Beyond the Daron Acemoğlu debate: Why does development begin with institutions?

A remarkable debate has been taking place in the economic world in recent days. Daron Acemoğlu, who shared the 2024 Nobel Prize in Economics with Simon Johnson and James A. Robinson, is at the center of criticism from certain circles, most notably The Economist. However, this debate brings a much more important question to the agenda than whether an economist is right or wrong: What is the fundamental element that leads societies to lasting prosperity? Acemoğlu’s work, which led to the Nobel Prize, is based on the thesis that beyond natural resources, capital accumulation, and technological development, institutions lie at the foundation of development.

In an article published in August titled “The world’s most influential economist is strangely unconvincing,” The Economist questioned the explanatory power of Acemoğlu’s institutional theory in particular. China’s high growth performance over many years under an institutional structure that cannot be defined as democratic and inclusive, the occasional overly broad use of the concept of “institution,” and his cautious predictions regarding the economic effects of artificial intelligence formed the main basis of the criticisms.

Acemoğlu responded sharply to these criticisms. While arguing that the debate had exceeded scientific boundaries, he also acknowledged that some of his predictions in the field of artificial intelligence might need to be re-evaluated in light of new developments.

It is necessary to make an important distinction at this very point. The fact that some of a scientist’s predictions are debated or proven wrong over time does not mean that the intellectual framework they have put forward is entirely invalid. Showing the limits of a theory is one thing; rejecting the fundamental relationship it points to is another. This is the real issue in Acemoğlu’s work: Institutions may not explain everything; however, it is impossible to remove them from the equation when trying to understand the long-term development performance of countries.

AT THE CENTER OF THE NOBEL IS NOT GROWTH, BUT INSTITUTIONS

First, it is necessary to recall an important point. Daron Acemoğlu did not receive the Nobel Prize in Economics solely for his views on economic growth. The Royal Swedish Academy of Sciences awarded Acemoğlu, Simon Johnson, and James A. Robinson for their “studies on how institutions are formed and affect prosperity.”

This choice actually reveals the center of the debate. Acemoğlu and his colleagues do not try to explain the differences in prosperity between countries solely with growth figures; they question how widely economic opportunities are spread, how prosperity is shared, and on what institutional foundation growth takes place.

Because high growth and high prosperity are not the same thing. An economy can grow rapidly for many years; however, if the resulting income and opportunities are concentrated in a narrow segment, if they do not permanently raise the living standards of broad segments of society, and if the channels for participation in the economic system remain limited, it becomes difficult for this growth to turn into sustainable and inclusive development.

Therefore, measuring development only by growth rates is an incomplete approach. What is truly important is the quality, continuity, and social consequences of growth. Acemoğlu’s institutional approach gains importance at exactly this point: The issue is not how much the economy grows, but by whom, under what rules, and to what extent the resulting prosperity can be shared.

WHO BENEFITS FROM THE GAINS CREATED BY TECHNOLOGY: Do Institutions Explain Everything?

It would not be correct to say that some of the criticisms directed by The Economist are entirely unjustified here. The occasional overly broad use of the concept of institution can weaken the explanatory power of the theory. Trying to explain every success with “good institutions” and every failure with “bad institutions” can turn the theory into a framework that is difficult to test.

Similarly, the China example raises important questions. China, which has been able to achieve high growth for many years without having democratic and inclusive institutions, shows that development cannot be explained solely by institutional structure. Elements such as state capacity, industrial policies, integration with global trade, technology transfer, and human capital also play a decisive role in this process.

A similar situation exists in artificial intelligence debates. It is possible for technological developments to progress faster than Acemoğlu’s initial predictions. Indeed, he himself acknowledges that some of his assessments need to be updated.

However, all these criticisms do not eliminate a more fundamental question: Who will benefit from the value and prosperity produced by technology?

This is exactly where the importance of the institutions debate emerges. Because the issue is not just the speed of technological progress, but how the resulting gains are distributed within society. Technology can accelerate growth; however, it is largely the institutional framework that determines whether this growth will turn into inclusive prosperity.

THE ISSUE IS NOT ARTIFICIAL INTELLIGENCE, BUT WHO TECHNOLOGY SERVES

Acemoğlu’s approach to artificial intelligence is sometimes interpreted as anti-technology. Yet his fundamental objection is not to technological progress, but to the assumption that technology will spontaneously and inevitably create social prosperity.

