The 2025 Economics Prize, , showed how knowledge, mental models and beliefs impact . As he argued, it emerged from “the great synergy of the Enlightenment: the combination of the Baconian program centered on useful knowledge” — applied, not just theoretical — “and the recognition that better institutions created better incentives.”
In other words, ideas, beliefs and values matter for long-term development; It is not just material incentives, but the “cultural entrepreneur’s” ability to reshape mental models that determines whether institutions evolve productively. This explains why that revolution happened in and not in (his recent analysis is exquisite).
Lee Alston, Bernardo Mueller, Carlos Pereira and this columnist explore these questions in . The book is part of a series from Princeton Press, which hosted a workshop in Chicago to discuss our manuscript.
The book offers a conceptual framework based on the Brazilian experience, focusing on the institutional transformation of the 1980s and 1990s, emphasizing that transitions do not depend only on shocks and interests, but on beliefs. These are the cognitive maps that guide institutions, shaping what actors see as possible, legitimate or desirable.
When results diverge sharply from expectations, these beliefs become malleable. It is at this moment that leadership becomes crucial: leaders act as interpreters of shocks, persuading the dominant network made up of business, civil society, and that new institutional arrangements are necessary.
The proposed framework converges with Mokyr’s emphasis that ideas themselves drive institutional evolution. Brazil’s turn toward macroeconomic stability and social inclusion in the 1990s was not simply a product of structural constraints. It reflected shared understandings that inflation control and social policy were preconditions for prosperity. But the transition remained incomplete.
Crises —, scandals, fiscal shocks — create windows of opportunity. Whether they will be used depends on how the dominant network interprets them. Institutions then crystallize beliefs into lasting rules and incentives. The results provide feedback: success reinforces beliefs, while failure reopens the debate.
Beliefs are not mere background conditions: they are disputed, reinterpreted, and defended rhetorically. They determine whether shocks are seen as aberrations or as mandates for reform.
The lesson is broader: critical transitions require changes in collective mental models as much as in institutional design. Interests alone do not explain why some countries maintain openness while others regress.
As Mokyr reminds us, development is a battle of ideas as much as resources. For countries stuck in cycles of crisis, the real challenge is not just crafting better policies, but cultivating the belief systems that make institutional change possible.
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