Authoritarian Growth and the Failure of Modernization Theory

Key Insight

China's rapid economic growth is presented as a prime example of growth occurring under extractive political institutions, despite significant shifts towards more inclusive economic institutions since the Mao era. The Communist Party maintains ultimate control, influencing economic decisions, suppressing private entrepreneurs who challenge state interests (e.g., Dai Guofang's steel project), and ensuring property rights are not entirely secure, with labor mobility heavily regulated and business success often dependent on political connections.

This model of growth relies heavily on the adoption of existing technologies and massive investment, rather than 'creative destruction,' which is fundamental for sustained growth. The party fears creative destruction because it inherently destabilizes established power relations. Consequently, Chinese growth, much like Soviet growth in the 1950s and 60s, is facilitated by the scope for 'catching up' but is ultimately limited. The theory suggests that this growth will run out of steam, especially as China reaches middle-income country status, unless its extractive political institutions transition to inclusive ones.

Such authoritarian growth challenges modernization theory, which posits that economic development automatically leads to democracy and more inclusive institutions. This theory is flawed: rich, industrialized nations like Germany and Japan in the early 20th century, and prosperous Argentina in the 19th century, did not automatically develop enduring inclusive political systems; instead, they experienced shifts toward extractive regimes. Growth under extractive institutions is often generated because ruling elites view it as supporting, rather than threatening, their power, making spontaneous transitions to democracy unlikely.