Early this week, Ford School economist Justin Wolfers delivered the Australian Broadcast Corporation’s annual Boyer Lecture. For 66 years, the Boyer Lecture has brought leaders in policymaking and academia together to discuss the challenging, enduring nature of Australian democracy. In his address, Wolfers declared that “Australia is freaking amazing!” and asked his audience: What drives Australia’s thriving economy? His answer: inclusive democratic and economic institutions.
“I wish economists could test this [theory] the way doctors do by running a randomized control trial. I'd flip a coin. Heads, you get the good institutions. Tails, you're in my control group and you get a placebo. Sadly, no country signed up for my clinical trial,” Wolfers laughed. “But sometimes history signs them up for us.”
The striking differences between South and North Korean prosperity, he says, serve as evidence that institutions shape prosperity. At the end of the Korean War in 1953, the Korean peninsula split into two nations, one democratic and one authoritarian. Although the nations shared most of the economic “ingredients” that preclude success, South Korea has become a thriving cultural and industrial hub while North Korea has become a deeply impoverished country, completely shut off from the rest of the world.
“Today the average income in South Korea is about $75,000, while in the North it's around $1,000, and hunger remains a constant companion,” Wolfers said. “South Korea pulsates with light and activity. North Korea lies in darkness.”
Australia’s political institutions are at the forefront of democratic government around the world. With accessible electoral systems and efficient, responsive legislators, Australians are able to meaningfully engage in the political process. After the 2007 global financial crisis, Australia was one of the few countries that emerged relatively unscathed, an outcome Wolfers attributes to stable banks and a diversified economy.
“Australia launched a bold experiment in inclusive institutions. We shared economic and political power broadly….we built wealth from productive agriculture, industrialized what it mattered, and kept moving up the value chain,” said Wolfers. “Today, [Australia is] a knowledge-based economy that excels in higher education, medical research, geoscience, finance, and tourism.”
As countries around the world experience democratic backsliding, Wolfers urges Australians to protect the integrity of their institutions and continue working towards inclusive, innovative policy solutions. The political and economic futures of the country, he says, depend on it.
