grow because under Deng Xiaoping there were radical
reforms away from the most extractive economic
institutions and toward inclusive economic institutions.
Growth has continued as Chinese economic institutions
have been on a path toward greater inclusiveness, albeit at
a slow pace. China is also greatly benefiting from its large
supply of cheap labor and its access to foreign markets,
capital, and technologies.
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. Every now
and then, just like Dai, some entrepreneurs are
expropriated. Labor mobility is tightly regulated, and the
most basic of property rights, the right to sell one’s own
labor in the way one wishes, is still highly imperfect. The
extent to which economic institutions are still far from being
truly inclusive is illustrated by the fact that only a few
businessmen and -women would even venture into any
activity without the support of the local party cadre or, even
more important, of Beijing. The connection between
business and the party is highly lucrative for both.
Businesses supported by the party receive contracts on
favorable terms, can evict ordinary people to expropriate
their land, and violate laws and regulations with impunity.
Those who stand in the path of this business plan will be
trampled and can even be jailed or murdered.
The all-too-present weight of the Communist Party and
extractive institutions in China remind us of the many
similarities between Soviet growth in the 1950s and ’60s
and Chinese growth today, though there are also notable
differences. The Soviet Union achieved growth under
extractive economic institutions and extractive political
institutions because it forcibly allocated resources toward
industry under a centralized command structure, particularly
armaments and heavy industry. Such growth was feasible
partly because there was a lot of catching up to be done.
Growth under extractive institutions is easier when creative