so large that it goes from a few percent a year to 70%, 80% during some conditions of epidemics or very high endemic rates of malaria, mortality. And interestingly, historical record also shows Europeans were very well aware of these numbers. These numbers were discussed in the European press. The military knew it. There was a life insurance industry that actually provided life insurance to people who went to settle to some of the colonies in Africa or Central America, for example, and the premiums were extremely high, as you would expect. So, you would get a very similar... This data here I’m showing you doesn’t use the life annuity premium data, but if you use it, you get very similar numbers. What I’m showing you here is what you would call the first stage of the two stage least squares. It shows the relationship between this forcing variable, potential settler mortality, and my proxy for current day institutions, again, based on the World Bank’s rule of law number. The identifying assumption of the two stage least squares is that this relationship reflects the impact of potential settler mortality, and there are no other omitted factors that are correlated with potential settler mortality that would then directly affect GDP per capita or our measure of economic performance. So, that’s the way to read this picture. This is what you would call the reduced form of the two stage least squares. Now, I’m showing you the relationship between the outcome of interest, the GDP per capita, also in log from today, and the potential settler mortality, and under the identifying assumption that I just stated, this relationship is all working completely through the first stage relation that I showed. Settler mortality is affecting institutions, and because of the orthogonality assumption that settler mortality is not correlated with other things that would impact GDP per capita today, whatever is working is working through this relationship. So, we have to look at the reduced form through that channel. And that’s essentially what’s going to give you the two stage least squares estimates. Of course, in practice, there could be omitted factors. For example, health conditions could have persistent effects. There could be issues like who was your colonizer? Because that’s not completely orthogonal. Well, because different European countries colonize different parts of the world in disproportionate rates. There is between empire variation in mortality, for example, but none of that seems to matter. Whether you control for these covariants or not, you end up with this relationship here. So, this is the two stage least squares relationship. It’s just like the first chart that I showed you, except that this is not the correlation. There’s a scatter of points there, but the line there is the two stage estimates, not the best fit. It’s the implied estimate of the effect of institutions under the orthogonality condition that I have, exclusion restriction, that I’ve just stated, and this potential settler mortality as an instrument. If you believe this estimate, something like 50% to 60% of the variation that we see today is caused by institutional pathways that go back hundreds of years. Now, that’s a lot. I would have been more comfortable when we wrote the paper 25 years ago if that number was 30%. 30% just has a nice number. Okay, fine. Okay, 50% is fine, we’ll survive, but it still leaves a lot of other things, both institutional and other channels. That’s the remaining 40%, 50%. I’ll talk a lot about that in the remainder of the talk, but before I complete this part, I want to link this to technology, because one of the channels, prime channels, by which this relationship is realized is the efficiency of production and the use of technology. Part of the reason why I’m mentioning that is because part of this is based on the Nobel lecture that I gave, where I wanted to bring the two parts of my research, one on institutions, the other one on technology, together. But they were always together in my mind to some degree. And in fact, if you look at the reasonable proxies for technology and apply the same exclusion restriction that I just went through, you find very, very strong relationships. On the left, I’m showing you economists’ favorite measure of efficiency, total factor productivity calculated in whatever state of the art way that you like. It doesn’t make much difference. This one controls for human capital differences. And you see a big effect, again, under the same exclusion restriction, a causal effect of the institutional imprint going back to the colonial times on TFP. So, there are countries that have bad institutions, less inclusive, more extractive institutions, have much less efficiency. It’s not just efficiency for given techniques of production. On the left, I’m using another measure, which is what fraction of the exports of the country in question is in technologies and sectors, detailed sectors that the US Census classifies as advanced technologies. And you see an even more pronounced relationship. The countries that have these colonial-mediated bad extractive institutions are doing very little in these advanced technology areas. Both the efficiency of production and how you use and how you invest in technology seems to be very much bearing the imprints of this colonial period. So, what are the lessons for the present here? Well, one, very good that the World Bank named it the “Institutions Department,” because I think institutions are still critical, and we can quibble about some of the details of this work or other work, but I think the evidence is fairly clear that institutions matter greatly. What are the institutions that are important today? It’s not just what happened 200, 300 years ago. One of them that’s central is democracy, and I think it’s very important for the World Bank. World Bank, I know, is between a rock and a hard place for a very, very long time. Throughout the years where I was working on institutions, talking of democracy in the World Bank was taboo. You couldn’t criticize any country for not being democratic. If you had such an inclination, you could say, well, the economic research also says democracy is not so important. Well, I’ll come back to that using more recent data. And then, I’ll talk about corruption. And then, I’ll talk about what’s going on to corruption, and democracy, and institutions more broadly and why. So, my bottom line is that actually, despite a consensus that was emerging in the 2000s and 2010s about democracy not being such a big deal, I think the evidence is up to 2016-17, I haven’t updated this work with more recent data, but up to the late 2010s, it’s very clear that there is a positive and causal relationship between democracy and economic growth. I think the best way of seeing that is just looking at the raw data because the raw data is actually super interesting. What this chart does which is from a paper by myself, Pascual Restrepo, Suresh Naidu, and Jim Robinson, is that it classifies all countries using, I think, the best available data at the time into a binary measure of democracy, zero, one. Zero, non-democracy, one democracies. And then, for every transition from zero to one, non-democracy to democracy, we take that country year to be zero. And then, we look at that country’s income relative to all the non-democracies that remain. So, this figure here is constructed by taking out time effects and comparing every country to others. For example, Spain is here, and Spain is being compared in the year zero there, and Spain’s GDP is being compared to