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PS Say More
Welcome to Say More, a weekly newsletter that brings Project Syndicate’s renowned contributors closer to readers. In each issue, a contributor is invited to expand on topics covered in their commentaries, address new issues, and share recommendations, offering readers exclusive insights into the ideas, interests, and personalities of some of the world’s leading thinkers.

This week, Project Syndicate catches up with Daron Acemoglu, Professor of Economics at MIT.

In last week’s edition of Say MoreAnne O. Krueger, a former World Bank chief economist and first deputy managing director of the International Monetary Fund, considered how to curb rent-seeking behavior, highlighted some structural-adjustment success stories, and offered advice to the IMF’s new leadership.

Please note that this is the final edition of Say More in 2019. Watch for the next edition on January 7, 2020.

Daron Acemoglu Says More…

Project SyndicateDaron Acemoglu: You argue that the goal of creating good jobs “should guide policymakers’ approach to everything from technology, regulation, and taxes to education and social programs.” That’s easier said than done in the best of times, much less in an era marked by deep political polarization. What types of measures are policymakers likely to agree on, and which reforms are most urgent?

Daron Acemoglu: Most people are not motivated exclusively by income. They want meaningful and secure employment, which gives them the sense of being rewarded for their labor. This means that “good jobs” – which are reasonably secure and offer decent wages – are very important for a population’s welfare and for the healthy functioning of democratic institutions.
Policymakers have largely ignored the good-jobs imperative. But there is no guarantee that markets will naturally produce enough good jobs. Left to their own devices, employers might have incentives instead to create lower-wage jobs, to automate, or to squeeze their workers (in terms of wages or security), in order to increase their profits.
I see four broad areas where policy can contribute to the creation of good jobs. The first is minimum wages. If the problem is that employers are keeping wages too low – and creating the kinds of lower-productivity, lower-quality jobs that enable them to get away with it – then a wage floor would be effective.
The second area is corporate policy. Corporations have become obsessed with cost-cutting, even when it comes at the expense of their stakeholders, including their workers. This isn’t an easy problem to fix with regulation, but changing the overall business environment and giving a greater voice to workers (for example, by requiring that companies include worker representatives on their boards) would help.
Third, good jobs are less plentiful today partly because businesses have been substituting machines and algorithms for labor. Technology is wonderful, but there is such a thing as excessive automation. For example, companies might use machines, even in cases where hired workers would actually be more productive, because it reduces their tax burden. Such employers are unlikely to account for the social benefits of having plentiful good jobs. Given this, governments should implement policies – including tax reforms – to discourage excessive automation.
Finally, good jobs depend on technological progress that increases labor productivity and generates new tasks for workers. This type of “blue sky” innovation depends, in turn, on government support. Yet government funding of – and leadership on – research and development has declined in recent years. Reversing this trend should be another top priority.
PS: Back in 2012, you wrote that economic growth will ultimately stall in a state-capitalist system, because the innovation on which sustained growth depends “presupposes inclusive institutions.” But in today’s advanced economies, as you and others have noted, government-funded research and large-scale purchases of high-tech equipment contributed significantly to “four decades of strong, inclusive growth after World War II.” So, does China need systemic change to reach its goal of achieving high-income status, or only an adjustment in the balance between state and market?
DA: Rapid and constructively-directed technological progress depends on government funding and leadership. But this doesn’t mean that the government should decide which technologies and ideas to support, let alone tell companies what to do. Yet that is what happens in a state-capitalist system: businesses must operate according to the government’s objectives, and bureaucrats (in China’s case, Communist Party officials) decide which companies receive funding or preferential treatment, and which ideas are pursued.