Artificial intelligence can undoubtedly increase productivity, reduce costs, accelerate scientific research, and create new job areas. However, the gains of technological transformation are not reflected in all segments of society to the same extent. While automation increases efficiency in some areas, it can eliminate some professions; it can reduce labor’s share of income and lead to the concentration of economic power in the hands of a limited number of companies.

The fundamental question of the work Acemoğlu did on automation with Pascual Restrepo is also tied here: Will technology replace human labor, or will it enhance human productivity and skills? Even if two different technological orientations create similar productivity gains, they can produce very different results in terms of income distribution, employment, and social welfare.

For this reason, instead of trapping the artificial intelligence debate in the binary of “is technology good or bad?”, it is necessary to focus on a more fundamental question: Who will determine the direction of technology and how will the productivity gains it creates be shared?

This question inevitably brings us back to institutions. Because it is as important who benefits from technology and under what rules it develops as how much it has developed.

THE INVISIBLE INFRASTRUCTURE OF DEVELOPMENT: Institutional Quality

It is not possible to explain a country’s development solely by its factories, exports, capital accumulation, or technological capacity. Behind all of these is an invisible infrastructure that shapes economic decisions and the use of resources: institutional quality.

The rule of law, property rights, meritocracy, transparency, accountability, predictable public policies, effective institutions, competition, and equal opportunity are the fundamental elements of this infrastructure. These are not just principles of “good governance”; they are economic factors that determine in which direction investment, entrepreneurship, innovation, and human capital will develop.

As I emphasized in my book titled “Millennium Development Goals and Pro-Poor Growth” published in 2015, Acemoğlu and Robinson’s institutional approach reveals that the differences in development between countries cannot be explained solely by economic resources. While economic institutions determine how incentives will be shaped, which areas resources will be allocated to, and how investments and innovation will be directed, the fundamental framework that determines how these institutions will function and how they will evolve over time is formed by political institutions. Therefore, it is necessary to evaluate development not only through economic tools and economic policies, but also through the nature of politics, decision-making processes, and the effects of political preferences on the institutional structure.

The economic consequences of this are extremely concrete. Where property rights are controversial, long-term investment becomes difficult; where rules change constantly, sound planning becomes difficult; where meritocracy weakens, the effective use of human resources becomes difficult. When competition is distorted, resources begin to flow not to the most efficient, but to the privileged.

For this reason, institutional quality is not just a subject of law, political science, or public administration. It is directly a matter of political economy. Because more important than the resources a country possesses is which institutions it uses to utilize those resources and how effectively it can do so.

TURKEY’S ISSUE IS NOT JUST INTEREST RATES, EXCHANGE RATES, AND INFLATION

When we bring the debate to Turkey, Acemoğlu’s institutional approach gains a direct, current political-economic meaning beyond an academic theory.

When we talk about economic problems in Turkey, we mostly focus on interest rates, exchange rates, inflation, budget deficits, current account balance, and growth. All of these are important. However, the success of monetary and fiscal policies is not independent of the institutional ground upon which they are applied.

Because an investor does not only look at the return they expect; they also want to trust that property rights will be protected, that the law will function predictably, that contracts will be enforced, and that economic rules will not change arbitrarily. An entrepreneur needs not only cheap credit, but an investment environment where they can foresee the next three, five, or ten years. As for young people, they build their futures in their own country to the extent that they believe they will receive the rewards for their education, labor, and talents.

Therefore, the issue is not just how much investment is made, but the quality and maturity of the investment; it is not just capital entering the country, but its direction toward permanent and productive areas. Similarly, the issue is not just having a trained workforce, but being able to utilize this potential within meritocracy and equal opportunity.

The real lesson of the Acemoğlu debate for Turkey lies here: Economic stability cannot be made permanent solely by finding the right interest rate, keeping the exchange rate at a certain level, or lowering inflation. These are necessary; but they are not sufficient. At the foundation of permanent stability and sustainable development lie trust, predictability, and strong institutions.

K-TYPE GROWTH: Is Everyone Growing While the Economy Grows?

When evaluating Turkey’s growth model, it is necessary to look not only at the speed of growth, but also at its quality and to whom and to what extent it provides prosperity. The concept of “K-Type Growth,” which I have emphasized in my previous articles, points exactly to this divergence.

In K-type growth, while some segments of the economy rise rapidly in terms of income, wealth, and opportunities, broad segments can move downward in terms of purchasing power, economic security, and access to opportunities. Thus, while the economy grows, the entire society cannot reach prosperity to the same extent; the link between growth and social welfare gradually weakens.