all of the countries that around that time remained non-democracy. So, you see two very interesting things in this country, or three very interesting things in this figure. First of all, right before zero, there’s a big drop. That’s not a fluke. That’s a very, very robust feature. A lot of transitions to democracy happen during autocratic turmoil. Authoritarian countries have economic crises. They can’t recover from it. It triggers protests or something else, and that these two sometimes short-lived democracies. Short-lived democracies are here, by the way, this isn’t doing the cardinal sill of econometrics of classifying countries with a look ahead, which is, “Oh, I’m going to call you a democracy only if you remain a democracy or you become a consolidated democracy.” That would be a very, very bad thing to do from an econometric point of view. So, if you become democracy for one year and then become the worst autocracy, you’re here. Then, look at zero. After zero, there is a slight recovery, but nothing much happens for about seven years or so. That shouldn’t be a surprise. These countries are having a big, big economic crisis, and they’re having a regime change that’s often under contested conditions, but then in about seven years or so, there’s a complete turnaround, and democracies start outperforming non-democracies. At the end of about 20 years, they are about 20% richer than democracies. So, part of the reason why many economists, political scientists, and some sociologists concluded that democracy wasn’t a big deal or the results were ambiguous, etcetera, is because if you haphazardly classify data around this, you’re just taking different slices of this. Really doing this as apples to apples comparisons, comparing a country itself as it democratizes compared to control group, and dealing with these dynamics is very important. It actually turns out to be not so hard to deal with the dynamics if you put just a few lags of democracy, either parametrically or non-parametrically, it takes care of it. So, this is just like with just one lag of democracy, that’s simple, or I said, no, this one is four lags of democracy. Flexible four lags of democracy. The pre-trend is completely gone, and you see the causal effect that turns out to be a little bit larger than that figure suggests about 24%, 25%. This relationship is also true if you do a two stage least squares IV version of it by focusing on democracy wave, so that not whether a country democratizes, but whether a whole region is going to a democracy wave like Southern Europe, and then Latin America, and then Eastern Europe, etcetera. It’s also there if you look at reversals or there in the opposite way, if countries transition to autocracy, they actually become poorer. You can see the variation that is generating that. Now this plot is not from the semi-parametric ones that I showed you. This is from just a linear regression with lags, fixed effects, and so on and so forth, but I’ve just put all of the residuals there, put the slope, but also singled out one country, which is sometimes given as example of very successful authoritarian growth, South Korea. All of the points there on the left are South Korea when it was non-democratic. All of the ones on the right are where South Korea is non-democratic. So, if actually you use just South Korean data, you would get a bigger effect of democracy. South Korea has done much better after democratization than before. Just a little tidbit. You can use that as a factoid in your next World Bank cocktail. So, this is important because it says that institutions still matter, and institutional choices still matter. It’s not just history. Changing from democracy to non-democracy would have economic costs, regardless of what your settler mortality and historical colonial institutions are, but interestingly, historical institutions still matter as well. So, if you now take growth across decades and regress them on institutions for that decade, but instrumented by settler mortality, you again get a positive relationship. Not super precise because each one of those is determined by many, many factors, but there are a lot of current choices that matter. Democracy is very much about... Democracy itself doesn’t project that much on historical things, but historical things still keep some of their influence. So, the two together is telling us there’s a lot here about institutions. But here is the catch, relevant for the US and all countries around the world, and hopefully for the World Bank, which should hopefully no longer be shy about talking about democracy, support for democracy is as low as it has ever been since it started being measured. Everywhere, especially in the industrialized world, especially in the United States, and especially among the young, support for democracy is hitting the floor. What’s going on? I told you institutions matter, and that institutional complex that I’ve termed inclusive are interwoven with some of the ideas of liberal democracy. Self-governance was a very important part of it. If you look at measures of democracy, just like the Schumpeterian democracy, free and fair elections of some sort, not the best, but some free and fair elections, that seems to have this predictive effect. That’s positive. I didn’t show you, by the way, it actually benefits the less well-off members. So, the things that really improve are health, infant mortality, education. So, democracy in Africa, in Central America, in Eastern Europe, is actually delivering relative to autocracies for things that people care about. The poor, infant mortality goes down, opportunities improve a little bit. By the way, inequality as a whole doesn’t. And the reason for that is that there are a couple of countries like South Africa and Eastern Europe where inequality shoots up also following democratization. So, there’s an interesting pattern when it comes to inequality. File that, if you have any questions on that, we can talk about it. But why is support for democracy so much lower? My explanation for that, based on a couple of papers I have written, and general observations, and other things that I’m working on, is that democracy rightly created higher aspirations. Democracy everywhere came with certain promises, implicit or explicit. I would put them into three blocks. Shared prosperity. We’re not going to have the Saudi Arabian, Kuwaiti outcome where the country does very well, but just a very, very narrow sliver of completely undeserved people who just were born into a royal family get all the fruits and everybody else goes hungry. That’s not democracy’s promise. Never, never, nowhere. So, some amount of shared prosperity is essential. Effective public services. You know what you see, what democracies do? They immediately increase taxes, and they start spending their taxes on health, education everywhere around the world. Going back to the 19th century in the UK, early 20th century, democracy always emphasizes, we’re going to give you public goods. We’re going to give you drains. We’re going to give you roads. We’re going to give you education. And voice, of course. People want to have voice. That’s part of democracy. Especially in the countries where you see this support for democracy sliding, most, all three of those have come to pieces. In the United States, I’ll show you in a second, but inequality has skyrocketed. There’s nothing that looks like shared prosperity. Public services are much less effective. They’re not working, they’re not reaching their targets. They’re becoming more and more inefficient, ineffective, and