Authoritarianism versus Democracy: The Key Challenge to Chinese Ascendancy

September 16, 2014

by Michael Edesess and Kwok L. Tsui

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An intense debate has been underway for more than a decade about whether the East – China in particular – is in the ascendancy. Some argue this is so and that the West is in decline. Others say China’s flawed political institutions will limit its monumental growth and render it precarious. Recent upheavals concerning the democratic election of Hong Kong’s Chief Executive make this an especially opportune time to address these questions.

If conclusions can be drawn from broad surveys of historical experience, these generalizations may suggest what the future trajectories of developing and developed nations are likely to be. Many books have explored how nations achieve sustainable economic growth. A recent important contribution to this work, Why Nations Fail: The Origins of Power, Prosperity, and Poverty, by Daron Acemoglu and James A. Robinson, respectively professor of economics at MIT and professor of government at Harvard, recounts the historical development or non-development of pluralistic political institutions in a broad swath of countries and polities, ranging from European countries  and the United States to countries of Africa, Asia, and South America.

In every case, the authors’ goal is to show how differently the economy develops in a country depending on whether the nation is able to create “inclusive institutions” or remains mired in “extractive institutions.” Extractive institutions only benefit a small ruling elite to the detriment of the vast majority of the population. Self-serving dictatorships, oligarchies, extractive colonies, and feudal societies fall into this category. Only when the dictator’s or the ruling elite’s power is limited – either forcibly or due to circumstances – by a broad coalition of domestic factions are inclusive institutions able to develop.

According to the authors, it is only “inclusive institutions”, those political and legal institutions which “are based on constraints on the exercise of power and on a pluralistic distribution of political power in society, enshrined in the rule of law,” that are conducive to sustainable economic growth.

But what are “inclusive institutions”?

Acemoglu and Robinson define inclusive institutions as those that are “sufficiently centralized and pluralistic.” Other than that imprecise characterization, they define inclusive institutions more by example than by strict definition. This vagueness causes one reviewer, Bill Gates (yes, that Bill Gates) to complain about the book in a review on his blog: “Important terms aren’t really defined, and they never explain how a country can move to have more ‘inclusive’ institutions.”

The complaint that Acemoglu and Robinson never explain how a country can move to have more inclusive institutions is partly justified. It cannot be denied, however, that they explain how countries have moved to have more inclusive institutions in the past. But the gap between how it does happen and how it can be made to happen is wide.

How it can be made to happen is, of course, what we really want to know. Acemoglu and Robinson put great emphasis on the role of “contingency” – that is, chance. For example, they say that the Black Death, which swept across Europe in the 14th century, killing as much as half the population, played a significant role in setting off the historic liberalization of Western Europe and its gradual move toward inclusive institutions. Why? Because it reduced the size of the labor market, making it easier for laborers to bargain with their masters – the ruling elite – and thus increase their power.

The meaning of “inclusive institutions” is readily understandable to the vast majority of Acemoglu and Robinson’s readers – Americans and Europeans. Inclusive institutions are those that have been developed in Europe, North America and countries friendly to the West such as Australia, New Zealand, and Japan. To that extent the authors’ views are Eurocentric. Inclusive institutions are those that are embraced and idealized by a Eurocentric viewpoint.

Why China won’t work

Nevertheless, Acemoglu and Robinson argue that this isn’t just a point of view. Defending against the charge that their analysis doesn’t explain how to create inclusive institutions, they say that at least it explains how not to create them. For example, the United States’ foreign nation-building efforts, as in Iraq and Afghanistan, are doomed to fail because the institutions they attempt to build can only be developed domestically.

Their analysis further concludes that China’s growth path will not be sustainable:

Even if Chinese economic institutions are incomparably more inclusive today than three decades ago, the Chinese experience is an example of growth under extractive political institutions. Despite the recent emphasis in China on innovation and technology, Chinese growth is based on the adoption of existing technologies and rapid investment, not creative destruction. An important aspect of this is that property rights are not entirely secure in China.

We are prepared for this conclusion by two revelations, or reminders.

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