Building rapid and sustained economic growth within a country sometimes means replacing outdated technologies, ideas and companies, said Turkish economist Daron Acemoglu.
The willingness of a country to allow new entrepreneurs and innovations to take the place of old companies and technologies is one factor that separates wealthy countries from poor ones, according to Dr. Acemoglu, professor of applied economics at the Massachusetts Institute of Technology and one of Foreign Policy magazine’s “Top 100 Global Thinkers.”
Speaking on Dec. 15 at a lecture sponsored by the Istanbul Center and the Center for International Business Education and Research (CIBER) at Georgia State University, Dr. Acemoglu said that this process of “creative destruction” where innovators replace the “losers” is crucial to a growing economy.
“Innovation comes with newcomers, and that’s why entry is very important and new blood is very important. It comes with new technology replacing old technology, new firms replacing old firms,” said Dr. Acemoglu.
While this process of creative destruction was introduced by Joseph Schumpeter in the 1940s, the theory of how it affects the origins of poverty and prosperity is one subject in Dr. Acemoglu’s newest book to be published later this year.
The book, which has yet to be titled, will be co-authored by James Robinson, professor of government at Harvard University. It will cover the long historical development of institutions that either hamper or support creative destruction.
Dating back to 17th-century Europe, Dr. Acemoglu explained how in most countries political elites deter any process that could remove them from positions of power.
As exceptions to this norm, countries such the U.S., Canada and those in Western Europe fostered institutions to protect property rights, secure entry of new businesses and ideas, ensure access to education and promote the rule of law, thus encouraging creative destruction.
After the lecture, Dr. Acemoglu told GlobalAtlanta that growing up in Turkey where the economy is so different from its European neighbors made this natural topic of interest for him.
He said that as an economist he was naturally interested in studying the way poverty emerges.
“In economics, we always worry about how the society is doing or is not doing (and) what is best for its citizens,” said Dr. Acemoglu.
He added that for U.S. businesses looking to work in countries where the institutions protect the elites and stifle entry of new ideas, investing could be an ethical dilemma.
For example, while the Russian economy is doing very well right now and it is profitable for some U.S. companies to do business in the country, this investment ultimately feeds into a corrupt and authoritarian political system.
Dr. Acemoglu said that taking an ethical stand against authoritarian regimes is often difficult as most U.S. businesses are concerned about the bottom line, not necessarily confronting corrupt political systems.
“I think a more principled approach is necessary, but it’s not easy,” he said, noting that it is often more feasible to take action against these regimes through international bodies such as the United Nations.
Dr. Acemoglu also noted in his lecture that understanding how institutions create disparities in wealth is much easier than finding a solution.
“Understanding the role of institutions is rather straightforward. Understanding how to change them is not,” he said.
For more information on Dr. Acemoglu visit, http://econ-www.mit.edu/faculty/acemoglu, or for information on the Istanbul Center visit, www.istanbulcenter.org.
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