the feeling that the state has become unable to provide the right safety net, education, health is very high in many of these countries. And I think most vividly, voice. In country after country, people feel their voices are being unheard. In the United States, in the most recent Pew Research Center survey, more than 85% of Americans say that politicians do not care about what people like I think. You cannot have democracy when that’s the case, but in country after country, democracy became more of an elite project where people’s voices just didn’t matter. Of course, that got amplified by social media. I’m not absolving social media, but I see social media as an accelerator, not as the cause of the decline in the support for democracy. The challenges are real. Let me skip this slide because this is a summary of a paper I’ve written with Giray Aksoy, Carlos Molina, Nicolas Ajzenman, and Martin Fiszbein, where the evidence that these things that I just talked about being intermediating factor in the decline for democracy comes from. This just shows the effects that when democracy is successful in terms of public goods, prosperity, and so on, its support builds up. When you have democracy that doesn’t do so, either it’s support declines or doesn’t do much. But there’s one thing I didn’t emphasize because I think it falls somewhere in between. It’s in the paper, but I didn’t emphasize it into those three blocks. It’s corruption. If you look at here, look at the second one. That is one of the most robust ones from a statistical point of view. All of the results I’m reporting here are reasonably robust, but the one that’s really hands down is corruption. When democracies have high corruption, their support declines. When democracies manage to generate growth and low corruption, that’s when the support for democracy increases. So, a very recent paper by my student, Eduardo Rivera, does a much better version of this in Latin America and Mexico. It’s a two-part paper. In Latin America, he looks at high-profile corruption episodes which are written up in the newspaper. So, it’s a very systematic data collection. And what he finds is that, if you look at just before and just after these corruption breakouts, people’s responses in surveys about what they think about democracy changes significantly. People turn out much less after the corruption episodes, and they vote much more against incumbent politicians. So, people are really upset by corruption. And then, he confirms all of these with the large-scale RCT in Mexico, providing information about corruption and looking at people’s behavior in a variety of settings. Corruption is a symptom, but it’s a symptom that really completely damages the fabric of institutions and democracy. So, whatever reasons you have, and you have many in this conference to care about corruption, it is economically costly, it’s unfair, it benefits the powerful, it creates inequality. Let me add one more. I don’t think democracy can survive if you have endemic corruption that becomes completely accepted. Its support is going to get more and more eroded. And the problems are many. The problems are many which are going to require democracy to up its game, both on corruption, but also more generally on the three promises that I’ve talked about. We live today in the age of innovation. Everybody’s talking about the new digital apps and how AI is going to transform the world. The number of patents in the United States has more than quadrupled since 1980, but using the same measure of TFP, we are doing as bad as we have ever done in the United States. This is data from Gordon, in the ‘40s, ‘50s, ‘60s, the average TFP growth by decade is about 2%, sometimes over 3%. In the digital age, it barely increases over 0.5 %. It’s not a US phenomenon. Europe is doing as bad, even worse. So, all of these industrialized countries are struggling with productivity slow down. That’s why people are so optimistic or our motivated reasoning, are trying to be optimistic about AI. Perhaps AI will save us. Well, I don’t think so, but the growth that was such as it is, has been incredibly unequal. A lot of variation across countries, which you can read as actually a story of hope. Inequality is not the faith of industrialized countries. You can have growth with much less inequality, such as we had in some Scandinavian countries. By the way, inequality has increased even in Sweden, but the kinds of increases that you see here for the United States are nowhere to be seen in Scandinavia or much of continental Europe. Here I’m showing you real-wage growth by 10 demographic groups, distinguished by gender and education. The colors refer to education. Orange is people without high school degree, green high school degree, associate degree, college degree, and postgraduate degree. If you go back to 1963, which is the earliest year, you can go for this postgraduate distinction, but you can go further back if you just want to look at college graduates. You have three decades where growth was shared, very shared. In fact, low education groups in the United States had faster real wage growth. Since 1963, many of these curves are on top of each other. You cannot even see them. They’re growing very much in tandem. But then, sometime around the 80s, again, the digital age, a coincidence? I don’t think so. I have some work on that, but I’m not going to talk about it. But digital age, you have a completely different picture. Inequality is exploding. But even more importantly, it’s not like, “Oh, some people are gaining a lot and other people are gaining a little.” No, look at the people with low education, men with a high school education or without a high school. Their real incomes are falling quite drastically. So, this is the shared prosperity decimation that I’m talking about. I think in this world, corruption is increasing. More and more people are dissatisfied with democracy. Shared prosperity, voice, and effective public service provision is problematic. But more importantly, I would say the idea and trust in democracy are damaged. So, it’s not just in the industrialized world. When the industrialized world, which somewhat, sometimes cynically, presented its own institutions as better and as a model for the rest of the world, sometimes when manipulating things around the world. But whatever that is, when that rhetoric completely fails, that idea spreads to the rest of the world. It’s not just in the industrialized world that the idea of democracy is damaged, it’s all around the world. So, if you think Trump’s damage is going to be confined to the United States, I think you are being too optimistic, in my opinion. So as a result of that, I think the threat to democracy is alive and kicking. And you can see, using a variety of measures here, I’m showing you Freedom House. Since 2006, there has been a retrenchment of democracies. They’re going down, and fewer countries are becoming democratic. More countries are either experiencing declines in their democracy quality or are wholesale giving up democratic institutions. That, I think, is a big threat. It’s a big threat for the mission of the World Bank of improving economic conditions because it’s going to be much harder. It’s a big threat to building a fairer economy. I think it’s very much interwoven with the inability of institutions and inability of elites to create a fairer economy, to create a non-corrupt economy, to create an economy that delivers on the promises that people have come to expect. I’ll stop there and look forward to Arturo’s and others’ questions. [Applause]

