Acemoglu Asks What Makes a Nation Prosper. But Is There a Bigger Question?
Institutions matter. Technology matters. But what happens when a society already has the people, skills and productive capacity needed to prosper - and leaves much of that human and productive capacity unused?
The world is debating Daron Acemoglu again.
A recent Economist article asks why one of the world's most influential economists is "oddly unconvincing." Whatever one's assessment of his conclusions, Acemoglu's influence on modern economics is undeniable. He is a Nobel laureate whose work has profoundly influenced how economists think about institutions, prosperity, technology and inequality.
The question is whether his framework tells us enough.
I think there is a question beneath the institutional question that deserves much greater attention:
What happens when a society has the resources to provide a much better life for its people, but fails to use them?
That is a different question.
And it may be one of the most important economic questions of our time:
why are we still failing to deploy the real resources we already have?
We explored the monetary dimension of this question in our article, “Why Are World Leaders Not Asking the Most Important Economic Question of Our Time?”
Why Acemoglu Matters
Acemoglu, together with Simon Johnson and James A. Robinson, received the 2024 Nobel Memorial Prize in Economic Sciences for their studies of how institutions are formed and affect prosperity. The Nobel Committee describes their work as providing an important explanation for persistent differences in prosperity between countries.
The central idea is powerful.
Societies with more inclusive institutions—broader participation, stronger rule of law and wider access to economic opportunities—are more likely to generate shared prosperity.
Extractive institutions can concentrate political and economic power and prevent the broader population from benefiting from development.
This was an important correction to economic thinking.
Prosperity is not simply about having natural resources.
It is not simply about having capital.
It is not simply about having technology.
The way society is organised matters.
There is little reason to dispute that.
But perhaps we should now ask what comes next.
A Good Institution Is Not the End of the Economic Question
Suppose a society has reasonably good institutions.
It has schools.
Hospitals.
Roads.
Factories.
Farmers.
Engineers.
Doctors.
Teachers.
Workers.
Technology.
Land.
Materials.
Energy.
Knowledge.
And millions of people who want to work.
Yet millions remain unemployed or underemployed.
Children remain inadequately nourished.
Hospitals remain inadequate.
Villages remain underdeveloped.
Infrastructure remains unfinished.
Environmental restoration remains neglected.
What exactly is preventing that society from using what it already has?
This is where I believe economics needs another layer of analysis.
The question is no longer merely:
Are the institutions inclusive?
It becomes:
Are the available real resources being continuously deployed?
The Most Important Economic Resource May Be Sitting Idle
Think about a person who wants to work but cannot find productive employment.
We usually describe that person as:
- unemployed,
- dependent,
- a beneficiary,
- or a fiscal burden.
But there is another way to look at it.
A person employed produces.
If a person is willing and capable of productive work but remains idle, society has lost the output that person could have produced.
The loss is real.
The person may have produced food.
Built a house.
Cared for an elderly person.
Restored a lake.
Taught a child.
Maintained infrastructure.
Provided healthcare.
Produced a manufactured component.
Created a service.
The fact that the person did not receive a wage does not mean that the underlying productive capacity disappeared.
It remained unused.
This is why unemployment is not merely an income problem.
It is a resource-deployment problem.
Technology Creates the Same Question
This becomes particularly important in the current debate about artificial intelligence.
Acemoglu has argued strongly that technology should become more pro-worker—technology that increases the value of human skills and expertise rather than simply replacing workers. His 2026 work with David Autor and Simon Johnson distinguishes labour-augmenting, capital-augmenting, automating, expertise-leveling and new-task-creating technologies.
This is an important direction.
But we can push the question one step further.
Why should the objective merely be to ensure that technology does not destroy too many jobs?
Why not ask:
How can technology help us deploy more human capability?
That is a different objective.
An economy should not be judged by how successfully it eliminates human work.
Nor should it be judged simply by how many jobs it creates.
It should be judged by how effectively it converts human capability, technology and other real resources into human welfare.
Technology should help us do more—not necessarily by making fewer people necessary, but by enabling people to accomplish more valuable things.
The Missing Link: From Resources to Deployment
This brings us to something that is often missing from economic discussion.