Let me give a concrete example. A major success of Western innovation policy has been the development of low-carbon technologies, which would not have been possible without government funding for clean energy. But the government didn’t decide, say, whether businesses should invest in solar panels or wind turbines, nor did it support specific companies. Rather, it offered funding for innovation in a broad area.
An economy without any government support and leadership in innovation and one based on rigid state capitalism, as in China, are both highly imperfect. It isn’t clear which will run out of steam and when.
My view about China’s future growth potential hasn’t changed completely. But there is another factor to take into account. In the age of artificial intelligence, Chinese companies have one advantage relative to their European and American rivals: they have access to much more data, because of their closer links with governments and lack of privacy protections. I don’t think that this advantage can make up for the other inefficiencies of state-led development and innovation policy. But it is worth investigating further.
PS: How can countries with what you call extractive institutions build inclusive ones? Does a particular country’s experience offer a useful model?
DA: There is no single, typical way of building inclusive institutions out of extractive ones. Every country’s history is different and poses unique barriers to inclusive politics. But there are some shared priorities and guidelines, which James Robinson and I explore in some detail in our new book, The Narrow Corridor: States, Societies, and the Fate of Liberty.
We argue that inclusive institutions necessitate a balance between state and society. On one hand, there is the ability of state institutions to regulate economic, social, and political interactions; on the other, there is society’s ability to resist the state’s impositions and monitor public institutions and elites.
If you begin with excessively strong, despotic states and dominant elites, then you need to strengthen society. If you start with excessively weak, low-capacity states, strengthening state institutions should be the first priority. In many cases, it is vital to strengthen both states and societies, not least to foster trust in state institutions.
Broadly shared leadership is essential here. If just one narrow group or individual holds all the power, they are likely to leverage it for their own benefit, undermining institutions. Broad coalitions are one way to protect against such an outcome, while fostering trust in institutions.
There are many examples that illustrate these patterns. The fall of the apartheid regime in South Africa resulted from improvements in societal organization and mobilization (especially by the black majority, which was completely excluded from politics). The leaders of the African National Congress – Nelson Mandela’s party, which has won every election since apartheid – then formed a broad coalition, for example, by bringing English-speaking business interests on board. It helped that Mandela set such a powerful example of inclusivity, thereby fostering trust in the new constitution and political order.
PS: You’ve highlighted the dangers posed by Big Tech, which, like Soviet central planners, behaves as if society could be improved through pure “rationality.” Unlike Soviet central planners though, people like using the goods and services that Big Tech’s produces. What’s wrong with that?
DA: Never before have there been corporations that are as large (as a share of GDP) as today’s tech giants. Some argue that they are benign, just bringing new technologies, lower prices, and new goods and services to consumers. That is true, but they also have an agenda of re-engineering every aspect of human life.
Such top-down social-engineering schemes have never worked too well, especially when born of such hubris; at times, they have been truly disastrous for humanity. The only way we have devised to check such schemes is via democratic politics. But our democratic institutions are getting weaker, and most of our politicians are too beholden to – and enamored by – Big Tech to take strong action.
Don’t get me wrong: I think today’s innovations, including in AI and robotics, are the most exciting and promising technologies we have produced in quite a while. The US economy’s continued vibrancy depends on them. But making Big Tech more responsive to society – a little more regulated, and a little less hubristic – would propel technology in more constructive directions, increasing its contributions to society, to the economy’s efficiency, and to the tech companies themselves.