[Arturo Herrera Gutiérrez] First of all, really thank you for that, and thank you actually for the last slide. Our team works on corruption and the way the Bank defines their mandate, it’s a twofold. It’s elimination of extreme poverty and shared prosperity. You know, you nailed it exactly right.

[Daron Acemoglu] At least on the labels, we are very aligned with the World Bank. [Laughs]

[Arturo Herrera Gutiérrez] Before opening for everybody, I want to make a question/comment. This model, going back to colonialism, it reminds me a paper by one of, I guess, your student and your co-author, Melisa Dell. She wrote this paper about how high episodes of drought in Mexico in the early 20th century had an impact later on the economic performance of those regions and eventually to violence now, today. On the one hand, it’s really fascinating to see this long-term effect. Now you go longer than Melissa, but on the other hand, it’s difficult not to feel hopeless because it seems like whatever was the rate of mortality 200 or 300 years ago is shaping the destiny of the developing world today. You need to answer it right now, but one question would be, what do we do?

[Daron Acemoglu] But that’s why I emphasize democracy. There is a component of institutions today that projects still quite strongly on colonial stuff, but there’s democracy variation. Especially whether a country that started, say, in 1960, non-democratic, whether it democratizes or not, has very little relationship. Because many of the countries that had better institutions, according to the colonials, better settled mortality, were already democratic by 1960. So, that’s completely a collective decision today, not free. I mean, whether Ukraine is a democracy or not is decided by the United States and Russia. So, it’s not just the country’s own decision, but it is largely determined by countries, and it has completely non-trivial effects. Every country would take a 20% higher GDP per capita, much, much lower rate of infant mortality, much lower corruption, much lower oligopolistic structures, and so on. So, I think there’s a lot to be done, and that’s just one dimension. And I think as we’re going into the digital age, there are many other dimensions of institutions that are under countries’ control. It is surprising. Absolutely. I completely agree with you that this colonial era intermediated things still matter for the growth in the 2000s. I would have been completely happy if I found that those effects are gone. They’ve settled into some steady-state and no further growth, but there are some growth effects even from that. That’s the data.

[Arturo Herrera Gutiérrez] Okay, so let me open it for questions. Let’s pick up three. I’m going to pick it randomly so there’s no scene of origin on my... We’re going to start here, there, and I guess there. Let’s start with this three. Please, just introduce yourself and try to go straight to the question.

[Speaker 1] Yeah. Thank you very much, Professor Acemoglu for this very interesting presentation. I have a very short and quick question.

[Arturo Herrera Gutiérrez] Where are you from? Who are you?

[Speaker 1] Sorry. [Unintelligible] from Mauritius. On the concluding statement, you said, unless I misunderstood what you said, that the elite has not been able to come up with the appropriate model to address the challenges that you have outlined in your presentation. I wonder if you could provide some more clarification on what this means.