We talk extensively about:
institutions.
We talk about:
technology.
We talk about:
capital.
We talk about:
productivity.
We talk about:
growth.
But there is a simpler question underneath all of them:
What resources does society actually have, and how much of them are being used?
A country can have millions of unemployed people.
It can have idle factories.
It can have unused land.
It can have underused infrastructure.
It can have engineers without appropriate employment.
It can have farmers producing without adequate storage or processing.
It can have enormous unmet needs.
And yet economic policy may still behave as though the principal problem is a shortage of money.
That is where the monetary question enters.
What Does the Government Actually Need When It Spends?
This is the question we examined from another angle in “The State Does Not Need More Money. It Needs to Use the Real Resources It Has.” There we asked what a State government actually needs when it spends. Here, the question is broader:
what should an economy do with the real resources it possesses?
A government does not spend money because money itself is the ultimate objective.
It spends because it wants:
Teachers in schools.
Doctors and nurses in hospitals.
Food for children.
Care for the elderly.
Roads.
Housing.
Clean water.
Public transport.
Environmental restoration.
Infrastructure.
Security.
Public services.
So ask a simple question:
What does the government actually need when it spends money?
It needs the people who will perform the work.
It needs the food, steel, cement, medicines, machinery, energy and other materials.
It needs land and infrastructure.
It needs knowledge and organisation.
It needs real resources.
Money is the monetary mechanism through which the government obtains command over those resources.
This distinction is fundamental.
The Monetary Constraint Is Not the Real Constraint
In a modern fiat monetary system, the currency-issuing government does not first have to collect the currency it issues before it can spend it.
Taxes are important.
They create continuing demand for the government's currency.
They influence distribution and behaviour.
They remove purchasing power from the private economy and thereby create space for government to obtain goods and services.
But tax revenue is not what makes it operationally possible for the currency issuer to spend its currency in the first place.
The real constraint appears elsewhere.
If the government attempts to spend beyond the economy's available productive capacity, it can create excessive competition for scarce resources and inflation.
But when substantial resources remain unused, the economic situation is fundamentally different.
There may be scope for:
more production, more employment and greater human welfare.
The constraint is then not simply financial.
It is whether the real resources can be organised and deployed.
This Changes the Meaning of Prosperity
If we accept this, prosperity cannot simply mean:
- higher GDP,
- larger financial markets,
- greater capital accumulation,
- more exports,
- higher asset prices,
- or stronger government finances.
These may tell us something.
But they are not the ultimate objective.
Ask instead:
How many people have productive employment?
How many families have escaped permanent distress?
How good are the schools?
How good are the hospitals?
How nutritious is the food available to children?
How secure are ordinary households?
How much productive capacity is being used?
How much human potential remains unused?
These questions take us closer to the actual purpose of an economy.
Human Resource Development Is Investment
This is particularly important because conventional accounting often treats many of these activities as expenditure.
But consider a world-class school.
A world-class hospital.
Excellent nutrition.
Public healthcare.
Care for children and the elderly.
Environmental restoration.
Safe housing.
These do not merely provide immediate consumption.
They develop and maintain human capability.
A healthy, educated, skilled and secure population is itself productive capacity.
That means human-resource development should be understood as investment in the real economy.
The objective should not be to minimise such expenditure.
It should be to maximise its effectiveness.
Why should a government not aspire to schools and hospitals so good that an IAS officer, a Minister or a wealthy private citizen would be happy to use them?
If public institutions are excellent, the entire society benefits.
Institutions Matter. But Institutions Must Do Something.
This is where I would respectfully extend Acemoglu's question.
Institutions matter because they determine how society organises power, incentives and opportunity.
But ultimately:
What should those institutions do?
They should enable society to use its real resources.
They should enable people to participate.
They should enable technology to increase human capability.
They should enable production to meet human needs.
They should enable unused resources to become productive resources.
And they should enable the benefits of production to reach the people.
In other words:
Good institutions are not the destination.
They are part of the machinery through which society converts its resources into human welfare.
China Forces the Question
China makes this discussion particularly interesting.
