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Why the US and its stock market will continue to prosper

Why the US and its stock market will continue to prosper
 Daron Acemoglu is professor of economics at MIT and author of Why Nations Fail. He is one of the foremost respected international economists in the world.

Not to be confused by his name, he is an Armenian born in Turkey. He was for a number of years Turkey’s representative in the World Bank then declined to return to a senior government position in Turkey to pursue an academic career in the USA. He seems to have adopted this country from a recently published article in the Daily Telegraph.

This article is about the US economy but paradoxically gives an insight into Armenia’s lack of prosperity. All the italicised entries have been added and are not in the original article.  


Why the US and its stock market will continue to prosper Economic institutions must be supported by political ones for a country to be a success; without the two inclusive institutions it does not work.
By Daron Acemoglu
18 May 2013


People ask me why some nations are so rich and some so poor. There is now a 40-fold gap between the richest and the poorest nations on the planet. Many people say it’s geography, but economics and politics are really to blame.

We think it is all about incentives, and not just for politicians and the affluent. A level playing field is essential to create a successful nation – society at large needs access to these incentives. It is the concept behind the American dream.

In many countries, systems have been designed so that only the elite can take advantage of all the country has to offer. These exclusive institutions are prevalent in poor countries [such as Armenia].

Economic institutions must be supported by political ones for a country to be a success; without the two inclusive institutions it does not work [Armenia demonstrates this]

In Barbados, for example, people did not even have property rights and the system was based on coercion between the economic and the political.

There was a plantation society dominated by certain sectors and controlled by a restrictive power.

America has inclusive politics and an inclusive economy – this is why it will achieve long-term, steady economic growth.

It gives tremendous support to entrepreneurs [not Armenia’s strong point] and encourages immigration [emigration] to enrich [deplete] the workforce.

The US is currently experiencing something of a political gridlock, but it has done this before; it is the sign that it is at the end of a gilded age. But as long it gives voice to minorities that can be a catalyst for change there will be a modicum of help.

There are some problems. The US technology boom has automated areas where previously labour was needed. Finance is tight and the disappearance of trade unions has meant that there is no minimum wage.

Political access for the poorest member of American society is diminishing and along with that so is their voice.

There is an elite in the US [Armenia] which has more power than the rest – it is the financial and technology sector [the oligarchs]. The overlap between Wall Street [the ROA government] and Silicon Valley [oligarchs] is immense, and it leads the entire economy.

The availability of information can increase free will, but it also can be used to control people – the “modernisation hypothesis” teaches that democracy is something which will arrive to all societies once they are rich and educated. But education and money did not stop the rise of the Nazis. Where there is an elite there will be social unrest.

In the US, male high school attendance rates are at the same levels as they were in the Sixties. In India attendance is poor because access is hard. In the US the difficulty is engaging young people. A lot of people in their late teens see the inefficiencies in the school curriculum and struggle to see what will be useful for them.

One alternative is the German system, where learning is more related to your future career and as a result they are more successful at keeping people in school.

The key is innovation and invention if our children are to have prospects, but I am confident in our ability to deliver.

I am cautiously optimistic about the US. We have been consistently successful as a nation at implementing innovation in the workplace and the financial markets are supportive of start-ups.

If our stock market was dominated by just a few companies [as in Armenia] I would be worried, but incentives are thrown up by a competitive market [but not to be found in Armenia]

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