level of a middle-income country. The most likely scenario
may be for the Chinese Communist Party and the
increasingly powerful Chinese economic elite to manage to
maintain their very tight grip on power in the next several
decades. In this case, history and our theory suggest that
growth with creative destruction and true innovation will not
arrive, and the spectacular growth rates in China will slowly
evaporate. But this outcome is far from preordained; it can
be avoided if China transitions to inclusive political
institutions before its growth under extractive institutions
reaches its limit. Nevertheless, as we will see next, there is
little reason to expect that a transition in China toward more
inclusive political institutions is likely or that it will take place
automatically and painlessly.
Even some voices within the Chinese Communist Party
are recognizing the dangers on the road ahead and are
throwing around the idea that political reform—that is, a
transition to more inclusive political institutions, to use our
terminology—is necessary. The powerful premier Wen
Jiabao has recently warned of the danger that economic
growth will be hampered unless political reform gets under
way. We think Wen’s analysis is prescient, even if some
people doubt his sincerity. But many in the West do not
agree with Wen’s pronouncements. To them, China reveals
an alternative path to sustained economic growth, one
under authoritarianism rather than inclusive economic and
political institutions. But they are wrong. We have already
seen the important salient roots of Chinese success: a
radical change in economic institutions away from rigidly
communist ones and toward institutions that provide
incentives to increase productivity and to trade. Looked at
from this perspective, there is nothing fundamentally
different about China’s experience relative to that of
countries that have managed to take steps away from
extractive and toward inclusive economic institutions, even
when this takes place under extractive political institutions,
as in the Chinese case. China has thus achieved economic
growth not thanks to its extractive political institutions, but
despite them: its successful growth experience over the last
three decades is due to a radical shift away from extractive
economic institutions and toward significantly more
inclusive economic institutions, which was made more