Whatever one's view of China's political institutions, its extraordinary development demonstrates the importance of something that cannot be explained by institutional labels alone.
China built enormous productive capacity:
- factories,
- ports,
- railways,
- power systems,
- logistics networks,
- industrial ecosystems,
- technological capability.
It mobilised labour, capital, infrastructure and technology on an extraordinary scale.
This does not prove that China's institutions are universally superior.
It demonstrates something different:
The deployment of real resources matters enormously.
And that is precisely why the question of "overcapacity" has become so interesting.
A factory that appears excessive from the perspective of short-term profitability may represent something very different from the perspective of long-term productive capacity.
The question is not simply:
Was the factory financially profitable?
It is:
What productive capability did society create, and what can that capability now be used for?
That is a different way of looking at an economy.
The Next Economic Question
Perhaps economics has spent too much time asking:
Why are some countries rich and others poor?
Perhaps the next question should be:
Why do societies with substantial real resources continue to leave so much human and productive capacity unused?
That question takes us beyond institutions.
It takes us beyond technology.
It takes us beyond finance.
It takes us beyond GDP.
It takes us to the deployment of real resources.
And once we reach that point, another question becomes unavoidable:
If the resources exist, what prevents society from using them?
Sometimes the answer will genuinely be scarcity.
Sometimes it will be technology.
Sometimes administration.
Sometimes political power.
Sometimes institutional failure.
Sometimes coordination.
And sometimes, perhaps, it is our understanding of money itself.
From Understanding to Implementation
This is not merely a theoretical distinction.
If the problem is unused real resources, the policy objective should be straightforward:
Find them.
Find the unmet needs.
Connect the two.
Organise production.
Employ willing people.
Build productive capacity.
Improve human welfare.
This is the starting point of the Resource Standard.
It does not begin with the question:
How much money can we find?
It begins with:
What real resources do we have, and what can they produce?
And that leads to an entirely different conception of economic governance.
The State's task is not simply to manage scarcity.
It is to continuously organise available real resources toward improving human life.
Perhaps the Most Important Economic Institution Is One We Rarely Discuss
Imagine an institution whose permanent responsibility was simply this:
Know what resources society has. Know what people need. Continuously connect the two.
Not once a year.
Not once every five years.
Continuously.
Know where people are unemployed.
Know where productive capacity is idle.
Know where food is needed.
Know where schools need improvement.
Know where hospitals need staff.
Know where factories have unused capacity.
Know where farmers have produce but lack processing or storage.
Know where infrastructure is deteriorating.
Then organise the resources required to address those needs.
That institution would not merely administer welfare.
It would coordinate the productive economy.
This is the thinking behind the State Resource Coordination Authority and the Village Operational System proposed under the Tamil Nadu Resource Standard Implementation Framework.
A Different Definition of Progress
Perhaps the ultimate measure of an economy should be much simpler.
How many people are living a respectable life?
How many families once trapped in distress have permanently escaped it?
How many villages have achieved full employment?
How much has the minimum living standard increased?
How good are our schools?
How good are our hospitals?
How well are children nourished?
How secure are the elderly?
How are ordinary people treated when they enter a government office, hospital, police station, prison or court?
How much human potential have we recovered?
These are not merely social questions.
They are economic questions.
Because the economy exists for people.
Acemoglu Has Asked an Important Question. We Need to Go Further.
Acemoglu's work has helped economics understand that institutions matter.
His work on technology has reminded us that technological progress does not automatically produce shared prosperity, and his recent work argues for technology that expands human capabilities rather than simply automating existing tasks.
Those are valuable insights.
But perhaps we should now ask the next question.
What happens when people, technology and productive resources are available—but society fails to deploy them?
Because poverty does not disappear merely because a country has good institutions.
It disappears when people gain access to the real resources that make a decent life possible.
And those resources must be produced.
Which means people must be employed.
Which means productive capacity must be used.
Which means economic governance must ultimately be about deployment.
Perhaps the bigger question is not simply how a nation becomes prosperous, but how it can continuously put its real resources to work to create a better life for all its people.
Rajendra Rasu
The author writes on monetary systems and political economy
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