Acemoğlu’s distinction between inclusive and extractive institutions gains importance at this point. Extractive institutions can create high growth and significant gains for certain segments in the short term. However, the constant concentration of economic opportunities and resources in the same circles weakens competition, entrepreneurship, innovation, and social mobility over time.

The power of inclusive institutions comes from enabling more people to participate in the economic system, paving the way for talents, and ensuring that opportunities are removed from the monopoly of privileged segments. Such a structure strengthens not only the quantity of growth, but also its quality and sustainability.

Therefore, when evaluating an economy, the question “How much did we grow?” is not enough on its own. It is also necessary to ask, “How did we grow, to whom did the gains of growth go, and have we been able to create the institutions that will make this prosperity sustainable?” Because a strong state and strong institutions are not alternatives to each other; they are two fundamental elements of sustainable development that complement each other.

STRONG STATE OR STRONG INSTITUTIONS? The Wrong Question

Thinking about the importance of institutionalization through companies is illustrative. A company that cannot institutionalize becomes dependent on the talent, will, and preferences of a few people over time. When loyalty replaces merit, personal preferences replace rules, and oversight and transparency begin to weaken, even if the company appears successful for a while, this success ceases to be sustainable.

A similar risk exists for states. The dependence of institutions on individuals, the shaping of decisions by personal preferences instead of established rules, and the weakening of oversight mechanisms negatively affect not only public administration but also the predictability of the economy and the investment environment.

For this reason, it is wrong to see a strong state and strong institutions as alternatives to each other. A strong state is not just a state that makes quick decisions or produces a large number of decisions. True power lies in decisions being based on a solid legal ground, rules being applied to everyone in a predictable manner, and institutions being able to function independently of individuals.

Institutional capacity is exactly this: Not just the existence of institutions, but their ability to perform their duties with merit, effectively, impartially, predictably, and sustainably. Because lasting success relies not on individuals, but on strong rules and institutions that are unaffected by changes in individuals.

CAN ACEMOĞLU BE WRONG; DO INSTITUTIONS BECOME UNIMPORTANT?

Daron Acemoğlu can of course be criticized. Seeing scientists as untouchable and their theories as unchangeable truths is already contrary to the nature of science. Models are tested, predictions can be falsified, and theories are developed or revised in light of new data.

It can be said that some of Acemoğlu’s predictions regarding artificial intelligence remained too cautious. The questions raised by China’s high growth performance, which it exhibited for a long time without having inclusive institutions, for institutional theory can be debated. The criticism that the concept of “institution” is sometimes used too broadly is also academically legitimate.

However, it is necessary to separate these criticisms from the broad research program that reveals the role of institutions on economic and social outcomes. The fact that artificial intelligence develops faster than expected or China’s high growth does not prove that institutions are unimportant for development. Indeed, Acemoğlu’s approach, which is the subject of the Nobel, is not just a personal thesis; it is part of a broad literature that develops at the intersection of economics, history, and political science.

Therefore, what needs to be done is neither to sanctify nor to discredit Acemoğlu. What really needs to be done is to correctly distinguish which claim is falsified and which retains its validity while critically debating his theory, methods, and predictions.

Because the power of scientific criticism comes from showing the weak points of a theory; not from using every example that the theory cannot explain to invalidate all the relationships it does explain.

CONCLUSION: Development Begins First in Institutions

Daron Acemoğlu’s statement in his Nobel speech that “Institutions are always about choices” reveals the essence of the debate. Because institutions are not the unchangeable fate of societies; they are established, strengthened, or weakened through political and social choices.

The same choice applies to the direction of technology. It is possible to transform artificial intelligence not just into a tool that replaces labor, but into a power that increases human productivity and creates new job areas. Similarly, it is possible to take economic growth out of the wealth increase of narrow segments and turn it into the prosperity of broader segments of society. What is decisive is which rules and institutions technology and the economy are directed by.

For this reason, it is possible to criticize Acemoğlu, and it is even a requirement of scientific thinking. However, China’s rapid growth or artificial intelligence progressing faster than expected does not eliminate the importance of institutions in development. Because one of the most fundamental questions of economics still remains: Why can some societies turn the capital, human resources, and technology they possess into lasting prosperity while others cannot?

The real lesson for Turkey lies here. We undoubtedly need more investment, technology, and growth. But we also need the rule of law, meritocracy, predictability, and strong institutions that will turn these into lasting and inclusive prosperity.

Because the visible face of development is growth figures; the invisible foundation that makes it permanent is institutional quality. Strong economies are built not only with capital, but with trust; not only with investment, but with law; not only with strong leaders, but with strong institutions.