The 2024 Nobel Laureates Are Not Only Wrong About China, But Also About the West

Oct. 31, 2025

A mural defending education for all in Mexico City. © Frédéric Soltan/Corbis/Getty

This year, Daron Acemoglu, Simon Johnson, and Jim Robinson (known as AJR for short) were awarded the Nobel Memorial Prize in Economic Sciences for their work on “how institutions are formed and affect prosperity.” AJR are not only exceptionally prolific and persuasive, their influence is stratospheric. With a combined citation count of almost 500,000, one economist called them “gods of the discipline.”  

I congratulate them heartily on their award — with one regret: they should have received it twenty years ago. Those were the days Acemoglu and Robinson recently recalled nostalgically in The New York Times: “Remember the 1990s, when everybody thought liberal democracy was the only game in town and the end of history was upon us?”  

Conferring them with the Nobel today seems anachronistic, out of touch with the reality of a world moving steadily toward multipolarity. Today, the Global Majority, the 85 percent of humanity outside North America and Western Europe, are less and less inclined to accept idealized narratives of Western development with naïve, unbridled enthusiasm. So it’s not surprising that AJR’s award has sparked vigorous debate not only in the Global Majority but also in parts of the Global North, even in the Financial Times.  

Let me begin by underscoring where I agree with AJR. Their core argument is that political institutions matter for development, more so than fixed attributes like geography. Specifically, societies with “inclusive, non-extractive” institutions are more likely to prosper. “Inclusive” and “non-extractive” are both positive adjectives, similar to words like just and fair—or, more simply, good (to use Acemoglu’s term). Who would dislike “good”? Of course, everyone wants inclusive, non-extractive institutions.  

Where I am skeptical is their classification of which parts of the world qualify as “good,” and their claim that it is such goodness and democracy—rather than other obvious reasons such as colonial extraction—that could have contributed to wealth and power.  

One common assumption is that AJR is only wrong about China, but right that democracy alone explains prosperity in the West (my work has often been cited to make this point).  

Peeling just a few layers back, however, suggests that is not true: AJR isn’t right about either.   

Who is Good?  

According to AJR, which parts of the world best exemplify “inclusive, non-extractive”—good—institutions? The United States and Great Britain (the first two countries they named in their best-selling book, Why Nations Fail, co-authored by Acemoglu and Robinson, which popularized their theory), and other settler colonies they term “neo-Europes” (in their 2002 article, “Reversal of Fortune”), including Australia, Canada, New Zealand. Which nations fail? Poor countries in “sub-Saharan Africa, Central America, and South Asia.”  

This classification of “good” countries is not unique to AJR but replicated across political economy. For example, corruption expert Alina Mungiu-Pippidi posits a near-identical rank-ordering of countries in her book The Quest for Good Governance. According to her, at the top is a small group that has achieved an end state of “ethical universalism,” where “equal treatment applies to everyone.” These “historical achievers” include “Britain, the classic historical performer,” followed by “British empire splinters populated mostly by populations of European descent.” The rest of the world is lagging behind and catching up. 

In case the pattern is still not clear to you, let me highlight a third parallel. The Good Country Index, produced by British policy advisor Simon Anholt, claims to measure “what each country on earth contributes to the common good of humanity, and what it takes away.” In 2023, all top 20 “Good” countries are in North America and Europe.  

When the mainstream always ranks certain countries as “good” and the rest as less good, you should begin to wonder why. Based on AJR’s classification of countries, it appears what they really mean by “inclusive, non-extractive” are Western democracies. Where non-Western societies approximate good institutions, as they claim is the case in Botswana, it is a “primitive form of pluralism” that resembles… the Magna Carta!¹ 

Did Rich Nations Become Rich Only By Being Good?  

AJR claims that rich nations exemplified by “neo-Europes” became rich because their colonial legacies left them, fortuitously, with inclusive, non-extractive institutions. In other words, these countries succeeded because they were democratic—or good.   

Skillfully, they make their argument by comparing the “reversal of fortune” among former European colonies between the years 1500 and the 1990s. Non-settler colonies (like Egypt, India, and Mexico) used to be densely populated, attracting European colonists to impose extractive institutions such as slavery and taxation, which kept them poor over the long term. By contrast, European-settler colonies (like the US, Australia, and New Zealand) “created institutions of private property, providing secure property rights to a broad cross section of the society.” This reversal of fortune, they conclude, proves that geography isn’t the “root cause” of divergence in wealth—rather, it is the establishment of democracy.  

Gushing with praise, the Nobel committee reaffirmed the laureates’ conclusions in its press release: “The more European settlers, the greater the probability of establishing economic systems that promoted long-run economic growth.” (If true, this statement leaves one wondering what the practical implication would be.) Thanks to the economists’ “groundbreaking research,” the committee chairman Jakob Svensson said, “we have a much deeper understanding of the root causes of why countries fail or succeed.”  

