experiences. While the early stages of Chinese growth
were spearheaded by radical market reforms in the
agricultural sector, reforms in the industrial sector have
been more muted. Even today, the state and the
Communist Party play a central role in deciding which
sectors and which companies will receive additional capital
and will expand—in the process, making and breaking
fortunes. As in the Soviet Union in its heyday, China is
growing rapidly, but this is still growth under extractive
institutions, under the control of the state, with little sign of a
transition to inclusive political institutions. The fact that
Chinese economic institutions are still far from fully
inclusive also suggests that a South Korean–style transition
is less likely, though of course not impossible.
It is worth noting that political centralization is key to both
ways in which growth under extractive political institutions
can occur. Without some degree of political centralization,
the planter elite in Barbados, Cuba, Haiti, and Jamaica
would not have been able to keep law and order and
defend their own assets and property. Without significant
political centralization and a firm grip on political power,
neither the South Korean military elites nor the Chinese
Communist Party would have felt secure enough to
manufacture significant economic reforms and still manage
to cling to power. And without such centralization, the state
in the Soviet Union or China could not have been able to
coordinate economic activity to channel resources toward
high productivity areas. A major dividing line between
extractive political institutions is therefore their degree of
political centralization. Those without it, such as many in
sub-Saharan Africa, will find it difficult to achieve even
limited growth.
Even though extractive institutions can generate some
growth, they will usually not generate sustained economic
growth, and certainly not the type of growth that is
accompanied by creative destruction. When both political
and economic institutions are extractive, the incentives will
not be there for creative destruction and technological
change. For a while the state may be able to create rapid
economic growth by allocating resources and people by
fiat, but this process is intrinsically limited. When the limits
are hit, growth stops, as it did in the Soviet Union in the