The neoliberal approach to public policy is riddled with flaws, emphasizing the need to explore alternative perspectives that offer bottom-up solutions, respect indigenous frameworks, and critique neocolonial institutions.
Daron Acemoglu, Simon Johnson and James A. Robinson won the 2024 Nobel Prize for Economics for their work on what causes the vast differences in prosperity between nations. To an extent, their work deconstructs how colonialism shapes today’s institutions. Except for a few others, the Nobel Prize in economics has been limited to mainstream economic thinkers, often working within the scope of dominant economic schools of thought (such as the Keynesians, the neoliberals 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 free market trust. This includes the interests of multinational corporations and wealthy nations, many known for their exploitative resource extraction policies in developing countries. Dependency Theory links the development of the Global North wealthier, industrialized countries) to the underdevelopment of poorer countries (the Global South).1
The concentration of Nobel recipients from the Global North is also fairly large. This systemic underrepresentation of scientists, writers, and scholars reflects broader global inequities in the creation and sharing of knowledge. However, this year’s awardees might have something to say that has larger implications not only for economic theory in institutional policymaking, but also for how development policies and politics intersect with marginalisation and exploitation.
One of the influential papers that brought Acemoglu, Robinson and Johnson to the forefront was “The Colonial Origins of Comparative Development: An Empirical Investigation.” They examine how European colonisation policies shape the development and socio-political systems of various countries, focusing on how historical institutions – established during colonization – have had a lasting impact on the economic performance of former colonies.
Colonization shaped 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. The settlers 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 emerged.
One of the key indicators they examine is settler mortality rates. Areas with unfavorable disease environments for Europeans saw a lower likelihood of settlers staying and a higher chance 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.
In particular, Acemoglu, Robinson and Johnson highlight the historical legacy of resource extraction and how the colonial hinterlands became breeding grounds for structural inequality. Consider the colonial institutions established during British rule in South Asia. While the growth trajectory 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%, or 844 million people). By closely linking this to dependency theory, the authors show how the Global South remains rooted in neocolonial foundations, further intensified by neoliberal logic.
Within the field of public policy, it is important to understand why and how these foundations have implications for policymaking globally and how policy processes in regions with strong institutional frameworks often fail in regions with 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 through production in the “periphery” (low-income Global South countries) and transferred to the “core” (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, neoliberal forces succeed in creating winners and losers. This is what is also termed as ‘Unequal exchange’,2 which explains why labour, raw materials, and land are cheaper in the periphery.
Eurocentrism and its critique
Second, economic theory and its intrinsic link 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, pioneer of Dependency Theory and Marxist economist Samir Amin defines ‘Eurocentrism’ as an ideological framework that positions Europe as the central and most advanced civilization, often to the exclusion or marginalization of other cultures and historical perspectives. This view considers European civilization as the universal standard of development and modernity. Conversely, non-European societies are often depicted as backward and in need of Western intervention or guidance.
Importantly, Amin’s critique of Eurocentrism differs from Edward Said’s concept of Orientalism which focuses more on how the West represents the East through harmful cultural portrayals. Unlike Orientalism, Eurocentrism is broader and involves the global dominance of European values and institutions; its centrality in global history and policy frameworks. Amin shows how Eurocentric social sciences contribute to legitimising unprecedented exploitation of capital while real material effects such as worsening climate change, displacements, and the loss of workers’ rights are pushed to the peripheries – the implication being that imperialism always returns to the matter of capitalism. Through this, Amin talks about a universal project free from European particularism, a ‘modernity critical of modernity.’
Towards decolonised economics
Finally, decolonising economics is important and social justice movements (e.g., the Black Lives Matter [BLM] movement) are instrumental in drawing attention to economics’s critical limitations in 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 racialized wealth gaps are part of a larger set of problems highlighted by movements like BLM. Reforms in policymaking need to first acknowledge the flaws in neoliberal design and actively debate its limitations. Policymakers should explore new designs and case studies that prioritize individual rights and well-being over profits for a minority. 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.
Curricular designs should actively integrate decolonial literature and courses in all public policy curriculums. A minor step in increasing the representation of Global South scholars in faculty would go a long way in fulfilling these criteria. 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 have achieved is a core challenge to Eurocentric institutions. Their work solidifies Amin’s critique of the West, and goes further to provide a logic of institutional interaction within systems of global capital, echoing Amin’s arguments about neoliberal capitalism’s innovative ways of exploiting the Global South.
The 2024 Nobel Prize for economics is a powerful reminder that neoliberal logic is fundamentally flawed. The current moment calls for decision-makers to look beyond Western frameworks and embrace new economic thought.
Aaswash Mahanta is a Master of Public Policy candidate at the Hertie School, holding a bachelor’s degree in Economics from the University of Delhi, India. He has experience in policy research within the government and has also worked briefly in the social impact sector in India. His interests lie at the intersections of welfare, labor rights, heterodox economics, and improving governance outcomes. He’s also a garlic-lover.
Notes:
1. Amin, S. (1974). Accumulation on a world scale: A critique of the theory of underdevelopment. Monthly Review Press.
2. Amin, S. (1976). Unequal Development: An essay on the social formations of peripheral capitalism