Will China Be Nicer When It is Richer?
With the Great Chinese Growth Machine to all appearances on the verge of downshifting, it's a good time to revisit an old argument: Can China continue to expand at nearly double-digit pace if the Communist Party doesn't loosen its the iron grip? Or, coming at the problem from a different direction, is the tension between a free economy and an autocratic political system in China likely to be self-resolving—in other words, will growth lead to liberal government?
Acemoglu and Robinson distinguish between "extractive" economic institutions—those designed to skim the bounty of production for the benefit of the elite—and "inclusive" institutions, which motivate people to work, invest, and innovate by assuring economic rights and a level playing field. In the same fashion, they classify political institutions as extractive or inclusive. The former protect the interests of the rulers, during the latter nurture pluralism.
It's worth noting here that economic systems are rarely utterly extractive or in every way inclusive; economic interests at times succeed in creating pockets of privilege, even in liberal democracies. In the same manner, the economic reforms orchestrated by Deng Xiaoping in the 1980s moved China's system only part of the way from extractive to inclusive. Yes, farmers were freed to own land and to sell their crops to anyone; yes, it is possible to start a business and keep the profits. However woe unto those who challenge state-owned enterprises or businesses tied to the political leadership in the marketplace.
The Chinese economy is undoubtedly entrepreneurial
While the Chinese economy is undoubtedly entrepreneurial, it isn't especially innovative. Nor, in this respect, are banks eager to loan money to those ready to build better mousetraps. Why would one expect if not, in light of the risks in taking on incumbent elites or in trying something utterly new without the protection of enforceable contracts? Yet at this hour of development, Acemoglu and Robinson say that what's actually needed to sustain the momentum is "creative destruction "—initiatives that upset the so then-padded apple carts of state-owned enterprises and, more as a rule, the friends and family of the rulers.
Thirty years ago, it was in the interest of China's autocrats to ignore ideology and liberalize the economy. Today, it's far from clear that the Beijing political class would, as a last resort, benefit from furthermore liberalization. On the one hand, another doubling of GDP would go a long way toward reducing social tensions that constitute a long-term threat to the dictatorship of the former proletariat. On the other, greater freedom to challenge incumbent interests may gore too many then-connected oxen to be acceptable.
Interesting irony here
There's an interesting irony here. To date, we've all been rooting for Chinese growth, which, when all is said and done, has saved a half-billion people from grinding poverty. However should we however be leading the cheering section if the political system remains resistant to inclusiveness?