This year, the Nobel Prize in Economics was awarded to three distinguished economists, Daron Acemoglu, Simon Johnson, and James Robinson, who emphasised the importance of societal institutions in a country’s prosperity.

In their magnum opus ‘Why Nations Fail —The Origins of Power, Prosperity and Poverty’, the authors highlighted how extractive political and economic institutions are the key drivers of poverty in many countries. According to them, the societies that have inclusive institutions — both political and economic — tend to be richer.

A major factor that shaped the institutional structure in most of the countries was European colonialism. When European powers colonised vast parts of the globe, the institutions in those societies changed. The colonisers established extractive political and economic institutions to serve their interests. These institutions persist in many post-colonial societies today and contribute to their underdevelopment. The authors argue that a fundamental reason why some countries remain impoverished is these colonial-era institutions.

Many nations still find themselves trapped in these exploitative institutional frameworks, which cater only to a small elite and leave many impoverished. Post-colonial states, in many instances, retained the colonial institutional structure and thus have the same extractive political and economic institutions, perpetuating economic and political inequality.

The country must dismantle colonial-era extractive institutions that serve a small elite at the expense of the masses

The localised elites have replaced the colonial rulers and shaped the policies for their benefit at the expense of the majority. Egypt, for example, remains poor, according to the laureates, because it is ruled by a narrow elite that organises society for their benefit only; many poor countries face similar issues.

To transform the failed nations into successful ones, the laureates contend that a fundamental political transformation is required. They argue that ordinary citizen must seize real political power and restructure the way their society works. This, however, requires revolutionary change — a transformation of societal institutions that will drive common prosperity.

Lessons for Pakistan

What lessons can Pakistan learn from the arguments of the Nobel laureates? To answer this, it is important to first examine the basic structure of the societal institutions in Pakistan. How and why were these institutions formed? Whether these political and economic institutions are inclusive or extractive? What role have these institutions played, and what role do they continue to play for the people of Pakistan? How can Pakistan transform itself into a rich nation?

These are key questions that must be addressed to benefit from the insights of the laureates. When we examine the basic structure of the societal institutions in Pakistan, it becomes clear that these structures are based on capitalistic principles. Thus, the country’s political economy is dominated by a tiny elite.

The proverbial “ruling elite” captures the main pillars of power — Legislature, Executive, and Judiciary — thus having a tight control of the society that perpetuates a system that excludes the majority.

Historically, these institutions can be traced back to the colonial era. During the period, the political and economic institutions were designed to extract the resources of the natives for the benefit of the colonisers. After independence, the colonial structure was inherited by the new ruling elite, who adapted them for their benefit.

The political elite in Pakistan are not able or willing to dismantle the extractive structure of the political and economic institutions for the benefit of the broader population. Therefore, the societal institutions that once served the colonial masters are now serving a small domestic elite at the expense of the masses. The existing structure perpetuates hegemonic control of the parasitic elite through these extractive institutions.

After understanding the basic structure and examining the role of these societal institutions in Pakistan, now the most pressing question is: how can Pakistan address these deep-rooted issues? As per the arguments by the laureates, Pakistan cannot become a prosperous nation without addressing these relevant questions and confronting her institutional challenges.

Pakistan has to get rid of the colonial capitalistic structure that continues to serve only a tiny elite, leaving the majority to suffer at the hands of the extractive institutions. However, changing the role of these institutions will not be easy in the presence of an entrenched, incorrigible elite which is resistant to reform.

Therefore, for Pakistan to become a successful and wealthy society, a fundamental political transformation is required, which is not possible without the ordinary citizens gaining control over real political power and reshaping these institutions to work for their benefit.

The major step toward converting extractive societal institutions into inclusive ones is a revolutionary change, driven by a political movement grounded in the masses and equipped with a revolutionary ideology.

This alternative ideology should be inclusive, rejecting the extractive framework that is dominating the country. Only inclusive political and economic institutions in Pakistan can ensure a future where prosperity is shared by all the citizens.

The writer is a post-doctoral fellow and visiting professor at the University of Alberta, Canada

Published in Dawn, The Business and Finance Weekly, October 21st, 2024