But do we? Taking the US as a prominent case, what actually happened in European-settler colonies? Acemoglu writes in his 2003 essay “Root Causes”:  

At the other extreme, Europeans founded a number of colonies where they created settler societies, replicating—and often improving—the European form of institutions protecting private property… in colonies where there was little to be extracted, where most of the land was empty, where the disease environment was favorable, Europeans settled in large numbers and developed laws and institutions to ensure that they themselves were protected, in both their political and their economic lives. [29]  

Was the land empty? No, there was an estimated population of 10 million Native Americans who were violently evicted or killed by white settlers. Was there little to be extracted? European settlers exploited labor on a large scale by importing it from abroad. This included African slaves who toiled on plantations and indentured Chinese laborers who built the transcontinental railroads on dirt-cheap wages. When the latter asked for fairer pay and safer work conditions, corporations starved them into submission, and after their job was done, they were kicked out by the Chinese Exclusion Act in 1882.  

Even among the ruling class, it was no “level playing field.” During America’s phase of rapid industrialization, known as the Gilded Age (roughly 1880-1900), prosperity was accompanied by inequality and corruption. Robber barons publicly championed free-market principles while privately benefiting from state-supplied privileges and protection. Ordinary citizens bore the burden of bailing out companies that were too big to fail, which failed again and again. (This pattern was repeated in the 2008 financial crisis, leading US historian Richard White to remark: “the present is so nineteenth century.”)  

In short, the complete truth that AJR’s elegant theory omits is this: European settler colonies built wealth by establishing a bifurcated economy—inclusive and non-extractive for elite white males, but systematically extracting from the rest. Admirably, the US steadily extended the democratic franchise, even fighting a civil war to abolish slavery, and eventually transforming itself into a nation of multiethnic immigrants, but make no mistake: when its economy was taking off, its political institutions were extractive.  

In “Reversal of Fortune,” AJR only show descriptive evidence of two patterns:  

• Non-settler colonies (more urbanized places in 1500 like India and Egypt) became poorer than European settler colonies in 1990 

• Non-settler colonies had “worse” institutions (defined as lack of formal “checks on power”) than European settler colonies in 1990 

Put simply, AJR confirms a well-known correlation: richer countries tend to be liberal democracies. But they provide zero causal evidence that it is good institutions, rather than other entangled factors, that explains divergent incomes. Edward Glaeser and his colleagues makes a similar critique, noting: “the data [that AJR use] do not tell us whether the Europeans brought with them human capital, political institutions, or something else.”  

Indeed, AJR’s analysis asserts, “Notice that what is important for our story is not the ‘plunder’ or direct extraction of resources by the European powers, but the long-run consequences of the institutions they set up.” Insisting, however, that an obvious competing explanation—extraction—isn’t important “for our story” doesn’t make it go away.  

What’s the takeaway? Upon closer examination, the econometric and historical evidence for AJR’s claim that inclusive, non-extractive institutions caused Western prosperity is actually shaky, if not cherry-picked. The Financial Times faults them for “econsplaining”—liberally taking historical references out of context to justify their favored conclusions, writing they “used the bits about American freedom and tossed the bits about American slavery.”  

That’s not to say that democracy didn’t matter in Western development—it did. But its democracy was accompanied by colonial extraction (as shown by Walter Rodney’s How Europe Underdeveloped Africa), industrial policies and trade protectionism (Ha-Joon Chang’s Kicking Away the Ladder), and cronyism among politicians and big capitalists that gradually became legalized in the form of lobbies (Richard White’s Railroaded). AJR and their followers celebrate only the first factor—and downplay or erase the rest.  

How AJR Got China Wrong 

Given the limitations of AJR’s theory in the context of the West, it is no surprise that they have struggled even more to explain Chinese development. By their definition, China’s political institutions are “extractive, non-inclusive” because it is autocratic. If so, how can they explain the country’s phenomenal growth since the 1980s?  

In How China Escaped the Poverty Trap, I unpacked Acemoglu & Robinson’s attempts to square this circle in Why Nations Fail, which I repeat here:  

In defense, Acemoglu and Robinson surmise that sooner or later, China’s hyper-growth will run out of steam. Yet even if growth slows, which is expected for any economy that reaches middle-income status, the burning question remains: how did China come this amazingly far?  

Their reply is that “a critical juncture,” namely Mao’s death, followed by Deng’s efforts to build a reform coalition, turned China around. Furthermore, they claim, growth under extractive institutions was possible because an extremely poor country like China had plenty of “catching up” to do. Finally, they sum up: “Some luck is key, because history always unfolds in a contingent way.”  

Luck, of course, influences any outcome. But assigning three decades of sustained economic and institutional remaking to luck is hardly satisfying. Moreover, all poor countries have ample room for “catching up,” so why didn’t they catch up the way China did? 

Just as I’ve been stumped by AJR’s assertion that colonial extraction “is [not] important for our story” (given the intense level of scrutiny in top journals), I am equally astounded that they can wave away the “China anomaly” by attributing it to “luck.” That alone should tell you a lot about the state of the academic profession.  