[Daron Acemoglu] Yes, great question. That’s the part that I stated and I didn’t provide any evidence for. I don’t think I have killer evidence for it for a very simple reason that I haven’t completely worked on it, but more importantly, it’s very different across different countries. In the United States, I think it’s a lot about the political elite becoming very much divorced from the working class and not doing anything for how digital technologies, then digital-based automation, and globalization have decimated jobs, and high paying jobs. In Mauritius, it’s something else. When we first started writing on this, we wanted to do some case studies, and there were two case studies that we were very attracted about. One was Botswana, the other one was Mauritius. Fortunately, we chose Botswana because Mauritius was a great success story when we started working on this in 1999, 2000, and today, not. Is that just an act of God? No. I think that’s a failure of elites in Mauritius that have really screwed up all of those institutions that were much better than pretty much everywhere else in Africa. And so far, as I understand, corruption is now through the roof in Mauritius, which wasn’t in 2000 when we were looking at the data. So, it’s different. Mauritius’ problems have very little to do with those in the United States. But in all of these cases, I think, partly because of the pressure from civil society has not been as much, I think a variety of elites have either engaged in a sense of omission, they haven’t kept up with the times, or commission, I would see, actively ruined the economy.

[Arturo Herrera Gutiérrez] There was a question somewhere there. Yes, go ahead.

[Matthew Murray] I don’t have the microphone.

[Assistant 1] It’s on the table, sir.

[Assistant 2] Please, use the microphone so the people online can hear you also. Thank you.

[Matthew Murray] Professor, thank you very much. My name is Matthew Murray. I teach a course at Columbia University focused on systemic corruption, and I’ve been teaching your work for 10 years. 

[Daron Acemoglu] Thank you.

[Matthew Murray] I was very proud when you won the Nobel Prize. My question is around the following. When you’re focusing on solutions to institutional challenges, and you run into a set of conditions in which, for whatever reason, the historical inheritance of the institutions in a given country, the trajectory is in the direction of extractive institutions; and yet there’s elements of new democracy, a new desire to reform those institutions, will you recommend that countries start from the beginning, to build brand new institutions, or try to reform old extractive-infused institutions?

[Daron Acemoglu] Great question. I’ll give two reactions. One of that is that endemic problems that you see throughout the last 40 years is the difficulties that new democracies have, both in building the surrounding institutions that go with democracy, civil rights, freedom of media, etcetera, and clientelism. Clientelism shoots up in new democracies. I think that’s a very major problem. It intersects with corruption. By the way, that’s all in my data. So, in that data, those democracies that do 20% better, many of them are clientelistic democracies. If they had to solve that clientelism, I think they would have done even better, but that clientelism is very, very difficult to deal with. The second problem, the second important issue here is, I think I am more convinced now than before that radical change is very difficult. And that’s actually, unfortunately, a big dilemma. There are very few, there are some, but there are a very few examples of a situation in which you have an elite that’s ossified and says, “Over my dead body,” and sends the soldiers, anything good that comes out of that. Either the soldiers kill the protesters or the opposition, or somehow some revolution succeeds, but just that conflict has a super scarring effect on the economy, on institutions, and unleashes what Robert Michels called the “Iron Law of Oligarchy.” One oligarchy after another comes to power. So, in some sense, the luck of many European countries in the 19th century was that when the threat of revolution, social protests, and so on came, a few of them tried, like Britain, tried sending the soldiers, but decided, no, trying to accommodate that is better. And that process of institutional change without mortal conflict just worked much better. The problem in the Arab Spring, for example, is that none of that happened. No country, no despot just said, “Okay, fine. I see the writing on the wall.” Let me try to engineer a soft transition. When that doesn’t happen, it doesn’t bode well, but it’s a dilemma because more and more of these very extractive regimes, very kleptocratic regimes, now, regimes that have killed the free media, are going to go peacefully. So, no good alternatives are left. It’s very difficult.

[Arturo Herrera Gutiérrez] It was someone over here. I can’t remember who I said. Okay, I’m going to get into a problem myself.

[Nicola Bonucci] Thank you, Professor. My name is Nicola Bonucci. I’m a former General Counsel at the OECD. I would like to ask you a question of the point you made about the correlation between corruption scandal and lack of faith in democracy, which is something that we can indeed look, and you can also look at the corruption perception index. On the other hand, and if I take two cases which are well-known Clean Hands in Italy and Lava Jato in Brazil, in fact, those were democratic responses to a pre-60s situation in which there was a lot of corruption, but the level of corruption was so high that there was not even an investigation and a prosecution. The paradox is that maybe sometimes there is a perception which corresponds to a situation which is in fact changing more in the right direction, but the signal which is perceived by the opinion is the bad signal. So how can we—

[Daron Acemoglu] Yeah, that’s a great question, and I think it’s another dilemma. In some sense, the evidence from the paper by Eduardo Rivera and co-authors suggests that, if some of these high-level corruptions by high-level politicians or bureaucrats remained secret, it would have been better, but of course, they can’t remain secret forever. And that transition where they start being more dirty laundry being aired more openly is going to be a particularly troublesome period, just like in Brazil, where Workers’ Party, I think, is a poster child for promising voice, shared prosperity, effective public provisions, and delivered for about a decade, and then completely reverse that. And that was going to lead to some problems, but probably the very clear way in which all of that corruption was aired changed dynamics quite. But I think that’s what we have to work with.

[Arturo Herrera Gutiérrez] There was one question here. Okay.

