Policy Update
Aaswash Mahanta
On why this year’s Nobel for Economics Matters
The neo-liberal approach to public policy is fraught with many flaws, further highlighting the need to explore alternative perspectives offering bottom-up solutions that respect indigenous frameworks while critiquing neo-colonial institutions
In recent news, Daron Acemoglu, Simon Johnson and James A. Robinson won the Nobel Prize for Economics for their work on what causes the vast differences in prosperity between nations. Their work, to an extent, deconstructed how colonialism shaped the institutions of today.
Except for a few others, the Nobel prize in economics has been limited to mainstream economic thinkers, often working within the ambit of dominant economic frameworks and schools of thought (such as the keynesians and the supply-siders).The framework of neoliberalism tends to favor market-driven solutions and limited government intervention, where theories and policies operate with an inherent trust in the free-market. This includes the interests of multinational corporations and wealthy nations, often extracting resources from developing countries often without benefiting local populations.
The concentration of recipients is also fairly large from the Global North (the wealthier, industrialized countries). Dependency Theory (Amin, 1974) links the development of the Global North to the underdevelopment of poorer countries (the Global South). This year’s awardees might have something to say that has larger implications not just for economic theory in institutional policymaking, but also for how development policies and politics intersect with marginalisation and exploitation.
One of the seminal papers that brought Acemoglu, Robinson and Johnson to the forefront was the paper titled “The Colonial Origins of Comparative Development: An Empirical Investigation”. They examined how European colonisation policies shaped the development and the socio-political systems of various countries, focusing on how historical institutions, established during colonization, have had a lasting impact on economic performance of former colonies.
Different colonization policies led to different types of institutions: One of the main arguments they make is about how in some colonies, such as the United States and Canada, European settlers established institutions that are similar to those in Europe. They promoted property rights, checks on government power, and what one might call, healthier institutions. In contrast, extractive institutions were established in colonies such as those in regions of Africa and South Asia, where European settlers faced higher mortality rates. In these regions, they were focused more on extracting resources rather than building sustainable institutions. This explains the large differences in development indicators and the absence of a level-playing field as the age of the free-market commenced.
One of the key indicators they examine is settler mortality rates. Areas where the disease environment was unfavorable for Europeans saw a lower likelihood of settlers staying and a higher likelihood of extractive institutions being established. Due to diseases like malaria and yellow fever being more prevalent in places such as South Asia and Africa, colonisers were more inclined to create exploitative governance structures.
Colonial institutions persisted post-independence: One of the key takeaways from the evidence they present is about the historical legacy of resource extraction. The colonial hinterlands became breeding grounds for structural inequality. Consider the colonial institutions established during British rule in South Asia. While the growth story of these countries has been somewhat impressive, many development indicators in this region remain among the worst in the world. For instance, half of the world’s multidimensionally poor live in South Asia (51 percent, or 844 million people).
By closely tying this to dependency theory, the broader underpinnings of this paper can help us reflect on how institutions of the Global South are still subject to neo-colonial underpinnings, all exacerbated by the neo-liberal logic. Within the field of public policy, it is important to understand why and how these underpinnings have implications on policymaking globally; how policy processes in regions with strong institutional frameworks often fail in regions which have large institutional lags.
Firstly, between 1960 and 2018, the Global North appropriated around $62 trillion from the Global South . Some scholars call it an Imperialist rent; from raw materials to cheap human labour, surplus value is extracted from the workers through production in the “periphery” (the low-income Global South countries)– by and for the “core” (the wealthy states).
The periphery states still struggle to set up healthier institutions due to issues of weak regulatory capacity, underinvestment in human capital,and low per-capita growth. In other words, because these institutions are still weak, neo-liberal forces succeed in creating winners and losers. This is what is also termed as ‘Unequal exchange’ (Amin, 1976), which explains why labour, raw materials and land are cheaper in the periphery.
Second, economic theory and its intrinsic linkage to European Capitalism have fundamental flaws. European capitalism is marked by the development of market-based economies, and the accumulation of capital through the exploitation of both labor and colonial resources. Within this discourse, I am reminded of one of the pioneers of Dependency Theory, Marxist Economist Samir Amin, who has been a strong critic of ‘Eurocentricism’.
Amin defines it as an ideological framework that positions Europe as the central and most advanced civilization, often to the exclusion or marginalization of other cultures and histories. In this view, European civilization is considered the universal standard of development and modernity, and non-European societies are often depicted as backward, or in need of Western intervention or guidance. His critique of Eurocentrism differs from that of Edward Said’s concept of Orientalism, which was more focused on how the West represents the East and how these cultural portrayals are harmful. Unlike Orientalism, Eurocentrism is broader and involves the global dominance of European values and institutions; its centrality in global history and policy frameworks.
Amin demonstrated how Eurocentric social sciences contributed to legitimising the unprecedented exploitation of capital,with real material implications such as exacerbating climate change, displacements and the loss of workers’ rights in the peripheries. This implies that imperialism always returned to the matter of capitalism and are both interlinked to the core. Through this, Amin talks about a universal project free from European particularism, a ‘modernity critical of modernity’.
This brings me to my third argument, that decolonising economics is important. The Black Lives Matter (BLM) movement, for example, was instrumental in highlighting several critical limitations in economics when it comes to addressing racialised inequalities. The underrepresentation of race in economic models, the missing historical context, the labor market discrimination and the inability of economic growth to address wealth gaps are part of the larger set of problems that became more visible through the BLM movement.
To conclude, how policymaking can reform itself is by first acknowledging the flaws in its design. It needs to actively debate its limitations. Second, it should explore new designs and case studies that prioritize collective well-being over individual profit and have long histories of resilience in managing natural resources sustainably.
Stakeholders should push for the inclusion of these frameworks in both international development agendas and local policy-making, ensuring that indigenous communities’ rights and wisdom are respected in economic decision-making. Third, curricular designs should actively integrate decolonial literature and courses in all public policy curriculums. A minor step in increasing representation of global south scholars in faculty would go a long way in fulfilling these criterias. Case studies such as the impact of Structural Adjustment Programs in Africa, the case of small island countries and climate change need to become part of foundational policy curriculums.
What Acemoglu, Robinson and Johnson achieved is in a way, to challenge Eurocentric institutions to their core. It solidifies Amir’s critique of the West, and even goes beyond to provide a logic of how institutions interact with structures of capital across the world, reminding us of Amin’s arguments about how neo-liberal capital has innovative ways to exploit the global south. The award this year must be a powerful reminder to us that the neo-liberal logic is fundamentally flawed, and it is the need of the hour to look beyond and embrace new economic thought that is critical of all western assumptions about social systems.
About the contributor: Aaswash Mahanta is an incoming Master of Public Policy Candidate, Batch of 2026, at the Hertie School of Governance, Berlin.
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