Why economists can’t ignore politics
Daron Acemoglu and James Robinson, best known for their book Why Nations Fail, have a recent essay urging economists not to ignore political factors and outcomes in their policy advice. In their view, political factors aren’t simply externatilities or frictions that make economic systems more efficient, but mechanisms that are critical to shaping economic outcomes: ...
Daron Acemoglu and James Robinson, best known for their book Why Nations Fail, have a recent essay urging economists not to ignore political factors and outcomes in their policy advice. In their view, political factors aren't simply externatilities or frictions that make economic systems more efficient, but mechanisms that are critical to shaping economic outcomes:
Daron Acemoglu and James Robinson, best known for their book Why Nations Fail, have a recent essay urging economists not to ignore political factors and outcomes in their policy advice. In their view, political factors aren’t simply externatilities or frictions that make economic systems more efficient, but mechanisms that are critical to shaping economic outcomes:
There is a broad? even if not always explicitly articulated? consensus amongst economists
that, if possible, public policy should always seek ways of reducing or removing market
failures and policy distortions. In this essay, we have argued that this conclusion is often
incorrect because it ignores politics. In fact, the extant political equilibrium may crucially
depend on the presence of the market failure. Economic reforms implemented without an
understanding of their political consequences, rather than promoting economic e¢ ciency,
can signi?cantly reduce it.
As an example, they point to the role unions have often played in building democracy:
Faced with a trade union exercising monopoly power and raising the wages of its members, most economists would advocate removing or limiting the union?s ability to exercise this monopoly power, and this is certainly the right policy in some circumstances. But unions do not just infl?uence the way the labor market functions; they also have important implications for the political system. Historically, unions have played a key role in the creation of democracy in many parts of the world, particularly in Western Europe; they have founded, funded and supported political parties, such as the Labour Party in Britain or the Social Democratic parties of Scandinavia, which have had large impacts on public policy and on the extent of taxation and income redistribution, often balancing the political power of established business interests and political elites.
From Lech Walesa to Lula, union leaders can often be the political leaders of tomorrow. Whatever their drawbacks, they were clearly an improvement from a classical economics point of view over the autocratic governments they opposed as labor leaders.
Joshua Keating was an associate editor at Foreign Policy. Twitter: @joshuakeating
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