[Speaker 2] Thank you very much, Professor. It’s really an honor to pose a question to you. I actually had two very quick questions. First, you mentioned before the fact that now the trust on democracy is declining b ecause democracies in many developed countries do not seem to deliver, which means that something goes wrong, a scandal happens, and then we add the new procedure, which means that institutions become more cumbersome, institutions become more bureaucratic, and as a result, they deliver less. Then, the thing is that how do we think of an alternative solution without resulting to any other thinking of any autocratic regimes, because we know that in autocratic regimes, things can get done very fast. There is no fear of ending up in court or even ending up in any abuse of power or corruption scandal. What do you think that the proper balance needs to be shrunk in order to make sure that we overcome this problem, which is also a perception problem, but it’s also a reality. Second, there are new democracies that are really trying to fight corruption, which means that establishing new anti-corruption mechanisms. I can give the case of Albania, our country where I’m from, we have a very successful anti-corruption structure in the country. They’re going after very high-level officials, sitting officials of the current party in force, but also former high-level officials. What happens is that the more this institution goes after the so-called “big guys,” the more the perception of corruption rises in the country. There is some paradox that the more punity there is, the more people think that there is corruption in the country. This is not only happening in the short term, but also in the medium term. How do you see this? Thank you.

[Daron Acemoglu] Well, great question. I think the second part of your question is very much related to the first one. I think it’s a dilemma, and there is no way out of that, but I think hiding that corruption is not going to be the solution because it’s going to come out at some point, and the more ossified it becomes, the more problematic it will become. But I would love to find out more about Albania, which I have not followed. But what you say is in stark contrast to what other countries are doing right now, because in many countries, going after corruption has become massively politicized. The Xi Jinping’s anticorruption drive was getting rid of rivals. We have Department of Government Efficiency. In Turkey, you have the head of the opposition now in jail for corruption. I think this is something that many rulers actually understood, including Eduard Shevardnadze, when he took control of Georgia. If you create enough corruption, you actually create immunity for yourself because everybody is corrupt, nobody can go after each other, and every corruption drive is a political drive. So, that’s why if Albania is able to do that, nipping it in the bud, that’s great, even with the dilemma that we’re talking about, but the first part of your question, I think, is very, very important. I think the reaction, a natural instinct of many people in government, in bureaucracy around the world, has been to add more procedures, because procedures, they give you insurance. They create the feeling of equality before the law, but regulations, when they pile up, also mean other things that democracies are supposed to do, they cannot do. So, I think we have to find a way of thinning down regulation, but increasing the mission of civil services and concentrating regulations on the most important things so that they actually are clearly aligned with the mission, are monitorable, and then you put your energy there, but a lot of other things you have to just deregulate. I think deregulation will increase lots of problems, but I think at this point, there is no other solution than deregulate a lot of things so that we can focus on the most important things in regulation. In the United States, we have to regulate social media, we have to regulate AI. In many countries, we have to regulate corruption and some of the other things that are especially associated with the construction industry, but lots of other things that are secondary regulations I think you have to get rid of.

[Arturo Herrera Gutiérrez] Let me check if there are any hands on really in the back. No? Okay, so people in the back are shy. Okay, so now we start ideologically from the left to the right. [Speaker 3] Excuse me, I will ask in French if it is possible.

[Daron Acemoglu] I speak a little bit of French, but I’m not sure whether I would catch everything. So let me do this. I don’t know where. Okay. Yeah.

[Speaker 3] Professor, can you give us additional explanations regarding the correlation that you made between the evolution of GDP and democracy? The country that had the greatest evolution in terms of GDP over recent decades, China, never was an example of democracy. Second question, or additional information, if that’s also possible, pertaining to the relationship between the transition towards democracy. You mentioned the example of Arab Spring. I come from Tunisia, which is the cradle of that revolution. I can tell you that we’re very bitter. We’re living, we regret the failure of this democratic transition. According to you, according to your theories, what would be the main causes of this failure? Thank you.

[Daron Acemoglu] Thank you for those questions. Well, you come from Tunisia. I’m not going to try to teach you about Tunisian history. I think the overall Arab Spring is very, very disappointing, but I think the causes of failure vary from country to country, and I think Tunisia may turn around. I think the political system changed in Tunisia as opposed to in other places where it’s recreated itself. So, if there’s any hope for any country, it’s Tunisia. I hope that there is still some hope left. For China, and for my estimates, I think I should have made that clearer. The point of the empirical strategy that I outlined is to make sure that we are comparing apples to apples. So, I think it’s very difficult to compare China to Switzerland. Switzerland is a very mature economy. It’s been democratic for centuries. China started in a hugely underperforming state after the Great Leap Forward, the Cultural Revolution, the fights between the Gang of Four and others. And then, it starts opening up its economy a little. It then closes it some. Its income dynamics, growth dynamics are just very difficult to compare to Switzerland or to France and say this is due to democracy, etcetera. So, the point of the empirical exercise there is to look only at countries that democratize and compare them before and after democratization. China is not even contributing to that. Neither is US, neither is Switzerland. Those are always democratic. So, it’s the countries that were non-democratic and then democratized. Portugal, Greece, Spain, all of Latin America, Eastern Europe, many countries in Africa and Asia.

[Arturo Herrera Gutiérrez] So, the one in the middle now. You are. And then, I’ll move to there.