Between 1980 and 2012, China escaped abject poverty and became the world’s second-largest economy within one generation—without Western-style democracy. How did that happen? What has AJR missed? They fail to appreciate the existence of a variety of autocracies: archetypal ones concentrate power entirely in one dictator (like China under Mao Zedong or North Korea under Kim Jong Un) but others can be partially inclusive and non-extractive even without elections. The reverse can be true of democracies; many analysts see the US under President Trump as an illiberal variety of democracy.  

When Deng Xiaoping took the reins of power after Mao died, he inserted democratic qualities (specifically, competition, accountability, and partial limits on power) into a single-party autocracy—not through open political contestation, but by revolutionizing the bureaucracy. This is a point I earlier made in an essay in Foreign Affairs, “Autocracy with Chinese characteristics,” and discussed with Ezra Klein in The New York Times in 2023.  

My argument must be distinguished from Chinese state propaganda calling its political system a “whole process people’s democracy,” which no intelligent adult believes. Clearly, China is an autocracy: dominated by one party, which exercises tight political control. But within it, Deng and his reformist team introduced partial checks on power such as the norm of collective leadership at the highest level and empowered citizens to lodge complaints about corruption and bad policy implementation. They practiced “directed improvisation”—a blend of top-down direction from the national leadership and bottom-up adaptation by numerous local governments and entrepreneurs—that produced diverse development paths and policy innovations within China, often tailored to local conditions.  

But Deng’s ingenious system contained an expiration date. His single-minded focus on getting rich laid the seeds for capitalist excesses, not least corruption and inequality. His partial checks on power within the leadership also turned out to be fragile and reversible. When Xi Jinping ascended to the highest seat of power in 2012, he steadily overturned Deng’s partial liberalization and reinstated personalist rule. He believes that his concentration of power is necessary for taking China out of its Gilded Age and into a “Red Progressive Era” of cleaner, high-quality development—but with the ruling party firmly in power.  

If you subscribe to the simplistic binary view that Western democracies are by definition “inclusive, non-extractive” while non-Western non-democracies must be “non-inclusive, extractive,” then you’ll be fooled by words. Democracies can contain sharply non-inclusive, extractive qualities and vice versa. In China’s case, despite the absence of regime change, its political institutions have profoundly transformed from Mao to Deng to Xi.  

Promoting Democracy in the 21^st Century 

By raising questions about AJR’s claims, my objective is to advocate for a better way of promoting democracy in the twenty-first century. One uncomfortable but not surprising truth is this: especially during the Cold War, liberalism was an ideological instrument for great power competition, “and the field of development was one of the arenas in which this competition played out most actively,” as the historian Corinna Unger reminds us.  

The ideologizing of capitalist democracy is distorting. When translated into development programs, it invariably becomes top-down, one-size-fits-all campaigns that disempower the poor. Not only that, it has blinded the establishment from detecting long-simmering problems in Western capitalism and democracy. Corruption studies is a case in point. By consistently measuring rich democracies as clean and poor countries as corrupt, elites failed to see that the flourish of “access money” (legalized elite exchanges of power and profit) in rich countries was angering citizens and pushing them toward populism.²  

What is the alternative? First, in a multipolar world, we should embrace a global principle of non-domination, rather than any great-power’s politics as an ideology. This means recognizing that authoritarianism and colonial-imperialism are both forms of domination, and both should be rejected. It means valuing indigenous knowledge and diverse solutions in the Global Majority—doing development by “using what you have,” not by copying someone else’s templates. Preaching democratic values within societies while upholding a Western-centric political and ideational order, either explicitly or implicitly, is hypocritical.  

Second, we should celebrate democracy for its intrinsic value—in giving voice to diverse, marginalized groups and holding power to account—instead of making exaggerated promises that democracy alone will make nations rich and powerful. This kind of sales pitch, which has long been the norm in the political economy of development, is no different from cultivating followers based on material interest; as soon as democracy runs into problems—as we see in the West today—the appeal of democracy falls apart.  

Today, many experts and powerholders see the twenty-first century as a dreadful time of “polycrisis”—without realizing that this, too, is a Western-centric idea, triggered primarily by the dual crises of capitalism and democracy in the rich world. I see the times differently: this is a promising moment for paradigm shifts. If AJR had won the Nobel Prize twenty years ago—when history ended, temporarily—hardly anyone would have questioned their claims. Today, however, there is an emerging wave of healthy skepticism. For those who are not attached to the old order, we’re living through a “poly-tunity” to question many conventional wisdoms. Let’s be sure we seize this opportunity and speak up.  

1. The Magna Carta is the mythologized “social contract” between King John and the English nobility, signed in 1215, that was in effect “a case of the rich and powerful protecting themselves from the slightly more rich and powerful.” (Time)

2. As The New York Times reported in 2024 based on polling data, “a majority of [US] voters believe that the country is plagued by corruption, with 62 percent saying that the government is mostly working to benefit itself and elites rather than the common good.” Yet the strength of liberal democracies is that difficult problems can be openly discussed, as I did on Freakonomics Radio with Stephen Dubner (“Is the US Really Less Corrupt Than China?”), and actively addressed, as I explored with the Helen Clark Foundation in New Zealand that applied the concept of “access money” to their policy report.