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MIT Better World

By Richard L. Brandt

His revolutionary “stocking frame” vastly reduced the time to knit textiles. Why, then, was it not widely adopted until two centuries later?

Daron Acemoglu, MIT’s Elizabeth and James Killian Professor of Economics, credits the winds of political change. One of the 10 most cited economists in the world, Acemoglu says the ability to empower revolutionary innovation “goes back to the institutional fabric of society.” A prolific contributor to his field, Acemoglu has written on topics ranging from the persistent wage gap between higher-skill and lower-skill workers to the cascading effects of economic shocks within particular industrial sectors. His area of deepest exploration has been the relationship between political systems and economic growth—including the ways governments shape the course of innovation.

In his recent, influential book Why Nations Fail: The Origins of Power, Prosperity, and Poverty (co-authored with James Robinson), Acemoglu uses Reverend Lee as a case in point. With the help of his local representative to Parliament, Lee got an audience with Queen Elizabeth to ask for a patent. She refused. He got the same reaction from her successor, James I, and from the king of France. Acemoglu says their reasons were the same: fear that all the people knitting clothing by hand would be put out of work, would rebel, and would destabilize the political system. Beholden to the small wealthy class that controlled banking and industry, the rulers opted to uphold the status quo.

Sweeping innovation requires an “inclusive” government, says Acemoglu—one that considers everyone’s needs and abilities, not just society’s elite. “If we only enable a small fabric of society to become leaders or scientists, it’s like having our limbs tied to our bodies,” he says.

Lee died penniless. But his invention survived, was refined by others, and helped spur one of the main industries of England’s Industrial Revolution some 200 years later. Political upheaval began in England in 1688, when both houses of Parliament united against James II, forcing him to abdicate the throne. The English Bill of Rights then gave more power to Parliament, especially to the House of Commons. By the late 1700s, commoners were allowed to take out patents, borrow money, and start companies, and the Industrial Revolution began.

Of course, Queen Elizabeth was also right. The Industrial Revolution did create instability. It destroyed many existing institutions and created horrible working conditions for factory workers. It sparked the rebellion of Luddites as well as demands for better working conditions.

As Acemoglu and Robinson write in Why Nations Fail:

Economic growth and technological change are accompanied by what the great economist Joseph Schumpeter called creative destruction. They replace the old with the new. New sectors attract resources from old ones. New firms take business away from established ones. New technologies make existing skills and machines obsolete . . . . How do governments shape the course of innovation?

For innovation to flourish, says Acemoglu, political leadership must deal with, rather than prevent, such destruction. Inclusive governments and economic systems help people through the destructive years and empower them to participate in the new economy. “It can only work in a democracy, where there’s participation by the public,” he adds. “Most of the important decisions are in our hands.”

Acemoglu notes that countries governed by dictatorships or elected leaders who cater primarily to an elite ruling class tend to be “extractive,” not inclusive. They may increase economic growth in the short term by extracting resources, such as oil or cheap labor, and moving most of the wealth to the elite. But that can last only as long as the resources are available—or willing.

Furthermore, he cautions that even within democracies, voters must stay vigilant to ensure their societies remain inclusive, and therefore hospitable to innovation. Political candidates may succumb to wealthy interests that fund elections, while government propaganda and biased news organizations may conceal political agendas. “There’s not any guarantee,” Acemoglu says, “that democracy is self-correcting.”