[Betty] Thank you very much, Professor Daron. My name is Betty. I’m from Uganda. I want to thank you very much for this insightful presentation. I have two brief observations which will turn into questions, but currently, there is a very lively debate in Africa about the definition of democracy. We are categorizing democracy into Western democracy, which I think you’re talking about, but there are other brands of democracy. If democracy means what the majority want or choose, we have our own brands of democracy, or we did have brands of democracy. But as you said, colonialism came and imposed Western democracy, but not practiced. They found us with our democracy in my own community, the monarchy, which we all loved. They came and colonized us and did not rule under democracy for 60 years of colonization. On the day of Independence, they said, “You must practice democracy today, you must have an election today.” A system we had not practiced ever and they had not taught us. So, it was not organic to many parts of Africa. There was no organically-grown democracy who were just told, “Today, since we are leaving the British, you must have an election and become a democracy.” So, we had problems, and I would like to know your response to that debate that is going on in Africa now about the different brands of democracy, the Western brand, and the other brands of democracy, which are working for some communities like the United Arab Emirates. They have their own brand of democracy, which is working for them and others as well. I would like to know your response to that. Secondly, what about the 10 or so countries that have never been colonized, like Ethiopia, Liberia, and others? They’re also struggling with the corruption, but they have never been colonized. I don’t know what kind of democracy they are practicing, Western democracy or other brands of democracy. I would like to know your theories or responses to those, please. Thank you.

[Daron Acemoglu] Thank you. Thank you very much. Let me take up your first question first, which is an excellent question. There is one part of it that I wholeheartedly agree with, and there’s another part of it that I wholeheartedly disagree with in what you said. So, the part that I wholeheartedly agree with is that indeed, there are many different ways of thinking of democratic institutions. The way that I would think the right way of thinking of democracy is what in philosophy is called Republican ideas that are about self-governance. When people can engage in their self-government that is democratic, and that can happen in different forms. The Western democracy is one model for it, which is sometimes imperfectly implemented. It’s absolutely right that Africa, for example, had some nascent versions of self-governance in, for example, councils that were practiced in many places like Botswana that I studied, parts of Nigeria, I’m sure in Uganda. It probably was possible to build other types of institutions around them that would be more national and more furthered. You’re 100% right that the performative version of democracy, now, tomorrow, you have elections without any other organic supporting institutions being helped, I think was unlikely to succeed. It’s actually surprising that it has succeeded in a few places, but in most places it has succeeded, it has been able to leverage, like again, in Botswana, some of those traditional, more precolonial institutions. That being I said, I completely disagree that you could call anything that you see, for example, in the United Arab Emirates or anything like that as anything to do with self-government. Self-government has to start by rejecting any tribal or monarchical authority of some ruling family. I think anything under that umbrella is not going to work. So, if you look at some of the places that I would say had those democratic or different, perhaps we want to use different self-government things in Africa, the hold of a ruling family would be much weaker. You could change the ruling family, for example, or within the ruling family, the dynamics would be open with support or changes. So, I think that’s very important to my thinking that we really have to be open to different ways of thinking of self-government, although in the data, because of just the historical variation, etcetera, I’m looking at the Western style of democracy when I showed you, but we should not use that to justify really anti-democratic regime such as United Arab Emirates or Saudi Arabia or some that we see in Africa as well.

[Arturo Herrera Gutiérrez] Mark here. Then we will take two more and that will be it. Mark.

[Mark Robinson] Thank you, Professor Acemoglu. Can we make it? Thank you, Professor Acemoglu. Mark Robinson, the Extractive Industry’s Transparency Initiative. Your last slide had three points. The threat to democracy is at its highest in the industrialized world and emerging countries. I think the room would agree with the data you presented. The second is interesting. Building stronger and more successful liberal democracy seems like the best course of action. Many aid donors tried for many years to pursue that dream with limited success. They, of course, were not the only factor shaping the evolution and success of democratic consolidation, but it’s the third point you make that I think for us, as a largely policy audience, is perhaps the most important. Arturo alluded it right at the beginning, is how do we bring these two elements together, limiting corruption and ensuring the foundations of shared prosperity? It could be argued that, actually, it’s been a failure to bring these two elements together concertedly that has been problematic in the way that many aid programs have been thought about in the past and treated somewhat independently. My question to you is, help us tease out the policy implications of your concluding comment. Thank you.

