By Vaibhav Tandon

“Why do we fall, Bruce? So that we can learn to pick ourselves up.”  This was my favorite quote from the 2005 movie “Batman Begins.”  By failing, we learn how to overcome failure.

A trio of economists won this year’s Nobel Memorial Prize in Economic Sciences for taking on an even bigger question: Why do nations fail?  Daron Acemoglu, Simon Johnson and James Robinson shed light on fundamental differences that explain macroeconomic outcomes.

The trio’s work spanning two and a half decades documents why some nations like the U.S. and the U.K. have thrived, while so many others have not prospered.  At the center is the concept that societal institutions are the key determinant of whether a nation succeeds or fails.

Addressing inequality requires more than just measures to foster economic development.  To bridge the wealth gap with high-income economies, governments need to build inclusive institutions that hamper corruption and prioritize the rule of law.  This goes a long way in boosting economic participation of domestic populations and long-term stability. 

Globalization and technological advancements have allowed poorer nations to grow, reducing the inequality between countries from the peaks seen in the 1980s.  However, inequality within countries remains high.  According to the laureates, the wealthiest 20% of countries are 30 times richer than the poorest 20%.  Their research calls out authoritarian regimes for exploiting natural resources but not building up their societies; the study concludes that democracies are better at delivering prosperity over the long term.

The lessons are pertinent for major emerging markets like India.  India is the world’s largest democracy, but surging inequality and persistent disparities among its states highlight the need for institutional reforms if India hopes to become a high-income nation.  

Democratic foundations are under strain.  Distribution of income within countries is a major issue.  This year’s Nobel laureates remind us that the strength of societal institutions is paramount to economic and social progress.  One can only hope that their research will prove influential across the world.