By the Way...

PS: Among the remaining US Democratic presidential candidates, whose economic plans align best with the “good jobs” agenda that you promote?
DA: I don’t think any of the candidates has really internalized the importance of good jobs. None is thinking about excessive automation, for example. But many do advocate some elements of an agenda that would help create such jobs.
For example, most serious candidates support a higher federal minimum wage. Elizabeth Warren also emphasizes the need for companies to shift away from short-term maximization of shareholder value – an approach that fits into a good-jobs agenda. But I don’t believe that this can be achieved by legislating broader stakeholder interests.
Moreover, much of Warren’s and Bernie Sanders’ agendas, and almost all of Andrew Yang’s agenda, is about fiscal redistribution, which has a role but doesn’t advance the good-jobs imperative. While wealth taxes may go some way toward making taxation of capital and labor income more symmetric, the combination of moderate capital-income taxation and the elimination of investment subsidies and business-tax loopholes would achieve this more transparently and effectively.

That said, in a recent speech in New Hampshire, Warren emphasized the importance of broad-based growth, and even identified some of the structural problems underlying stagnant US productivity. I discuss this in my next PS commentary, explaining how she – and the other Democratic candidates – should build on this new recognition.
PS: Let’s assume that the US economy remains strong over the next year. With unemployment down, wages rising, and asset prices up, President Donald Trump, having survived impeachment, wins a second term in November 2020. What’s the best-case scenario for America and the world?
DA: I hope it will not come to that. Before Trump’s inauguration, I argued that US institutions were not up to the task of controlling him. There was only one viable defense against Trump’s brand of crony despotism: society itself.
Over the last three years, the American public, supported by parts of the media and civil-society organizations, have successfully resisted some of Trump’s most destructive and pernicious actions. But, as long as Trump is in the White House, there is only so much we can do to stop him and his allies. That is why it is so important that American voters show up to the polls and hand Trump a resounding defeat in 2020.
If somehow, by hook or crook (and I do not discount the crook part), Trump wins again, there is no upside, no silver lining or glimmer of hope. American democracy would atrophy to the point that it might never regain its vibrancy or standing. It would be a very sad – and very dangerous – day for the world.
PS: You rank among the world’s most cited economists. Is there an idea or argument of yours that is often overlooked or misinterpreted?
DA: I have been immensely fortunate that some of my papers have attracted attention. Many social scientists are not as lucky, despite writing excellent papers. Let me mention two papers of mine that, in my opinion, deserve more attention.
The first is “Good Jobs Versus Bad Jobs,” which describes why, left to its own devices, the economy will generate too many bad jobs with low investment and low wages. It makes clear that we cannot rely on corporations to create good jobs. Government intervention – in the form of worker protection, minimum wages, and unemployment benefits – is crucial.
The second – a joint paper with Alex Wolitzky – is “The Economics of Labor Coercion,” which shows why employers may have an incentive to use inefficient coercive methods: they depress labor costs and enable the extraction of excessively high effort from workers. Though the paper focuses on historical debates and agricultural relations, the ideas are relevant for the modern economy.
PS: Whom do you find yourself citing often, and why?
DA: Let me mention three social scientists whose work I often cite in different contexts and who I believe deserve more recognition.
Robert Bates: A Harvard professor, Bates was the first person to understand the interlocking political inefficiencies of the African economies, and to articulate a political-economic theory of underdevelopment in post-war Africa.
Robert Brenner: One of the first social scientists to underline the role of labor coercion in European economic history, Brenner challenged theories that attempt to explain economic institutions using structural factors (such as demographic change), arguing instead that power relations in a society cause differential responses to the same impulse.
Joseph Zeira: A professor at the Hebrew University of Jerusalem, Zeira was one of the first economists to model automation. My recent work in this area owes much to his pioneering research.

Acemoglu Recommends

We ask all our Say More contributors to tell our readers about a few books that have impressed them recently. Here are Acemoglu's picks:

The Goodness ParadoxThe Goodness Paradox
The Strange Relationship between Virtue and Violence in Human Evolution

By Richard Wrangham

This brilliant book sheds light on why humans are, on one hand, compassionate, cooperative, and egalitarian, and, on the other hand, violent, domineering, and murderous. It advances a thought-provoking “self-domestication” hypothesis, which claims that humans made themselves much more domesticated and cooperative than most other apes, such as chimpanzees, because they formed coalitions that killed and drove away excessively dominant individuals. This idea seems to have stronger theoretical (and evidential) foundations than most group-selection hypotheses, which claim that we became cooperative, fair, and moral in order to defend our group against external enemies.

Winners Take AllWinners Take All
The Elite Charade of Changing the World

By Anand Giridharadas

I do not agree with everything in this book. But it provides a thought-provoking and original argument: philanthropy and the philosophy behind it have not only failed to redress societal injustices; they have helped to consolidate the power and status of rich tycoons.

Ill Fares the LandIll Fares the Land

By Tony Judt

This prescient and original book – which I am now reading for the second time – identifies the fault lines in the American and British economic and political systems, showing why powerful political backlashes were inevitable.

From the PS Archive

From 2019
Acemoglu argued that universal basic income schemes are not just unrealistic and ineffective, but also suspect on democratic grounds. Read the commentary.
From 2019
Acemoglu and Robinson identify the three structural factors that have been crucial to right-wing nationalists’ success. Read the commentary.
The Narrow Corridor
From Penguin Random House

The Narrow Corridor
States, Societies, and the Fate of Liberty

By Daron Acemoglu and James A. Robinson

Why does liberty flourish in some states but fall to authoritarianism or anarchy in others? Acemoglu and Robinson answer this pivotal question – and explain how liberty can continue to thrive despite new threats.

Around the Web

In case you missed it, here are some other places around the web where Acemoglu's work or ideas have appeared recently.

In an EconTalk podcast, Acemoglu makes the case for policies that could lead to good jobs across skill levels. Listen to the discussion.
Acemoglu engages in a wide-ranging conversation with fellow economist Tyler Cowen, covering topics from the biggest challenges currently facing the Middle East to the economic causes and effects of democratization. Listen to the podcast.
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