change toward inclusive institutions. Nevertheless, our
theory is still useful for policy analysis, as it enables us to
recognize bad policy advice, based on either incorrect
hypotheses or inadequate understanding of how institutions
can change. In this, as in most things, avoiding the worst
mistakes is as important as—and more realistic than—
attempting to develop simple solutions. Perhaps this is
most clearly visible when we consider current policy
recommendations encouraging “authoritarian growth”
based on the successful Chinese growth experience of the
last several decades. We next explain why these policy
recommendations are misleading and why Chinese growth,
as it has unfolded so far, is just another form of growth
under extractive political institutions, unlikely to translate
into sustained economic development.
T HE I RRESISTIBLE C HARM OF A UTHORITARIAN G ROWTH
Dai Guofang recognized the coming urban boom in China
early on. New highways, business centers, residences, and
skyscrapers were sprawling everywhere around China in
the 1990s, and Dai thought this growth would only pick up
speed in the next decade. He reasoned that his company,
Jingsu Tieben Iron and Steel, could capture a large market
as a low-cost producer, especially compared with the
inefficient state-owned steel factories. Dai planned to build
a true steel giant, and with support from the local party
bosses in Changzhou, he started building in 2003. By
March 2004, however, the project had been stopped by
order of the Chinese Communist Party in Beijing, and Dai
was arrested for reasons never clearly articulated. The
authorities may have presumed that they would find some
incriminating evidence in Dai’s accounts. In the event, he
spent the next five years in jail and home detention, and
was found guilty on a minor charge in 2009. His real crime
was to start a large project that would compete with state-
sponsored companies and do so without the approval of
the higher-ups in the Communist Party. This was certainly
the lesson that others drew from the case.
The Communist Party’s reaction to entrepreneurs such
as Dai should not be a surprise. Chen Yun, one of Deng
Xiaoping’s closest associates and arguably the major