I think China is basically in a similar situation to Prussia/Germany from 1848 to 1914. The revolutions of 1848 were unsuccessful in both Prussia and the independent South German states but they gave the aristocratic elites one hell of fright. The formal institutions of government didn’t change very much, nor did who was running the show—in the Prussia then Germany the aristocratic-military Junker class. They still put people they didn’t like in prison sometimes and still had kings with a large amount of formal power. However, they liberalised pretty spectacularly in lots of way—for instance trade unions were unbanned and the SPD (communist party at the time) grew to be the largest party in Germany, contract law was made equal between employers and workers and a market economy was allowed to flourish independently of the state and the old organisations of guilds and the vestiges of feudalism allowed to die.
To see how dramatic this change was one can look at the state of Prussian agriculture before and after 1848. Prior to 1848 agriculture was still in important ways governed by the Conservative mode of economic organisation—production, exchange and consumption were decided by what tradition dictated, was insulated from market forces by tariffs, and dominated by old aristocratic families. After 1848 Prussian agriculture was allowed to become a part of the market economy and become dominated by bourgeois men who ran their farms to make a profit and hired and fired workers as they pleased, and the market dictated the price of grain. It is hard to overstate how different this is from how agriculture was organised in, say, 1830.
I think China is doing something pretty similar now. 20 years ago individuals lives were controlled in lots of ways by their work units. Your factory unit provided you with your job, your house, your pension, your healthcare and it was controlled by the party. This is now not the case. People move freely between jobs (that’s mostly but not entirely true) , regional newspapers report on government failures and people bring lawsuits against big powerful companies and sometimes they win.
Prussia/Germany was able to achieve growth at the frontier after 1848 and I think it’s plausible China does the same. Basically, I think that both governments are acting something like monopolists would in a contestable market. From the outside it’s looks uncompetitive and like the monopolist should be extracting big rents, but actually they’re keeping prices low because they’re shit scared that someone’s going to come and take their place if they start trying to get monopoly profits.
Now, having said all that, the Chinese economy has some big structural problems that look like classic extractive institutions problems. The two biggest to me at least look like the urban-rural divide and the massive about of infrastructure spending fueled by local government spending based land value prices. The Hukou system increases the cost of individuals moving from one administrative district to another by making it extremely difficult to access public services. This has created an underclass of poorly educated, low productivity migrants in the big cities who’ve left their children back home who go to low quality schools and just have the poor life chances associated by being raised not by one’s parents. China then also has the classic authoritarian problem of being really good at producing loads of infrastructure and then producing way too much of it relative. The political economy reason behind this is in the China case is that big infrastructure projects offer opportunities for graft and make regional GDP numbers look good.
I think China is basically in a similar situation to Prussia/Germany from 1848 to 1914. The revolutions of 1848 were unsuccessful in both Prussia and the independent South German states but they gave the aristocratic elites one hell of fright. The formal institutions of government didn’t change very much, nor did who was running the show—in the Prussia then Germany the aristocratic-military Junker class. They still put people they didn’t like in prison sometimes and still had kings with a large amount of formal power. However, they liberalised pretty spectacularly in lots of way—for instance trade unions were unbanned and the SPD (communist party at the time) grew to be the largest party in Germany, contract law was made equal between employers and workers and a market economy was allowed to flourish independently of the state and the old organisations of guilds and the vestiges of feudalism allowed to die.
To see how dramatic this change was one can look at the state of Prussian agriculture before and after 1848. Prior to 1848 agriculture was still in important ways governed by the Conservative mode of economic organisation—production, exchange and consumption were decided by what tradition dictated, was insulated from market forces by tariffs, and dominated by old aristocratic families. After 1848 Prussian agriculture was allowed to become a part of the market economy and become dominated by bourgeois men who ran their farms to make a profit and hired and fired workers as they pleased, and the market dictated the price of grain. It is hard to overstate how different this is from how agriculture was organised in, say, 1830.
I think China is doing something pretty similar now. 20 years ago individuals lives were controlled in lots of ways by their work units. Your factory unit provided you with your job, your house, your pension, your healthcare and it was controlled by the party. This is now not the case. People move freely between jobs (that’s mostly but not entirely true) , regional newspapers report on government failures and people bring lawsuits against big powerful companies and sometimes they win.
Prussia/Germany was able to achieve growth at the frontier after 1848 and I think it’s plausible China does the same. Basically, I think that both governments are acting something like monopolists would in a contestable market. From the outside it’s looks uncompetitive and like the monopolist should be extracting big rents, but actually they’re keeping prices low because they’re shit scared that someone’s going to come and take their place if they start trying to get monopoly profits.
Now, having said all that, the Chinese economy has some big structural problems that look like classic extractive institutions problems. The two biggest to me at least look like the urban-rural divide and the massive about of infrastructure spending fueled by local government spending based land value prices. The Hukou system increases the cost of individuals moving from one administrative district to another by making it extremely difficult to access public services. This has created an underclass of poorly educated, low productivity migrants in the big cities who’ve left their children back home who go to low quality schools and just have the poor life chances associated by being raised not by one’s parents. China then also has the classic authoritarian problem of being really good at producing loads of infrastructure and then producing way too much of it relative. The political economy reason behind this is in the China case is that big infrastructure projects offer opportunities for graft and make regional GDP numbers look good.