[Daron Acemoglu] A great question. My language on that last slide was not precise enough. By building institutions, I didn’t mean, and this goes back to the previous point, that Western donors or United States or European Union should go and build democracy in Nigeria. I think it’s bottom-up building. And that must, again, as my comments in the context of the previous question indicated, must have elements of that country’s own institutional history and might have different forms, but I do think that what I would argue, not perhaps what everybody has in mind when they talk of liberal democracy, but what I would view as an important element of democratic governance and some of the liberal ideas like individual rights of some sort and freedom of expression, freedom of participation have to be part of that democratic tradition. They’re not going to emerge over time. I mean, they’re not going to emerge overnight. It will be a slow process. I think what the international community can do is limited, but it’s still important. It’s just being honest and shed light. So, if I see, for example, the US failures over the last several decades, it’s both overreach and underreach. Overreach is, including in Ukraine or in Iraq, the conceit that you can go and engineer democracies often because that’s a pretext for a more US friendly regime; and underreach that you actually don’t even shed light or criticize countries that are clearly moving away from democracy. I think the role of the international institutions, including, for example, Transparency International and others, is just to shed light so that domestic movements can then take that as input. I don’t think we’re not in an era where I think one hegemon or another can dictate institutions, but when you are involved on the ground, then you have to be sensitive to these issues. So, I think it is a responsibility of international organizations not to work in a way that solidifies the worst regimes in the world. Mobutu’s regime would not have survived as long as it did if it wasn’t for international organizations. I think that’s the context, and I don’t have perfect answers, but I think we have to be cognizant of these issues.

[Arturo Herrera Gutiérrez] We have time for two more questions, so we want to take our colleague here, and then Debbie right behind.

[Andrew Lavali] Yes, thank you very much. I’m going to push you a bit on the last question that you just responded. My name is Andrew Lavali. I work for the Institute for Governance Reform, and I’m based in Sierra Leone. Thank you very much and congratulations for your Nobel Award. I’ll be happy not to go back to Africa with the ignorance that I currently have, but my question relates to… Clearly when we talk about corruption, it appears as if people are actually exploiting wealth and they’re a bunch of elites that have this wealth. Living in Africa, I’ve seen regime after regime, politicians becoming poorer just six months after they leave office, but we have this situation, for example, in Sierra Leone, and I think I raised this argument in one of the sessions, where iron ore, just GDP, the growth for iron ore in 2023 was 1.6 billion, war of exports, but what remained in Sierra Leone was 40 million dollars, 3%. We are fighting over 3%, that’s the focus of corruption. Are we actually emphasizing... Are we actually getting the right emphasis, or are we misplacing our emphasis? Do we have a situation where strong states are actually now exploiting weak states? Professor Acemoglu, so what you described, is it a history that has passed? Or are you still describing the current global order? Thank you very much.

[Daron Acemoglu] I think my answer to that is going to be somewhere between the two poles. One pole would say, we live in a new colonialism or imperialism, it’s the multinational organizations, etcetera. There is a little bit of truth to that in the sense that no country is an island unto itself, and you have to recognize the power of the multinationals, the power of the hegemons, and so on, and so forth. The other poll would completely go to the other way around and just look at domestic factors. I think reality is somewhere in between. I am firmly committed to the view that failure is country’s responsibility. We have to start there. I think that’s empirically largely correct, and it’s also the right place to start. Where the moment you start absolving leaders in Central America or Turkey or Asia saying, oh, well, it’s the US’s fault, it’s the European Union’s fault. I think there’s just nowhere we can make progress, but if you look at successful countries, they have often been able to turn some unfair history to their advantage. Botswana, the example that I gave, if Seretse Khama hadn’t made a major move, a lot of the diamond in Botswana would be the property of the international diamond company, De Beers. So, one of the first things he did after being elected democratically was he passed a law that vested subsoil mineral rights in the state, taking back those things that De Beers had grabbed unfairly and unjustly, but he did that in a lawful way. He passed the law and set up the institutions to go around it. So, I think it’s not just a knee-jerk reaction, let’s take it from the international institutions. I think you have to do it the right way. I think even then, corruption is a very important problem. As long as corruption remains, I think institutions, even if when they go in the direction of domestic self-governance and the right in place, they’re just not going to have the trust and the legitimacy. So, that’s why I think corruption is still very important in that case.

[Arturo Herrera Gutiérrez] Okay, Debbie, you have the last question.

[Deborah Wetzel] Thank you very much. My name is Debbie Wetzel, and I am the former Director of Governance here at the Bank, amongst other things. And Professor Acemoglu, thank you for your work. I have a question about... So, you talk about the evolution of political institutions, the evolution of economic institutions. Even more than not being able to talk about democracy here at the World Bank, we are not able to talk about campaign finance and political finance. And that, in a way, is the link between the political institutions and the economic institutions. I am wondering if your work sheds any light in how changes in those financing of politics institutions have altered things. I look at the US and I see the Citizens United ruling as something that may have moved the situation here, but I’m just curious as to how economic and financial institutions [that] are used to feed politics might feed into your framework?

[Daron Acemoglu] Great question, 100%. Not my work. I haven’t myself worked on the micro aspects of that, but several other economists have, and it’s exactly what you say, but I would add that campaign finance reform is awful. Money in politics is awful. But actually, as much as campaign finance, you should look at lobbying. Lobbying is where I think even worse things are taking place in the United States, and the power of some of the largest corporations has become so intense because of their big say via lobbying, even more so than campaign finance. It’s an even more systemic problem because I can see, not likely, but one day a different Supreme Court might say, okay, we’re going to reverse Citizens United. Nobody’s going to reverse lobbying in this country unless there’s a real rethink of politics.

[Arturo Herrera Gutiérrez] Thanks a lot, Daron. It was fantastic to have you here. I’m sure everybody liked it. [Applause]